Chapter 15 Technology, R&D, and Efficiency Answer Key
Multiple Choice Questions
1.
Broadly defined, technological advance
A. can occur in the short run, long run, or very long run.
2.
In economists‘ models, technological advance occurs in
D.
pure competition but not in monopolistic competition, oligopoly, and pure monopoly.
3.
Technological advance is shown as a(n)
A.
movement from a point inside a production possibilities curve to a point on the curve.
15-2
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written consent of McGraw-Hill Education.
A c c e s s i b i l i t y : Keyboard Navigation
Blooms: Analyze
D i f f i c u l t y : 03 Hard
Learning Objective: 15-01 Differentiate between invention, innovation, and technological
diffusion.
Test Bank: I
To pic: Invention, Innovation, and Diffusion
4.
Technological advance is a three-step process involving
A.
invention, duplication, and diffusion.
5.
The first discovery (as distinct from first commercial application) of a product or process is
called
A. innovation.
6.
The successful commercial introduction of a new product, the use of a new method, or the
creation of a new form of business enterprise is called
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A. innovation.
B.
invention.
C.
creative destruction.
D.
diffusion.
7.
The wide imitation and spread of an innovation is called
A.
innovation.
8.
The first commercial introduction of transparent tape is an example of
D.
diffusion.
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written consent of McGraw-Hill Education.
To pic: Invention, Innovation, and Diffusion
9.
The first discovery of the water-soluble material used in contact lenses is an example of
A. innovation.
10.
The spread of innovation through imitation refers to
A. invention.
11.
As pizza topped with barbecue chicken became popular at specialty restaurants, Pizza Hut
and Papa John’s introduced a similar pizza. This imitation illustrates
A.
innovation.
15-5
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written consent of McGraw-Hill Education.
Blooms: Analyze
D i f f i c u l t y : 03 Hard
Learning Objective: 15–01 Differentiate between invention, innovation, and technological
diffusion.
Test Bank: I
Topi c: Invention, Innovation, and Diffusion
12.
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
A. economies of scale.
13.
Suppose firm X implements a new method for extracting copper from copper-bearing ore.
This is an example of
A. product innovation.
14.
Which of the following is a true statement?
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written consent of McGraw-Hill Education.
B.
Invention normally follows diffusion and precedes innovation.
C.
Diffusion normally follows invention and precedes innovation.
D.
Innovation normally follows diffusion and precedes invention.
15.
Innovation
A.
is the first discovery of a product or process, rather than its first successful commercial
introduction.
16.
In the United States, research and development spending as a percentage of GDP is
A. 1.5 to 2.0 percent, which is lower than many other industrial countries.
15-7
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written consent of McGraw-Hill Education.
Test Bank: I
Topi c: Invention, Innovation, and Diffusion
17.
Which of the following correctly orders, highest to lowest, the relative magnitudes of U.S.
spending by businesses on components of R&D?
A.
invention, basic research, innovation
18.
When economists view technological change as internal to the economy, they mean that it
A.
occurs randomly.
19.
U.S. firms collectively devote the largest portion of their total R&D spending to
A.
applied research (pursuing invention).
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written consent of McGraw-Hill Education.
Acc e s s i bil i t y: Keyboard Navigation
Blooms: Understand
Di f f i c u l ty: 02 Medium
Learning Objective: 15–02 Explain how entrepreneurs and other innovators further
technological advance.
Test Bank: I
To pic: Role of Entrepreneurs and Other Innovators
20.
About
percent of business R&D spending is for basic research.
A. 1
21.
Which of the following statements is most accurate about business R&D spending in the
United States?
A. It is more or less equally distributed between innovation, invention, and basic research.
22.
The modern view of technological advance is that it
A.
is rooted in the independent advance of science, an element largely external to the market
system.
Topi c: Role of Entrepreneurs and Other Innovators
23.
Entrepreneurs
A. work exclusively in government and university R&D laboratories.
24.
Entrepreneurs
A.
include everyone engaged in R&D work.
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written consent of McGraw-Hill Education.
Test Bank: I
To pic: Role of Entrepreneurs and Other Innovators
25.
The major source of new scientific knowledge in the United States is
D.
purely competitive and monopolistically competitive firms.
26.
New scientific knowledge mainly comes from university and government laboratories, not
private firms, because
A.
large corporations do not have funds available to channel toward basic research.
