Question 1

All of the following increase the expected rate of return on R&D expenditures except
A)patents.
B)trademarks.
C)imitation by others.
D)trade secrets.

Accepted Answer

Imitation by others does not increase the expected rate of return on R&D expenditures; instead, it can decrease it by allowing competitors to benefit from the original firm's R&D without incurring the same costs. Patents, trademarks, and trade secrets all protect intellectual property and innovations, thereby potentially increasing the returns on R&D by limiting competition and imitation.

Question 2

Gigantic Corporation follows a strategy of waiting for rivals to innovate, then quickly imitating any successful innovations. This behavior is known as
A)collusion.
B)an entrepreneurial strategy.
C)a fast-second strategy.
D)pricing the demand curve.

Accepted Answer

This behavior is known as a fast-second strategy, where a company quickly follows the lead of innovators, imitating their successful products or services.

Question 3

If a firm develops better methods of producing a product, then this process innovation can be expected to result in a(n)
A)upward shift in both the total product and average cost curves.
B)downward shift in both the total product and average cost curves.
C)downward shift in the total product curve and an upward shift in the average cost curve.
D)upward shift in the total product curve and a downward shift in the average cost curve.

Accepted Answer

Process innovation typically leads to more efficient production methods, which can increase the total output (total product curve shifts upward) and reduce the cost per unit of output (average cost curve shifts downward).

Question 4

Suppose that Marlen Fisher has legal protection against anyone producing and selling a fishing lure identical to his unique-action "MarFish" lure, whatever the competitor might name the lure. This legal protection is most likely to be a
A)trademark.
B)restraining order.
C)patent.
D)copyright.

Accepted Answer

A patent provides legal protection for inventions, including unique designs or functions in products like Marlen Fisher's unique-action "MarFish" lure, preventing others from making, using, or selling the invention without permission.

Question 5

As it relates to R&D, the imitation problem is that
A)patents, copyrights, and trademarks hinder imitation and thus limit economically desirable diffusion.
B)brand names create entry barriers for would-be competitors.
C)diffusion of innovation occurs more slowly than is desirable from society's perspective.
D)a firm's rivals may be able to copy its new product or process innovation, reducing the original firm's return on R&D.

Accepted Answer

The imitation problem in R&D refers to the risk that a firm's competitors may copy its innovations, thereby diminishing the returns on the original firm's investment in research and development. This issue underscores the challenges in protecting intellectual property and maintaining competitive advantage.

Question 6

Suppose that Marlen Fisher has legal protection against anyone producing and selling a fishing lure specifically named "MarFish." This legal protection is most likely to be a
A)trademark.
B)restraining order.
C)patent.
D)copyright.

Accepted Answer

A trademark is used to protect brand names and logos used on goods and services, which in this case applies to the specific name "MarFish" for a fishing lure.

Question 7

Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20 per labor unit; and price paid for raw materials = $8 per raw-material unit. Originally the firm produced 2,000 units of output by combining its fixed capital with 200 units of labor and 500 units of raw materials. Now the firm changes its production process so that it can produce 3,000 units of output by combining its fixed capital with 100 units of labor and 500 units of raw materials. What happened to average total cost?
A)ATC decreased by $2.67
B)ATC increased by $2.67
C)ATC increased by $3.33
D)ATC decreased by $3.33

Accepted Answer

ATC decreased by $2.67 because the firm is now producing more output with the same amount of inputs.

Question 8

Refer to the diagram. Process innovation will tend to A)shift ATC₁ to ATC₂. B)shift ATC₂ to ATC₁. C)change output from _Q1 to Q₂. D)change output from _Q2 to Q₁.

Accepted Answer

The answer of  Refer to the diagram. Process innovation...

Question 9

Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20 per labor unit; and price paid for raw materials = $8 per raw-material unit. The firm improves its production process so that it can produce 3,000 units of output by combining its fixed capital with 100 units of labor and 500 units of raw materials. What are the total cost and average cost of producing the 3,000 units of output?
A)TC = $4,000; ATC = $2.00
B)TC = $8,000; ATC = $3.00
C)TC = $10,000; ATC = $3.33
D)TC = $15,000; ATC = $6.00

Accepted Answer

Total cost (TC) includes the cost of capital, labor, and raw materials. TC = $4,000 (capital) + ($20 * 100 labor units) + ($8 * 500 raw-material units) = $4,000 + $2,000 + $4,000 = $10,000. Average total cost (ATC) is TC divided by the quantity of output, so ATC = $10,000 / 3,000 units = $3.33.

Question 10

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 law protects original works of authorship, including literary works. By reproducing and distributing the novel without permission, BCB violates the copyright held by the publisher or author.

Question 11

Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20 per labor unit; and price paid for raw materials = $8 per raw-material unit. Originally the firm produced 2,000 units of output by combining its fixed capital with 200 units of labor and 500 units of raw materials. Now the firm improves its production process so that it can produce 3,000 units of output by combining its fixed capital with 100 units of labor and 500 units of raw materials. What happened to total cost?
A)TC increased by $2,000
B)TC decreased by $2,000
C)TC decreased by $4,000
D)TC remained unchanged

Accepted Answer

The firm reduced labor from 200 to 100 units, saving $2,000 (100 units x $20/unit), while capital and raw material costs remained unchanged.

