Why does a patent stimulate research? A) Patents give firms ...

[Mr. Wonderful]

Why does a patent stimulate research?
 
  A) Patents give firms time to do research.
  B) Patents give firms the opportunity to recover research costs and thus serve as a profit motive.
  C) Without patents, firms would not research as much.
  D) They don't.

Question 2

If a firm cannot earn profits in the short run, it will shut down.
 
  Indicate whether the statement is true or false

[IAPPLET]

Answer to Question 1

B

Answer to Question 2

False. A firm will operate at a loss if the loss incurred from production is less than the loss incurred from shutting down. Even if the firm shuts down, it still must pay its fixed costs because, in the short-run, going out of business is not an option.