A firm with a very good product
A)has a higher cost of signaling (advertising) than does a firm with an inferior product.
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) effectively if signaling is free.

Question

Quizplus · Accepted Answer

A firm with a very good product has more to gain by signaling (advertising) than does a firm with an inferior product because the quality of the product is a competitive advantage that needs to be communicated to potential customers to generate demand and gain market share. The cost of signaling may be higher due to the need for more sophisticated and expensive advertising campaigns, but the benefits in terms of increased sales and brand recognition justify the investment.

A Firm with a Very Good Product