When is a signal informative?
A)When it is lightly advertised by the firm
B)When it is more profitable for the high quality firm to offer it
C)When there are many firms advertising substitute products
D)When it is offered by the low quality firm
E)When the first firm that signals is the low quality firm

Question

Quizplus · Accepted Answer

A signal is informative when it is more profitable for the high quality firm to offer it. This is because a signal from a high quality firm serves as a credible indicator of its quality and can signal to consumers that the product is worth paying a higher price for. Conversely, a low quality firm may also offer a signal, but it may not be as informative or credible. Advertising by the firm, the number of substitute products, or the order in which the signal is offered do not necessarily make a signal informative.

When Is a Signal Informative