Question 12

Legal protections against competitors producing and selling a product identical to the one you invented are called _________; legal protections against competitors using your product's name are called __________.
A)patents; trademarks
B)trademarks; copyrights
C)copyrights; patents
D)trademarks; patents

Accepted Answer

Patents protect inventions or processes from being made, used, or sold by others without permission, while trademarks protect brand names, logos, and slogans used to identify goods or services.

Question 13

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

The conclusion that a new product is patentable increases the potential returns from R&D, shifting the expected-rate-of-return curve to the right and thereby increasing the firm's optimal amount of R&D investment.

Question 14

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

The conclusion that the new production process is patentable increases the potential profitability of the R&D investment, shifting the expected-rate-of-return curve to the right and increasing the firm's optimal amount of R&D.

Question 15

Other things equal, the prospect of imitation by others
A)decreases the expected rate of return on R&D expenditures.
B)increases the expected rate of return on R&D expenditures.
C)increases the interest-rate cost of funds used to finance R&D expenditures.
D)decreases the interest-rate cost of funds used to finance R&D expenditures.

Accepted Answer

The prospect of imitation by others decreases the expected rate of return on R&D expenditures because if others can easily copy or imitate the innovations, the original innovator will face competition sooner, reducing the profits that can be earned from the innovation.

Question 16

Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20 per labor unit; and price paid for raw materials = $8 per raw-material unit. Originally the firm produced 2,000 units of output by combining its fixed capital with 200 units of labor and 500 units of raw materials. Now the firm changes its production process so that it can produce 3,000 units of output by combining its fixed capital with 100 units of labor and 500 units of raw materials. What valid conclusion can be drawn about the effect and reasons for the change?
A)It improved economic efficiency because more units could be produced at a lower ATC using the same amount of economic resources.
B)It improved economic efficiency because more units could be produced at a lower ATC using fewer economic resources.
C)It improved economic efficiency because more units could be produced at the same ATC using fewer economic resources.
D)It reduced economic efficiency because fewer units could be produced at a higher ATC using more economic resources.

Accepted Answer

The firm increased its output from 2,000 to 3,000 units while reducing its labor input from 200 to 100 units and keeping its raw material input constant at 500 units. This means it produced more with fewer resources (specifically, less labor), which improves economic efficiency by lowering the average total cost (ATC) per unit produced.

Question 17

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 protect innovations, allowing the innovator to earn higher returns without competition copying the innovation immediately. This increases the expected rate of return on R&D expenditures by providing a temporary monopoly on the patented technology or product.

Question 18

Fast-second strategies are more likely to be used by
A)dominant firms than by start-up firms.
B)pure competitors rather than by oligopolists.
C)start-up firms rather than by existing firms.
D)entrepreneurs rather than by corporations.

Accepted Answer

Dominant firms often use fast-second strategies to capitalize on the innovations of first movers, leveraging their resources and market position to quickly follow and improve upon the initial offering.

Question 19

Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20 per labor unit; and price paid for raw materials = $8 per raw-material unit. If the firm can produce 2,000 units of output by combining its fixed capital with 200 units of labor and 500 units of raw materials, what are the total cost (TC)and average total cost (ATC)of producing the 2,000 units of output?
A)TC = $4,000; ATC = $4.00
B)TC = $8,000; ATC = $5.00
C)TC = $12,000; ATC = $6.00
D)TC = $15,000; ATC = $8.00

Accepted Answer

Total Cost (TC) = Total cost of capital + (Price paid for labor * Number of labor units) + (Price paid for raw materials * Number of raw material units) = $4,000 + ($20 * 200) + ($8 * 500) = $4,000 + $4,000 + $4,000 = $12,000. Average Total Cost (ATC) = TC / Quantity of output = $12,000 / 2,000 = $6.

Question 20

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 creating brand loyalty and allowing firms to charge premium prices, thus enhancing profitability and return on investment.

Quiz 15: Technology, RD, and Efficiency

All of the following increase the expected rate of return on R&D expenditures except

Gigantic Corporation follows a strategy of waiting for rivals to innovate, then quickly imitating any successful innovations. This behavior is known as

If a firm develops better methods of producing a product, then this process innovation can be expected to result in a(n)

Suppose that Marlen Fisher has legal protection against anyone producing and selling a fishing lure identical to his unique-action "MarFish" lure, whatever the competitor might name the lure. This legal protection is most likely to be a

As it relates to R&D, the imitation problem is that

Suppose that Marlen Fisher has legal protection against anyone producing and selling a fishing lure specifically named "MarFish." This legal protection is most likely to be a

Refer to the diagram. Process innovation will tend to

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

Legal protections against competitors producing and selling a product identical to the one you invented are called _; legal protections against competitors using your product's name are called __.

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 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

Other things equal, the prospect of imitation by others

Other things equal, patents

Fast-second strategies are more likely to be used by

Other things equal, trademarks and brand names