Question 1

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

Accepted Answer

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 2

Process innovation leads to technological advance because it

Accepted Answer

A)  decreases total product.
B)  increases average total costs.
C)  decreases productive efficiency.
D)  increases productive efficiency.

Question 3

The modern view of technological advance is that it

Accepted Answer

A)  is the result of random lucky events unrelated to the economic system.
B)  requires government R&D spending to keep it going.
C)  arises from intense rivalry among individuals and firms within the capitalist system.
D)  is a force that is external to the economy, to which the economy adjusts.

Question 4

An amount of R&D spending that is less than the optimal amount indicates that the

Accepted Answer

A)  interest-rate cost-of-funds and expected rate of return are constant.
B)  interest-rate cost-of-funds is equal to the expected rate of return.
C)  interest-rate cost-of-funds is less than the expected rate of return.
D)  interest-rate cost-of-funds is greater than the expected rate of return.

Question 5

A consumer had been consuming product X for some time. This period, she buys fewer X in order to try some units of a new product Y. She finds that her marginal utility of X is 20 (at a price of $10 per unit) , while the marginal utility of Y is 36 (at a price of $12) . The utility-maximizing rule suggests that this consumer should

Accepted Answer

A)  increase consumption of product X because of its lower price.
B)  increase consumption of product X because it is an old reliable product.
C)  increase consumption of product Y because it has a higher MU/P.
D)  increase consumption of product Y because it has a higher MU.

Question 6

The expected-rate-of-return curve for R&D expenditures of a firm slopes downward because of

Accepted Answer

A)  diminishing marginal returns from R&D activities.
B)  economies of scale in R&D projects.
C)  average fixed costs of R&D projects.
D)  the law of supply for R&D expenditures.

Question 7

Process innovation refers to

Accepted Answer

A)  development of new products.
B)  implementation of better methods of producing products.
C)  first discovery of new scientific principles.
D)  widespread imitation of innovations.

Question 8

Which of the following are aptly considered entrepreneurs?

Accepted Answer

A)  top executives of a company
B)  government officials
C)  hired managers of banks
D)  those who form start-ups

Question 9

In the music industry, cassette tapes were replaced by compact discs, which in turn were replaced by the iPod and MP3 technology. This process would be an example of

Accepted Answer

A)  the inverted-U theory.
B)  creative destruction.
C)  diminishing marginal utility.
D)  the law of diminishing returns.

Question 10

The first discovery (as distinct from first commercial application) of a product or process is called

Accepted Answer

A)  innovation.
B)  invention.
C)  creative destruction.
D)  diffusion.

Question 11

One of the outcomes for society from product innovation is

Accepted Answer

A)  more concentration in industry.
B)  less scientific research.
C)  greater total utility.
D)  fewer mergers.

Question 12

R&D spending decisions by firms are complicated because they involve having to compare present expenditures against future expected gains.

Accepted Answer

A) True 
 B)False

Question 13

The table shows the marginal utility schedules for old product X and new product Y for a hypothetical consumer. The price of X is $2, and the price of good Y is $1. The budget of the consumer is $10. What is the increase in total utility from the original situation when purchasing just X, compared to now when the consumer purchases the utility-maximizing combination of both X and Y?

Accepted Answer

A)  10
B)  18
C)  60
D)  78

Question 14

As it relates to R&D, a firm's expected-rate-of-return-curve, r,

Accepted Answer

A)  slopes downward because the firm arrays, highest to lowest, the rates of return on R&D activities.
B)  slopes upward because of the law of diminishing returns.
C)  is a horizontal line.
D)  depends on whether it borrows from the bank or uses retained earnings in financing R&D.

Question 15

The spread of innovation through imitation refers to

Accepted Answer

A)  invention.
B)  diffusion.
C)  duplication.
D)  diversification.

