Question 1

Which of the following supports the contention that monopolistic competitors have a strong incentive to engage in R&D?
A) Entry to monopolistic competitive industries is relatively easy and thus profit from innovation is quickly competed away.
B) Most monopolistic competitive industries are decreasing-cost industries.
C) The desire to differentiate products from competitors may motivate monopolistic competitors to engage in R&D.
D) Monopolistic competitors have large retained earnings that are available to finance R&D.

Accepted Answer

Monopolistic competitors differentiate their products from one another in order to gain market power, and R&D often provides a means of doing so. By investing in R&D, firms can develop new products or improve existing ones, thereby differentiating themselves from competitors and potentially capturing a larger market share. This creates a strong incentive for monopolistic competitors to engage in R&D.

Question 2

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.

Accepted Answer

In pure competition, new firms can easily enter the market and compete on price. This means any profits gained from innovation will quickly be competed away as new entrants replicate the innovation. Therefore, pure competitors have a weak incentive to engage in R&D as there is little chance of gaining a sustained competitive advantage.

Question 3

Economists who contend that oligopolists have a strong incentive to engage in R&D say that:
A) the undistributed profits of oligopolists give them a source of readily available,relatively low-cost funds for financing R&D.
B) entry barriers enable oligopolists to sustain the profit it gains from innovation.
C) the large size of oligopolists' R&D departments allows them to use very specialized,expensive R&D equipment and employ teams of specialized researchers.
D) all of these are true.

Accepted Answer

All of these statements are true. Oligopolists have undistributed profits, which can be used to finance R&D, and their size and market power allow them to sustain the profits from innovation through entry barriers. Additionally, the large size of their R&D departments gives them the resources to use specialized, expensive R&D equipment and employ specialized teams of researchers.

Question 4

A patent on a new product benefits the firm securing it by:
A) limiting the direct imitation of the product by rivals for many years.
B) enabling the firm to retain "trade secrets" about the product.
C) reducing the firm's legal expenses.
D) increasing the speed of diffusion of the new product.

Accepted Answer

A patent grants exclusive rights to the inventor for a certain period of time, typically 20 years from the date of filing. This limits the direct imitation of the product by competitors during this period and provides a competitive advantage to the firm securing the patent.

Question 5

Suppose that Marlen Fisher has legal protection against anyone producing and selling a fishing lure specifically named "MarFish." This legal protection is most likely to be a:
A) trademark.
B) restraining order.
C) patent.
D) copyright.

Accepted Answer

A trademark is a type of protection for words, phrases, symbols, or designs that identify and distinguish the source of goods or services. In this case, "MarFish" is a name that identifies and distinguishes Marlen Fisher's product, so it is likely protected by a trademark. A restraining order is a court order that prohibits certain actions, but it wouldn't be applicable in this case. A patent is a type of protection for inventions, and a copyright is a type of protection for original works of authorship such as books, music, and artwork. Neither of these types of protection would be applicable to a fishing lure named "MarFish."

Question 6

Suppose that Marlen Fisher has legal protection against anyone producing and selling a fishing lure identical to his unique-action "MarFish" lure,whatever the competitor might name the lure.This legal protection is most likely to be a:
A) trademark.
B) restraining order.
C) patent.
D) copyright.

Accepted Answer

A patent is a legal protection granted to an inventor for a limited time period, giving them the exclusive right to make, use and sell their invention. In this case, Marlen Fisher has a unique fishing lure and legal protection against anyone producing and selling an identical product, which indicates that he has a patent for his invention. Trademarks are used to protect brand names and logos, copyrights protect original works of authorship like books or music, and restraining orders are legal documents used to prevent specific behaviors by an individual.

Question 7

Even where imitation is possible,a firm may gain advantage from being the first to introduce an innovative product because of:
A) long-lasting brand-name recognition.
B) a time lag between innovation and imitation by rivals.
C) trade secrets that limit the ability of rivals to exactly imitate the product.
D) all of these.

Accepted Answer

All of these reasons can give a first-mover advantage in introducing an innovative product. Long-lasting brand-name recognition can lead to higher customer loyalty and market share. A time lag between innovation and imitation by rivals can allow the first-mover to establish a foothold in the market and gain a competitive edge. Trade secrets can limit the ability of rivals to exactly imitate the product, which can protect the first-mover's market share and profitability.

