Question 1

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 2

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) B) and D)

Question 3

In deciding on an optimal amount and type of research and development,firms should adhere to the rule: Expand R&D until:

Accepted Answer

A)   expected rate of return is zero.
B)   expected rate of return equals the interest rate.
C)   expected rate of return exceeds the interest rate by the greatest amount.
D)   the interest rate is constant.E) A) and B)
F) A) and C)

Question 4

Other things equal,trademarks and brand names:

Accepted Answer

A)   increase the interest-rate cost of funds used to finance R&D expenditures.
B)   decrease the interest-rate cost of funds used to finance R&D expenditures.
C)   decrease the expected rate of return on R&D expenditures.
D)   increase the expected rate of return on R&D expenditures.E) A) and B)
F) B) and C)

Question 5

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 6

As it relates to R&D,the expected-rate-of-return curve,r:

Accepted Answer

A)   usually slopes upward.
B)   shows the cost of financing various levels of R&D.
C)   varies in location depending on the location of the interest-rate cost-of-funds curve,i.
D)   represents the marginal benefit element in the MB = MC decision framework.E) B) and C)
F) None of the above

Question 7

In the inverted-U theory of R&D,which of the following industry concentration ratios would be most conducive to R&D (as a percentage of firm sales) ?

Accepted Answer

A)   1 percent.
B)   10 percent.
C)   50 percent.
D)   70 percent.E) C) and D)
F) A) and D)

Question 8

A major source of funding of R&D in large,established corporations is:

Accepted Answer

A)   venture capital.
B)   dividends.
C)   mutual funds.
D)   retained earnings.E) None of the above
F) A) and D)

Question 9

Suppose that a firm's legal staff concludes that a new product 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.E) C) and D)
F) A) and C)

Question 10

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

Question 11

Those who contend that oligopolists are less likely than more competitive firms to engage in R&D say that:

Accepted Answer

A)   oligopolists have little incentive to introduce costly new technology and produce new products when they currently are earning large economic profit using existing technology and selling existing products.
B)   the undistributed profits of oligopolists give them a source of readily available,relatively low-cost funds for financing R&D.
C)   entry barriers enable oligopolists to sustain the profits they gain from innovation.
D)   the large size of oligopolists' R&D departments allows them to use very specialized,expensive R&D equipment and employ teams of specialized researchers.E) B) and C)
F) A) and D)

Question 12

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

Question 13

Suppose that a firm successfully introduces a highly profitable new product.If this new product is priced higher than existing substitute products,then the:

Accepted Answer

A)   new product has greater marginal utility than the existing products.
B)   laws of economics have been violated.
C)   new product must have increasing,not diminishing,marginal utility.
D)   existing products were unprofitable to produce.E) A) and B)
F) B) and C)

Question 14

A firm's optimal amount of R&D occurs where the marginal benefit of this activity exceeds marginal cost by the greatest amount.

Accepted Answer

A) True 
 B)False

Question 15

Process innovation can be depicted as:

Accepted Answer

A)   an upward shift in a firm's total product curve.
B)   an upward shift in a firm's marginal cost curve.
C)   a downward shift in a firm's marginal revenue curve.
D)   an increase in product demand.E) B) and D)
F) A) and B)

Question 16

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.E) None of the above
F) A) and D)

Question 17

Suppose that Book-Cost Busters (BCB) ,without authorization,reproduced a best-selling novel and placed it for downloading on the BCB pay-for-use website.This action would violate the publisher's:

Accepted Answer

A)   profit rights.
B)   patent.
C)   copyright.
D)   trademark.E) None of the above
F) C) and D)

Question 18

U.S.firms collectively devote the largest portion of their total R&D spending to:

Accepted Answer

A)   applied research (pursuing invention) .
B)   basic scientific research.
C)   innovation and diffusion.
D)   financing startup firms.E) B) and D)
F) B) and C)

Question 19

A patent on a new product benefits the firm securing it by:

Accepted Answer

A)   limiting the direct imitation of the product by rivals for many years.
B)   enabling the firm to retain "trade secrets" about the product.
C)   reducing the firm's legal expenses.
D)   increasing the speed of diffusion of the new product.E) A) and D)
F) A) and C)

Question 20

About ____ percent of business R&D spending is for basic research.

Accepted Answer

A)   1
B)   5
C)   20
D)   75E) All of the above
F) A) and D)

Exam 14: Technology RD and Efficiency

Suppose that a firm's legal staff concludes that a new product 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:

Correct AnswerverifiedShow Answer

Suppose that Book-Cost Busters (BCB) ,without authorization,reproduced a best-selling novel and placed it for downloading on the BCB pay-for-use website.This action would violate the publisher's:

Correct AnswerverifiedShow Answer

Those who contend that oligopolists are less likely than more competitive firms to engage in R&D say that:

Correct AnswerverifiedShow Answer

A firm's optimal amount of R&D occurs where the marginal benefit of this activity exceeds marginal cost by the greatest amount.

Correct AnswerverifiedShow Answer

A patent on a new product benefits the firm securing it by:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow 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

Entrepreneurs:

Correct AnswerverifiedShow Answer

U.S.firms collectively devote the largest portion of their total R&D spending to:

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

About ____ percent of business R&D spending is for basic research.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

As it relates to R&D,the expected-rate-of-return curve,r:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In deciding on an optimal amount and type of research and development,firms should adhere to the rule: Expand R&D until:

Correct AnswerverifiedShow Answer

Process innovation can be depicted as:

Correct AnswerverifiedShow Answer

In the inverted-U theory of R&D,which of the following industry concentration ratios would be most conducive to R&D (as a percentage of firm sales) ?

Correct AnswerverifiedShow Answer

Other things equal,trademarks and brand names:

Correct AnswerverifiedShow Answer

A major source of funding of R&D in large,established corporations is:

Correct AnswerverifiedShow Answer

Suppose that a firm successfully introduces a highly profitable new product.If this new product is priced higher than existing substitute products,then the:

Correct AnswerverifiedShow Answer

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