Why might many R&D expenditures be affordable, but not worthwhile? Are outcomes from R&D guaranteed?
What will be an ideal response?
R&D expenditures can be justified only if the expected return equals or exceeds the cost of financing them. If the marginal benefit of an R&D expenditure is less than the marginal cost, then the expenditure may be affordable but it is not worthwhile. The firm expects positive outcomes from R&D, but the results are not guaranteed. Obviously, an R&D expenditure has an element of risk that it will not prove to be profitable no matter how much planning was done or prior information was obtained before making the investment decision. It is the potential for success, not the guarantee of it, which is the driving force behind the final decision.
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Fill in the blank(s) with the appropriate word(s).
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