SmartBook Chapter 15 Lesson 9

What is it called when a new product, or new production technique, or new form of business enterprise are successfully introduced on a commercial basis?

Innovation

A new product or process combined with the first sign that it will work, is called what?

Invention

At the optimal level of R&D, what is the relationship between the marginal benefit (MB) and marginal (MC)?

MB=MC

Which of the following refers to direct efforts by businesses toward invention, innovation, and diffusion?

Research and development

Which of the following can be used to finance R&D for a firm?

Retained earnings

Why do entrepreneurs study scientific output of university and government labs?

Scientific knowledge is key to technological advance.

What is it called when entrepreneurs create small, new companies that are focused on creating and introducing a new product or new technique?

Start-ups

For very low concentration industries and very high concentration industries, the R&D effort is ______.

weak

(blank) refers to the spread of innovation to other goods or processes via imitation or copying.

diffusion

Legal protections provided by patents reduce the problem of direct copying and therefore ______.

encourage product innovation

Technological advances can increase a firm's profits by (blank) the firm's revenue or (blank) the firm's production costs.

increasing; reducing

(blank) is the successful commercial introduction of a new product, new process, or new type of business enterprise.

innovation

Despite the form of financing used for R&D, the marginal cost of R&D is always the ______.

interest rate

Whatever the source of R&D funds, the marginal cost of these funds is a(n) (blank) (blank)

interest; rate

Invention, innovation, and diffusion occur in response to incentives within the economy, meaning that technological advance is (blank) to capitalism.

internal

A(n) (blank) is a new product or process combined with first proof that it will work

invention

R&D should be expanded as long as marginal benefit ______ marginal cost up to the point where marginal benefit ______ marginal cost in order to maximize profits.

is greater than; equals

To reward innovation within an existing corporation, the corporation may offer ______.

bonuses or profit shares

Economic efficiency can improve as a result of ______.

technological advance

With lower costs, the extra profit from process innovation as a percentage of R&D expenditures is called ______.

the expected return

New and better processes and products enable society to produce (blank) output and a (blank) valued mix of output.

more; higher

Other things equal, the optimal market structure for technological advance seems to be an industry with a mix of large (blank) firms with several highly innovative smaller firms.

oligopolistic

An industry with a mix of large oligopolistic firms with several highly innovative smaller firms illustrates an industry which is ______.

optimal for technological advance

The purpose of a patent is to (blank) imitation and its negative effect on the incentive for engaging in R&D.

reduce

How long does a patent legally protect new technological breakthroughs?

20 years

What do modern economists believe is the driving force behind technological advance?

Capitalism

Which of the following must be true in order for a consumer to purchase a new product?

The new product must increase the consumer's total utility.

True or false: Innovators may be salaried workers for existing corporations.

True

(blank) (blank) refers to the part of household savings used to finance high-risk business endeavors in return for a portion of profits if the endeavor is successful.

Venture; Captial

In what time period does technological advance occur?

Very long run

A consumer will purchase a new product if the product ______.

increases their utility

Technological advance occurs during a period which can be as short as a few months or as long as ______.

many years

The expected profit from the last dollar spent on R&D is the firm's ______.

marginal benefit

A firm's marginal benefit from R&D is its expected (blank) from (blank) the dollar spent on R&D.

profit; last

Undistributed (blank) acts as readily available, relatively low cost funding for R&D in oligopolies.

profits

Entrepreneurs form new companies called (blank) to create and introduce new products or employ a new production or distribution technique.

start-ups

When a firm's rivals are able to mimic its new product or process, reducing the original firm's profits, it is called ______.

the imitation problem

The optimal amount of R&D expenditures occurs where ______.

the interest-rate cost-of-funds curve intersects the expected rate of return curve

The relationship between R&D spending as a percentage of a firm's sales and the industry's four-firm concentration ratio is illustrated by ______.

the inverted-U theory of R&D

Which of the following represent an improvement to allocative efficiency from product innovation?

- A higher total utility for society from the goods and services available - A more preferred mix of available goods and services

How does process innovation improve productive efficiency?

- Average total costs fall. - Productivity of resources increases.

Which factors limit R&D expenditures in more competitive industries?

- It is easy to enter the industry. - Economic profits from innovation are difficult to maintain. - The firms are small

In which industry, or industries, is R&D effort weak?

- Pure monopoly - Pure competition

How do improvements in technology increase a firm's profits?

- Reduce the firm's costs - Raise the firm's revenue

Which of the following are characteristics of an entrepreneur?

- Risk bearer - Initiator - Innovator

How can it be beneficial to be the first firm to innovate?

A large firm may initiate a buyout of the innovating firm.

What is it called when a larger firm makes an outright purchase of an innovating firm?

Buyout

What is it called when innovation spreads to other goods as a result of copying?

Diffusion

What are entrepreneurs looking for when they study scientific output of university and government laboratories?

Discoveries with commercial applicability

Combining productive resources of land, labor, and capital in ways to produce new goods and services, refers to what?

Entrepreneurial ability

True or false: An increase in the expected increase in profit can occur from the prospect of lower production costs through product innovation.

False

Product innovation gives society a more preferred mix of goods and services thereby improving ______.

allocative efficiency

It is important for innovators to (blank) the future in order to introduce new and improved products and services at just the right time.

anticipate

Innovators who can anticipate the future tend to introduce new products ______.

at the perfect time

(blank) and (blank) is used loosely to include direct efforts toward invention, innovation and diffusion in businesses.

research;development