Which of the following is true of an information good or service?
A) In order to maximize profits, firms should set a high price because information goods are expensive to produce.
B) The profit-maximizing price should be equal to the average fixed cost of producing the information good.
C) Information goods are provided for free because the production cost of an information good is zero.
D) The smaller the number of consumers using an information good, the higher the value obtained by other consumers.
E) Information goods or services are characterized by high fixed costs but low or negligible marginal costs.

Question

Quizplus · Accepted Answer

Information goods or services are characterized by high fixed costs, such as the cost of research, development, and design, but low or negligible marginal costs, such as the cost of duplicating and distributing the information to additional consumers. Therefore, the price should be set to cover the fixed costs while taking advantage of the low marginal costs to maximize profits.

Which of the Following Is True of an Information Good