Question 1

The optimal amount of R&D spending for the firm occurs where its expected return is equal to the interest-rate cost-of-funds to finance it.

Accepted Answer

A) True 
 B)False

Question 2

Refer to the diagram, which relates to Firm X. Suppose X implements an innovative new production method that shifts its total product curve from TP ₂ to TP ₁. Other things equal,

Accepted Answer

A) the average product of X's labor would fall. 
B) the average total cost of X's output would decline. 
C) X would supply less output at each product price than before. 
D) the demand curve for X's product would shift to the right. 
A) the average product of X's labor would fall. 
B) the average total cost of X's output would decline. 
C) X would supply less output at each product price than before. 
D) the demand curve for X's product would shift to the right.

Question 3

If a particular R&D expenditure is expected to be worthwhile, the firm should undertake it because the project will definitely increase the firm's future profits.

Accepted Answer

A) True 
 B)False

Question 4

Gigantic Corporation follows a strategy of waiting for rivals to innovate, then quickly imitating any successful innovations. This behavior is known as

Accepted Answer

A) collusion. 
B) an entrepreneurial strategy. 
C) a fast-second strategy. 
D) pricing the demand curve. 
A) collusion. 
B) an entrepreneurial strategy. 
C) a fast-second strategy. 
D) pricing the demand curve.

Question 5

Entrepreneurs are those people who are

Accepted Answer

A) their own bosses. 
B) executive officers of corporations. 
C) salaried managers. 
D) working for research institutes. 
A) their own bosses. 
B) executive officers of corporations. 
C) salaried managers. 
D) working for research institutes.

Question 6

The role of entrepreneurs includes all of the following, except

Accepted Answer

A) forming start-up businesses. 
B) getting hired as the top executive of an established company. 
C) exploiting university and government scientific research. 
D) anticipating the future in pursuit of both monetary and nonmonetary rewards. 
A) forming start-up businesses. 
B) getting hired as the top executive of an established company. 
C) exploiting university and government scientific research. 
D) anticipating the future in pursuit of both monetary and nonmonetary rewards.

Question 7

According to the inverted-U theory, R&D expenditures as a percentage of sales tend to be relatively low in

Accepted Answer

A) low-concentration industries only 
B) high-concentration industries only 
C) low- and high-concentration industries 
D) low- to middle-concentration industries 
A) low-concentration industries only 
B) high-concentration industries only 
C) low- and high-concentration industries 
D) low- to middle-concentration industries

Question 8

Suppose firm X implements a new method for extracting copper from copper-bearing ore. This is an example of

Accepted Answer

A) product innovation. 
B) process innovation. 
C) economics of scale. 
D) the inverted-U theory. 
A) product innovation. 
B) process innovation. 
C) economics of scale. 
D) the inverted-U theory.

Question 9

Suppose a firm anticipates that a particular R&D expenditure of $100 million will result in a new product and thus create a one-time added profit of $108 million a year later. The firm will

Accepted Answer

A)     undertake the R&D expenditure if its interest-rate cost of borrowing is 12 percent. 
B)     undertake the R&D expenditure if its interest-rate cost of borrowing is 10 percent. 
C)     not undertake the R&D expenditure if its interest-rate cost of borrowing is 9 percent. 
D)     not undertake the R&D expenditure if its interest-rate cost of borrowing is 7 percent. 
A)     undertake the R&D expenditure if its interest-rate cost of borrowing is 12 percent. 
B)     undertake the R&D expenditure if its interest-rate cost of borrowing is 10 percent. 
C)     not undertake the R&D expenditure if its interest-rate cost of borrowing is 9 percent. 
D)     not undertake the R&D expenditure if its interest-rate cost of borrowing is 7 percent.

Question 10

The table shows the rate of return and R&D spending for a hypothetical firm. Assume the interest-rate cost of funds rises from 9 percent to 21 percent. What will happen to the optimal amount of R&D spending?

Accepted Answer

A) It decreases from $36 billion to $18 billion. 
B) It increases from $36 billion to $48 billion. 
C) It increases from $24 billion to $42 billion. 
D) It decreases from $42 billion to $18 billion. 
A) It decreases from $36 billion to $18 billion. 
B) It increases from $36 billion to $48 billion. 
C) It increases from $24 billion to $42 billion. 
D) It decreases from $42 billion to $18 billion.

Question 11

Creative destruction is not automatic because

Accepted Answer

A) there are major obstacles to the entry of new innovative firms into concentrated industries. 
B) consumer tastes are highly unstable. 
C) corporate takeovers increase dynamic competition. 
D) large firms rarely are technologically progressive. 
A) there are major obstacles to the entry of new innovative firms into concentrated industries. 
B) consumer tastes are highly unstable. 
C) corporate takeovers increase dynamic competition. 
D) large firms rarely are technologically progressive.

Question 12

A "fast-second strategy" refers to a situation where small competitors of a dominant firm will wait for the dominant firm to innovate, and then quickly imitate the dominant firm's innovations.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following correctly orders, highest to lowest, the relative magnitudes of U.S. spending by businesses on components of R&D?

