A Possible Market Solution That a Reputable Firm Can Engage

question 44

Multiple Choice

A possible market solution that a reputable firm can engage in when faced with the lemons problem is

• A) to offer a warranty.
• B) to engage in externalities.
• C) to create asymmetric information.
• D) to use average cost pricing.

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Definitions:

Owner Contribution

Capital injected by the owners into the business, increasing equity.

Creditor

An individual or institution that lends money or extends credit to another party, expecting to be repaid the principal amount along with interest or to receive goods and services.

Equity

The residual interest in the assets of an entity after deducting liabilities, often equated with ownership equity in a company.

Profit

The financial gain realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.