Which of the following is TRUE about producers' willingness to offer warranties on products?
A) Producers are equally likely to offer warranties on high-quality and low-quality goods.
B) Producers are more likely to offer warranties on low-quality goods, because without the signal that the warranty provides, the low-quality good wouldn't sell.
C) Producers are more likely to offer warranties on high-quality goods, because the expected cost of repairs is lower for those goods.
D) Producers have an incentive to deal with third-party companies to provide the warranties, so that an "impartial" view of the product is given to the consumer.
E) Producers will not offer warranties in any market that suffers from asymmetric information.

Question

Quizplus · Accepted Answer

Producers are more likely to offer warranties on high-quality goods because the expected cost of repairs is lower for those goods. High-quality goods are less likely to require repairs, so producers can offer warranties at a relatively low cost. Lower-quality goods, on the other hand, may require more frequent repairs, so offering a warranty could be too costly for the producer.

Which of the Following Is TRUE About Producers' Willingness to Offer