As it relates to R&D, a firm's expected-rate-of-return-curve, r,
A) slopes downward because the firm arrays, highest to lowest, the rates of return on R&D activities.
B) slopes upward because of the law of diminishing returns.
C) is a horizontal line.
D) depends on whether it borrows from the bank or uses retained earnings in financing R&D.

Question

Quizplus · Accepted Answer

The expected-rate-of-return-curve for R&D activities slopes downward because the firm arranges, from highest to lowest, the rates of return on these activities. This curve represents the relationship between the level of investment in R&D and the expected rate of return from those investments. As the level of investment increases, the expected rate of return decreases, mainly because of a higher marginal cost of investment as more resources are dedicated to R&D.

As It Relates to R&D, a Firm's Expected-Rate-Of-Return-Curve, R