Chapter 13: Problem 2

Suppose that Sony's \(\mathrm{R} \& \mathrm{D}\) investment in digital devices has increased profits by \(20 \% .\) Is this a private or social benefit?

Short Answer

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The 20% increase in profits due to Sony's R&D investment in digital devices is a private benefit, as it is a direct result of their investment. We cannot determine if there are social benefits without more information on potential positive externalities.

Step by step solution

Understanding Private and Social Benefits

Private benefits are the gains that a company or individual receives directly from producing or consuming a good or service. In this case, it would be Sony's increase in profit due to their investment in R&D. Social benefits, on the other hand, include both private benefits and any external benefits (positive externalities) that society as a whole receives from the production or consumption of a good or service. Positive externalities occur when the actions of a producer or consumer have a positive effect on other producers, consumers, or the environment.

Analyzing Sony's Situation

In this case, we know that Sony's R&D investment in digital devices has increased their profits by 20%. This 20% increase in profit is a direct result of their investment and thus can be classified as a private benefit.

Determining If There Are Positive Externalities

Now we need to determine if the R&D investments have any positive externalities that would lead to social benefits. The exercise does not provide any information on how the R&D investment has affected society as a whole or other companies in the industry. Since we lack information on potential positive externalities, we cannot conclude that the 20% increase in profits is a social benefit.

Conclusion

Based on the information provided, the 20% increase in profits from Sony's R&D investment in digital devices is a private benefit. We cannot determine if there are social benefits without more information on potential positive externalities.

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