Test Bank: II
Topic: Role of Market Structure
221.
Which two market structures have a strong need to innovate but have low expected returns
on R&D expenditures?
A.
monopoly and oligopoly
222.
Which market structure offers little incentive to engage in R&D?
A. oligopoly
223.
The “inverted-U theory” of R&D shows the relationship between
A.
marginal benefit and marginal cost of R&D.
15–99
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Ac cessi bil ity : Keyboard Navigation
Blooms: Understand
Diffi cu lty: 02 Medium
Learning Objective: 15–06 Discuss the role of market structure in promoting technological
advance.
Test Bank: II
Topic: Role of Market Structure
224.
An industry with which of the following four-firm concentration ratios would tend to have
the greatest amount of R&D expenditures as a percentage of sales?
A.
0
225.
According to the inverted-U theory, R&D expenditures as a percentage of sales tend to be
relatively low in
A.
low-concentration industries only
226.
The optimal market structure for technological advance seems to be an industry in which
A.
most firms are purely competitive.
227.
Besides market structure, another factor that seems to influence the level of R&D spending
in an industry is the
A.
number of firms in the industry.
228.
One of the outcomes for society from product innovation is
A.
more concentration in industry.
15-101
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Test Bank: II
Topic: Role of Market Structure
229.
Process innovation leads to technological advance because it
A.
decreases total product.
230.
Product innovation contributes to technological advance primarily by
A. decreasing allocative efficiency.
231.
In the 1800s, railroads broke up the monopoly position of wagons, ships, and barges as the
major means of transporting goods. This would be an example of
A.
the fast-second strategy.
15-102
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written consent of McGraw-Hill Education.
Accessibi li ty : Keyboard Navigation
Blooms: Understand
Dif fic ulty: 02 Medium
Learning Objective: 15–07 Show how technological advance enhances productive
efficiency and allocative efficiency.
Test Bank: II
Topic: Technological Advance and Efficiency
232.
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
D.
the law of diminishing returns.
233.
Joseph Schumpeter viewed capitalism as a process of “creative destruction” because
A.
profitable firms are bought out by larger firms.
234.
To maintain returns from research and development, firms
A. sponsor start-ups.
235.
Which of the following statements about technological advance is not true?
A.
It enhances both productive and allocative efficiency in the society.
236.
Compared to the mid-1960s, the percentage of the U.S. Federal budget spent on R&D in
recent years is
A. about the same.
15-104
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written consent of McGraw-Hill Education.
Test Bank: II
Topic: Technological Advance and Efficiency
237.
Which of the following programs receives the smallest share of total Federal spending?
A.
Social Security
AACSB: Knowledge Application
True / False Questions
238.
Technological advance consists of short-run adjustments to the production process that
reduce costs.
239.
Inventions and innovations can both be patented.
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written consent of McGraw-Hill Education.
diffusion.
Test Bank: II
Topic: Invention, Innovation, and Diffusion
240.
Invention and innovation are not the same; innovation tends be derived from invention.
241.
Innovation pertains to commercialization, while invention pertains more to scientific
research.
242.
U.S. business firms channel a majority of their R&D expenditures to scientific research.
243.
In business, the abbreviation “R&D“ refers to recreation and discovery.
244.
The modern view of technological advance is that it is an external force to which the
economy adjusts.
245.
Many economists view technological advance as mainly a response to profit opportunities
arising within a capitalist economy, and not some random external force.
246.
All inventors are entrepreneurs.
FA LSE
247.
Someone who seeks to be hired as the top manager of an existing company is a good
example of an entrepreneur.
248.
R&D activities by government and universities have not been an important factor in
fostering technological advance.
249.
Entrepreneurs often form new small firms called “spin-off firms.”
15-108
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written consent of McGraw-Hill Education.
Blooms: Understand
Dif fic ulty: 02 Medium
Learning Objective: 15-02 Explain how entrepreneurs and other innovators further
technological advance.
Test Bank: II
Topic: Role of Entrepreneurs and Other Innovators
250.
R&D spending decisions by firms are complicated because they involve having to compare
present expenditures against future expected gains.
251.
When entrepreneurs use their own personal savings to finance the R&D for their new
venture, the marginal cost of financing is zero.
252.
When corporations use retained earnings to finance the R&D for a new venture, the
marginal cost of financing is zero.
15-109
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written consent of McGraw-Hill Education.
Test Bank: II
253.
The optimal amount of R&D spending for the firm occurs where its expected return is equal
to the interest-rate cost–of-funds to finance it.
254.
If an R&D activity is affordable, the firm should spend on that activity.
255.
If a particular R&D expenditure is expected to be worthwhile, the firm should undertake it
because the project will definitely increase the firm‘s future profits.
256.
The major impact of product innovation tends to be on the firms’ revenues, while that of
process innovation tends to be on costs.
257.
Consumers will buy a new product instead of an old one that they are used to buying, if the
MU of the new product is larger than the MU of the old product.
258.
Most product innovations consist of minor changes to existing products and are incremental
improvements.
259.
Process innovation raises the firm’s total product curve and lowers its average total cost
curve.
15-111
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Blooms: Understand
Diffi cu lty: 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
260.
One of the advantages of being first to develop a new product is the opportunity to develop
brand–name recognition.
261.
Imitation by rivals is one factor that hinders the diffusion of technological advances.
262.
Imitation by rivals tends to enhance the profits of the innovating firms.
15-112
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written consent of McGraw-Hill Education.
Test Bank: II
Topic: Imitation and R&D Incentives
263.
A “fast-second strategy” refers to a situation where small competitors of a dominant firm
will wait for the dominant firm to innovate, and then quickly imitate the
dominant firm’s
innovations.
264.
Pure monopoly is the best market structure for encouraging R&D and innovation.
265.
The inverted-U theory suggests that R&D effort is strongest in very high concentration
industries.
15-113
266.
The technical and scientific characteristics of an industry may be less important than its
structure in determining R&D spending and innovation.
267.
Technological advance may lead to new monopolies and may also destroy existing
monopolies.
268.
Creative destruction is the situation where the creation of new products destroys the
monopoly market positions of firms producing existing products.
269.
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.