Question 1

If the marginal revenue from R&D is less than the marginal cost, a profit-maximizing firm will

Accepted Answer

A)  decrease the amount it spends on R&D. 
B)  increase the amount it spends on R&D. 
C)  leave unchanged the amount it spends on R&D. 
D)  stop spending on R&D altogether. 
E)  probably decrease its spending or R&D, but it may increase it. 
A)  decrease the amount it spends on R&D. 
B)  increase the amount it spends on R&D. 
C)  leave unchanged the amount it spends on R&D. 
D)  stop spending on R&D altogether. 
E)  probably decrease its spending or R&D, but it may increase it.

Question 2

Many innovations with benefits that excess costs are never carried out.

Accepted Answer

A) True 
 B)False

Question 3

Since some innovations succeed, while others fail, it is reasonable to assume that industries with innovative activity may still be characterized by zero economic profit.

Accepted Answer

A) True 
 B)False

Question 4

Innovation benefits the innovator to some extent but in excess of 90% of the benefits go to others.

Accepted Answer

A) True 
 B)False

Question 5

According to Joseph Schumpeter, the monopoly profit earned by an innovative entrepreneur will eventually be reduced to zero.Why?

Accepted Answer

A)  Because of government regulations. 
B)  Because of systemic inefficiencies creeps in later. 
C)  Because of the loose association between innovative entrepreneurship and growth. 
D)  Because of entry by imitators. 
A)  Because of government regulations. 
B)  Because of systemic inefficiencies creeps in later. 
C)  Because of the loose association between innovative entrepreneurship and growth. 
D)  Because of entry by imitators.

Question 6

Firms operating in competitive markets have little choice but to innovate.

Accepted Answer

A) True 
 B)False

Question 7

Price competition among firms has proved to be more important than the introduction of new products.

Accepted Answer

A) True 
 B)False

Question 8

Profit-maximizing firms will earn zero marginal profit on innovation.

Accepted Answer

A) True 
 B)False

Question 9

A successful process innovation can be expected to lead to

Accepted Answer

A)  an upward shift of the MC and AC curves which will lower output and raise the price of the product. 
B)  an upward shift of the MC and AC curves which will raise output and lower the price of the product. 
C)  a downward shift of the MC and AC curves which will lower output and raise the price of the product. 
D)  a downward shift of the MC and AC curves which will raise output and lower the price of the product. 
E)  a downward shift of the MC and AC curves which will leave unchanged the output and price of the product. 
A)  an upward shift of the MC and AC curves which will lower output and raise the price of the product. 
B)  an upward shift of the MC and AC curves which will raise output and lower the price of the product. 
C)  a downward shift of the MC and AC curves which will lower output and raise the price of the product. 
D)  a downward shift of the MC and AC curves which will raise output and lower the price of the product. 
E)  a downward shift of the MC and AC curves which will leave unchanged the output and price of the product.

Question 10

Which of the following is considered a key economic influence on the capacity of market economies to promote unprecedented growth?

Accepted Answer

A)  political changes 
B)  religious beliefs 
C)  historical accidents 
D)  free competition 
E)  cultural factors 
A)  political changes 
B)  religious beliefs 
C)  historical accidents 
D)  free competition 
E)  cultural factors

Question 11

The existence of innovators like Bill Gates proves that innovators on average earn positive economic profits.

Accepted Answer

A) True 
 B)False

Question 12

Innovations are thought to generate positive externalities.

Accepted Answer

A) True 
 B)False

Question 13

Innovative firms face competition much more quickly than they did one hundred years ago.

Accepted Answer

A) True 
 B)False

Question 14

Firms share technology with rivals,

Accepted Answer

A)  in order to better compete with their rivals. 
B)  in order to help out when their rivals are in trouble. 
C)  to share the substantial risks of innovation. 
D)  because they are required to by law. 
E)  in order to pass false information to their rivals in order to drive them out of business. 
A)  in order to better compete with their rivals. 
B)  in order to help out when their rivals are in trouble. 
C)  to share the substantial risks of innovation. 
D)  because they are required to by law. 
E)  in order to pass false information to their rivals in order to drive them out of business.

Question 15

Rising labor productivity means that less labor is needed to produce the same level of output.

Accepted Answer

A) True 
 B)False

Question 16

The externality problem tends to be more severe for applied research than for basic research.

Accepted Answer

A) True 
 B)False

Question 17

More goods are available to the average American today than two hundred years ago, but today an American has to work more hours to earn the money to purchase most items.

Accepted Answer

A) True 
 B)False

Question 18

A firm will decide how much to spend on research and development in the same way that it decides how much output to produce: by equating marginal cost and marginal revenue.

Accepted Answer

A) True 
 B)False

Question 19

In a perfectly competitive industry, firms will earn zero economic profits from innovation.

Accepted Answer

A) True 
 B)False

Question 20

What is the process that begins with invention and includes improvement to prepare the invention for practical use and marketing of the invention or its products?

Accepted Answer

A)  Sales 
B)  Innovation 
C)  Productivity 
D)  Commercialization 
A)  Sales 
B)  Innovation 
C)  Productivity 
D)  Commercialization

Exam 16: The Market's Prime Achievement: Innovation and Growth

If the marginal revenue from R&D is less than the marginal cost, a profit-maximizing firm will

Many innovations with benefits that excess costs are never carried out.

Since some innovations succeed, while others fail, it is reasonable to assume that industries with innovative activity may still be characterized by zero economic profit.

Innovation benefits the innovator to some extent but in excess of 90% of the benefits go to others.

According to Joseph Schumpeter, the monopoly profit earned by an innovative entrepreneur will eventually be reduced to zero.Why?

Firms operating in competitive markets have little choice but to innovate.

Price competition among firms has proved to be more important than the introduction of new products.

Profit-maximizing firms will earn zero marginal profit on innovation.

A successful process innovation can be expected to lead to

Which of the following is considered a key economic influence on the capacity of market economies to promote unprecedented growth?

The existence of innovators like Bill Gates proves that innovators on average earn positive economic profits.

Innovations are thought to generate positive externalities.

Innovative firms face competition much more quickly than they did one hundred years ago.

Firms share technology with rivals,

Rising labor productivity means that less labor is needed to produce the same level of output.

The externality problem tends to be more severe for applied research than for basic research.

More goods are available to the average American today than two hundred years ago, but today an American has to work more hours to earn the money to purchase most items.

A firm will decide how much to spend on research and development in the same way that it decides how much output to produce: by equating marginal cost and marginal revenue.

In a perfectly competitive industry, firms will earn zero economic profits from innovation.

What is the process that begins with invention and includes improvement to prepare the invention for practical use and marketing of the invention or its products?

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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