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Quiz 2
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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
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
3
Expenditures on research and development include all the following activities, except:
A)creative destruction
B)innovation
C)diffusion
D)invention
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%
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
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
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.
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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
9
Use the following table to answer the next question.
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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
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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