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.

Question

Quizplus · Accepted Answer

The prospect of imitation by others decreases the expected rate of return on R&D expenditures because it reduces the competitive advantage and potential profits that could be gained from the innovation. If others can easily replicate the product or service, it lowers the barriers to entry and reduces the potential market share for the innovator, decreasing the expected return on investment.

Other Things Equal, the Prospect of Imitation by Others