A CONCEPT OF FIXED-PROFIT ECONOMY

A  CONCEPT  OF  FIXED-PROFIT  ECONOMY

Providing many private facilities in Indian Market (almost in all countries ) is out of the principle of Economics and law of market. If we take Private school for the example, they are neither following the law of  market,  nor following the principle of any kind of economy, even not following the principle of a capitalist economy. What kind of  market it is? It is not Monopoly, Monopolistic, Oligopoly or Perfect Competition. It is merely  a traditional concept but not a universal law of demand and supply as it is presented by the economists  that   there is higher demand for schools  and lower supply of schools, so the price (fee of private schools) should be higher because there is one more view of determining price in the market and the price is determined also on the type of market. Along with large number of demand (large number of students),now a large number of suppliers (Private Schools) are also available in the market. Private Schools are available in each lane of the town and that is the large number of suppliers, so there must have been condition like perfect competition in the market and amongst the suppliers- amongst the private schools and thus price (fee)should have been less due to condition existing like  perfect competition. Even possessing the nature like a  perfect competition market, the market is not like perfect competition and  market (schools) is determining fee arbitrarily on its own desire, as if there is monopoly. Each Private school is determining its own fee arbitrarily and establishing its own monopoly. In Monopoly market, there is single supplier ,so price is determined arbitrarily but even being large number of suppliers, large number of private schools, price (fee) is determined arbitrarily by the these schools, as if even being in large number- possessing the nature like perfect competition, they have established its own monopoly due to lack of law and order. Same condition is applicable for private coaching centre, private nursing home, private bus, room rent etc.

An act must be passed for the removal of all arbitrary within private services.

Now question arises, how we can get rid of  from the Arbitrary of the Private Sectors.

I have drawn a  Concept of fixed-profit economy for this purpose and the concept is hereunder:-

Features Of the Concept of fixed-profit economy

The percentage of profit that will be taken against the cost incurred in providing private  facilities  (cost of production/cost of service provided ) shall be fixed. The price of any product/facility shall only  be  20% (or the appropriate percentage as fixed after proper calculation)  more than the ultimate cost of production and expenditure incurred in travelling and indirect  tax imposed  etc. Provided that the indirect  tax shall not be  in total more than 20 %  (or the appropriate percentage as fixed after proper calculation)  of the initial  cost of production of a product in any circumstances.

For the example, if after expenditure of all cost  including  payment to teachers, investment on infrastructure, a private school will get benefit of  20 % against the expenditure incurred  if the school fee is Rs 300 per month ,then the present school fee of Rs 700 of that school shall be reduced to Rs 300 per month.

For the example, if initial Cost of Production of a  medicine is Rs 15 and the MRP is written Rs 70.Then if  the company will get benefit of 20 %,then it's cost will be Rs 18,then further distributor will gain the profit of 20 %,then it's cost will be Rs 21.6 ,then further whole seller will gain the profit of 20% and it's cost will be  around Rs 26 and then retailer will further  gain the benefit of 20 % and it's cost will be around Rs 31.In due course,the cost of travelling may  be Rs 5 for each product and indirect tax imposed will be Rs 3 (20 % of the initial cost of production i.e.Rs 15).Meant, the  medicine that is being sold at Rs 70 will be sold at Rs 39.Meant,the ultimate cost will be around Rs 39   and the price of product will be equal to the ultimate cost of the product.

For  the example, if a nursing home will get benefit of 20%  at Rs 200 as admission fee after making payment to  staffs and  furnishing cost  incurred in instruments, infrastructure etc ,then  the present admission fee of Rs 500 will be reduced to Rs 200.                                                

The ultimate cost incurred in providing room is the cost of water,electricity,any staff if employed etc.The rent of room shall not be more than 20% of the total and ultimate cost incurred in providing room facility.

The ultimate cost incurred in providing bus is the cost of fuel, driver, conductor etc and the fare of bus shall  not be more than 20% of the total and ultimate cost incurred in providing bus facility.

The 20%   of benefit is not a particular theorem, but it can be changed as per the appropriate calculation and as per the circumstances. But the matter is that the benefit of each product, each economic activity and at each level should be fixed. I  would like to say that fixation of profit should not be more than above percentage in any circumstances and if it will be less, then it is better.

Lastly, i  propose   a new theory  that in a govt controlled as well as an honest economy, the Ultimate cost of a product including 20% (or the appropriate percentage as fixed after proper calculation) of the profit ,  indirect tax etc  will be equal to the price of a product or price of a service provided.

(Views expressed are the personal views  of the Author)

Rahul Kumar

Class-Deg-II (Economics)

Roll No-23

CM College, Darbhanga

Mob-07759071885 and 07654528780