Question 1

In the United States, research and development spending as a percentage of GDP is

Accepted Answer

A)  1.5 to 2.0 percent, which is lower than many other industrial countries. 
B)  2.5 to 3.0 percent, which is higher than many other industrial countries. 
C)  4.5 to 5.0 percent, which is lower than many other industrial countries. 
D)  5.5 to 6.0 percent, which is higher than many other industrial countries. 
A)  1.5 to 2.0 percent, which is lower than many other industrial countries. 
B)  2.5 to 3.0 percent, which is higher than many other industrial countries. 
C)  4.5 to 5.0 percent, which is lower than many other industrial countries. 
D)  5.5 to 6.0 percent, which is higher than many other industrial countries.

Question 2

Imitation by rivals is one factor that hinders the diffusion of technological advances.

Accepted Answer

A) True 
 B)False

Question 3

Assume that a firm's interest-rate cost-of-funds curve for R&D is perfectly elastic. Which of the following would increase a firm's optimal R&D expenditures and, in equilibrium, reduce the expected rate of return on the last dollar of R&D?

Accepted Answer

A)  a rightward shift of the expected-rate-of-return curve 
B)  an upward shift of the interest-rate cost-of-funds curve 
C)  a leftward shift of the expected-rate-of-return curve 
D)  a downward shift of the interest-rate cost-of-funds curve 
A)  a rightward shift of the expected-rate-of-return curve 
B)  an upward shift of the interest-rate cost-of-funds curve 
C)  a leftward shift of the expected-rate-of-return curve 
D)  a downward shift of the interest-rate cost-of-funds curve

Question 4

All of the following increase the expected rate of return on R&D expenditures except

Accepted Answer

A)  patents. 
B)  trademarks. 
C)  imitation by others. 
D)  trade secrets. 
A)  patents. 
B)  trademarks. 
C)  imitation by others. 
D)  trade secrets.

Question 5

A firm's optimal amount of R&D occurs where the interest-rate cost of funds and the expected rate of return are equal.

Accepted Answer

A) True 
 B)False

Question 6

The following are examples of innovative products in their respective industries, except

Accepted Answer

A)  Nokia's smartphones. 
B)  Johnson & Johnson's disposable contact lenses. 
C)  Hewlett-Packard's scientific calculator. 
D)  Apple's iPhone. 
A)  Nokia's smartphones. 
B)  Johnson & Johnson's disposable contact lenses. 
C)  Hewlett-Packard's scientific calculator. 
D)  Apple's iPhone.

Question 7

The modern view of technological advance is that it is an external force to which the economy adjusts.

Accepted Answer

A) True 
 B)False

Question 8

Suppose that a firm's legal staff concludes that a new production process that the firm is developing is patentable. Graphically, this new information would shift the firm's expected-rate-of-return curve on R&D to the

Accepted Answer

A)  right and reduce its optimal amount of R&D. 
B)  right and increase its optimal amount of R&D. 
C)  left and increase its optimal amount of R&D. 
D)  left and reduce its optimal amount of R&D. 
A)  right and reduce its optimal amount of R&D. 
B)  right and increase its optimal amount of R&D. 
C)  left and increase its optimal amount of R&D. 
D)  left and reduce its optimal amount of R&D.

Question 9

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 10

Compared to the mid-1960s, the percentage of the U.S. Federal budget spent on R&D in recent years is

Accepted Answer

A)  about the same. 
B)  much smaller. 
C)  slightly bigger. 
D)  much bigger. 
A)  about the same. 
B)  much smaller. 
C)  slightly bigger. 
D)  much bigger.

Question 11

We know with certainty that a consumer will buy a newly introduced product rather than an existing product when the

Accepted Answer

A)  MU/P of the new product exceeds the MU/P of the existing product. 
B)  price of the new product is less than the price of the existing product. 
C)  MU of the new product is more than the MU of the existing product. 
D)  law of diminishing marginal utility applies to the existing product. 
A)  MU/P of the new product exceeds the MU/P of the existing product. 
B)  price of the new product is less than the price of the existing product. 
C)  MU of the new product is more than the MU of the existing product. 
D)  law of diminishing marginal utility applies to the existing product.

Question 12

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 13

Large, well-established firms are more likely to use retained earnings to finance R&D, while small start-up firms are more likely to rely on venture capital.

