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The left side of the equation is the total change in value that is associated with an n-to-(n + 1) transition, and therefore it measures the marginal gain for a firm of size n of increasing in size through successful external innovation.41 In the absence of the advertising channel (?
As a small firm (low n) accumulates more prod- ucts, marginal gains to external R&D decrease because the marginal gain in advertising efficiency is decreasing.
This means that the absolute value of external R&D for a firm of size n is increasing and concave, and thus the marginal gain of acquiring an additional product line for a firm of size n, given by (?
In the limit as n grows larger, the marginal gain converges to a positive constant.
Figure 2 shows, as a function of firm size (n), BGP results for the marginal gain of acquiring new product lines (i.e. ?
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