The late Thomas McCraw of the Harvard Business School once wrote that"when their innovationsdwindle, firms begin todie."

Source: Thomas K.McCraw, Prophet ofInnovation: Joseph Schumpeter and Creative Destruction, Cambridge, MA: Harvard UniversityPress, 2007, p. 181.

1.) What does McCraw mean by"when their innovationsdwindle"?

Innovations dwindle when a firm

A.

fails to develophigher-cost ways of producing existing products.

B.

produces more new products.

C.

produces fewer new products.

D.

developslower-cost ways of producing existing products

2.) Briefly explain whether you agree that when a firm stopsinnovating, it is likely to die.

A.

Firms that stop innovating save money by not investing in research anddevelopment, and therefore flourish.

B.

Firms who innovate spend too much money on introducing innovative new goods and services or innovative production methods and end up having their economic profit competed away.

C.

Firms can successfully compete only by introducing new goods and services or better ways of producing existing goods and services.

D.

Firms can continue to make an economic profitindefinitely, even if they stopinnovating, due to loyal customers.