Question 1

The optimal amount of R&D spending for the firm occurs where its expected return is equal to the interest-rate cost-of-funds to finance it.

Accepted Answer

A) True 
 B)False

Question 2

The role of entrepreneurs includes all of the following, except

Accepted Answer

A)  forming start-up businesses.
B)  getting hired as the top executive of an established company.
C)  exploiting university and government scientific research.
D)  anticipating the future in pursuit of both monetary and nonmonetary rewards.E) C) and D)
F) A) and D)

Question 3

Which market structure offers little incentive to engage in R&D?

Accepted Answer

A)  oligopoly
B)  pure monopoly
C)  conglomerates
D)  monopolistic competitionE) None of the above
F) C) and D)

Question 4

The table shows the rate of return and R&D spending for a hypothetical firm. Assume the interest-rate cost of funds rises from 9 percent to 21 percent. What will happen to the optimal amount of R&D spending?

Accepted Answer

A)  It decreases from $36 billion to $18 billion.
B)  It increases from $36 billion to $48 billion.
C)  It increases from $24 billion to $42 billion.
D)  It decreases from $42 billion to $18 billion.E) C) and D)
F) All of the above

Question 5

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.E) A) and D)
F) A) and C)

Question 6

In 2016, about ____ percent of U.S. business R&D spending was for development (innovation and imitation) .

Accepted Answer

A)     42	
B)     79
C)     15
D)     6E) All of the above
F) C) and D)

Question 7

According to the inverted-U theory, R&D expenditures as a percentage of sales tend to be relatively low in

Accepted Answer

A)  low-concentration industries only
B)  high-concentration industries only
C)  low- and high-concentration industries
D)  low- to middle-concentration industriesE) C) and D)
F) B) and D)

Question 8

Suppose firm X implements a new method for extracting copper from copper-bearing ore. This is an example of

Accepted Answer

A)  product innovation.
B)  process innovation.
C)  economics of scale.
D)  the inverted-U theory.E) A) and B)
F) A) and C)

Question 9

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.E) All of the above
F) None of the above

Question 10

Discuss the difference between entrepreneurs and "other innovators."

Accepted Answer

An entrepreneur is an initiator, innovat...

Question 11

If a firm develops better methods of producing a product, then this process innovation can be expected to result in a(n)

Accepted Answer

A)  upward shift in both the total product and average cost curves.
B)  downward shift in both the total product and average cost curves.
C)  downward shift in the total product curve and an upward shift in the average cost curve.
D)  upward shift in the total product curve and a downward shift in the average cost curve.E) A) and B)
F) A) and C)

Question 12

The "inverted-U theory" of R&D shows the relationship between

Accepted Answer

A)  marginal benefit and marginal cost of R&D.
B)  number of R&D projects and the sources of R&D funds.
C)  R&D expenditures and expected return.
D)  market concentration ratio and R&D expenditures.E) None of the above
F) C) and D)

Question 13

Which of the following correctly orders, highest to lowest, the relative magnitudes of U.S. spending by businesses on components of R&D?

Accepted Answer

A)  invention, basic research, innovation
B)  invention, innovation, basic research
C)  innovation, invention, basic research
D)  basic research, invention, innovationE) None of the above
F) A) and D)

Question 14

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.E) A) and C)
F) A) and B)

Question 15

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

Question 16

Refer to the diagram, which relates to Firm X. Suppose X implements an innovative new production method that shifts its total product curve from TP ₂ to TP ₁. Other things equal,

Accepted Answer

A)  the average product of X's labor would fall.
B)  the average total cost of X's output would decline.
C)  X would supply less output at each product price than before.
D)  the demand curve for X's product would shift to the right.E) B) and C)
F) A) and D)

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

Gigantic Corporation follows a strategy of waiting for rivals to innovate, then quickly imitating any successful innovations. This behavior is known as

Accepted Answer

A)  collusion.
B)  an entrepreneurial strategy.
C)  a fast-second strategy.
D)  pricing the demand curve.E) B) and C)
F) A) and D)

Question 19

A "fast-second strategy" refers to a situation where small competitors of a dominant firm will wait for the dominant firm to innovate, and then quickly imitate the dominant firm's innovations.

Accepted Answer

A) True 
 B)False

Question 20

Entrepreneurs are those people who are

Accepted Answer

A)  their own bosses.
B)  executive officers of corporations.
C)  salaried managers.
D)  working for research institutes.E) A) and D)
F) None of the above

Exam 15: Technology, RD, and Efficiency

Entrepreneurs are those people who are

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Discuss the difference between entrepreneurs and "other innovators."

Correct AnswerverifiedAn entrepreneur is an initiator, innovat...View AnswerShow Answer

Gigantic Corporation follows a strategy of waiting for rivals to innovate, then quickly imitating any successful innovations. This behavior is known as

Correct AnswerverifiedShow Answer

Suppose firm X implements a new method for extracting copper from copper-bearing ore. This is an example of

Correct AnswerverifiedShow Answer

Which market structure offers little incentive to engage in R&D?

Correct AnswerverifiedShow Answer

If a firm develops better methods of producing a product, then this process innovation can be expected to result in a(n)

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the inverted-U theory, R&D expenditures as a percentage of sales tend to be relatively low in

Correct AnswerverifiedShow Answer

In 2016, about ____ percent of U.S. business R&D spending was for development (innovation and imitation) .

Correct AnswerverifiedShow Answer

A "fast-second strategy" refers to a situation where small competitors of a dominant firm will wait for the dominant firm to innovate, and then quickly imitate the dominant firm's innovations.

Correct AnswerverifiedShow Answer

Creative destruction is not automatic because

Correct AnswerverifiedShow Answer

Which of the following correctly orders, highest to lowest, the relative magnitudes of U.S. spending by businesses on components of R&D?

Correct AnswerverifiedShow Answer

The optimal amount of R&D spending for the firm occurs where its expected return is equal to the interest-rate cost-of-funds to finance it.

Correct AnswerverifiedShow Answer

The "inverted-U theory" of R&D shows the relationship between

Correct AnswerverifiedShow Answer

Refer to the diagram, which relates to Firm X. Suppose X implements an innovative new production method that shifts its total product curve from TP ₂ to TP ₁. Other things equal,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The role of entrepreneurs includes all of the following, except

Correct AnswerverifiedShow Answer

The table shows the rate of return and R&D spending for a hypothetical firm. Assume the interest-rate cost of funds rises from 9 percent to 21 percent. What will happen to the optimal amount of R&D spending?

Correct AnswerverifiedShow Answer

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An entrepreneur is an initiator, innovat...
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