Chapter 12 Study Questions

Chapter 12 Study Questions - Rahim Spencer ECON 203...

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Rahim Spencer ECON 203 Chapter 12 Study Questions 1. Technological advance occurs over the very long run, in which technology can change and firms can develop and offer entirely new products. It includes invention, in- novation, and diffusion. An improved production process is an example of technological advance. Entry of a firm into a profitable industry is not technological advance. The imit- ation of a firm of a new production process is technological advance. Increasing a firm’s advertising expenditures is not technological advance. 2. a. DIFF b. INV c. INV d. INN e. INN 3. Older views of technological advance are that was external to the economy. They be- lieved that it was rooted in the independent advance of science, which is largely extern- al to the system. Modern views of technological advance are that it is internal to the economy. Technological advance rises from intense rivalry among individuals and firms that motivates them to seek and exploit new profit opportunities or to expand existing opportunities. The role of entrepreneurs and other innovators to technological advance is that they are the ones that carry out technological advance by researching and taking risks. Research by universities and the government affect technological advance by providing discoveries for entrepreneurs and other innovators that have commercial ap- plicability. New scientific knowledge can give them a head start in creating an invention or a new product. Some university researchers are becoming like entrepreneurs be- cause they are converting their discoveries and scientific knowledge into patentable products. 4. a. A. $10,000,000/$20,000,000 = .5; The Expected rate of return is 50%. B. $20,000,000 x .06 = $1,200,000; The firm will undertake this project because the cost (amount paid in interest) would be $1,200,000. If the firm will make a profit because the $10,000,000 made from this project exceeds the cost of $1,200,000. C. This will not change the firm’s decision because it will still make a profit from this pro- ject. 5.
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Chapter 12 Study Questions - Rahim Spencer ECON 203...

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