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15-41
87.
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.
88.
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.
89.
Which pair of market structures provides firms with the greatest ability to finance R&D out of
retained earnings?
15-42
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
B.
pure competitors and pure monopolists
C.
pure competitors and monopolistic competitors
D.
monopolistic competitors and pure monopolists
90.
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.
91.
Those who contend that oligopolists are less likely than more competitive firms to engage in
R&D say that
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.
15-43
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written consent of McGraw-Hill Education.
Acc e s s i bi l ity: Keyboard Navigation
Blooms: Understand
Di f f i c u l t y : 02 Medium
Learning Objective: 15-06 Discuss the role of market structure in promoting technological
advance.
Test Bank: I
Topi c: Role of Market Structure
92.
In the inverted-U theory of R&D,
A.
process innovation and product innovation are inversely related.
93.
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
D.
theory of increasing and diminishing returns.
94.
In the inverted-U theory of R&D, which of the following industry concentration ratios would
15-44
be most conducive to R&D (as a percentage of firm sales)?
A.
1 percent
95.
Industry A has a 60 percent concentration ratio, while industry B has a 40 percent
concentration ratio. According to the inverted-U theory, all else equal, we can
conclude that
A.
industry A will be more technologically progressive than B.
96.
Which among the following is the strongest determinant of an industry's technological
progressiveness?
D.
the amount of retained earnings in the industry
97.
In general, which of the following is true?
D. the higher the industry's interest cost of borrowing funds for R&D, the greater is the industry's
progressiveness.
98.
Technological advance improves productive efficiency by
D.
giving society a more-preferred mix of goods and services.
15-46
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
To pic: Technological Advance and Efficiency
99.
Technological advance improves allocative efficiency by
A.
enhancing monopoly power.
100.
The process by which new firms and new products replace existing dominant firms and
products is called
A.
monopolistic competition.
101.
Creative destruction is
A. the process by which large firms buy up small firms.
15-47
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Acc e s s i bi l ity: Keyboard Navigation
Blooms: Understand
Di f f i c u l t y : 02 Medium
Learning Objective: 15-07 Show how technological advance enhances productive
efficiency and allocative efficiency.
Test Bank: I
Topi c: Technological Advance and Efficiency
102.
Creative destruction is not automatic because
D.
large firms rarely are technologically progressive.
103.
(Consider This) The central idea illustrated by the vignette on "catgut" used as violin strings
is
A.
patent rights.
104.
(Consider This) Violin strings made from sheep intestines were first called "catgut" because
A.
at the time, it was thought to be extremely unlucky to kill sheep.
15-48
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
B.
the inventor wanted to establish a legally protected brand name.
C. the inventor wanted to preserve his trade secret.
D. the inventor thought that "catgut" would sound less offensive to buyers than "sheep intestines."
105.
(Last Word) The percentage of the U.S. federal budget spent on R&D has
A.
risen significantly over the past 50 years.
106.
(Last Word) Many economists believe that the federal government
D.
should finance more consumption through Social Security and Medicare so that the increased
demand encourages greater R&D.
15-49
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written consent of McGraw-Hill Education.
research and development (R
Test Bank: I
107.
(Last Word) Which of the following best explains why most basic scientific research in the
United States is financed by the government?
D.
Private firms collectively spend far less on all types of R&D than the federal government.
True / False Questions
108.
Innovation is the first discovery of a new product or production process; invention is the
first successful commercial introduction of the product or process.
109.
Diffusion is the first successful commercial introduction of a product, the use of a new
method, or the creation of a new form of business enterprise.
15-50
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Di ff ic u lt y : 03 Hard
Learning Objective: 15-01 Differentiate between invention, innovation, and technological
diffusion.
Test Bank: I
Topi c: Invention, Innovation, and Diffusion
110.
Venture capital is another name for retained earnings.
111.
The marginal cost to a firm of R&D expenditures is the market interest rate the firm must
pay to obtain the needed financing.
112.
A firm's optimal amount of R&D occurs where the marginal benefit of this activity exceeds
marginal cost by the greatest amount.
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113.
A firm's optimal amount of R&D occurs where the interest-rate cost of funds and the
expected rate of return are equal.
114.
