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

Quizplus · Accepted Answer

The inverted-U theory of R&D states that as industry concentration rises, R&D expenditures as a percentage of firms' sales will first rise, reach a peak, and then fall. This is because as concentration increases, firms may invest more in R&D to compete with each other, but eventually diminishing returns to R&D investment and the costs of innovation may lead to a decline in R&D expenditures.

The Conjecture That R&D Expenditures as a Percentage of Firms