Question 1

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 2

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 3

When economists view technological change as internal to the economy, they mean that it

Accepted Answer

A) occurs randomly. 
B) occurs accidentally. 
C) arises deliberately from the profit motive and competition. 
D) arises mainly from government subsidies. 
A) occurs randomly. 
B) occurs accidentally. 
C) arises deliberately from the profit motive and competition. 
D) arises mainly from government subsidies.

Question 4

The modern view of technological advance is that it

Accepted Answer

A) is the result of random lucky events unrelated to the economic system. 
B) requires government R&D spending to keep it going. 
C) arises from intense rivalry among individuals and firms within the capitalist system. 
D) is a force that is external to the economy, to which the economy adjusts. 
A) is the result of random lucky events unrelated to the economic system. 
B) requires government R&D spending to keep it going. 
C) arises from intense rivalry among individuals and firms within the capitalist system. 
D) is a force that is external to the economy, to which the economy adjusts.

Question 5

An amount of R&D spending that is less than the optimal amount indicates that the

Accepted Answer

A) interest-rate cost-of-funds and expected rate of return are constant. 
B) interest-rate cost-of-funds is equal to the expected rate of return. 
C) interest-rate cost-of-funds is less than the expected rate of return. 
D) interest-rate cost-of-funds is greater than the expected rate of return. 
A) interest-rate cost-of-funds and expected rate of return are constant. 
B) interest-rate cost-of-funds is equal to the expected rate of return. 
C) interest-rate cost-of-funds is less than the expected rate of return. 
D) interest-rate cost-of-funds is greater than the expected rate of return.

Question 6

The spread of innovation through imitation refers to

Accepted Answer

A) invention. 
B) diffusion. 
C) duplication. 
D) diversification. 
A) invention. 
B) diffusion. 
C) duplication. 
D) diversification.

Question 7

One of the outcomes for society from product innovation is

Accepted Answer

A) more concentration in industry. 
B) less scientific research. 
C) greater total utility. 
D) fewer mergers. 
A) more concentration in industry. 
B) less scientific research. 
C) greater total utility. 
D) fewer mergers.

Question 8

Process innovation leads to technological advance because it

Accepted Answer

A) decreases total product. 
B) increases average total costs. 
C) decreases productive efficiency. 
D) increases productive efficiency. 
A) decreases total product. 
B) increases average total costs. 
C) decreases productive efficiency. 
D) increases productive efficiency.

Question 9

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 profit and drive them out of the market. 
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 profit and drive them out of the market. 
C) Most purely competitive industries are increasing-cost industries. 
D) Pure competitors are happy to earn only a normal profit.

Question 10

As it relates to R&D, a firm's expected-rate-of-return-curve, r,

Accepted Answer

A) slopes downward because the firm arrays, highest to lowest, the rates of return on R&D activities. 
B) slopes upward because of the law of diminishing returns. 
C) is a horizontal line. 
D) depends on whether it borrows from the bank or uses retained earnings in financing R&D. 
A) slopes downward because the firm arrays, highest to lowest, the rates of return on R&D activities. 
B) slopes upward because of the law of diminishing returns. 
C) is a horizontal line. 
D) depends on whether it borrows from the bank or uses retained earnings in financing R&D.

Question 11

Process innovation refers to

Accepted Answer

A) development of new products. 
B) implementation of better methods of producing products. 
C) first discovery of new scientific principles. 
D) widespread imitation of innovations. 
A) development of new products. 
B) implementation of better methods of producing products. 
C) first discovery of new scientific principles. 
D) widespread imitation of innovations.

Question 12

In the music industry, cassette tapes were replaced by compact discs, which in turn were replaced by the iPod and MP3 technology. This process would be an example of

Accepted Answer

A) the inverted-U theory. 
B) creative destruction. 
C) diminishing marginal utility. 
D) the law of diminishing returns. 
A) the inverted-U theory. 
B) creative destruction. 
C) diminishing marginal utility. 
D) the law of diminishing returns.

Question 13

To maintain returns from research and development, firms

Accepted Answer

A) sponsor start-ups. 
B) keep trade secrets. 
C) use a fast-second strategy. 
D) advocate creative destruction. 
A) sponsor start-ups. 
B) keep trade secrets. 
C) use a fast-second strategy. 
D) advocate creative destruction.

Question 14

R&D spending decisions by firms are complicated because they involve having to compare present expenditures against future expected gains.

Accepted Answer

A) True 
 B)False

Question 15

The expected-rate-of-return curve for R&D expenditures of a firm slopes downward because of

Accepted Answer

A) diminishing marginal returns from R&D activities. 
B) economies of scale in R&D projects. 
C) average fixed costs of R&D projects. 
D) the law of supply for R&D expenditures. 
A) diminishing marginal returns from R&D activities. 
B) economies of scale in R&D projects. 
C) average fixed costs of R&D projects. 
D) the law of supply for R&D expenditures.

Question 16

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 17

Which of the following are aptly considered entrepreneurs?

Accepted Answer

A) top executives of a company 
B) government officials 
C) hired managers of banks 
D) those who form start-ups 
A) top executives of a company 
B) government officials 
C) hired managers of banks 
D) those who form start-ups

Question 18

The first discovery (as distinct from first commercial application)of a product or process is called

Accepted Answer

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

Question 19

A consumer had been consuming product X for some time. This period, she buys fewer X in order to try some units of a new product Y. She finds that her marginal utility of X is 20 (at a price of $10 per unit), while the marginal utility of Y is 36 (at a price of $12). The utility-maximizing rule suggests that this consumer should

Accepted Answer

A) increase consumption of product X because of its lower price. 
B) increase consumption of product X because it is an old reliable product. 
C) increase consumption of product Y because it has a higher MU/P. 
D) increase consumption of product Y because it has a higher MU. 
A) increase consumption of product X because of its lower price. 
B) increase consumption of product X because it is an old reliable product. 
C) increase consumption of product Y because it has a higher MU/P. 
D) increase consumption of product Y because it has a higher MU.

Question 20

The table shows the marginal utility schedules for old product X and new product Y for a hypothetical consumer. The price of X is $2, and the price of good Y is $1. The budget of the consumer is $10. What is the increase in total utility from the original situation when purchasing just X, compared to now when the consumer purchases the utility-maximizing combination of both X and Y?

Accepted Answer

A) 10 
B) 18 
C) 60 
D) 78 
A) 10 
B) 18 
C) 60 
D) 78

Exam 15: Technology, RD, and Efficiency

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.

When economists view technological change as internal to the economy, they mean that it

The modern view of technological advance is that it

An amount of R&D spending that is less than the optimal amount indicates that the

The spread of innovation through imitation refers to

One of the outcomes for society from product innovation is

Process innovation leads to technological advance because it

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

As it relates to R&D, a firm's expected-rate-of-return-curve, r,

Process innovation refers to

In the music industry, cassette tapes were replaced by compact discs, which in turn were replaced by the iPod and MP3 technology. This process would be an example of

To maintain returns from research and development, firms

R&D spending decisions by firms are complicated because they involve having to compare present expenditures against future expected gains.

The expected-rate-of-return curve for R&D expenditures of a firm slopes downward because of

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

Which of the following are aptly considered entrepreneurs?

The first discovery (as distinct from first commercial application)of a product or process is called

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, 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

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The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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