Deck 15: Technology, Rd, and Efficiency

Question 1

When economists view technological change as internal to the economy, they mean that it

A)occurs randomly.
B)occurs accidentally.
C)arises deliberately from the profit motive and competition.
D)arises mainly from government subsidies.

Answer 1

arises deliberately from the profit motive and competition.

Question 2

Broadly defined, technological advance

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.

Answer 2

comprises new and improved goods and services and/or new and improved ways of producing or distributing them.

Question 3

Innovation

A)is the first discovery of a product or process, rather than its first successful commercial introduction.
B)includes new products but not new production methods.
C)is also known as diffusion.
D)can either increase or decrease the market share of a large firm, depending on whether it is introduced by the large firm or one of its competitors.

Answer 3

can either increase or decrease the market share of a large firm, depending on whether it is introduced by the large firm or one of its competitors.

Question 4

In economists' models, technological advance occurs in

A)the very long run.
B)either the short run, long run, or very long run.
C)manufacturing industries but not in service industries.
D)pure competition but not in monopolistic competition, oligopoly, and pure monopoly.

Question 5

In the United States, research and development spending as a percentage of GDP is

A)1.5 to 2.0 percent, which is lower than many other industrial countries.
B)2.5 to 3.0 percent, which is higher than many other industrial countries.
C)4.5 to 5.0 percent, which is lower than many other industrial countries.
D)5.5 to 6.0 percent, which is higher than many other industrial countries.

Question 6

As pizza topped with barbecue chicken became popular at specialty restaurants, Pizza Hut and Papa John's introduced a similar pizza.This imitation illustrates

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

Question 7

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

A)invention, basic research, innovation
B)invention, innovation, basic research
C)innovation, invention, basic research
D)basic research, invention, innovation

Question 8

The wide imitation and spread of an innovation is called

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

Question 9

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

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

Question 10

Kodak introduced to the marketplace a digital camera that uses no film but takes photos that can be shown on personal computers.This is an example of

A)economies of scale.
B)product innovation.
C)process innovation.
D)venture capital.

Question 11

The spread of innovation through imitation refers to

A)invention.
B)diffusion.
C)duplication.
D)diversification.

Question 12

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

A)applied research (pursuing invention).
B)basic scientific research.
C)innovation and diffusion.
D)financing start-up firms.

Question 13

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

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

Question 14

The successful commercial introduction of a new product, the use of a new method, or the creation of a new form of business enterprise is called

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

Question 15

Technological advance is shown as a(n)

A)movement from a point inside a production possibilities curve to a point on the curve.
B)movement along a production possibilities curve.
C)outward shift of a production possibilities curve.
D)inward shift of a production possibilities curve.

Question 16

Technological advance is a three-step process involving

A)invention, duplication, and diffusion.
B)duplication, innovation, and diversity.
C)invention, innovation, and diffusion.
D)necessity, invention, and solution.

Question 17

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

A)1
B)5
C)20
D)75

Question 18

Which of the following is a true statement?

A)Innovation normally follows invention and precedes diffusion.
B)Invention normally follows diffusion and precedes innovation.
C)Diffusion normally follows invention and precedes innovation.
D)Innovation normally follows diffusion and precedes invention.

Question 19

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

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

Question 20

The first commercial introduction of transparent tape is an example of

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

Question 21

A profit-maximizing firm should not undertake an R&D project for which the

A)expected rate of return exceeds its interest-rate cost of funds.
B)interest-rate cost of funds exceeds the expected rate of return.
C)expected returns are in the distant future.
D)expected returns, though potentially very large, are uncertain.

Question 22

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

A)venture capital.
B)dividends.
C)mutual funds.
D)retained earnings.

Question 23

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

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.

Question 24

Entrepreneurs

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 25

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

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 26

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

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.

Question 27

Entrepreneurs

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 28

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

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.

Question 29

Suppose a firm anticipates that an R&D expenditure of $100 million will result in a new production process that will reduce costs and thus create a one-time added profit of $112 million a year later.The firm's expected rate of return is

A)0.12 percent.
B)112 percent.
C)12 percent.
D)2 percent.

Question 30

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

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

Question 31

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

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

Question 32

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

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 33

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

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 34

The marginal benefit to a firm from its R&D expenditures is depicted by its

A)interest-rate cost-of-funds curve.
B)expected-rate-of-return curve.
C)venture capital acquisition curve.
D)retained earnings payout curve.

Question 35

The major source of new scientific knowledge in the United States is

A)university and government research.
B)R&D work in large corporations.
C)entrepreneurs working alone.
D)purely competitive and monopolistically competitive firms.

Question 36

The modern view of technological advance is that it

A)is rooted in the independent advance of science, an element largely external to the market system.
B)is rarely carried out by oligopolists or pure monopolists.
C)is an internal element of capitalism, occurring in response to profit incentives.
D)necessarily destroys existing monopoly power.

Question 37

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

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 uses retained earnings in financing R&D.

Question 38

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

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 39

Which of the following statements is most accurate about business R&D spending in the United States?

A)It is more or less equally distributed between innovation, invention, and basic research.
B)Well over half is dedicated to innovation and imitation.
C)The largest share is for basic research, as it provides the foundation, followed by invention and then innovation.
D)The majority is spent on applied research.

Question 40

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 .

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

Question 41

Legal protections against competitors producing and selling a product identical to the one you invented are called ; legal protections against competitors using your product's name are called .

A)patents; trademarks
B)trademarks; copyrights
C)copyrights; patents
D)trademarks; patents

Question 42

A consumer will buy a new product rather than an 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 43

Process innovation causes an upward shift in a firm's total product curve and

A)a decrease in its average product.
B)a downward shift in its average total cost curve.
C)an upward shift in its average total cost curve.
D)an upward shift in its marginal revenue curve.

