A firm is considering its R&D spending for the next year. The table below shows the cost of borrowing for the firm (the interest rate), the firm's demand for financial capital if it can capture only the private benefits of investment, and the social demand for financial capital at each interest rate. The firm can borrow funds at an interest rate of 6%6%. Cost of BorrowingPrivate DemandSocial Demand2%40524%48626%58758%6990If the government passes intellectual property laws that allow the company to receive both the social and private benefits of its R&D investment, what amount of financial capital will it demand at this interest rate? Write the exact answer. Do not round.

The objective of the question is to determine the amount of financial capital the firm will demand…

Answered: A firm is considering its R&D spending…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter8: Savings,investment And The Financial System

Section: Chapter Questions

Problem 8PA

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Question

A firm is considering its R&D spending for the next year. The table below shows the cost of borrowing for the firm (the interest rate), the firm's demand for financial capital if it can capture only the private benefits of investment, and the social demand for financial capital at each interest rate. The firm can borrow funds at an interest rate of 6%6%.

Cost of Borrowing	Private Demand	Social Demand
2%	40	52
4%	48	62
6%	58	75
8%	69	90

If the government passes intellectual property laws that allow the company to receive both the social and private benefits of its R&D investment, what amount of financial capital will it demand at this interest rate? Write the exact answer. Do not round.

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