Question 1

Imitation by rivals tends to enhance the profits of the innovating firms.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Funds lent to start-up firms in return for shares of the profit if the firms succeed are called

Accepted Answer

A)  retained earnings. 
B)  time deposits. 
C)  venture capital. 
D)  transfer payments. 
A)  retained earnings. 
B)  time deposits. 
C)  venture capital. 
D)  transfer payments.

Question 4

In 2014, which of the following nations ranked highest in total R&D expenditures as a percentage of GDP?

Accepted Answer

A)  the United States 
B)  the United Kingdom 
C)  Sweden 
D)  China 
A)  the United States 
B)  the United Kingdom 
C)  Sweden 
D)  China

Question 5

Which of the following statements does not apply when a firm's rivals imitate its innovation.

Accepted Answer

A)  It tends to reduce the originator's profits 
B)  It enhances the innovator's returns to its R&D expenditures. 
C)  It is often the path to widespread diffusion of the innovation. 
D)  It helps other firms incorporate innovative features into their own operations. 
A)  It tends to reduce the originator's profits 
B)  It enhances the innovator's returns to its R&D expenditures. 
C)  It is often the path to widespread diffusion of the innovation. 
D)  It helps other firms incorporate innovative features into their own operations.

Question 6

Broadly defined, technological advance

Accepted Answer

A)  can occur in the short run, long run, or very long run. 
B)  comprises new and improved goods and services and/or new and improved ways of producing or distributing them. 
C)  includes invention but not innovation or diffusion. 
D)  includes product innovation but not process innovation. 
A)  can occur in the short run, long run, or very long run. 
B)  comprises new and improved goods and services and/or new and improved ways of producing or distributing them. 
C)  includes invention but not innovation or diffusion. 
D)  includes product innovation but not process innovation.

Question 7

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, leave the expected rate of return on the last dollar of R&D unchanged?

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 8

The introduction of the iPhone by Apple is an example of a(n)

Accepted Answer

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

Question 9

Process innovation is represented as a downward shift in a firm's total product curve and its average total cost curve.

Accepted Answer

A) True 
 B)False

Question 10

(Consider This) Violin strings made from sheep intestines were first called "catgut" because

Accepted Answer

A)  at the time, it was thought to be extremely unlucky to kill sheep. 
B)  the inventor wanted to establish a legally protected brand name. 
C)  the inventor wanted to preserve his trade secret. 
D)  the inventor thought that "catgut" would sound less offensive to buyers than "sheep intestines." 
A)  at the time, it was thought to be extremely unlucky to kill sheep. 
B)  the inventor wanted to establish a legally protected brand name. 
C)  the inventor wanted to preserve his trade secret. 
D)  the inventor thought that "catgut" would sound less offensive to buyers than "sheep intestines."

Question 11

Entrepreneurs

Accepted Answer

A)  work exclusively in government and university R&D laboratories. 
B)  often form small companies called start-ups. 
C)  are less likely to exist in service industries than in manufacturing industries. 
D)  are engaged mainly in basic scientific research. 
A)  work exclusively in government and university R&D laboratories. 
B)  often form small companies called start-ups. 
C)  are less likely to exist in service industries than in manufacturing industries. 
D)  are engaged mainly in basic scientific research.

Question 12

In the inverted-U theory of R&D,

Accepted Answer

A)  process innovation and product innovation are inversely related. 
B)  technological change is inversely related to scientific discovery. 
C)  R&D expenditures rise continuously as a percentage of firms' sales as industry concentration rises. 
D)  R&D expenditures first rise as a percentage of firms' sales as industry concentration increases, but then fall as higher industry concentration occurs. 
A)  process innovation and product innovation are inversely related. 
B)  technological change is inversely related to scientific discovery. 
C)  R&D expenditures rise continuously as a percentage of firms' sales as industry concentration rises. 
D)  R&D expenditures first rise as a percentage of firms' sales as industry concentration increases, but then fall as higher industry concentration occurs.

Question 13

Innovation pertains to commercialization, while invention pertains more to scientific research.