Question 16

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

Accepted Answer

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 17

When economists view technological change as internal to the economy, they mean that it

Accepted Answer

A)  occurs randomly.
B)  occurs accidentally.
C)  arises deliberately from the profit motive and competition.
D)  arises mainly from government subsidies.

Question 18

The marginal cost to a firm of R&D expenditures is the market interest rate the firm must pay to obtain the needed financing.

Accepted Answer

A) True 
 B)False

Question 19

To maintain returns from research and development, firms

Accepted Answer

A)  sponsor start-ups.
B)  keep trade secrets.
C)  use a fast-second strategy.
D)  advocate creative destruction.

Question 20

The major impact of product innovation tends to be on the firms' revenues, while that of process innovation tends to be on costs.

Accepted Answer

A) True 
 B)False

Exam 15: Technology, RD, and Efficiency

Correct Answer
verified

In the music industry, cassette tapes were replaced by compact discs, which in turn were replaced by the iPod and MP3 technology. This process would be an example of

Correct Answer
verified

Process innovation leads to technological advance because it

Correct Answer
verified

When economists view technological change as internal to the economy, they mean that it

Correct Answer
verified

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

Correct Answer
verified

As it relates to R&D, a firm's expected-rate-of-return-curve, r,

Correct Answer
verified

Process innovation refers to

Correct Answer
verified

Correct Answer
verified

The spread of innovation through imitation refers to

Correct Answer
verified

The first discovery (as distinct from first commercial application) of a product or process is called

Correct Answer
verified

Which of the following are aptly considered entrepreneurs?

Correct Answer
verified

An amount of R&D spending that is less than the optimal amount indicates that the

Correct Answer
verified

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

Correct Answer
verified

To maintain returns from research and development, firms

Correct Answer
verified

The marginal cost to a firm of R&D expenditures is the market interest rate the firm must pay to obtain the needed financing.

Correct Answer
verified

One of the outcomes for society from product innovation is

Correct Answer
verified

The major impact of product innovation tends to be on the firms' revenues, while that of process innovation tends to be on costs.

Correct Answer
verified

The expected-rate-of-return curve for R&D expenditures of a firm slopes downward because of

Correct Answer
verified

R&D spending decisions by firms are complicated because they involve having to compare present expenditures against future expected gains.

Correct Answer
verified

The modern view of technological advance is that it

Correct Answer
verified

Exam 15: Technology, RD, and Efficiency

Correct AnswerverifiedShow Answer

In the music industry, cassette tapes were replaced by compact discs, which in turn were replaced by the iPod and MP3 technology. This process would be an example of

Correct AnswerverifiedShow Answer

Process innovation leads to technological advance because it

Correct AnswerverifiedShow Answer

When economists view technological change as internal to the economy, they mean that it

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

As it relates to R&D, a firm's expected-rate-of-return-curve, r,

Correct AnswerverifiedShow Answer

Process innovation refers to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The spread of innovation through imitation refers to

Correct AnswerverifiedShow Answer

The first discovery (as distinct from first commercial application) of a product or process is called

Correct AnswerverifiedShow Answer

Which of the following are aptly considered entrepreneurs?

Correct AnswerverifiedShow Answer

An amount of R&D spending that is less than the optimal amount indicates that the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

To maintain returns from research and development, firms

Correct AnswerverifiedShow Answer

The marginal cost to a firm of R&D expenditures is the market interest rate the firm must pay to obtain the needed financing.

Correct AnswerverifiedShow Answer

One of the outcomes for society from product innovation is

Correct AnswerverifiedShow Answer

The major impact of product innovation tends to be on the firms' revenues, while that of process innovation tends to be on costs.

Correct AnswerverifiedShow Answer

The expected-rate-of-return curve for R&D expenditures of a firm slopes downward because of

Correct AnswerverifiedShow Answer

R&D spending decisions by firms are complicated because they involve having to compare present expenditures against future expected gains.

Correct AnswerverifiedShow Answer

The modern view of technological advance is that it

Correct AnswerverifiedShow Answer

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