Question 1

In the inverted-U theory of R&D,

Accepted Answer

A) process innovation and product innovation are inversely related. 
B) technological change is inversely related to scientific discovery. 
C) R&D expenditures rise continuously as a percentage of firms' sales as industry concentration rises. 
D) R&D expenditures first rise as a percentage of firms' sales as industry concentration increases, but then fall as higher industry concentration occurs. 
A) process innovation and product innovation are inversely related. 
B) technological change is inversely related to scientific discovery. 
C) R&D expenditures rise continuously as a percentage of firms' sales as industry concentration rises. 
D) R&D expenditures first rise as a percentage of firms' sales as industry concentration increases, but then fall as higher industry concentration occurs.

Question 2

The major impact of product innovation tends to be on the firms' revenues, while that of process innovation tends to be on costs.

Accepted Answer

A) True 
 B)False

Question 3

Factors that help firms who invent and innovate deal with the "imitation problem" include all of the following, except

Accepted Answer

A) patents. 
B) copyrights and trademarks. 
C) brand-name recognition. 
D) rapid diffusion. 
A) patents. 
B) copyrights and trademarks. 
C) brand-name recognition. 
D) rapid diffusion.

Question 4

R&D spending decisions are complicated because

Accepted Answer

A) costs of R&D are immediate, while benefits occur at some future time and are uncertain. 
B) benefits of R&D are clear, but costs are complicated and hard to estimate. 
C) there are so many different sources of funds for R&D, and they each require different returns. 
D) it is difficult to determine which R&D activities could be patented. 
A) costs of R&D are immediate, while benefits occur at some future time and are uncertain. 
B) benefits of R&D are clear, but costs are complicated and hard to estimate. 
C) there are so many different sources of funds for R&D, and they each require different returns. 
D) it is difficult to determine which R&D activities could be patented.

Question 5

(Last Word) Many economists believe that the federal government

Accepted Answer

A) spends far too much on basic scientific research, as this activity should be reserved for the private sector. 
B) should spend more on basic scientific research because scientific knowledge is a public good with significant positive externalities. 
C) should conduct all R&D activity in the economy, limiting firms' ability to gain monopoly power through product innovation. 
D) should finance more consumption through Social Security and Medicare so that the increased demand encourages greater R&D. 
A) spends far too much on basic scientific research, as this activity should be reserved for the private sector. 
B) should spend more on basic scientific research because scientific knowledge is a public good with significant positive externalities. 
C) should conduct all R&D activity in the economy, limiting firms' ability to gain monopoly power through product innovation. 
D) should finance more consumption through Social Security and Medicare so that the increased demand encourages greater R&D.

Question 6

Imitation by rivals tends to enhance the profits of the innovating firms.

Accepted Answer

A) True 
 B)False

Question 7

The inverted-U theory of R&D suggests that more R&D spending will be done by oligopolists than by firms producing in the other market structures.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements about technological advance is not true?

Accepted Answer

A) It enhances both productive and allocative efficiency in the society. 
B) It can increase monopoly power through, for example, patents. 
C) It can eventually destroy old existing monopolies. 
D) It progresses automatically and inevitably. 
A) It enhances both productive and allocative efficiency in the society. 
B) It can increase monopoly power through, for example, patents. 
C) It can eventually destroy old existing monopolies. 
D) It progresses automatically and inevitably.

Question 9

Innovation is the first discovery of a new product or production process; invention is the first successful commercial introduction of the product or process.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following supports the contention that pure competitors have a weak incentive to engage in R&D?

Accepted Answer

A) Entry to purely competitive industries is easy, and thus profit from innovation is quickly competed away. 
B) In pure competition, products are already highly differentiated. 
C) Most purely competitive industries are increasing-cost industries. 
D) Pure competitors are happy to earn only a normal profit. 
A) Entry to purely competitive industries is easy, and thus profit from innovation is quickly competed away. 
B) In pure competition, products are already highly differentiated. 
C) Most purely competitive industries are increasing-cost industries. 
D) Pure competitors are happy to earn only a normal profit.

Question 11

The marginal cost to a firm of R&D expenditures is the market interest rate the firm must pay to obtain the needed financing.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that Marlen Fisher has legal protection against anyone producing and selling a fishing lure specifically named "MarFish." This legal protection is most likely to be a

Accepted Answer

A) trademark. 
B) restraining order. 
C) patent. 
D) copyright. 
A) trademark. 
B) restraining order. 
C) patent. 
D) copyright.

Question 13

(Last Word) Which of the following best explains why most basic scientific research in the United States is financed by the government?

Accepted Answer

A) Basic scientific research takes a long time to become commercially viable. 
B) Basic scientific research rarely results in commercially viable discoveries. 
C) Federal law limits basic scientific research because of potential national security threats. 
D) Private firms collectively spend far less on all types of R&D than the federal government. 
A) Basic scientific research takes a long time to become commercially viable. 
B) Basic scientific research rarely results in commercially viable discoveries. 
C) Federal law limits basic scientific research because of potential national security threats. 
D) Private firms collectively spend far less on all types of R&D than the federal government.

