Problem 1
Listed below are several possible actions by firms. Write “INV” beside those that reflect invention, “INN” beside those that reflect innovation, and “DIF” beside those that reflect diffusion. a. An auto manufacturer adds “heated seats” as a standard feature in its luxury cars to keep pace with a rival firm whose luxury cars already have this feature. b. A television production company pioneers the first music video channel. c. A firm develops and patents a working model of a self-erasing whiteboard for classrooms. d. A light bulb firm is the first to produce and market lighting fixtures with LEDs (light-emitting diodes). e. A rival toy maker introduces a new Jezebel doll to compete with Mattel’s Barbie doll.
Problem 2
A firm is considering three possible one-year investments, which we will name \(X, Y,\) and \(Z\) .Investment X would cost \(\$ 10\) million now and would return \(\$ 11\) million next year, for a net gain of \(\$ 1\) million. .Investment Y would cost \(\$ 100\) million now and would return \(\$ 105\) million next year, for a net gain of \(\$ 5\) million. Investment Z would cost \(\$ 1\) million now and would return \(\$ 1.2\) million next year, for a net gain of \(\$ 200,000\) The firm currently has \(\$ 150\) million of cash on hand that it can loan out at 15 percent interest. Which of the three possible investments should it undertake? a. X only. b. Y only. c. Z only. d. X and Y. e. X and Z. f. X, Y, and Z.
Problem 3
An additional unit of Old Product X will bring Cindy an MU of 15 utils, an additional unit of New Product Y will bring Cindy an MU of 30 utils, and an additional unit of New Product Z will bring Cindy an MU of 40 utils. If a unit of Old Product X costs \(10, a unit of New Product Y costs \)30, and a unit of New Product Z costs $20, which product will Cindy prefer to spend her money on? a. Old Product X. b. New Product Y. c. New Product Z. d. More information is required.
Problem 4
The inverted-U theory suggests that R&D expenditures as a percentage of sales ________ with industry concentration after the four-firm concentration ratio exceeds about 50 percent. a. Rise. b. Fall. c. Fluctuate. d. Flat-line.
Problem 5
Which statement about market structure and innovation is true? a. Innovation helps only dominant firms. b. Innovation keeps new firms from ever catching up with leading firms. c. Innovation often leads to creative destruction and the replacement of established firms by new firms. d. Innovation always leads to entrenched monopoly power.
