Assume that a firm's interest-rate cost-of-funds curve for R&D is perfectly elastic. Which of the following would increase a firm's optimal R&D expenditures and, in equilibrium, leave the expected rate of return on the last dollar of R&D
unchanged?
A. A rightward shift of the expected-rate-of-return curve.
B. An upward shift of the interest-rate cost-of-funds curve.
C. A leftward shift of the expected-rate-of-return curve.
D. A downward shift of the interest-rate cost-of-funds curve.
Answer: A
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