Firms rarely offer unlimited warranties on their products,because then their customers would be less careful with upkeep and maintenance.This situation is an example of

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The situation described is an example of moral hazard, where the customers will take less care in upkeep and maintenance of the product if they have an unlimited warranty, as they know that any repair or replacement costs will be covered by the warranty. This creates a risk for the firm, as they would have to bear the additional costs of repairs or replacements. Hence, firms rarely offer unlimited warranties to avoid moral hazard.

Firms Rarely Offer Unlimited Warranties on Their Products,because Then Their