15–81
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AACSB: Knowledge Application
Accessibility: 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: II
184.
The following can increase the profits of an innovating firm, except
A.
new product introductions.
185.
The profit–enhancing impact of product innovation tends to be on all of the following, except
A.
the firm’s revenues.
186.
The profit-enhancing impact of process innovation tends to be on all of the following,
except
A. the firm’s TP or MP curves.
15–82
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written consent of McGraw-Hill Education.
B. the firm’s MR curve.
C.
the firm’s cost curves.
D.
the firm’s productivity.
187.
Product innovation will be successful only if it makes the product’s
A.
marginal utility increase.
188.
Consumers will make a decision to purchase a new product only if it
A.
has a lower marginal utility per dollar spent than another product.
D. can be sold at a lower price than that for a competing product.
15–83
189.
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
A.
increase consumption of product X because of its lower price.
190.
Assume that a consumer purchases a combination of products. Product A is an old and
reliable product. Product B is a new and appealing product. The MUa/Pa = 40
and MUb/Pb =
45. To maximize utility without spending more money, the consumer should
D.
make no change in A and B.
191.
In choosing between an old reliable product and a new attractive product, the consumer will
A.
always buy the product with the lower price.
15–84
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written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Acces s i b i li t y : Keyboard Navigation
Blooms: Understand
Di fficulty : 02 Medium
Learning Objective: 15–04 Discuss how technological change can increase profits by
raising revenues or lowering costs.
Test Bank: II
Topic: Increased Profit via Innovation
192.
Product
Price Per Unit
Marginal Utility From Current Consumption
A
$10
20
B
5
15
C
20
30
The table shows the marginal utilities derived from current consumption levels of three new
products, A, B, and C, that are being sold in the market at the prices
listed. The consumer can
immediately gain the most extra total utility by switching spending from
A.
A to B.
193.
Product X
Product Y
Quantity
MUx
MUy
1
16
12
2
14
10
3
12
8
4
10
6
5
8
4
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. If the consumer can only buy old product X, how much will the consumer buy
and what will be the total utility from spending the
given budget?
A.
4X and 52
194.
Product X
Product Y
Quantity
MUx
MUy
1
16
12
2
14
10
3
12
8
4
10
6
5
8
4
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. If the consumer buys both old product X and new product Y, how much will the
consumer buy of each to maximize utility?
15–86
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written consent of McGraw-Hill Education.
C.
4X and 3Y
D.
4X and 2Y
195.
Product X
Product Y
Quantity
MUx
MUy
1
16
12
2
14
10
3
12
8
4
10
6
5
8
4
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. When the consumer purchases the utility-maximizing combination of old
product X and new product Y, total utility will be
A. 62.
196.
Product X
Product Y
Quantity
MUx
MUy
1
16
12
2
14
10
3
12
8
4
10
6
5
8
4
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. The consumer was originally limited to purchasing old product X but now can
also purchase new product Y. What is the increase
in total utility from the original situation
when the consumer purchases the utility-maximizing combination of both X and Y?
A. 10
197.
Consumer acceptance of a new product depends on
A.
price alone.
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Topic: Increased Profit via Innovation
198.
Which would be a good example of a successful introduction of a new product?
D.
New Coke by Coca-Cola
199.
Henry Ford’s development of an assembly method for building cars and trucks would be an
example of
A.
product improvement.
200.
Process innovation will shift a firm‘s
D.
marginal cost curve upward.
15–89
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written consent of McGraw-Hill Education.
Blooms: Understand
Di fficulty : 02 Medium
Learning Objective: 15–04 Discuss how technological change can increase profits by
raising revenues or lowering costs.
Test Bank: II
Topic: Increased Profit via Innovation
201.
If a firm improves its production method, this change will shift the firm‘s
A. total product curve downward.
202.
If a firm develops better methods of producing a product, then this process innovation can
be expected to result in a(n)
A.
upward shift in both the total product and average cost curves.
203.
Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20
per labor unit; and price paid for raw materials = $8 per raw-material
unit. If the firm can
produce 2,000 units of output by combining its fixed capital with 200 units of labor and 500
units of raw materials, what are the total cost (TC)
and average total cost (ATC) of producing
15–90
the 2,000 units of output?
A. TC = $4,000; ATC = $4.00
204.
Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20
per labor unit; and price paid for raw materials = $8 per raw-material
unit. The firm improves
its production process so that it can produce 3,000 units of output by combining its fixed capital
with 100 units of labor and 500 units of raw
materials. What are the total cost and average cost
of producing the 3,000 units of output?
A. TC = $4,000; ATC = $2.00
Topic: Increased Profit via Innovation
205.
Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20
per labor unit; and price paid for raw materials = $8 per raw-material
unit. Originally the firm
produced 2,000 units of output by combining its fixed capital with 200 units of labor and 500
units of raw materials. Now the firm improves
its production process so that it can produce
3,000 units of output by combining its fixed capital with 100 units of labor and 500 units of raw
materials. What
happened to total cost?
15–91
A. TC increased by $2,000
206.
Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20
per labor unit; and price paid for raw materials = $8 per raw-material
unit. Originally the firm
produced 2,000 units of output by combining its fixed capital with 200 units of labor and 500
units of raw materials. Now the firm changes
its production process so that it can produce 3,000
units of output by combining its fixed capital with 100 units of labor and 500 units of raw
materials. What
happened to average total cost?
D.
ATC decreased by $3.33
207.
Assume a firm faces these costs: total cost of capital = $4,000; price paid for labor = $20
per labor unit; and price paid for raw materials = $8 per raw-material
unit. Originally the firm
produced 2,000 units of output by combining its fixed capital with 200 units of labor and 500
units of raw materials. Now the firm changes
its production process so that it can produce 3,000
units of output by combining its fixed capital with 100 units of labor and 500 units of raw
materials. What valid
conclusion can be drawn about the effect and reasons for the change?
A. It improved economic efficiency because more units could be produced at a lower ATC using
the same amount of economic resources.
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written consent of McGraw-Hill Education.
B. It improved economic efficiency because more units could be produced at a lower ATC using
fewer economic resources.
C.
It improved economic efficiency because more units could be produced at the same ATC
using fewer economic resources.
D.
It reduced economic efficiency because fewer units could be produced at a higher ATC using
more economic resources.
208.
Refer to the diagram. Process innovation will tend to
C.
change output from Q1 to Q2.
D.
change output from Q2 to Q1.
15–93
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written consent of McGraw-Hill Education.
Difficulty: 02 Medium
Learning Objective: 15–04 Discuss how technological change can increase profits by
raising revenues or lowering costs.
Test Bank: II
Topic: Increased Profit via Innovation
209.
Refer to the diagram. Assume the firm is currently producing at Q1 with average cost associated
with point a. A process innovation will reduce average costs from
point a to point
A.
e.
210.
Which of the following statements does not apply when a firm’s rivals imitate its innovation.
A. It tends to reduce the originator’s profits
15–94
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written consent of McGraw-Hill Education.
B. It enhances the innovator’s returns to its R&D expenditures.
C.
It is often the path to widespread diffusion of the innovation.
D.
It helps other firms incorporate innovative features into their own operations.
211.
Factors that help firms who invent and innovate deal with the “imitation problem” include all
of the following, except
A.
patents.
212.
A “fast-second strategy” means that a dominant firm in an industry
A.
uses just–in-time inventory control methods to speed production.
15–95
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written consent of McGraw-Hill Education.
Topic: Imitation and R&D Incentives
213.
When a dominant firm quickly copies the new product innovation of a smaller firm so that it
is the next firm to make the innovation, it is following a
A.
venture capital strategy.
214.
The legal protection for publishers of books, computer software, movies, videos, and
musical compositions from having their works used or copied by others
without their
permission is a
A. patent.
215.
The legal protection that gives the original innovators of products the exclusive right to use
a particular product name is a
A.
patent.
15–96
216.
A legal protection for taking the lead in innovation is
217.
One of the major advantages of being the first to develop a product is
A.
an increase in the average total cost of production.
218.
Which market structure has a strong incentive for product development and differentiation?
15–97
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written consent of McGraw-Hill Education.
A. monopolistic competition
B.
pure competition
C.
pure monopoly
D.
oligopoly
219.
Under which market structure are profit rewards most likely to be quickly taken away by
existing firms or new firms entering the industry?
A.
oligopoly
220.
Which market structure is most likely to have the means and some incentive to innovate?
C.
pure competition
D.
monopolistic competition