Successful new products enable consumers to increase the total utility they obtain from a
specific amount of their total spending.
115.
Process innovation is represented as a downward shift in a firm's total product curve and its
average total cost curve.
116.
The theory that R&D expenditures as a percentage of firms' sales first rise, reach a peak, and
then fall with increases in industry concentration is called the
inverted-U theory of R&D.
15-52
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written consent of McGraw-Hill Education.
TRUE
117.
The process by which new firms and new products destroy existing dominant firms and
their products is called creative destruction.
118.
The interest-rate cost-of-funds curve is perfectly elastic because firms can borrow as much
or as little as they want at market interest rates.
119.
The interest-rate cost-of-funds curve is perfectly elastic because expected rates of return on
R&D are constant.
15-53
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Accessibil i t 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
120.
Large, well-established firms are more likely to use retained earnings to finance R&D,
while small start-up firms are more likely to rely on venture capital.
121.
Kara's Kettles, Inc. has developed a new and improved type of cookware. Alex, a typical
consumer, will necessarily purchase Kara's new product if his MU/P for
the new cookware
exceeds that of competing products.
122.
According to the inverted-U theory of R&D, other things equal, firms in industries with
concentration ratios around 10 percent will be more technologically
progressive than firms in
industries with 50 percent concentration ratios.
15-54
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Di f f i c u l t y : 02 Medium
Learning Objective: 15-06 Discuss the role of market structure in promoting technological
advance.
Test Bank: I
Topi c: Role of Market Structure
123.
The inverted-U theory of R&D suggests that more R&D spending will be done by
oligopolists than by firms producing in the other market structures.
124.
Technological advance increases productive efficiency by giving society a more preferred
mix of goods.
125.
Creative destruction may either increase or reduce competition, depending on whether the
innovation is done by start-up firms or existing dominant firms.
15-55
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
efficiency and allocative efficiency.
Test Bank: I
Topi c: Technological Advance and Efficiency
Multiple Choice Questions
126.
Technological advance is a three-step process of
A.
product development, production, and marketing.
127.
The discovery of a product or process through the use of imagination, ingenious thinking,
and experimentation is
A.
process innovation.
128.
The first successful commercial introduction of a new product is called
D.
diffusion.
15-56
129.
In analyzing a market, the time horizon where technology can change and firms can offer
new products is referred to as the
A.
short run.
130.
The first working prototype of a microcomputer chip would be an example of an
A.
innovation.
131.
A common way by which governments encourage invention is by providing the inventor
with a
D.
trademark.
132.
In 2015, the following firms were among the top 10 in terms of securing the most U.S.
patents, except
A.
IBM.
133.
The worldwide duration of patents that begins at the time of application is
A.
10 years.
15-58
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written consent of McGraw-Hill Education.
Learning Objective: 15-01 Differentiate between invention, innovation, and technological
diffusion.
Test Bank: II
Topic: Invention, Innovation, and Diffusion
134.
Which of the following does not aptly describe innovation?
A. first commercial use of a new production process
135.
The two types of innovation are product innovation and
A.
resource innovation.
136.
The introduction of the iPhone by Apple is an example of a(n)
A. invention.
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written consent of McGraw-Hill Education.
AACSB: Analytical Thinking
A cc e s s i b il i t y : Keyboard Navigation
Blooms: Analyze
D i ff ic ul ty : 03 Hard
Learning Objective: 15-01 Differentiate between invention, innovation, and technological
diffusion.
Test Bank: II
Topic: Invention, Innovation, and Diffusion
137.
The spread of an innovation to other products through imitation is called
A.
invention.
138.
The reason that innovation promotes competition is because
A.
innovative firms can charge any price they want for a new product.
139.
The following are examples of innovative products in their respective industries, except
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written consent of McGraw-Hill Education.
B.
Johnson & Johnson's disposable contact lenses.
C.
Hewlett-Packard's scientific calculator.
D.
Apple's iPhone.
140.
What idea is best illustrated by the example of Alamo auto rentals offering unlimited
mileage to drivers and the practice being adopted by other auto rental firms?
A. start-ups
141.
As related to businesses, the term "research and development" is used loosely to include
direct efforts toward
D.
academic research and economic development.
