Question 1

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.

Accepted Answer

Technological advance can lead to improvements in the production process, such as lower costs of production through the use of more efficient machinery or processes. This can result in a lower average total cost of production, and potentially lower prices for consumers.

Question 2

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.

Accepted Answer

Pure competitors must innovate to maintain their market position, as any new development by competitors could quickly erode their market share and profits.

Question 3

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

Accepted Answer

The answer of Which pair of market structures provides firms...

Question 4

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.

Accepted Answer

All the other options listed in the answer choices are true. Oligopolists have undistributed profits that they can use to fund research and development, which helps them maintain their competitive advantage. Additionally, they may have entry barriers that keep competitors from entering the market and copying their innovations. Finally, with their size, they have the resources to maintain an expensive R&D department full of specialized researchers and equipment.

Question 5

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.

Accepted Answer

Patents increase the expected rate of return on an R&D expenditure by providing the firm with exclusive rights to use and sell the invention for a set period of time, which can give it pricing power and a competitive advantage in the market.

Question 6

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.

Accepted Answer

According to the inverted-U theory of R&D, as industry concentration increases, firms initially increase their R&D expenditures as a percentage of sales to stay competitive. However, as industry concentration continues to increase, firms may reach a point where further R&D expenditures may not bring significant returns, causing R&D expenditures to decrease as a percentage of sales. This suggests that R&D expenditures first rise and then fall as industry concentration increases, which is described in choice D.

Question 7

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.

Accepted Answer

The industry's scientific character and extent of technological opportunities often determine its level of R&D investment, rather than simply the number of firms or concentration ratio. Highly concentrated industries may invest in R&D to maintain their dominance, but industries with significant technological opportunities and potential may invest more in R&D to capture those opportunities and stay competitive. The interest cost of borrowing funds for R&D is not directly linked to an industry's progressiveness.

Question 8

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.

Accepted Answer

Pure competition is characterized by ease of entry and exit, homogenous products, and a large number of small firms. In such an industry, any new innovation leads to a temporary increase in profits for the innovating firm, but soon competitors catch up and replicate the innovation, leading to a decrease in profits back to normal levels. This encourages firms to focus on cost reduction rather than innovation, as innovation does not offer a sustainable competitive advantage in a purely competitive market. Thus, the statement that entry to purely competitive industries is easy and profit from innovation is quickly competed away supports the contention that pure competitors have a weak incentive to engage in R&D.

Question 9

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.

Accepted Answer

The conjecture that R&D expenditures as a percentage of firms' sales follow an inverted U-shaped curve as industry concentration rises is known as the inverted-U theory of R&D. This theory suggests that initially, firms experience positive returns to R&D investment as they innovate and gain a competitive advantage. However, as the industry becomes more concentrated, firms reach a peak in their R&D investments, after which the returns start declining due to increased competition and decreasing marginal benefits of R&D investment.

Question 10

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.

Accepted Answer

A patent on a new product limits the direct imitation of the product by rivals for a certain number of years, typically 20 years from the filing date. This gives the firm a competitive advantage and allows them to earn higher profits during this period. It also encourages innovation by providing an incentive for firms to invest in research and development to create new products that can be patented.

Question 11

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.

Accepted Answer

Being the first to introduce an innovative product can provide advantages such as brand-name recognition, a time lag before rivals can imitate, and trade secrets that protect the product from exact imitation.

Question 12

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.

Accepted Answer

Monopolistic competitors have a strong incentive to engage in R&D because they desire to differentiate their products from those of competitors. This differentiation can be achieved through product innovation, which can increase sales and profits. Therefore, the desire for product differentiation is a key motivator for R&D in monopolistic competition.

Question 13

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

Accepted Answer

The answer of In the inverted-U theory of R&D, which...

Question 14

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.

Accepted Answer

Trademarks and brand names can increase the expected rate of return on R&D expenditures by strengthening brand loyalty and customer recognition, which can lead to increased sales and profitability.

Question 15

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.

Accepted Answer

If a firm's legal staff concludes that a new production process is patentable, it means that the firm will have exclusive rights to produce and sell the product for a certain period of time. This would increase the expected rate of return on the firm's R&D investment, which would shift the expected rate of return curve to the right. As a result, the firm would increase its optimal amount of R&D investment to take advantage of this increased profitability opportunity. Therefore, the correct choice is B.

Question 16

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.

Accepted Answer

Oligopolists may have less incentive to invest in R&D because they can continue to earn large profits with their existing technology and products, reducing the motivation to innovate.

Question 17

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.

Accepted Answer

Technological advance can improve allocative efficiency by allowing society to produce a more-preferred mix of goods and services. By innovating and improving production processes, firms can produce goods more efficiently, potentially lowering costs and enabling them to offer lower prices. This can lead to greater consumer surplus and overall welfare. Additionally, technological advances can lead to the creation of new goods and services that consumers may value highly.

Question 18

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.

Accepted Answer

If a product is patentable, it means that the firm will have legal protection from competitors for a certain amount of time. This would increase the expected rate of return on R&D because the company will have a monopoly on the product, leading to higher profits. Therefore, the expected-rate-of-return curve on R&D would shift to the right, and the firm's optimal amount of R&D would increase.

Question 19

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.

Accepted Answer

Copyright is the exclusive right granted to a creator to control the use and distribution of their work. Reproducing and distributing a best-selling novel without permission from the publisher would be a violation of their copyright.

Question 20

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

Accepted Answer

The scientific character of an industry and the number of technological opportunities available are the strongest determinants of its technological progressiveness. An industry with a strong scientific knowledge base and a high number of technological opportunities is more likely to be technologically progressive. Factors such as size of industry concentration ratio, Herfindahl index, and retained earnings do not have a direct correlation to technological progressiveness.

Quiz 15: Technology, Rd, and Efficiency

Technological advance improves productive efficiency by

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

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

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

Other things equal, patents

In the inverted-U theory of R&D,

In general, which of the following is true?

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

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 patent on a new product benefits the firm securing it by

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

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

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) ?

Other things equal, trademarks and brand names

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

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

Technological advance improves allocative efficiency by

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

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

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