Because firms can free ride on the research and development of other firms
A)firms choose a level of research and development where the marginal cost of research is equal to the economy's marginal return of research.
B)firms choose a level of research and development where the marginal cost of research is above the economy's marginal return of research.
C)firms choose a level of research and development where the marginal cost of research is below the economy's marginal return of research.
D)firms choose a level of research and development where the marginal cost of research is below the individual firm's marginal return of research.

Question

Quizplus · Accepted Answer

Firms tend to underinvest in research and development because they cannot capture the full benefits of their research; some benefits spill over to other firms. This leads them to choose a level of research and development where the marginal cost of research is below the economy's marginal return of research, as they account for only their private returns and not the broader social or economic returns.

Because Firms Can Free Ride on the Research and Development