Question 1

Pure monopoly is the best market structure for encouraging R&D and innovation.

Accepted Answer

A) True 
 B)False

Question 2

In deciding on an optimal amount and type of research and development, firms should adhere to the rule: Expand R&D until

Accepted Answer

A)   expected rate of return is zero.
B)   expected rate of return equals the interest rate.
C)   expected rate of return exceeds the interest rate by the greatest amount.
D)   the interest rate is constant.E) B) and C)
F) C) and D)

Question 3

The U.S. government has been increasing the portion of its budget and its spending on R&D activities, for the nation's long-term growth.

Accepted Answer

A) True 
 B)False

Question 4

Assume that a firm's interest-rate cost-of-funds curve for R&D is perfectly elastic. Which of the following would decrease a firm's optimal R&D expenditures and, in equilibrium, increase the expected rate of return on the last dollar of R&D?

Accepted Answer

A)   a rightward shift of the expected-rate-of-return curve
B)   an upward shift of the interest-rate cost-of-funds curve
C)   a leftward shift of the expected-rate-of-return curve
D)   a downward shift of the interest-rate cost-of-funds curveE) A) and B)
F) A) and C)

Question 5

In analyzing a market, the time horizon where technology can change and firms can offer new products is referred to as the

Accepted Answer

A)   short run.
B)   very short run.
C)   long run.
D)   very long run.E) All of the above
F) B) and C)

Question 6

A major source of funding of R&D in large, established corporations is

Accepted Answer

A)   venture capital.
B)   dividends.
C)   mutual funds.
D)   retained earnings.E) B) and D)
F) C) and D)

Question 7

Which two market structures have a strong need to innovate but have low expected returns on R&D expenditures?

Accepted Answer

A)   monopoly and oligopoly
B)   oligopoly and pure competition
C)   monopoly and monopolistic competition
D)   monopolistic competition and pure competitionE) A) and C)
F) B) and C)

Question 8

If a firm improves its production method, this change will shift the firm's

Accepted Answer

A)   total product curve downward.
B)   average cost curve downward.
C)   average cost curve upward.
D)   marginal cost curve upward.E) A) and D)
F) B) and C)

Question 9

If a firm develops better methods of producing a product, then this process innovation can be expected to result in a(n)

Accepted Answer

A)   upward shift in both the total product and average cost curves.
B)   downward shift in both the total product and average cost curves.
C)   downward shift in the total product curve and an upward shift in the average cost curve.
D)   upward shift in the total product curve and a downward shift in the average cost curve.E) All of the above
F) B) and D)

Question 10

As pizza topped with barbecue chicken became popular at specialty restaurants, Pizza Hut and Papa John's introduced a similar pizza. This imitation illustrates

Accepted Answer

A)   innovation.
B)   invention.
C)   creative destruction.
D)   diffusion.E) A) and C)
F) All of the above

Question 11

Which of the following statements about technological advance is not true?

Accepted Answer

A)   It enhances both productive and allocative efficiency in the society.
B)   It can increase monopoly power through, for example, patents.
C)   It can eventually destroy old existing monopolies.
D)   It progresses automatically and inevitably.E) C) and D)
F) B) and D)

Question 12

Process innovation causes an upward shift in a firm's total product curve and

Accepted Answer

A)   a decrease in its average product.
B)   a downward shift in its average total cost curve.
C)   an upward shift in its average total cost curve.
D)   an upward shift in its marginal revenue curve.E) A) and B)
F) C) and D)

Question 13

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.E) A) and B)
F) B) and C)

Question 14

New scientific knowledge mainly comes from university and government laboratories, not private firms, because

Accepted Answer

A)   large corporations do not have funds available to channel toward basic research.
B)   government pays scientists higher salaries than do private firms.
C)   entrepreneurs find it difficult to secure venture capital to finance innovation.
D)   basic scientific principles, as such, cannot be patented and do not always have commercial applicability.E) B) and D)
F) None of the above

Question 15

Kodak introduced to the marketplace a digital camera that uses no film but takes photos that can be shown on personal computers. This is an example of

Accepted Answer

A)   economies of scale.
B)   product innovation.
C)   process innovation.
D)   venture capital.E) B) and D)
F) C) and D)

Question 16

When corporations use retained earnings to finance the R&D for a new venture, the marginal cost of financing is zero.

Accepted Answer

A) True 
 B)False

Question 17

Entrepreneurs differ from other innovators because they

Accepted Answer

A)   are more inventive.
B)   bear personal financial risk.
C)   have better management skills.
D)   have the capacity to work in teams.E) All of the above
F) C) and D)

Question 18

Innovation

Accepted Answer

A)   is the first discovery of a product or process, rather than its first successful commercial introduction.
B)   includes new products but not new production methods.
C)   is also known as diffusion.
D)   can either increase or decrease the market share of a large firm, depending on whether it is introduced by the large firm or one of its competitors.E) A) and B)
F) None of the above

Question 19

Successful new products enable consumers to increase the total utility they obtain from a specific amount of their total spending.

Accepted Answer

A) True 
 B)False

Question 20

Creative destruction may either increase or reduce competition, depending on whether the innovation is done by start-up firms or existing dominant firms.

Accepted Answer

A) True 
 B)False

Exam 15: Technology, Rd, and Efficiency

Entrepreneurs differ from other innovators because they

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Creative destruction may either increase or reduce competition, depending on whether the innovation is done by start-up firms or existing dominant firms.

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When corporations use retained earnings to finance the R&D for a new venture, the marginal cost of financing is zero.

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If a firm improves its production method, this change will shift the firm's

Correct AnswerverifiedShow Answer

New scientific knowledge mainly comes from university and government laboratories, not private firms, because

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As pizza topped with barbecue chicken became popular at specialty restaurants, Pizza Hut and Papa John's introduced a similar pizza. This imitation illustrates

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To maintain returns from research and development, firms

Correct AnswerverifiedShow Answer

Kodak introduced to the marketplace a digital camera that uses no film but takes photos that can be shown on personal computers. This is an example of

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In analyzing a market, the time horizon where technology can change and firms can offer new products is referred to as the

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Innovation

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If a firm develops better methods of producing a product, then this process innovation can be expected to result in a(n)

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In deciding on an optimal amount and type of research and development, firms should adhere to the rule: Expand R&D until

Correct AnswerverifiedShow Answer

Which two market structures have a strong need to innovate but have low expected returns on R&D expenditures?

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A major source of funding of R&D in large, established corporations is

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Process innovation causes an upward shift in a firm's total product curve and

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Which of the following statements about technological advance is not true?

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The U.S. government has been increasing the portion of its budget and its spending on R&D activities, for the nation's long-term growth.

Correct AnswerverifiedShow Answer

Assume that a firm's interest-rate cost-of-funds curve for R&D is perfectly elastic. Which of the following would decrease a firm's optimal R&D expenditures and, in equilibrium, increase the expected rate of return on the last dollar of R&D?

Correct AnswerverifiedShow Answer

Successful new products enable consumers to increase the total utility they obtain from a specific amount of their total spending.

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Pure monopoly is the best market structure for encouraging R&D and innovation.

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