Which of the following supports the contention that pure competitors have a weak incentive to engage in R&D?
A) Entry to purely competitive industries is easy, and thus profit from innovation is quickly competed away.
B) In pure competition, products are already highly differentiated.
C) Most purely competitive industries are increasing-cost industries.
D) Pure competitors are happy to earn only a normal profit.

Question

Quizplus · Accepted Answer

In a perfectly competitive industry, new entrants can easily enter the market, which makes it difficult for any one firm to earn excess profits from innovation. As soon as one company develops a new product or technology, competitors can quickly replicate it, which reduces the potential for long-term profits. Therefore, pure competitors have weak incentives to engage in R&D.

Which of the Following Supports the Contention That Pure Competitors