Final answer:
Firms dealing with unsuccessful R&D projects may face significant financial losses and potentially jeopardize their business continuity. Successful R&D can result in competitors copying innovations, leading to calls for alternative policies to improve inventors' returns. The high stakes involved showcase the risky yet essential nature of R&D for business competition and advancement.
Step-by-step explanation:
Firms often have varied responses to Research and Development (R&D) projects that do not achieve the desired outcomes. R&D in sectors such as the pharmaceutical industry involves high risks and substantial investments, with projects commonly taking many years and costing millions, such as the average of $800 million mentioned for developing a new drug. When an R&D project fails, a firm may incur significant losses, which can lead to a negative impact on their finances and risk of going out of business.
However, successful R&D efforts are not proprietary, leading to competitors replicating the innovation without incurring the initial R&D costs, thus reducing the potential returns for the innovating firm. In light of these challenges, alternative policies to improve the rate of return for inventors and to compensate for the imperfect protections offered by patents are advisable. These may include innovative regulatory frameworks, stronger intellectual property rights, or other incentives for investment in new technologies. Despite the inherent risks, R&D remains a crucial element for a firm's growth and competitiveness in the market.