Question
CleanAir Motors Inc. wants to build electric cars with no emissions. However, electric motors require innovative battery technology for adequate energy storage to meet basic
CleanAir Motors Inc. wants to build electric cars with no emissions. However, electric motors require innovative battery technology for adequate energy storage to meet basic daily commuting needs. The company has several possibilities for alternative battery technology, along with estimates of how these approaches would affect their costs of producing the cars and their sales of the cars. These estimates are set out in the table below. Every investment has an additional 2% social return: that is, an investment that pays at least a 6% return to the drug company will pay at least an 8% return for society as a whole.
Private Rate of Return | Value of R&D Projects That Provide at Least This High a Private Rate of Return to CleanAir Motors Inc. |
12% | $500 |
10% | $1000 |
8% | $1500 |
6% | $2000 |
4% | $2500 |
If the opportunity cost of financial capital for Cleaner Motors Inc. is 10%, Cleaner Motors Inc. will invest ___ in R&D if it receives only the private benefits of this investment.
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