Explain how the firm decides on the optimal amount of research and development
What will be an ideal response?
The optimal amount of research and development for the firm depends on the marginal benefit and marginal cost of R&D activity. To earn the greatest profit, the firm will expand an activity until its marginal benefit equals its marginal cost.
A firm’s marginal cost of these funds is an interest rate i. A firm’s marginal benefit of R&D is its expected profit (or return) from the last dollar spent on R&D. The optimal amount of R&D in marginal cost and marginal benefit analysis is the point where the interest-rate cost-of-funds (marginal cost) curve and the expected-rate-of-return (marginal benefit) curve intersect.
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If a person withdraws $500 from his/her checking account and holds it as currency, then M1 will ________ and M2 will ________
A) not change; increase B) not change; not change C) decrease; increase D) increase; decrease E) decrease: decrease
Suppose that the MPC out of disposable income was 0.8 and the tax function for a given economy was T = – 30 + 0.25Y
An increase in the intercept of the tax function of 10 units (from – 30 to – 20) would cause equilibrium income in the simple Keynesian model to fall by a. -20 units. b. 10 units. c. 20 units. d. 40 units.