Question 8

Suppose that a firm's legal staff concludes that a new product that the firm is developing is patentable.Graphically,this new information would shift the firm's expected-rate-of-return curve on R&D to the:
A) right and reduce its optimal amount of R&D.
B) right and increase its optimal amount of R&D.
C) left and increase its optimal amount of R&D.
D) left and reduce its optimal amount of R&D.

Accepted Answer

If a new product is patentable, it means that the firm has a potential monopoly over its sale and production, leading to higher expected profits. This would shift the expected-rate-of-return curve to the right, indicating that the firm can achieve a higher return on its R&D investment. As a result, the optimal amount of R&D would increase since the potential payoff is greater.

Question 9

Other things equal,trademarks and brand names:
A) increase the interest-rate cost of funds used to finance R&D expenditures.
B) decrease the interest-rate cost of funds used to finance R&D expenditures.
C) decrease the expected rate of return on R&D expenditures.
D) increase the expected rate of return on R&D expenditures.

Accepted Answer

Trademarks and brand names can increase the expected rate of return on R&D expenditures by establishing a strong brand identity and increasing customer loyalty and recognition. This can lead to increased sales and market share, which in turn can generate higher profits and returns on the R&D investment.

Question 10

Legal protections against competitors producing and selling a product identical to the one you invented are called _________;legal protections against competitors using your product's name are called __________.
A) patents;trademarks
B) trademarks;copyrights
C) copyrights;patents
D) trademarks;patents

Accepted Answer

Patents provide legal protection against competitors producing and selling a product identical to the one you invented, while trademarks provide legal protection against competitors using your product's name. Therefore, the correct answer is A.

Question 11

Which among the following is the strongest determinant of an industry's technological progressiveness?
A) The scientific character of its industry and the number of technological opportunities available.
B) The size of the industry concentration ratio;the lower the ratio,the greater the firm's technological progressiveness.
C) The Herfindahl index in the firm's industry;the higher the index value,the greater the firm's technological progressiveness.
D) The amount of retained earnings in the industry.

Accepted Answer

The scientific character of an industry and the number of technological opportunities available play a crucial role in determining an industry's technological progressiveness. Industries that have a higher scientific character, i.e., those that require a deep understanding of science, and have more technological opportunities available are more likely to be technologically progressive. This is because there is a greater need for innovation and experimentation in such industries, and there are more opportunities for firms to develop new technologies and improve existing ones. On the other hand, industries that are less scientifically demanding and have fewer technological opportunities may be less technologically progressive.

Question 12

Suppose that a firm's legal staff concludes that a new production process that the firm is developing is patentable.Graphically,this new information would shift the firm's expected-rate-of-return curve on R&D to the:
A) right and reduce its optimal amount of R&D.
B) right and increase its optimal amount of R&D.
C) left and increase its optimal amount of R&D.
D) left and reduce its optimal amount of R&D.

Accepted Answer

If a new production process is patentable, this means it can provide the firm with a competitive advantage and potential profits. This will shift the expected-rate-of-return curve to the right, indicating that the returns on R&D are expected to be higher. As a result, the optimal amount of R&D will increase as the potential benefits outweigh the costs.

Question 13

Those who contend that oligopolists are less likely than more competitive firms to engage in R&D say that:
A) oligopolists have little incentive to introduce costly new technology and produce new products when they currently are earning large economic profit using existing technology and selling existing products.
B) the undistributed profits of oligopolists give them a source of readily available,relatively low-cost funds for financing R&D.
C) entry barriers enable oligopolists to sustain the profits they gain from innovation.
D) the large size of oligopolists' R&D departments allows them to use very specialized,expensive R&D equipment and employ teams of specialized researchers.

Accepted Answer

Oligopolists may have little incentive to engage in costly R&D as they already have a significant market share and are earning high profits using existing technology and products. This lack of competition reduces the pressure on them to innovate in order to maintain their market position, unlike firms in more competitive markets who may need to constantly innovate to stay ahead of their rivals.

Question 14

The conjecture that R&D expenditures as a percentage of firms' sales first rise,reach a peak,and then fall as industry concentration rises is known as the:
A) inverted-U theory of R&D.
B) average product of R&D theory.
C) bell-shaped-curve theory of product innovation.
D) theory of increasing and diminishing returns.

Accepted Answer

The inverted-U theory of R&D states that R&D spending as a percentage of firms' sales initially rises and then reaches a peak before falling as industry concentration rises, suggesting that there is an optimal level of R&D spending. Option B is not a recognized theory, option C refers to a theory of product innovation, and option D is a different theory altogether.

