Which type of firm is most likely to engage in a licensing approach to research and development (R&D)?

• A. A firm operating in a perfectly competitive market
• B. A firm with no proprietary technology or patents
• C. A firm that relies solely on internal innovation and does not collaborate
• D. A firm with strong intellectual property but limited production capacity

Answer: (D)

Verified step by step guidance

1. Understand the concept of licensing in the context of R&D: Licensing involves a firm allowing another firm to use its intellectual property (such as patents or proprietary technology) in exchange for royalties or fees.
2. Identify the characteristics of firms that benefit most from licensing: Typically, these are firms that have developed strong intellectual property but may lack the resources or capacity to fully commercialize or produce the innovation themselves.
3. Analyze why a firm operating in a perfectly competitive market is less likely to license: Such firms usually have little market power and limited ability to protect innovations, making licensing less relevant.
4. Consider why a firm with no proprietary technology or patents would not engage in licensing: Without protected intellectual property, there is nothing valuable to license out.
5. Recognize that a firm relying solely on internal innovation and no collaboration is less likely to license because licensing involves sharing technology externally, which contradicts the firm's approach.