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1
Suppose a newly approved treaty expands the number of countries that promise to actively reduce the extent of piracy and copyright infringement within their borders. This will:
A)increase the interest-rate cost of funds used to finance R&D expenditures.
B)decrease the interest-rate cost of funds used to finance R&D expenditures.
C)decrease the expected rate of return on R&D expenditures.
D)increase the expected rate of return on R&D expenditures.
2
If a firm profitably replaces its aging assembly equipment with more productive equipment:
A)both its total product curve and its average total cost curve will shift downward
B)its average total cost curve will shift downward and the firm will move upward along its fixed total product curve
C)its total product curve will shift downward and the firm will move downward along its fixed average total cost curve
D)its total product curve will shift upward and its average total cost curve will shift downward
3
Which of the following is an example of an innovation?
A)Several students write programming code that can be used to conduct on-line auctions
B)Pierre Omidyar uses the code to create the internet auction site eBay
C)Omidyar hires a support staff and gets funding from Benchmark Capital, a venture capital firm, that allows the firm to expand its on-line services
D)Other internet auction sites attempt to copy the success of eBay
4
As embodied in product innovation, technological advance will:
A)not affect allocative efficiency
B)improve allocative efficiency by lowering average total cost
C)improve allocative efficiency provided there is no creative destruction
D)improve allocative efficiency provided the innovation does not give rise to monopoly power
5
A firm anticipates that a particular R&D expenditure of $40 million will generate a one-time profit of $43 million one year later. The firm will undertake this expenditure if its interest-rate-cost of borrowing is:
A)at least 8%
B)at least 10%
C)at most 3%
D)at most 7.5%
6
Benchmark Capital provided $6.5 million in start-up funds to internet auction site eBay in exchange for shares of stock in the company. These start-up funds are known as:
A)venture capital
B)preferred shares
C)mutual funds
D)dividends
7
Which of the following market characteristics suggests that purely competitive firms have only weak incentives to innovate?
A)Freedom of new firms to enter the industry
B)Highly differentiated products
C)Economies of scale
D)Zero profits in the short run
8
Use the following table to answer the next question.

R&D
(millions)

Expected rate
of return

Interest rate
cost of funds

$10

15%

8.5%

20

12

8.5

30

9

8.5

40

7

8.5

50

6

8.5

Refer to the above data. If the interest rate cost of funds fell from 8.5% to 6.5%, optimal R&D spending would:
A)fall by $10 million
B)fall by $20 million
C)increase by $10 million
D)increase by $20 million
9
Consumers will purchase a newly introduced product if:
A)its marginal utility exceeds that of existing products
B)its marginal utility per dollar exceeds that of existing products
C)it sells for a lower price than existing products
D)it costs less to produce than existing products
10
The inverted-U of R&D theory suggests that the industry structure best suited to technological advance is:
A)pure competition
B)monopolistic competition
C)oligopoly
D)pure monopoly





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