In the inverted-U theory of R&D,
A) process innovation and product innovation are inversely related.
B) technological change is inversely related to scientific discovery.
C) R&D expenditures rise continuously as a percentage of firms' sales as industry concentration rises.
D) R&D expenditures first rise as a percentage of firms' sales as industry concentration increases, but then fall as higher industry concentration occurs.

Question

Quizplus · Accepted Answer

The inverted-U theory of R&D suggests that R&D expenditures first rise as a percentage of firms' sales as industry concentration increases, but then fall as higher industry concentration occurs. This is primarily due to the fact that firms in less concentrated industries have more incentives to innovate in order to gain a competitive advantage, while firms in highly concentrated industries may have less incentive to innovate as they already hold dominant market positions. The theory does not suggest a relationship between process innovation and product innovation or between technological change and scientific discovery.

In the Inverted-U Theory of R&D