Which pricing approach for a restaurant would have the greatest risk of adverse selection due to buyers having private information?
A)Offering a set price all-you-can-eat buffet.
B)Offering small- and large-plate versions of each entrée with different prices.
C)Pricing each menu item based on its cost of production.
D)Charging a price per ounce and weighing each plate.

Question

Quizplus · Accepted Answer

Offering an all-you-can-eat buffet would have the greatest risk of adverse selection due to buyers having private information. This is because individuals who can eat large quantities of food, or who are extremely hungry, would be more likely to choose the buffet option, leading to an imbalance in the cost of providing the meal and the price charged. These individuals have private information about their appetites, which would be difficult for the restaurant to acquire or anticipate.

Which Pricing Approach for a Restaurant Would Have the Greatest