DeVry University, Chicago

ECON ECON312

Chapter 13

1)Explain and give examples of invention. What does government do to protect it?

2. How does innovation differ from invention and diffusion? How does innovation affect competition among firms?

3. Describe R&D expenditures in the United States. What percentage of spending goes for invention, innovation, and diffusion?

4. Compare and contrast the modern view of technological advance with the traditional view.

5. In what ways do entrepreneurs differ from other innovators? In what types of businesses do entrepreneurs and innovators tend to work? How do past successes affect these types of individuals?

6. Why do entrepreneurs and other innovators actively study the scientific output of universities and government laboratories?

7. What are the many different sources of funding to finance firms’ R&D expenditures? If an entrepreneur uses personal funds is there a cost for financing?

8. Explain how the firm decides on the optimal amount of research and development.

9. Why might many R&D expenditures be affordable, but not worthwhile? Are outcomes from R&D guaranteed?

10.  A firm decides to make a $10 million expenditure on research and development that will create a new product. This product is expected to increase the firm’s revenues by a total of $12 million in the next year. The firm also estimates that the production cost of the new product will be $11 million. (a) What is the expected rate of return on this research and development expenditure?

1. If the firm has to take out a loan to finance the project, what is the highest interest rate they will pay and still do the project? Explain.

11. Describe how a firm’s revenues and profits are increased through product innovation. What three other points should be noted about these results?

12. A consumer makes purchases of an existing product A such that the marginal utility is 40 and the price is $20. The consumer also tries a new product B and at the current level of consumption it has a marginal utility of 72 and a price of $24. What does the utility-maximizing rule suggest that this consumer should do?

13.  Explain how process innovation reduces cost and increases profits. How does this innovation affect the firm’s total product curve and average cost curve?