medical conditions and are then able to create their own competing products. The social benefit of the drug

takes into account the value of all the drug's positive externalities. If Big Drug were able to gain this social
return instead of other companies, its demand for financial capital would shift to the demand curve DSocial, and
it would be willing to borrow and invest $52 million. However, if Big Drug is receiving only 50 cents of each

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13.1 • Investments in Innovation 311

dollar of social benefits, the firm will not spend as much on creating new products. The amount it would be
willing to spend would fall somewhere in between DPrivate and DSocial.

Why Invest in Human Capital?

The investment in anything, whether it is the construction of a new power plant or research in a new cancer

treatment, usually requires a certain upfront cost with an uncertain future benefit. The investment in
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