Explain why a firm should adjust R&D expenditure with changes in its incremental margin percentage.
A) If the incremental margin percentage is higher, the return to an increase in R&D expenditure would be higher.
B) R&D expenditure affects the incremental margin percentage.
C) The incremental margin percentage affects R&D expenditure.
D) All of the above.

Question

Quizplus · Accepted Answer

A higher incremental margin percentage indicates that the firm is earning more profit per additional unit sold, which can justify increased R&D expenditure as the potential returns from successful innovations are greater.

Explain Why a Firm Should Adjust R&D Expenditure with Changes