What is the nature of the positive externality associated with research and development (R&D)?
A) Firms that engage in R&D may develop more profitable products.
B) Firms that engage in R&D may be able to lower their production costs.
C) R&D may lead to discoveries that make other firms more innovative.
D) Firms that engage in R&D tend to pay higher stock dividends.

Question

Quizplus · Accepted Answer

Positive externalities occur when the actions of an individual or firm benefit others who are not directly involved in the transaction. In the case of R&D, the knowledge generated can spill over to other firms or industries, making them more innovative without them incurring the costs of the R&D. This is a classic example of a positive externality, as the benefits of the research extend beyond the entity that conducted it.

What Is the Nature of the Positive Externality Associated with Research