Question 1

Diffusion is the first successful commercial introduction of a product, the use of a new method, or the creation of a new form of business enterprise.

Accepted Answer

A) True 
 B)False

Question 2

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 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 happened to total cost?

Accepted Answer

A)  TC increased by $2,000 
B)  TC decreased by $2,000 
C)  TC decreased by $4,000 
D)  TC remained unchanged 
A)  TC increased by $2,000 
B)  TC decreased by $2,000 
C)  TC decreased by $4,000 
D)  TC remained unchanged

Question 3

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 4

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 5

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 6

Suppose that a firm successfully introduces a highly profitable new product. If this new product offers less marginal utility per unit to consumers than existing substitute products, then the

Accepted Answer

A)  laws of economics have been violated. 
B)  new product must have increasing, not diminishing, marginal utility. 
C)  existing products were being produced at a loss. 
D)  new product has a lower price than the existing substitute products. 
A)  laws of economics have been violated. 
B)  new product must have increasing, not diminishing, marginal utility. 
C)  existing products were being produced at a loss. 
D)  new product has a lower price than the existing substitute products.

Question 7

Under which market structure are profit rewards most likely to be quickly taken away by existing firms or new firms entering the industry?

Accepted Answer

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

Question 8

Entrepreneurs often form new small firms called "spin-off firms."

Accepted Answer

A) True 
 B)False

Question 9

R&D spending decisions are complicated because

Accepted Answer

A)  costs of R&D are immediate, while benefits occur at some future time and are uncertain. 
B)  benefits of R&D are clear, but costs are complicated and hard to estimate. 
C)  there are so many different sources of funds for R&D, and they each require different returns. 
D)  it is difficult to determine which R&D activities could be patented. 
A)  costs of R&D are immediate, while benefits occur at some future time and are uncertain. 
B)  benefits of R&D are clear, but costs are complicated and hard to estimate. 
C)  there are so many different sources of funds for R&D, and they each require different returns. 
D)  it is difficult to determine which R&D activities could be patented.

Question 10

Firms have several sources of funds to finance their R&D activities, including the following, except

Accepted Answer

A)  loans obtained from banks and bondholders. 
B)  retained earnings or corporate savings. 
C)  venture capital and personal savings. 
D)  anticipated profits from forthcoming new products. 
A)  loans obtained from banks and bondholders. 
B)  retained earnings or corporate savings. 
C)  venture capital and personal savings. 
D)  anticipated profits from forthcoming new products.

Question 11

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 12

One of the advantages of being first to develop a new product is the opportunity to develop brand-name recognition.

Accepted Answer

A) True 
 B)False

Question 13

Joseph Schumpeter viewed capitalism as a process of "creative destruction" because

Accepted Answer

A)  profitable firms are bought out by larger firms. 
B)  capitalism would create wealth, but government would destroy it. 
C)  the creation of new products would destroy the market for existing products. 
D)  invention is a creative process, but most ideas are destroyed when entrepreneurs develop and market products. 
A)  profitable firms are bought out by larger firms. 
B)  capitalism would create wealth, but government would destroy it. 
C)  the creation of new products would destroy the market for existing products. 
D)  invention is a creative process, but most ideas are destroyed when entrepreneurs develop and market products.

Question 14

Inventions and innovations can both be patented.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Besides market structure, another factor that seems to influence the level of R&D spending in an industry is the

Accepted Answer

A)  number of firms in the industry. 
B)  length of time for government patents. 
C)  scientific character of the industry. 
D)  imitation problem in the industry. 
A)  number of firms in the industry. 
B)  length of time for government patents. 
C)  scientific character of the industry. 
D)  imitation problem in the industry.

Question 17

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 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

Entrepreneurs

Accepted Answer

A)  include everyone engaged in R&D work. 
B)  are located in small enterprises only. 
C)  differ from other innovators because of the risks entrepreneurs must bear. 
D)  work exclusively in government and university R&D laboratories. 
A)  include everyone engaged in R&D work. 
B)  are located in small enterprises only. 
C)  differ from other innovators because of the risks entrepreneurs must bear. 
D)  work exclusively in government and university R&D laboratories.

Question 20

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

Exam 15: Technology, Rd, and Efficiency

Diffusion is the first successful commercial introduction of a product, the use of a new method, or the creation of a new form of business enterprise.

The spread of innovation through imitation refers to

Creative destruction is not automatic because

Process innovation refers to

Suppose that a firm successfully introduces a highly profitable new product. If this new product offers less marginal utility per unit to consumers than existing substitute products, then the

Under which market structure are profit rewards most likely to be quickly taken away by existing firms or new firms entering the industry?

Entrepreneurs often form new small firms called "spin-off firms."

R&D spending decisions are complicated because

Firms have several sources of funds to finance their R&D activities, including the following, except

The wide imitation and spread of an innovation is called

One of the advantages of being first to develop a new product is the opportunity to develop brand-name recognition.

Joseph Schumpeter viewed capitalism as a process of "creative destruction" because

Inventions and innovations can both be patented.

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

Besides market structure, another factor that seems to influence the level of R&D spending in an industry is the

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.

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

Entrepreneurs

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.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role 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

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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