Question 1

The first working prototype of a microcomputer chip would be an example of an

Accepted Answer

A) innovation. 
B) imitation. 
C) invention. 
D) infusion. 
A) innovation. 
B) imitation. 
C) invention. 
D) infusion.

Question 2

What is the fast-second strategy?

Accepted Answer

The fast-second strategy is an approach

Question 3

If we plotted the given data on a graph with R&D expenditures on the horizontal axis, the

Accepted Answer

A) interest-rate cost-of-funds curve would be a vertical line. 
B) interest-rate cost-of-funds curve would be a horizontal line. 
C) expected-rate-of-return curve would slope upward. 
D) expected-rate-of-return curve would be a horizontal line. 
A) interest-rate cost-of-funds curve would be a vertical line. 
B) interest-rate cost-of-funds curve would be a horizontal line. 
C) expected-rate-of-return curve would slope upward. 
D) expected-rate-of-return curve would be a horizontal line.

Question 4

Pure monopoly is the best market structure for encouraging R&D and innovation.

Accepted Answer

A) True 
 B)False

Question 5

Innovation

Accepted Answer

A) is the first discovery of a product or process, rather than its first successful commercial introduction. 
B) includes new products but not new production methods. 
C) is also known as diffusion. 
D) can either increase or decrease the market share of a large firm, depending on whether it is introduced by the large firm or one of its competitors. 
A) is the first discovery of a product or process, rather than its first successful commercial introduction. 
B) includes new products but not new production methods. 
C) is also known as diffusion. 
D) can either increase or decrease the market share of a large firm, depending on whether it is introduced by the large firm or one of its competitors.

Question 6

Which of the following is a true statement?

Accepted Answer

A) Innovation normally follows invention and precedes diffusion. 
B) Invention normally follows diffusion and precedes innovation. 
C) Diffusion normally follows invention and precedes innovation. 
D) Innovation normally follows diffusion and precedes invention. 
A) Innovation normally follows invention and precedes diffusion. 
B) Invention normally follows diffusion and precedes innovation. 
C) Diffusion normally follows invention and precedes innovation. 
D) Innovation normally follows diffusion and precedes invention.

Question 7

Suppose a firm anticipates that an R&D expenditure of $200 million will result in a new production process that will reduce costs and thus create a one-time added profit of $220 million a year later. The firm's expected rate of return is

Accepted Answer

A)     20 percent. 
B)     10 percent. 
C)     9.1 percent. 
D)     120 percent. 
A)     20 percent. 
B)     10 percent. 
C)     9.1 percent. 
D)     120 percent.

Question 8

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 valid conclusion can be drawn about the effect and reasons for the change?

Accepted Answer

A) It improved economic efficiency because more units could be produced at a lower ATC using the same amount of economic resources. 
B) It improved economic efficiency because more units could be produced at a lower ATC using fewer economic resources. 
C) It improved economic efficiency because more units could be produced at the same ATC using fewer economic resources. 
D) It reduced economic efficiency because fewer units could be produced at a higher ATC using more economic resources. 
A) It improved economic efficiency because more units could be produced at a lower ATC using the same amount of economic resources. 
B) It improved economic efficiency because more units could be produced at a lower ATC using fewer economic resources. 
C) It improved economic efficiency because more units could be produced at the same ATC using fewer economic resources. 
D) It reduced economic efficiency because fewer units could be produced at a higher ATC using more economic resources.

Question 9

The wide imitation and spread of an innovation is called

Accepted Answer

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

Question 10

A firm's optimal amount of R&D occurs where the marginal benefit of this activity exceeds marginal cost by the greatest amount.

Accepted Answer

A) True 
 B)False

Question 11

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. The firm improves 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 are the total cost and average cost of producing the 3,000 units of output?

Accepted Answer

A) TC = $4,000; ATC = $2.00 
B) TC = $8,000; ATC = $3.00 
C) TC = $10,000; ATC = $3.33 
D) TC = $15,000; ATC = $6.00 
A) TC = $4,000; ATC = $2.00 
B) TC = $8,000; ATC = $3.00 
C) TC = $10,000; ATC = $3.33 
D) TC = $15,000; ATC = $6.00

Question 12

The worldwide duration of patents that begins at the time of application is

Accepted Answer

A) 10 years. 
B) 1 year. 
C) 20 years. 
D) 50 years. 
A) 10 years. 
B) 1 year. 
C) 20 years. 
D) 50 years.

