In deciding on an optimal amount and type of research and development, firms should adhere to the rule: Expand R&D until:
A. expected rate of return is zero.
B. expected rate of return equals the interest rate.
C. expected rate of return exceeds the interest rate by the greatest amount.
D. the interest rate is constant.
Answer: B
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Amy can produce either 5,000 pounds of cheese or 20 cars per year. Mike can produce either 5,000 pounds of cheese or 10 cars per year. By the principle of comparative advantage, Mike should specialize in producing
A. neither cheese nor cars. B. cars. C. both cheese and cars. D. cheese.
Which of the following statements are true?
A. Fiscal policy and monetary policy are different means used to attain the same goals. B. Budget deficits are most appropriate during recessions rather than periods of inflation. C. Automatic stabilizers help smooth out the business cycle. D. All of the statements are true.
In the long run, diminishing returns would:
A. not exist because no input is held constant. B. not exist because all inputs are held constant. C. still exist at a lesser degree because inputs are allowed to vary. D. exist at a greater degree, because all inputs are allowed to vary.
When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of
A) moral hazard. B) adverse selection. C) asymmetric information. D) economic irrationality.