Explain the reasoning behind the inverted-U theory of R&D expenditures
What will be an ideal response?
The theory suggests that R&D development is at its best with very low concentrations (pure competition) and very high concentrations (pure monopoly). R&D compared to sales is low in the case of purely competitive firms because the firms are relatively small in relation to the market, meaning it’s harder for those firms to engage in R&D. R&D compared to sales is low for monopolies because profits are already high for these firms and innovation is not likely to add much more to their profits. Moreover, innovations will likely involve costly renovations of plants. Finally the lack of competition provides monopolies with little incentive to innovate.
The optimum industry structure for R&D is one in which expected returns on R&D are high and financing is relatively inexpensive. These factors most frequently occur in industries where there are a few firms but not so few that smaller firms can’t provide viable competition. In sum, a ‘loose’ oligopoly structure is best for R&D.
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Do the provisions of the GATT and WTO permit countries to apply their own environmental regulations against imports?
a. No; environmental regulations applying to domestic production and imports need to be negotiated internationally under treaties such as the Kyoto Protocol. b. No; environmental regulations applying only to imports need to be negotiated internationally under treaties such as the Kyoto Agreement. c. Yes; and countries may require stricter environmental regulations for imports than for domestic production. d. Yes; as long as environmental regulations apply uniformly to domestic production and imports.
The current exchange rate system has which of the following characteristics?
A) The countries of the European Union have adopted the gold standard. B) Several developing countries in Asia have adopted the Bretton Woods system. C) The United States allows the dollar to float against other major currencies. D) The current global foreign exchange system is a fixed system. E) All developing countries allow their currencies to float against the dollar and other major currencies.