Question 13

As it relates to R&D, the imitation problem is that

Accepted Answer

A) patents, copyrights, and trademarks hinder imitation and thus limit economically desirable diffusion. 
B) brand names create entry barriers for would-be competitors. 
C) diffusion of innovation occurs more slowly than is desirable from society's perspective. 
D) a firm's rivals may be able to copy its new product or process innovation, reducing the original firm's return on R&D. 
A) patents, copyrights, and trademarks hinder imitation and thus limit economically desirable diffusion. 
B) brand names create entry barriers for would-be competitors. 
C) diffusion of innovation occurs more slowly than is desirable from society's perspective. 
D) a firm's rivals may be able to copy its new product or process innovation, reducing the original firm's return on R&D.

Question 14

The table shows the marginal utilities derived from current consumption levels of three new products, A, B, and C, that are being sold in the market at the prices listed. The consumer can immediately gain the most extra total utility by switching spending from

Accepted Answer

A) A to B. 
B) B to A. 
C) C to B. 
D) B to C. 
A) A to B. 
B) B to A. 
C) C to B. 
D) B to C.

Question 15

A firm decides to make a $20 million expenditure on research and development that will create a new product. This product is expected to generate a one-time increase in the firm's revenues by a total of $40 million a year later. The firm also estimates that the production cost of the new product will be $18 million, also realized one year after the initial R&D expenditure. What is the expected rate of return on this research and development expenditure?

Accepted Answer

A) 5 percent 
B) 11.1 percent 
C) 10 percent 
D) 20 percent 
A) 5 percent 
B) 11.1 percent 
C) 10 percent 
D) 20 percent

Question 16

In the diagram, the optimal amount of R&D is

Accepted Answer

A) $20 million. 
B) $80 million. 
C) $40 million. 
D) $60 million. 
A) $20 million. 
B) $80 million. 
C) $40 million. 
D) $60 million.

Question 17

Process innovation can be depicted as

Accepted Answer

A) an upward shift in a firm's total product curve. 
B) an upward shift in a firm's marginal cost curve. 
C) a downward shift in a firm's marginal revenue curve. 
D) an increase in product demand. 
A) an upward shift in a firm's total product curve. 
B) an upward shift in a firm's marginal cost curve. 
C) a downward shift in a firm's marginal revenue curve. 
D) an increase in product demand.

Question 18

What activity traditionally receives the largest share of total business spending on R&D in the U.S.?

Accepted Answer

A) invention 
B) development 
C) basic research 
D) applied research 
A) invention 
B) development 
C) basic research 
D) applied research

Question 19

Most product innovations consist of minor changes to existing products and are incremental improvements.

Accepted Answer

A) True 
 B)False

Question 20

Refer to the data for a consumer whose income = $8. Suppose the price of new product Z is $2 rather than $1. This consumer would purchase

Accepted Answer

A) none of Z. 
B) some of Z but less than at a price of $1. 
C) less of X, Y, and Z than if the price were $1. 
D) more of X, Y, and Z than if the price were $1. 
A) none of Z. 
B) some of Z but less than at a price of $1. 
C) less of X, Y, and Z than if the price were $1. 
D) more of X, Y, and Z than if the price were $1.

Exam 15: Technology, RD, and Efficiency

The first working prototype of a microcomputer chip would be an example of an

What is the fast-second strategy?

If we plotted the given data on a graph with R&D expenditures on the horizontal axis, the

Pure monopoly is the best market structure for encouraging R&D and innovation.

Innovation

Which of the following is a true statement?

Suppose a firm anticipates that an R&D expenditure of $200 million will result in a new production process that will reduce costs and thus create a one-time added profit of $220 million a year later. The firm's expected rate of return is

The wide imitation and spread of an innovation is called

A firm's optimal amount of R&D occurs where the marginal benefit of this activity exceeds marginal cost by the greatest amount.

The worldwide duration of patents that begins at the time of application is

As it relates to R&D, the imitation problem is that

The table shows the marginal utilities derived from current consumption levels of three new products, A, B, and C, that are being sold in the market at the prices listed. The consumer can immediately gain the most extra total utility by switching spending from

In the diagram, the optimal amount of R&D is

Process innovation can be depicted as

What activity traditionally receives the largest share of total business spending on R&D in the U.S.?

Most product innovations consist of minor changes to existing products and are incremental improvements.

Refer to the data for a consumer whose income = $8. Suppose the price of new product Z is $2 rather than $1. This consumer would purchase

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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Immigration

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The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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