Question 44

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

A)patents.
B)trademarks.
C)imitation by others.
D)trade secrets.

Question 45

Assume that a firm's interest-rate cost-of-funds curve for R&D is perfectly elastic.Which of the following would decrease a firm's optimal R&D expenditures and, in equilibrium, increase the expected rate of return on the last dollar of R&D?

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 46

We know with certainty that a consumer will buy a newly introduced product rather than an existing product when the

A)MU/P of the new product exceeds the MU/P of the existing product.
B)price of the new product is less than the price of the existing product.
C)MU of the new product is more than the MU of the existing product.
D)law of diminishing marginal utility applies to the existing product.

Question 47

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?

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 48

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

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

Question 49

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

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.

Question 50

Suppose that Marlen Fisher has legal protection against anyone producing and selling a fishing lure specifically named "MarFish." This legal protection is most likely to be a

A)trademark.
B)restraining order.
C)patent.
D)copyright.

Question 51

Process innovation refers to

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 52

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

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 53

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

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 54

For a new product to be profitable, it must

A)enable customers to obtain greater total utility from their money income.
B)be less expensive than existing substitute products.
C)have greater marginal utility than existing substitute products.
D)embody process innovation.

Question 55

Fast-second strategies are more likely to be used by

A)dominant firms than by start-up firms.
B)pure competitors rather than by oligopolists.
C)start-up firms rather than by existing firms.
D)entrepreneurs rather than by corporations.

Question 56

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

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.Difficulty: 02 Medium

Question 57

Process innovation can be depicted as

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.

Question 58

Suppose that Marlen Fisher has legal protection against anyone producing and selling a fishing lure identical to his unique-action "MarFish" lure, whatever the competitor might name the lure.This legal protection is most likely to be a

A)trademark.
B)restraining order.
C)patent.
D)copyright.

Question 59

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

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

Question 60

Other things equal, the prospect of imitation by others

A)decreases the expected rate of return on R&D expenditures.
B)increases the expected rate of return on R&D expenditures.
C)increases the interest-rate cost of funds used to finance R&D expenditures.
D)decreases the interest-rate cost of funds used to finance R&D expenditures.

Question 61

Technological advance improves productive efficiency by

A)lowering average total cost.
B)increasing marginal utility.
C)enhancing monopoly power.
D)giving society a more-preferred mix of goods and services.

Question 62

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

A)Entry to purely competitive industries is easy, and thus profit from innovation is quickly competed away.
B)Pure competitors cannot risk being complacent about innovation because a new product, production technique, or distribution method could undermine their normal
C)Most purely competitive industries are increasing-cost industries.
D)Pure competitors are happy to earn only a normal profit.

Question 63

Which pair of market structures provides firms with the greatest ability to finance R&D out of retained earnings?

A)oligopolists and pure monopolists
B)pure competitors and pure monopolists
C)pure competitors and monopolistic competitors
D)monopolistic competitors and pure monopolists

Question 64

Economists who contend that oligopolists have a strong incentive to engage in R&D say that

A)the undistributed profits of oligopolists give them a source of readily available, relatively low-cost funds for financing R&D.
B)entry barriers enable oligopolists to sustain the profit they gain from innovation.
C)the large size of oligopolists' R&D departments allows them to use specialized, expensive R&D equipment and employ teams of specialized researchers.
D)all of the other answers are true.

Question 65

Other things equal, patents

A)decrease the expected rate of return on an R&D expenditure.
B)increase the expected rate of return on an R&D expenditure.
C)increase the interest-rate cost of funds used to finance an R&D expenditure.
D)decrease the interest-rate cost of funds used to finance an R&D expenditure.

Question 66

In the inverted-U theory of R&D,

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 67

In general, which of the following is true?

A)the number of firms in the industry is far more important than the industry's scientific character and extent of technological opportunities.
B)the greater an industry's concentration ratio, the higher are its R&D expenditures in relation to sales.
C)the industry's scientific character and extent of technological opportunities often are more important than the industry's concentration ratio.
D)the higher the industry's interest cost of borrowing funds for R&D, the greater is the industry's progressiveness.

Question 68

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

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 69

The conjecture that R&D expenditures as a percentage of firms' sales first rise, reach a peak, and then fall as industry concentration rises is known as the

A)inverted-U theory of R&D.
B)average product of R&D theory.
C)bell-shaped-curve theory of product innovation.
D)theory of increasing and diminishing returns.

Question 70

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

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.

Question 71

Even where imitation is possible, a firm may gain advantage from being the first to introduce an innovative product because of

A)long-lasting brand-name recognition.
B)a time lag between innovation and imitation by rivals.
C)trade secrets that limit the ability of rivals to exactly imitate the product.
D)all of the other answers are correct.

Question 72

Which of the following supports the contention that monopolistic competitors have a strong incentive to engage in 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 73

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)?

A)1 percent
B)10 percent
C)50 percent
D)70 percent

Question 74

Other things equal, trademarks and brand names

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.

Question 75

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

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 76

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

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.

Question 77

Technological advance improves allocative efficiency by

A)enhancing monopoly power.
B)reducing income inequality.
C)giving society a more-preferred mix of goods and services.
D)encouraging saving.

Question 78

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

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 79

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

A)profit rights.
B)patent.
C)copyright.
D)trademark.

Question 80

Which among the following is the strongest determinant of an industry's technological progressiveness?

A)the scientific character of its industry and the number of technological opportunities available
B)the size of the industry concentration ratio-the lower the ratio, the greater the firm's technological progressiveness
C)the Herfindahl index in the firm's industry-the higher the index value, the greater the firm's technological progressiveness
D)the amount of retained earnings in the industry