Which of the following supports the contention that pure competitors have a strong incentive to engage in R&D?
A) Entry to purely competitive industries is easy and thus profit from innovation is quickly competed away.
B) Pure competitors cannot risk being complacent about innovation because a new product,production technique,or distribution method could undermine their normal profit and drive them out of the market.
C) Most purely competitive industries are increasing-cost industries.
D) Pure competitors are happy to earn only a normal profit.

Question

Quizplus · Accepted Answer

Pure competitors cannot rely on barriers to entry or market power to sustain their profits, and thus face constant pressure to innovate and improve their efficiency. A new entrant with a better product or process could quickly erode a pure competitor's market share and force them out of business. Therefore, they have a strong incentive to engage in R&D to stay competitive. The other options do not support this contention.

Which of the Following Supports the Contention That Pure Competitors