This paper looks at how firms make decisions about investing in research and development, physical capital, and labor. The researchers found that investing in knowledge has significant costs, and as a firm invests more in research and development, the knowledge per worker increases while the use of physical capital decreases. When demand for a product goes up, firms increase their research and development and the amount of labor used in research and development. Contrary to what some people think, investing in research and development does not lead to job losses. The study also shows that there is a direct relationship between the growth of physical capital and how much it is used.