The decision to innovate
A) depends on whether the firm wants to benefit its customers.
B) depends on the marketing department's needs.
C) is unnecessary in a monopolistically competitive market.
D) is based on the marginal cost and the marginal revenue of innovation.
E) None of the above answers is correct.

Question

Quizplus · Accepted Answer

The decision to innovate is based on the marginal cost and the marginal revenue of innovation. This means that a firm will only innovate if the potential benefits outweigh the costs of innovation. Simply wanting to benefit customers or the needs of the marketing department may not be enough for a firm to justify the costs of innovation. In a monopolistically competitive market, firms may feel pressure to innovate in order to differentiate themselves from their competitors and maintain their market share, but the decision to innovate still ultimately depends on the potential costs and benefits.

The Decision to Innovate