Should ABC invest more heavily in R&D than in factory expansion?

• A. R&D should always be prioritized over expansion.
• B. Expansion should always be prioritized over R&D.
• C. Both should be ignored in favor of marketing.
• D. More R&D may be wise if the process still has room for improvement, but expansion may be better if the technology is already commercially strong.

Answer: (D)

The idea being tested is how to allocate funds between improving the production process and expanding capacity. The best approach is to weigh where the greatest future payoff lies based on how mature the process is and how strong the market is.

If the current production process can still be improved, investing in R&D makes sense because it can reduce costs, raise quality, or enable new features, delivering lasting competitive advantages and potentially lower unit costs over time. In this situation, more R&D can yield bigger long-term gains than simply enlarging capacity.

But if the technology is already proven and commercially strong, the real constraint is often demand and the ability to produce enough to meet it. In that case, expanding capacity helps capture sales, avoid bottlenecks, and accelerate revenue growth, making expansion the smarter move.

So, the best answer recognizes that the choice depends on context: more R&D is wise when there’s room to improve the process, while expansion is better when the technology works well and there’s solid demand to justify scaling up. The other options are too absolute or miss the need to balance maturity and market demand.