Question 15

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.

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.

Question 16

Suppose that Book-Cost Busters (BCB),without authorization,reproduced a best-selling novel and placed it for downloading on the BCB pay-for-use website.This action would violate the publisher's:
A) profit rights.
B) patent.
C) copyright.
D) trademark.

Accepted Answer

Copyright refers to the exclusive legal right given to the creator of an original work to use, distribute, and sell that work. Reproducing and distributing a novel without the permission of the author or publisher would be a violation of their copyright. Profit rights, patents, and trademarks do not apply in this scenario.

Question 17

Other things equal,patents:
A) decrease the expected rate of return on an R&D expenditure.
B) increase the expected rate of return on an R&D expenditure.
C) increase the interest-rate cost of funds used to finance an R&D expenditure.
D) decrease the interest-rate cost of funds used to finance an R&D expenditure.

Accepted Answer

Patents provide legal protection for the innovation and can enable the innovator to earn higher profits by charging higher prices for their product or service. This increase in expected profits can lead to a higher expected rate of return on an R&D expenditure.

Question 18

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.

Accepted Answer

The inverted-U theory of R&D suggests that as industry concentration increases, firms will initially increase their R&D expenditures as a percentage of sales in order to stay competitive. However, once industry concentration reaches a certain point, firms will begin to experience diminishing returns to R&D investment, leading to a decrease in R&D expenditures as a percentage of sales. This relationship creates an inverted-U-shaped curve. Therefore, option D is the correct answer.

Question 19

In the inverted-U theory of R&D,which of the following industry concentration ratios would be most conducive to R&D (as a percentage of firm sales)?
A) 1 percent.
B) 10 percent.
C) 50 percent.
D) 70 percent.

Accepted Answer

The inverted-U theory suggests that moderate levels of industry concentration, such as a 50 percent concentration ratio, are most conducive to R&D. This is because at moderate levels, firms have enough competition to drive innovation but also enough market power to afford and benefit from R&D investments.

Question 20

Which pair of market structures provides firms with the greatest ability to finance R&D out of retained earnings?
A) Oligopolists and pure monopolists.
B) Pure competitors and pure monopolists.
C) Pure competitors and monopolistic competitors.
D) Monopolistic competitors and pure monopolists.

Accepted Answer

Oligopolists and pure monopolists typically have higher profits due to less competition, allowing them to retain more earnings that can be invested in research and development (R&D).

Quiz 14: Technology RD and Efficiency

Which of the following supports the contention that monopolistic competitors have a strong incentive to engage in R&D?

Which of the following supports the contention that pure competitors have a weak incentive to engage in R&D?

Economists who contend that oligopolists have a strong incentive to engage in R&D say that:

A patent on a new product benefits the firm securing it by:

Suppose that Marlen Fisher has legal protection against anyone producing and selling a fishing lure specifically named "MarFish." This legal protection is most likely to be a:

Suppose that Marlen Fisher has legal protection against anyone producing and selling a fishing lure identical to his unique-action "MarFish" lure,whatever the competitor might name the lure.This legal protection is most likely to be a:

Even where imitation is possible,a firm may gain advantage from being the first to introduce an innovative product because of:

Suppose that a firm's legal staff concludes that a new product that the firm is developing is patentable.Graphically,this new information would shift the firm's expected-rate-of-return curve on R&D to the:

Other things equal,trademarks and brand names:

Legal protections against competitors producing and selling a product identical to the one you invented are called _;legal protections against competitors using your product's name are called __.

Which among the following is the strongest determinant of an industry's technological progressiveness?

Suppose that a firm's legal staff concludes that a new production process that the firm is developing is patentable.Graphically,this new information would shift the firm's expected-rate-of-return curve on R&D to the:

Those who contend that oligopolists are less likely than more competitive firms to engage in R&D say that:

The conjecture that R&D expenditures as a percentage of firms' sales first rise,reach a peak,and then fall as industry concentration rises is known as the:

Which of the following supports the contention that pure competitors have a strong incentive to engage in R&D?

Suppose that Book-Cost Busters (BCB) ,without authorization,reproduced a best-selling novel and placed it for downloading on the BCB pay-for-use website.This action would violate the publisher's:

Other things equal,patents:

In the inverted-U theory of R&D:

In the inverted-U theory of R&D,which of the following industry concentration ratios would be most conducive to R&D (as a percentage of firm sales) ?

Which pair of market structures provides firms with the greatest ability to finance R&D out of retained earnings?