27.
As it relates to the R&D decision, the interest-rate cost-of-funds curve
A. usually slopes downward.
28.
Funds lent to start–up firms in return for shares of the profit if the firms succeed are called
A.
retained earnings.
29.
In exchange for a share of ZYX’s profits if it succeeds, Firm ABC provides development
funds to newly formed ZYX, which is developing an innovative product.
ABC funds are called ,
while ZYX is known as a .
D.
transfer payments; entrepreneurial firm
30.
The retained earnings that corporations often use to finance R&D are also known as
A. venture capital.
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B. undistributed profits.
C.
dividends.
D.
mutual funds.
AACSB: Knowledge Application
Acce s si bi l it y : Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 15–03 Summarize how a firm determines its optimal amount of
research and development (R
Test Bank: I
31.
A major source of funding of R&D in large, established corporations is
A.
venture capital.
32.
The marginal benefit to a firm from its R&D expenditures is depicted by its
A. interest-rate cost-of-funds curve.
33.
As it relates to R&D, the expected-rate-of–return curve, r,
A.
usually slopes upward.
34.
Suppose a firm anticipates that an R&D expenditure of $100 million will result in a new
production process that will reduce costs and thus create a one–time added
profit of $112
million a year later. The firm’s expected rate of return is
A.
0.12 percent.
35.
As it relates to R&D, a firm‘s expected-rate-of-return-curve, r,
D.
depends on whether it borrows from the bank or uses retained earnings in financing R&D.
Test Bank: I
36.
The corporate decision on type and level of R&D activity is difficult because
A.
the interest-rate cost of funds is difficult to estimate.
37.
A profit-maximizing firm should not undertake an R&D project for which the
A. expected rate of return exceeds its interest-rate cost of funds.
38.
In deciding on an optimal amount and type of research and development, firms should adhere
to the rule: Expand R&D until
A. expected rate of return is zero.
15–15
Learning Objective: 15–03 Summarize how a firm determines its optimal amount of
research and development (R
Test Bank: I
39.
Suppose a firm anticipates that a particular R&D expenditure of $100 million will result in a
new product and thus create a one-time added profit of $108 million a
year later. The firm will
A.
undertake the R&D expenditure if its interest-rate cost of borrowing is 12 percent.
40.
Suppose a firm anticipates that a particular R&D expenditure of $20 million will result in a
new product and thus create a one-time added profit of $22 million a
year later. The firm will
A.
not undertake the R&D expenditure if its interest-rate cost of borrowing is 8 percent.
41.
Expected Rate of Return
(%)
R&D
($M)
Interest Rate Cost of
Funds (%)
25
20
10
20
40
10
15
60
10
10
80
10
5
100
10
If we plotted the given data on a graph with R&D expenditures on the horizontal axis, the
A. interest-rate cost–of-funds curve would be a vertical line.
42.
Expected Rate of Return
(%)
R&D
($M)
Interest Rate Cost of
Funds (%)
25
20
10
20
40
10
15
60
10
10
80
10
5
100
10
If we plotted the given data on a graph with R&D expenditures on the horizontal axis, the
A.
interest-rate cost–of-funds curve would be a vertical line.
15–17
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written consent of McGraw-Hill Education.
research and development (R
Test Bank: I
Type: Table
43.
Expected Rate of Return
(%)
R&D
($M)
Interest Rate Cost of
Funds (%)
25
20
10
20
40
10
15
60
10
10
80
10
5
100
10
Refer to the data. The firm’s optimal amount of R&D spending is
A.
$20 million.
44.
Expected Rate of Return
(%)
R&D
($M)
Interest Rate Cost of Funds
(%)
25
20
10
20
40
10
15
60
10
10
80
10
5
100
10
Refer to the data. At $100 million of R&D expenditures, the
D.
firm has exceeded its affordable level of R&D.
45.
Expected Rate of Return
(%)
R&D
($M)
Interest Rate Cost of Funds
(%)
25
20
10
20
40
10
15
60
10
10
80
10
5
100
10
Refer to the data. At $20 million of R&D expenditures, the
A.
marginal cost of R&D exceeds the marginal benefit.
46.
In the diagram, (1) is the
A.
expected-rate–of-return curve, and (2) is the average total cost curve.
47.
In the diagram, the optimal amount of R&D is
A.
$20 million.