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.

Question

Quizplus · Accepted Answer

The inverted-U theory suggests that R&D expenditures initially increase as a percentage of sales with rising industry concentration, reflecting the benefits of scale and market power. However, beyond a certain point, higher concentration may reduce competitive pressures, leading to a decrease in R&D intensity. This creates an inverted-U relationship between industry concentration and R&D spending.

In the Inverted-U Theory of R&D