A firm's expected-rate-of-return curve (r) for R&D spending slopes downward primarily because of:
Explanation
This question explains why the marginal benefit of R&D spending decreases as a firm spends more. Firms logically pursue the projects with the highest expected returns first, meaning that each additional dollar of R&D is likely to be spent on a less promising project, illustrating diminishing returns.
Other questions
What is the primary distinction between 'invention' and 'innovation' in the context of technological advance?
What is defined as the spread of an innovation to other products or processes through imitation or copying?
According to the text, what is the modern view of how technological advance occurs within a capitalist economy?
What is the optimal amount of R&D spending for a firm?
In the MedTech example, if the company anticipates that a $1 million R&D expenditure will yield a one-time added profit of $1.2 million one year later, what is the expected rate of return (r)?
How does process innovation, such as improving an assembly method, affect a firm's costs and output?
What is the 'fast-second strategy' in the context of innovation and imitation?
Which of the following is NOT a protection or potential advantage for an innovating firm that helps it profit from its R&D despite the threat of imitation?
According to the inverted-U theory of R&D, which type of market structure is considered most conducive to technological advance?
What is meant by the term 'creative destruction'?
How does product innovation enhance allocative efficiency in an economy?
According to Figure 11W.1, what percentage of business R&D expenditures in the United States in 2006 was allocated to basic research?
What is the primary reason that firms often finance R&D using 'retained earnings'?
Which market structure is generally considered the least conducive to innovation?