Final answer:
The question deals with The Gizmo Company's financial capital requirements for R&D, considering a 5% social benefit that extends the returns on investments beyond the company. It also exemplifies economies of scale, showing reduced costs as production increases.
Step-by-step explanation:
The question pertains to the financial capital requirement analysis for The Gizmo Company which is planning to invest in the research and development of new household gadgets. The additional 5% social benefit mentioned in the question suggests that every investment in research and development by the company will generate higher returns for society overall, resulting in a positive impact beyond the company's direct financial gains. For example, if the Gizmo Company earns a 6% return on an investment, the societal return would be 11%. This incorporates the concept of externalities, where the social or economic activities have wider effects on third parties not directly involved in the transaction.
Moreover, the idea of economies of scale is also being explored. As the output level rises, the average cost of production decreases. This is demonstrated by a small-sized factory producing alarm clocks with an average cost of $12 each, while a larger factory producing more units can drive the cost down to $4 per alarm clock.