Why Are the Private Returns to Innovation Likely to Be

question 15

Multiple Choice

Why are the private returns to innovation likely to be smaller than the social returns to innovation?

• A) Innovations are not likely to be profitable unless a large number of firms get involved in the production of the new technology.
• B) Innovators are often so tempted by greed that they keep their innovation a secret, so the rest of society does not know of the innovation and cannot take advantage of it.
• C) The ideas that a person or firm comes up with may leak to the rest of society, so the advantages of the innovation are not limited to the profits the innovator enjoys.
• D) The first firm to come up with an innovation usually cannot make a profit with the innovation until other firms learn about it and copy it.

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Definitions:

Threshold Effect

The point at which a small change or action produces a significant and often sudden response or effect.

Participative Leadership

A leadership style where decision-making is shared among group members, promoting collaboration, team involvement, and collective empowerment.

Routine Decisions

Decisions that are made frequently, typically involving standard procedures and minimal complexity.

Minimum Threshold

The lowest level at which a certain action, effect, or condition is observed or required to proceed.