Research and Development 0.0 / 5 ? Business StudiesResearch and DevelopmentUniversityAQA Created by: tobillias42Created on: 06-01-19 11:42 What is Innovation? It is a crucial source of growth. It often entails of creating goods of higher quality or efficiency. 1 of 20 What is Schumpeters hypothesis for Monopolies? Innovation creates temporary monopolies. Incentive for firms to develop new products. Monopolies are key to non-price competition. 2 of 20 What is Arrow's framework for Monopolies? Monopolies innovate to lower their LRAC. This creates greater supernormal profit. 3 of 20 How do Monopolies reduce their LRAC? Monopolies have diminishing marginal costs. So overtime costs decrease. 4 of 20 Under Monopoly: A Decrease in LRAC1 to LRAC2 causes? Monopoly to earn more profit. This is shown by the change from A+B to B+C+D+E. 5 of 20 The net gain from innovation under Monopoly is? C+D+E-A. 6 of 20 What causes innovation under Perfect Competition? Innovation is caused by a third party that sells new technology to firms at a cost per unit of output. 7 of 20 Why does LRAC1 decrease to LRAC2 under Perfect Competition? Innovative firm (third party) keeps all the net gain from innovation. 8 of 20 Under Perfect Competition the Net Gain is? D+E+F 9 of 20 How can you compare the net gain for Monopolies and Perfect Competition? Both include D and E. So see whether F >/< C-A. 10 of 20 Is F > C-A? F is greater. Therefore welfare from innovation under Perfect Competition is greater than under Monopoly. 11 of 20 Why might welfare gain be higher under Perfect Competition? Because the market provides larger output. 12 of 20 What model is about timing of innovation? Optimal Development time model. 13 of 20 What is the optimal development time model? first move advantage vs cost advantages from later development 14 of 20 In a less competitive market the optimal development time will be? Longer as they have economies of scale. 15 of 20 Optimal development time argument supports Monopolies or Perfect Competition? Monopolies. 16 of 20 On the optimal development time diagram, what is the Y axis? Present value of benefits and costs. 17 of 20 On the optimal development time diagram, what is the X axis? Development Time. 18 of 20 The cost of development curve intercepts which curve? Oligopoly curve. 19 of 20 When did Arrow create his framework? 1962. 20 of 20
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