The Table Shows the Rate of Return and R&D Spending

question 30

Multiple Choice

The table shows the rate of return and R&D spending for a hypothetical firm. Assume the interest-rate cost of funds rises from 9 percent to 21 percent. What will happen to the optimal amount of R&D spending?

• A)It decreases from $36 billion to $18 billion.
• B)It increases from $36 billion to $48 billion.
• C)It increases from $24 billion to $42 billion.
• D)It decreases from $42 billion to $18 billion.

---

Definitions:

Output

The total amount of products or services produced by a company or economy in a given period.

Efficiency

The measure of how well resources are used and allocated to achieve a specific outcome with minimal waste.

Patent

A legal right granted to an inventor or assignee, giving them exclusive rights to manufacture, use, or sell an invention for a certain number of years.

X-inefficiency

This occurs when a firm does not produce output at the lowest possible cost due to inefficiencies within the organization.