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Research is presented describing the economic study of average total cost as a functional conceptualization.

The article presents the author's comments on the book "Capitalism, Socialism, and Democracy," by Joseph A. Schumpeter. The book is best known for arguing that by virtue of its success in cranking out goods and services, capitalism would undermine its own social, organizational, and moral foundations, setting the stage for the ascendance of socialism. Presently, as the tumultuous changes in Eastern Europe unfold, that warning appears wildly off the mark. The book embodies Schumpeter's most complete characterization of "plausible capitalism," contrasting the dynamics of the system, as he viewed them, against the essentially static conception emphasized in contemporary neoclassical economic analyses, both at the time he wrote and fifty years later. The hallmark of capitalism, Schumpeter argued both in 1912 and 1942, was not the equilibration of supplies with demands for an unchanging array of goods and services, but dynamic evolutionary growth, which permanently increased the output available for consumption and further growth.

Economists have long been persuaded that research and development (R&D) yields technological advances that in turn foster productivity growth. But the magnitudes involved have been poorly understood, so it has been difficult to say how much of the recent productivity growth slump has resulted from the R&D slowdown. In this paper the author sheds light on the questions like what are the reasons behind stagnate growth of R&D, whether stagnate growth is due to loss of R&D power to propel productivity growth. The author attempted to measure as precisely as possible the lag structure of R&D profit links and the biases imparted by applying an improperly specified lag structure. The best-fitting lag was binomial in shape, with peak profits accruing four to six years after R&D spending. For a cross-section of business units with the longest time-series, pretax internal rates of return on R&D are found to be negative for profits realized in 1975, increasing into the 27-45 percent range by 1977-78. The increases in estimated profitability are statistically as well as economically significant.

This article provides information on the author's comments on the theory of optimal patent life by economist William Nordhaus. I begin by observing, as Nordhaus did, that inventions and innovations are not free goods. To make and introduce an invention which reduces unit production costs, research and development (RD) outlays must be incurred. From the constrained welfare-maximizing conditions reflecting this balancing, Nordhaus derives three important comparative statics results. One immediate policy implication is that if law makers were to shorten the standard term of process patent grants, what would be lost would be primarily those inventions with relatively low benefit-cost ratios. Those which in any event are not likely to have a great impact on social welfare. A best of both worlds policy recognizing these relationships would tailor the life of each patent to the economic characteristics of its underlying invention. This might be achieved through a flexible system of compulsory licensing, under which the patent recipient bears the burden of showing why his patent should not expire or be licensed at modest royalties to all applicants three or five years after its issue.

This article reports on a statistical study of the relationships between inventive activity and technological opportunity, firm size, product-line diversification and monopoly power. The underlying economic (or technological) significance of any sampled patent can also be interpreted as a random variable with some probability distribution. The greater the sales of a firm in any given market, the more incentive and resources the firm has to generate patentable inventions related to that market. Profitable exploitation of market power is the easiest way to assemble the funds necessary for investment in new technology. If structural market power has a beneficial effect on the output of patented inventions, it is a very modest effect indeed. The principal conclusions of this study are that inventive output increases with firm sales, but generally at a less than proportional rate. Differences in technological opportunity, for example, differences in technical investment possibilities unrelated to the mere volume of sales and typically opened up by the broad advance of knowledge, are a major factor responsible for interindustry differences in inventive output and inventive output does not appear to be systematically related to variations in market power, prior profitability, liquidity, or (when participation in fields with high technological opportunity is accounted for) degree of product line diversification.

This article presents abstracts of several papers published in the May 1965 issue of the Canadian Journal of Economics and Political Science. In the article Size of Firm, Oligopoly, and Research: A Comment, F. M. Scherer identified some statistical problems met in analyzing the relationship between firm size and inventive activity, measured either by research and development employment inputs or patent outputs. While the purpose of the paper Analysis of Canadian Consumer Expenditure Surveys, by A. Asimakopulos was to estimate some demand relations and assess the usefulness of Canadian consumer expenditure surveys for the derivation of such estimates.