With asymmetric information firms might be reluctant to improve the quality of their products because
A) it costs them more to produce the better quality product.
B) they are not able to completely capture the benefits of the improvement.
C) consumers do not value the better product.
D) consumers are better informed about the product and value the new product less.

Question

Quizplus · Accepted Answer

With asymmetric information, firms may not be able to fully capture the benefits of improving the product quality. This is because consumers may not be willing to pay a higher price for a better product if they are not fully informed about how the quality has improved. As a result, firms may be hesitant to invest in costly product improvements if they are unable to fully recuperate the costs through increased sales.

With Asymmetric Information Firms Might Be Reluctant to Improve the Quality