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ECONOMICS 2106  -  MICROECONOMICS

EXAM 3 – VERSION 1-A

Chapters 26-28

PLACE YOUR ANSWERS ON AN ANSWER SHEET DO NOT WRITE ON THIS EXAM

1.In economists' models, technological advance occurs in:

A) the very long run.

B) either the short run, long run, or very long run.

C) manufacturing industries but not in service industries.

D) pure competition, but not in monopolistic competition, oligopoly, and pure monopoly.

2.Technological advance is a three-step process involving:

A) invention, duplication, and diffusion. C) invention, innovation, and diffusion.

B) duplication, innovation, and diversity. D) necessity, invention, and solution.

3.The successful commercial introduction of a new product, the use of a new method, or the creation of a new form of business enterprise is called:

A) innovation. C) creative destruction.

B) invention. D) diffusion.

4.The spread of innovation through imitation refers to:

A) invention. C) duplication.

B) diffusion. D) diversification.

5.Kodak introduced to the marketplace a digital camera which uses no film, but which takes photos that can be shown on personal computers.  This is an example of:

A) economies of scale. C) process innovation.

B) product innovation. D) venture capital.

6.Which of the following correctly orders, highest to lowest, the relative magnitudes of U.S spending by businesses on components of R&D?

A) invention, basic research, innovation. C) innovation, invention, basic research.

B) invention, innovation, basic research. D) basic research, invention, innovation.

7.When economists view technological change as internal to the economy, they mean that it:

A) occurs randomly. C) arises deliberately from the profit motive and competition.

B) occurs accidentally. D) arises mainly from government subsidies.

8.How do entrepreneurs differ from "other innovators?"

A) entrepreneurs bear risk; "other innovators" do not.

B) "other innovators" bear risk; entrepreneurs do not.

C) entrepreneurs only invent; "other innovators" find new markets for inventions.

D) entrepreneurs develop entirely new products; "other innovators" focus on product improvements.

9.As it relates to the R&D decision, the interest-rate-cost-of-funds curve:

A) usually slopes downward.

B) is the marginal cost element in the MB = MC decision framework.

C) indicates a constant rate of return, r.

D) reflects the interest rate on bank loans, but not the implicit interest rate on the use of retained earnings.

10.The marginal benefit to a firm from its R&D expenditures is depicted by its:

A) interest-rate-cost of funds curve. C) venture capital acquisition curve.

B) expected-rate-of-return curve. D) retained earnings pay-out curve.

11.A profit-maximizing firm should not undertake a R&D project for which the:

A) Expected rate of return exceeds its interest-rate cost of funds.

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