Accepted Answer

A) True 
 B)False

Question 14

A consumer will buy a new product rather than an existing product

Accepted Answer

A)  when the MU/P of the new product is less than the MU/P of the existing product. 
B)  when the substitution of the new product for the old product increases the consumer's total utility. 
C)  only if the new product has a lower price than the existing product. 
D)  only if the MU of the new product exceeds the MU of the existing product. 
A)  when the MU/P of the new product is less than the MU/P of the existing product. 
B)  when the substitution of the new product for the old product increases the consumer's total utility. 
C)  only if the new product has a lower price than the existing product. 
D)  only if the MU of the new product exceeds the MU of the existing product.

Question 15

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

Accepted Answer

A)  Entry to monopolistic competitive industries is relatively easy, and thus profit from innovation is quickly competed away. 
B)  Most monopolistic competitive industries are decreasing-cost industries. 
C)  The desire to differentiate products from competitors may motivate monopolistic competitors to engage in R&D. 
D)  Monopolistic competitors have large retained earnings that are available to finance R&D. 
A)  Entry to monopolistic competitive industries is relatively easy, and thus profit from innovation is quickly competed away. 
B)  Most monopolistic competitive industries are decreasing-cost industries. 
C)  The desire to differentiate products from competitors may motivate monopolistic competitors to engage in R&D. 
D)  Monopolistic competitors have large retained earnings that are available to finance R&D.

Question 16

In 2015, the following firms were among the top 10 in terms of securing the most U.S. patents, except

Accepted Answer

A)  IBM. 
B)  Google. 
C)  Intel. 
D)  Amazon. 
A)  IBM. 
B)  Google. 
C)  Intel. 
D)  Amazon.

Question 17

The inverted-U theory of R&D suggests that more R&D spending will be done by oligopolists than by firms producing in the other market structures.

Accepted Answer

A) True 
 B)False

Question 18

The corporate decision on type and level of R&D activity is difficult because

Accepted Answer

A)  the interest-rate cost of funds is difficult to estimate. 
B)  much of corporate R&D is based on the pursuit of science, not on the profit motive. 
C)  expected returns lie in the future and are highly uncertain. 
D)  total returns and marginal returns greatly diverge. 
A)  the interest-rate cost of funds is difficult to estimate. 
B)  much of corporate R&D is based on the pursuit of science, not on the profit motive. 
C)  expected returns lie in the future and are highly uncertain. 
D)  total returns and marginal returns greatly diverge.

Question 19

About what percentage of research and development spending by businesses in the United States in 2012 went to development (innovation and imitation) and about what percentage went to basic and applied research and invention, respectively?

Accepted Answer

A)  20, 80 
B)  40, 60 
C)  80, 20 
D)  60, 40 
A)  20, 80 
B)  40, 60 
C)  80, 20 
D)  60, 40

Question 20

The interest-rate cost-of-funds curve is perfectly elastic because firms can borrow as much or as little as they want at market interest rates.

Accepted Answer

A) True 
 B)False

Exam 15: Technology, Rd, and Efficiency

Imitation by rivals tends to enhance the profits of the innovating firms.

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

Funds lent to start-up firms in return for shares of the profit if the firms succeed are called

In 2014, which of the following nations ranked highest in total R&D expenditures as a percentage of GDP?

Which of the following statements does not apply when a firm's rivals imitate its innovation.

Broadly defined, technological advance

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, leave the expected rate of return on the last dollar of R&D unchanged?

The introduction of the iPhone by Apple is an example of a(n)

Process innovation is represented as a downward shift in a firm's total product curve and its average total cost curve.

(Consider This) Violin strings made from sheep intestines were first called "catgut" because

Entrepreneurs

In the inverted-U theory of R&D,

Innovation pertains to commercialization, while invention pertains more to scientific research.

A consumer will buy a new product rather than an existing product

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

In 2015, the following firms were among the top 10 in terms of securing the most U.S. patents, except

The inverted-U theory of R&D suggests that more R&D spending will be done by oligopolists than by firms producing in the other market structures.

The corporate decision on type and level of R&D activity is difficult because

About what percentage of research and development spending by businesses in the United States in 2012 went to development (innovation and imitation) and about what percentage went to basic and applied research and invention, respectively?

The interest-rate cost-of-funds curve is perfectly elastic because firms can borrow as much or as little as they want at market interest rates.

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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