Accepted Answer

A) invention, basic research, innovation 
B) invention, innovation, basic research 
C) innovation, invention, basic research 
D) basic research, invention, innovation 
A) invention, basic research, innovation 
B) invention, innovation, basic research 
C) innovation, invention, basic research 
D) basic research, invention, innovation

Question 14

Discuss the difference between entrepreneurs and "other innovators."

Accepted Answer

An entrepreneur is an initiator, innovat

Question 15

The "inverted-U theory" of R&D shows the relationship between

Accepted Answer

A) marginal benefit and marginal cost of R&D. 
B) number of R&D projects and the sources of R&D funds. 
C) R&D expenditures and expected return. 
D) market concentration ratio and R&D expenditures. 
A) marginal benefit and marginal cost of R&D. 
B) number of R&D projects and the sources of R&D funds. 
C) R&D expenditures and expected return. 
D) market concentration ratio and R&D expenditures.

Question 16

New scientific knowledge mainly comes from university and government laboratories, not private firms, because

Accepted Answer

A) large corporations do not have funds available to channel toward basic research. 
B) government pays scientists higher salaries than do private firms. 
C) entrepreneurs find it difficult to secure venture capital to finance innovation. 
D) basic scientific principles, as such, cannot be patented and do not always have commercial applicability. 
A) large corporations do not have funds available to channel toward basic research. 
B) government pays scientists higher salaries than do private firms. 
C) entrepreneurs find it difficult to secure venture capital to finance innovation. 
D) basic scientific principles, as such, cannot be patented and do not always have commercial applicability.

Question 17

If a firm develops better methods of producing a product, then this process innovation can be expected to result in a(n)

Accepted Answer

A) upward shift in both the total product and average cost curves. 
B) downward shift in both the total product and average cost curves. 
C) downward shift in the total product curve and an upward shift in the average cost curve. 
D) upward shift in the total product curve and a downward shift in the average cost curve. 
A) upward shift in both the total product and average cost curves. 
B) downward shift in both the total product and average cost curves. 
C) downward shift in the total product curve and an upward shift in the average cost curve. 
D) upward shift in the total product curve and a downward shift in the average cost curve.

Question 18

In 2016, about ____ percent of U.S. business R&D spending was for development (innovation and imitation).

Accepted Answer

A)    42 
B)    79 
C)    15 
D)    6 
A)    42 
B)    79 
C)    15 
D)    6

Question 19

The theory that R&D expenditures as a percentage of firms' sales first rise, reach a peak, and then fall with increases in industry concentration is called the inverted-U theory of R&D.

Accepted Answer

A) True 
 B)False

Question 20

Which market structure offers little incentive to engage in R&D?

Accepted Answer

A) oligopoly 
B) pure monopoly 
C) conglomerates 
D) monopolistic competition 
A) oligopoly 
B) pure monopoly 
C) conglomerates 
D) monopolistic competition

Exam 15: Technology, RD, and Efficiency

The optimal amount of R&D spending for the firm occurs where its expected return is equal to the interest-rate cost-of-funds to finance it.

Refer to the diagram, which relates to Firm X. Suppose X implements an innovative new production method that shifts its total product curve from TP ₂ to TP ₁. Other things equal,

If a particular R&D expenditure is expected to be worthwhile, the firm should undertake it because the project will definitely increase the firm's future profits.

Gigantic Corporation follows a strategy of waiting for rivals to innovate, then quickly imitating any successful innovations. This behavior is known as

Entrepreneurs are those people who are

The role of entrepreneurs includes all of the following, except

According to the inverted-U theory, R&D expenditures as a percentage of sales tend to be relatively low in

Suppose firm X implements a new method for extracting copper from copper-bearing ore. This is an example of

Suppose a firm anticipates that a particular R&D expenditure of $100 million will result in a new product and thus create a one-time added profit of $108 million a year later. The firm will

The table shows the rate of return and R&D spending for a hypothetical firm. Assume the interest-rate cost of funds rises from 9 percent to 21 percent. What will happen to the optimal amount of R&D spending?

Creative destruction is not automatic because

A "fast-second strategy" refers to a situation where small competitors of a dominant firm will wait for the dominant firm to innovate, and then quickly imitate the dominant firm's innovations.

Which of the following correctly orders, highest to lowest, the relative magnitudes of U.S. spending by businesses on components of R&D?

Discuss the difference between entrepreneurs and "other innovators."

The "inverted-U theory" of R&D shows the relationship between

New scientific knowledge mainly comes from university and government laboratories, not private firms, because

If a firm develops better methods of producing a product, then this process innovation can be expected to result in a(n)

In 2016, about ____ percent of U.S. business R&D spending was for development (innovation and imitation).

The theory that R&D expenditures as a percentage of firms' sales first rise, reach a peak, and then fall with increases in industry concentration is called the inverted-U theory of R&D.

Which market structure offers little incentive to engage in R&D?

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

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Pure Monopoly

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The Demand for Resources

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Rent, Interest, and Profit

Natural Resource and Energy Economics

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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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