Question

In what ways do company investments in research and development create positive externalities?

Short answer

Businesses that did not pay the development costs can benefit from new technologies.

Step-by-step solution

Content Introduction

Market competitiveness motivates corporations to invest in research and development of new products because they may make more money by inventing a way to create items more cheaply or with attributes that consumers want.

Content Explanation

When a firm builds a factory or buys equipment, it reaps all of the financial benefits that come with the investment. However, when a firm invests in modern technology, the private benefits it gains, or profits, are only a small part of the overall social benefits. The social worth of all positive externalities of a new concept or product, whether experienced by other firms or society as a whole, as well as the private advantages earned by the corporation that created modern technology, is accounted for by the social value of the new idea or commodity.