If signalling is applied to advertising:
A)a firm with a good product reaps a relatively small benefit from advertising
B)firms recognise the possibility of repeated customers
C)it is irrational for a firm with a good product to pay for the cost of the signal
D)all firms have the same incentive to advertise

Question

Quizplus · Accepted Answer

Signalling in advertising refers to the use of advertising to signal the quality of a product to potential customers. A firm with a good product can benefit from advertising because it helps to signal the quality of the product and attract new customers. However, firms also recognise the possibility of repeated customers, which means that they may continue to buy the product without being influenced by advertising. Therefore, a good product can benefit from advertising but may not rely solely on it.

If Signalling Is Applied to Advertising