How does the cost of financial capital influence innovative research and development activities in a competitive market?
at a high cost, firms demand a large quantity, as R&D projects return high rates.
at a low cost, firms demand a large quantity, as R&D projects will likely return a higher rate.
financial capital at a high cost means more projects are likely to pay a much higher return rate.
at a low cost, the firm receives only small private benefits from investing in R&D.