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1 | | The very long run is a theoretical time frame over which the firm can vary: |
| | A) | labor and capital, but not technology |
| | B) | all input levels and technology but cannot introduce new products |
| | C) | technology and introduce new products but cannot vary input levels |
| | D) | all input levels and technology, as well as introduce new products |
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2 | | The inverted-U theory suggests that R&D expenditures first rise, reach a peak, and then fall as the profitability of the firm increases. |
| | A) | True |
| | B) | False |
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3 | | Expenditures on research and development include all the following activities, except: |
| | A) | creative destruction |
| | B) | innovation |
| | C) | diffusion |
| | D) | invention |
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4 | | 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% |
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5 | | 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 funds are known as: |
| | A) | venture capital |
| | B) | preferred shares |
| | C) | mutual funds |
| | D) | dividends |
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6 | | In the three-step process of technological advance, diffusion refers to: |
| | A) | a firm's ability to successfully market the product to other countries |
| | B) | a firm's ability to spread the overhead and startup costs to other divisions within the firm |
| | C) | the end of the product's useful cycle, when newer, more advanced products begin to take its place |
| | D) | wide imitation and spread of an innovation |
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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 |
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8 | | Use the following table to answer the next question. (13.0K) Refer to the above data. The firm's optimal amount of R&D spending is: |
| | A) | $20 million |
| | B) | $30 million |
| | C) | $40 million |
| | D) | $50 million |
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9 | | Use the following table to answer the next question. (9.0K) Refer to the above data. At the $20 million level of R&D expenditures, the: |
| | A) | marginal benefit of R&D exceeds the marginal cost |
| | B) | marginal cost of R&D exceeds the marginal benefit |
| | C) | the firm is maximizing its total return on R&D |
| | D) | the firm would need to borrow outside funds (bonds or venture capital) to expand its R&D expenditures |
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10 | | With respect to R&D expenditures, the expected rate of return curve illustrates: |
| | A) | only those expenditures that are profitable, whether affordable or not |
| | B) | the total benefit of each dollar of expenditure |
| | C) | the marginal benefit of each dollar of expenditure |
| | D) | the average benefit of each dollar of expenditure |
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