Scott's Painting Company Paints Houses

question 421

Multiple Choice

Scott's Painting Company paints houses. Since Scott's business does not have the name recognition of some of the bigger painting companies, Scott advertises a "Five-Year Money Back Guarantee" to indicate to buyers that his service is of high quality. This guarantee is an example of

• A)screening.
• B)signaling.
• C)the seller's curse.
• D)the principal-agent problem.

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Definitions:

Deadweight Loss

A dip in economic optimization that happens when the equilibrium of a good or service in the free market is not realized.

Price-Discriminates

The practice of selling the same product to different buyers at different prices based on their willingness to pay, not differences in production costs.

Cable Subscriptions

A service model where consumers pay a regular fee to access a bundled set of television channels and programs.

Profit-Maximizing Output

The level of production at which a company can achieve the highest level of profit based on its costs and the market price.