Both classical and neo-classical schools consider profits as the residual left after price for all the inputs used for production is paid off and are equal to the opportunity cost. In the perfectly competitive markets, all factors of production receive their value for marginal products for the state of equilibrium in the long run and that is even equal to the opportunity costs (Bahçe, 2012). When production functions are assumed as homogenous the payments made by the firm are the costs to the firm and when these costs are subtracted from total income provides the result of zero rate of profit. Both the school of economic thought explains the existence of profit as a result of no existence of the competitive market in the long run equilibrium and even the real markets are not in a state of perfect competition.
Classical economists were of the view that the free markets are capable of regulating themselves. The economics was reoriented by the classical economists and was away from the analysis of the personal interests of the ruler and the wider interests of the nation. For investigating economic dynamics, the theory of value or price was developed by the classical economists (Lin‐Hi, 2012). Neo-classical economist on the other hand used approaches that focus on the prices, outputs and distribution of income determination in the market with supply and demand. This also considers the maximization of utility by individual that are income constrained and profits through the firms which are cost-constrained by employing information available to them with the factors of production in accordance to the theory of rational choices.