A firm with a very good product
A)does not likely suffer from any moral hazard problem.
B)has more to gain by signaling (advertising) than does a firm with an inferior product.
C)does not need to signal (advertise) because the product's quality speaks for itself.
D)will signal (advertise) only if the cost of signaling is very low.

Question

Quizplus · Accepted Answer

A firm with a very good product has more to gain by signaling (advertising) than a firm with an inferior product. This is because the firm with a good product can attract more customers and differentiate itself from its competitors through effective advertising. The firm can create brand equity and increase its market share, which ultimately translates to higher profits.

A Firm with a Very Good Product