Question 1

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 2

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 3

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 4

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

Question 5

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 6

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

Accepted Answer

A) True 
 B)False

Question 7

The first discovery of the water-soluble material used in contact lenses is an example of:

Accepted Answer

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

Question 8

As it relates to the R&D decision,the interest-rate cost-of-funds curve:

Accepted Answer

A)  usually slopes downward. 
B)  is the marginal cost element in the MB = MC decision framework. 
C)  indicates a constant rate of return,r. 
D)  reflects the interest rate on bank loans but not the implicit interest rate on the use of retained earnings. 
A)  usually slopes downward. 
B)  is the marginal cost element in the MB = MC decision framework. 
C)  indicates a constant rate of return,r. 
D)  reflects the interest rate on bank loans but not the implicit interest rate on the use of retained earnings.

Question 9

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 10

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 11

Consumer's income = $12 $$\begin{array}{l}
\begin{array} { c c c c } 
\begin{array} { c } 
\
\text { Units of } \
\text { Product }\
\hline
\end{array} & \begin{array} { c } 
\
\text { Marginal Utility, X } \
( \text { Price } = \$ 1 )\
\hline
\end{array} & \begin{array} { c } 
\
\text { Marginal Utility, Y } \
( \text { Price } = \$ 1 )\
\hline
\end{array} & \begin{array} { c } 
\text { Marginal Utility, }\
\text { New Product, Z } \
( \text { Price } = \$ 1 )\
\hline
\end{array} \
 \text { First } & 12 & 16 & 20 \
\text { Second } & 10 & 14 & 18 \
\text { Third } & 8 & 12 & 16 \
\text { Fourth } & 6 & 10 & 14 \
\text { Fifth } & 4 & 8 & 12 \
\text { Sixth } & 2 & 6 & 10 \
\text { Seventh } & 0 & 4 & 8
\end{array}
\end{array}$$ Refer to the data.Suppose the price of new product Z is $10 rather than $1.This consumer would purchase:

Accepted Answer

A)  some of Z but not as much as if the price were $1. 
B)  none of Z. 
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)  some of Z but not as much as if the price were $1. 
B)  none of Z. 
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.

Question 12

As it relates to R&D,a firm's expected-rate-of-return-curve,r:

Accepted Answer

A)  slopes downward because the firm arrays,highest to lowest,the rates of return on R&D activities. 
B)  slopes upward because of the law of diminishing returns. 
C)  is a horizontal line. 
D)  depends on whether it borrows from the bank or used retained earnings in financing R&D. 
A)  slopes downward because the firm arrays,highest to lowest,the rates of return on R&D activities. 
B)  slopes upward because of the law of diminishing returns. 
C)  is a horizontal line. 
D)  depends on whether it borrows from the bank or used retained earnings in financing R&D.

Question 13

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

Accepted Answer

A)  Entry to purely competitive industries is easy and thus profit from innovation is quickly competed away. 
B)  In pure competition,products are already highly differentiated. 
C)  Most purely competitive industries are increasing-cost industries. 
D)  Pure competitors are happy to earn only a normal profit. 
A)  Entry to purely competitive industries is easy and thus profit from innovation is quickly competed away. 
B)  In pure competition,products are already highly differentiated. 
C)  Most purely competitive industries are increasing-cost industries. 
D)  Pure competitors are happy to earn only a normal profit.

Question 14

Suppose a firm anticipates that a particular R&D expenditure of $20 million will result in a new product and thus create a one-time added profit of $22 million a year later.The firm will:

Accepted Answer

A)  not undertake the R&D expenditure if its interest-rate cost of borrowing is 8 percent. 
B)  undertake the R&D expenditure if its interest-rate cost of borrowing is 12 percent. 
C)  undertake the R&D expenditure if its interest-rate cost of borrowing is 20 percent. 
D)  undertake the R&D expenditure if its interest-rate cost of borrowing is 9 percent. 
A)  not undertake the R&D expenditure if its interest-rate cost of borrowing is 8 percent. 
B)  undertake the R&D expenditure if its interest-rate cost of borrowing is 12 percent. 
C)  undertake the R&D expenditure if its interest-rate cost of borrowing is 20 percent. 
D)  undertake the R&D expenditure if its interest-rate cost of borrowing is 9 percent.

Question 15

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 16

The retained earnings that corporations often use to finance R&D are also known as:

Accepted Answer

A)  venture capital. 
B)  undistributed profits. 
C)  dividends. 
D)  mutual funds. 
A)  venture capital. 
B)  undistributed profits. 
C)  dividends. 
D)  mutual funds.

Question 17

In exchange for a share of ZYX's profits if it succeeds,Firm ABC provides development funds to newly formed ZYX,which is developing an innovative product.ABC funds are called ____________,while ZYX is known as a ____________.

Accepted Answer

A)  venture capital;start-up 
B)  retained earnings;entrepreneurial firm 
C)  mutual funds;start-up 
D)  transfer payments;entrepreneurial firm 
A)  venture capital;start-up 
B)  retained earnings;entrepreneurial firm 
C)  mutual funds;start-up 
D)  transfer payments;entrepreneurial firm

Question 18

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 19

Firm ABC designs and implements a lower-cost method of producing its product.This is an example of:

Accepted Answer

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

Question 20

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.

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

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

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 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.

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

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

The first discovery of the water-soluble material used in contact lenses is an example of:

As it relates to the R&D decision,the interest-rate cost-of-funds curve:

Entrepreneurs:

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

As it relates to R&D,a firm's expected-rate-of-return-curve,r:

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

Suppose a firm anticipates that a particular R&D expenditure of $20 million will result in a new product and thus create a one-time added profit of $22 million a year later.The firm will:

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 retained earnings that corporations often use to finance R&D are also known as:

In exchange for a share of ZYX's profits if it succeeds,Firm ABC provides development funds to newly formed ZYX,which is developing an innovative product.ABC funds are called ,while ZYX is known as a .

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:

Firm ABC designs and implements a lower-cost method of producing its product.This is an example of:

Creative destruction is not automatic because:

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 Cost of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition and Oligopoly

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

Filters

Exam 14: Technology RD and Efficiency

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

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

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 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.

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

The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

The first discovery of the water-soluble material used in contact lenses is an example of:

As it relates to the R&D decision,the interest-rate cost-of-funds curve:

Entrepreneurs:

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

As it relates to R&D,a firm's expected-rate-of-return-curve,r:

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

Suppose a firm anticipates that a particular R&D expenditure of $20 million will result in a new product and thus create a one-time added profit of $22 million a year later.The firm will:

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 retained earnings that corporations often use to finance R&D are also known as:

In exchange for a share of ZYX's profits if it succeeds,Firm ABC provides development funds to newly formed ZYX,which is developing an innovative product.ABC funds are called ____________,while ZYX is known as a ____________.

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:

Firm ABC designs and implements a lower-cost method of producing its product.This is an example of:

Creative destruction is not automatic because:

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 Cost of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition and Oligopoly

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

Filters

In exchange for a share of ZYX's profits if it succeeds,Firm ABC provides development funds to newly formed ZYX,which is developing an innovative product.ABC funds are called ,while ZYX is known as a .