Accepted Answer

A) True 
 B)False

Question 14

The following are examples of technological breakthroughs that came out of a government or university laboratory, except

Accepted Answer

A)  the Internet. 
B)  genetic engineering. 
C)  nuclear energy. 
D)  disposable contact lenses. 
A)  the Internet. 
B)  genetic engineering. 
C)  nuclear energy. 
D)  disposable contact lenses.

Question 15

A firm should increase the amount of R&D expenditures to

Accepted Answer

A)  the maximum amount of funding that is available to the firm. 
B)  the point where the expected return equals the cost of funds. 
C)  a critical minimum level so that the firm can remain competitive. 
D)  a point where the difference between the expected return and the cost of funds is at a maximum. 
A)  the maximum amount of funding that is available to the firm. 
B)  the point where the expected return equals the cost of funds. 
C)  a critical minimum level so that the firm can remain competitive. 
D)  a point where the difference between the expected return and the cost of funds is at a maximum.

Question 16

Which of the following is a "spin-off" firm?

Accepted Answer

A)  Amazon 
B)  Yum! Brands 
C)  McDonald's 
D)  Pepsi 
A)  Amazon 
B)  Yum! Brands 
C)  McDonald's 
D)  Pepsi

Question 17

In general, which of the following is true?

Accepted Answer

A)  the number of firms in the industry is far more important than the industry's scientific character and extent of technological opportunities. 
B)  the greater an industry's concentration ratio, the higher are its R&D expenditures in relation to sales. 
C)  the industry's scientific character and extent of technological opportunities often are more important than the industry's concentration ratio. 
D)  the higher the industry's interest cost of borrowing funds for R&D, the greater is the industry's progressiveness. 
A)  the number of firms in the industry is far more important than the industry's scientific character and extent of technological opportunities. 
B)  the greater an industry's concentration ratio, the higher are its R&D expenditures in relation to sales. 
C)  the industry's scientific character and extent of technological opportunities often are more important than the industry's concentration ratio. 
D)  the higher the industry's interest cost of borrowing funds for R&D, the greater is the industry's progressiveness.

Question 18

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 19

The marginal cost-of-funds curve for a firm shows the

Accepted Answer

A)  interest rate that a firm must pay for additional funding. 
B)  rate of return that a firm gets from its investment projects. 
C)  amount of funds available to a firm for its investments. 
D)  sources of funds that a firm has for its various projects. 
A)  interest rate that a firm must pay for additional funding. 
B)  rate of return that a firm gets from its investment projects. 
C)  amount of funds available to a firm for its investments. 
D)  sources of funds that a firm has for its various projects.

Question 20

Process innovation will shift a firm's

Accepted Answer

A)  total product curve upward. 
B)  total product curve downward. 
C)  marginal product curve downward. 
D)  marginal cost curve upward. 
A)  total product curve upward. 
B)  total product curve downward. 
C)  marginal product curve downward. 
D)  marginal cost curve upward.

Exam 15: Technology, Rd, and Efficiency

In the United States, research and development spending as a percentage of GDP is

Imitation by rivals is one factor that hinders the diffusion of technological advances.

Assume that a firm's interest-rate cost-of-funds curve for R&D is perfectly elastic. Which of the following would increase a firm's optimal R&D expenditures and, in equilibrium, reduce the expected rate of return on the last dollar of R&D?

All of the following increase the expected rate of return on R&D expenditures except

A firm's optimal amount of R&D occurs where the interest-rate cost of funds and the expected rate of return are equal.

The following are examples of innovative products in their respective industries, except

The modern view of technological advance is that it is an external force to which the economy adjusts.

Suppose that a firm's legal staff concludes that a new production process that the firm is developing is patentable. Graphically, this new information would shift the firm's expected-rate-of-return curve on R&D to the

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

Compared to the mid-1960s, the percentage of the U.S. Federal budget spent on R&D in recent years is

We know with certainty that a consumer will buy a newly introduced product rather than an existing product when the

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

Large, well-established firms are more likely to use retained earnings to finance R&D, while small start-up firms are more likely to rely on venture capital.

The following are examples of technological breakthroughs that came out of a government or university laboratory, except

A firm should increase the amount of R&D expenditures to

Which of the following is a "spin-off" firm?

In general, which of the following is true?

The modern view of technological advance is that it

The marginal cost-of-funds curve for a firm shows the

Process innovation will shift a firm's

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Demand, Supply, and Market Equilibrium

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