Profit-maximizing firms will choose a level of spending on research and development, in the short run, where the

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Profit-maximizing firms will choose a level of spending on research and development in the short run at which marginal revenue from R&D is equal to its marginal cost. At this point, any further spending on R&D would result in the marginal cost being greater than the marginal revenue gained, leading to a decrease in profits. Therefore, the ideal level of R&D spending is where marginal revenue and marginal cost are equal.

Profit-Maximizing Firms Will Choose a Level of Spending on Research