Question 14

The first commercial introduction of transparent tape is an example of

Accepted Answer

A) innovation. 
B) invention. 
C) creative destruction. 
D) diffusion. 
A) innovation. 
B) invention. 
C) creative destruction. 
D) diffusion.

Question 15

Which of the following supports the contention that pure competitors have a strong incentive to engage in R&D?

Accepted Answer

A) Entry to purely competitive industries is easy, and thus profit from innovation is quickly competed away. 
B) Pure competitors cannot risk being complacent about innovation because a new product, production technique, or distribution method could undermine their normal 
C) Most purely competitive industries are increasing-cost industries. 
D) Pure competitors are happy to earn only a normal profit. 
A) Entry to purely competitive industries is easy, and thus profit from innovation is quickly competed away. 
B) Pure competitors cannot risk being complacent about innovation because a new product, production technique, or distribution method could undermine their normal 
C) Most purely competitive industries are increasing-cost industries. 
D) Pure competitors are happy to earn only a normal profit.

Question 16

Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20 per labor unit; and price paid for raw materials = $8 per raw-material unit.Originally the firm produced 2,000 units of output by combining its fixed capital with 200 units of labor and 500 units of raw materials.Now the firm changes its production process so that it can produce 3,000 units of output by combining its fixed capital with 100 units of labor and 500 units of raw materials.What happened to average total cost?

Accepted Answer

A) ATC decreased by $2.67 
B) ATC increased by $2.67 
C) ATC increased by $3.33 
D) ATC decreased by $3.33 
A) ATC decreased by $2.67 
B) ATC increased by $2.67 
C) ATC increased by $3.33 
D) ATC decreased by $3.33

Question 17

In choosing between an old reliable product and a new attractive product, the consumer will

Accepted Answer

A) always buy the product with the lower price. 
B) always buy the product with the higher MU. 
C) buy the one with the higher MU-to-P ratio. 
D) buy the one with the lower MU-to-P ratio. 
A) always buy the product with the lower price. 
B) always buy the product with the higher MU. 
C) buy the one with the higher MU-to-P ratio. 
D) buy the one with the lower MU-to-P ratio.

Question 18

The technical and scientific characteristics of an industry may be less important than its structure in determining R&D spending and innovation.

Accepted Answer

A) True 
 B)False

Question 19

In the 1800s, railroads broke up the monopoly position of wagons, ships, and barges as the major means of transporting goods.This would be an example of

Accepted Answer

A) the fast-second strategy. 
B) the inverted-U theory. 
C) creative destruction. 
D) venture capital. 
A) the fast-second strategy. 
B) the inverted-U theory. 
C) creative destruction. 
D) venture capital.

Question 20

Technological advance is shown as a(n)

Accepted Answer

A) movement from a point inside a production possibilities curve to a point on the curve. 
B) movement along a production possibilities curve. 
C) outward shift of a production possibilities curve. 
D) inward shift of a production possibilities curve. 
A) movement from a point inside a production possibilities curve to a point on the curve. 
B) movement along a production possibilities curve. 
C) outward shift of a production possibilities curve. 
D) inward shift of a production possibilities curve.

Exam 15: Technology, Rd, and Efficiency

In the inverted-U theory of R&D,

The major impact of product innovation tends to be on the firms' revenues, while that of process innovation tends to be on costs.

Factors that help firms who invent and innovate deal with the "imitation problem" include all of the following, except

R&D spending decisions are complicated because

(Last Word) Many economists believe that the federal government

Imitation by rivals tends to enhance the profits of the innovating firms.

The inverted-U theory of R&D suggests that more R&D spending will be done by oligopolists than by firms producing in the other market structures.

Which of the following statements about technological advance is not true?

Innovation is the first discovery of a new product or production process; invention is the first successful commercial introduction of the product or process.

Which of the following supports the contention that pure competitors have a weak incentive to engage in R&D?

The marginal cost to a firm of R&D expenditures is the market interest rate the firm must pay to obtain the needed financing.

Suppose that Marlen Fisher has legal protection against anyone producing and selling a fishing lure specifically named "MarFish." This legal protection is most likely to be a

(Last Word) Which of the following best explains why most basic scientific research in the United States is financed by the government?

The first commercial introduction of transparent tape is an example of

Which of the following supports the contention that pure competitors have a strong incentive to engage in R&D?

In choosing between an old reliable product and a new attractive product, the consumer will

The technical and scientific characteristics of an industry may be less important than its structure in determining R&D spending and innovation.

In the 1800s, railroads broke up the monopoly position of wagons, ships, and barges as the major means of transporting goods.This would be an example of

Technological advance is shown as a(n)

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

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Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

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Aggregate Demand and Aggregate Supply

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Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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