Competition among entrepreneurs spurs innovation and creativity. If an entrepreneur discovers an innovation that lowers costs, these lower costs will force other entrepreneurs to find cost-lowering innovations or go out of business. Likewise, an entrepreneur who can provide additional benefits to consumers, i.e. higher quality goods, while maintaining costs, will rapidly gain profits. Competition and the profit motive encourage entrepreneurs to constantly strive to improve quality and reduce prices for the consumer. This relentless search for cost savings facilitates economic growth.
Profits signal to entrepreneurs which goods to produce, innovations to imitate, and prices to set.
Without profits, entrepreneurs do not have the information necessary to make informed decisions. The economy of the former Soviet Union demonstrated what happens when profit incentives are absent. Managers were given bonuses based upon total tonnage of glass produced. So managers produced lots of very thick-paned glass that was not transparent. Central planners recognized they needed to change the incentives, so they paid bonuses for total number of panes.