The table shows the rate of return and R&D spending for a hypothetical firm. Assume the interest-rate cost of funds falls from 10 percent to 6 percent. What will happen to the optimal amount of R&D spending?
A)It increases from $24 billion to $36 billion.
B)It increases from $24 billion to $42 billion.
C)It decreases from $36 billion to $24 billion.
D)It decreases from $42 billion to $24 billion.

Question

The table shows the rate of return and R&D spending for a hypothetical firm. Assume the interest-rate cost of funds falls from 10 percent to 6 percent. What will happen to the optimal amount of R&D spending?
A)It increases from $24 billion to $36 billion. 
B)It increases from $24 billion to $42 billion. 
C)It decreases from $36 billion to $24 billion. 
D)It decreases from $42 billion to $24 billion.

Quizplus · Accepted Answer

The Answer of  The table shows the rate of return and R&D spending for a hypothetical firm. Assume the interest-rate cost of funds falls from 10 percent to 6 percent. What will happen to the optimal amount of R&D spending?
A)It increases from $24 billion to $36 billion. 
B)It increases from $24 billion to $42 billion. 
C)It decreases from $36 billion to $24 billion. 
D)It decreases from $42 billion to $24 billion.

The Table Shows the Rate of Return and R&D Spending