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Unformatted text preview: quality or high quality 2. Consumer can only tell the difference between the two once he gets home a. I.E. it is not immediately discernable 3. Suppose High Quality costs more to produce 4. Suppose all firms are price takers 5. We can graph the situation (High Quality vs. Low Quality) a. Firms are tempted to produce low quality at high prices i. Consumers become suspicious and no longer pay high quality prices b. Firms will end up only producing low quality goods at low quality prices c. We like to think that we see high quality goods all the time d. Firms will produce high quality and be truthful if present value of profit is greater than the one time profit level of selling a low quality good at high quality prices iii. Signaling 1. Brand Name a. A signal of quality b. Education i. Firms don’t know if candidate for a job is high-productive or low-productive ii....
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- Spring '08
- Microeconomics, Royal Navy, Platoon, Lieutenant, High Quality, British army, low quality