In deciding on an optimal amount and type of research and development, firms should adhere to the rule: Expand R&D until
A) expected rate of return is zero.
B) expected rate of return equals the interest rate.
C) expected rate of return exceeds the interest rate by the greatest amount.
D) the interest rate is constant.

Question

Quizplus · Accepted Answer

Firms should expand R&D until the expected rate of return equals the interest rate, as this is the point where the cost of funds equals the return, maximizing profitability without incurring unnecessary costs.

In Deciding on an Optimal Amount and Type of Research