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4 What is the nature of the positive externality associated with research and development? (5%) A....

4 What is the nature of the positive externality associated with research and development? (5%) A. Firms that engage in research and development may develop more profitable products. B. Firms that engage in research and development may be able to lower their production costs. C. Research and development may lead to discoveries that make other firms more innovative. D. Firms that engage in research and development tend to pay higher stock dividends.

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Answer #1

Solution:

Positive externalities are the effects of producing (or consuming) a good which benefits other market participants or third parties in non-monetary or not directly influencing monetary ways.

When a firm engages in research and development, it benefits itself as well as other market participants in many ways. For itself, it benefits in minecraft terms such as increase h profit, lowering costs, and paying back higher dividends. Similarly, other firms benefit with discoveries of the R&D doing firm.

So, among all the given options, positive externalities is the other firms becoming more innovative through discoveries of the other firms.

Thus, the correct option is (C).

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