Microeconomic Essay Example | Topics and Well Written Essays - 1500 words

Microeconomic - Essay ExampleThis academic paper will be centre on the logic behind warranties as signal of tint as well as what limits the attractiveness of warranties as signals for high- reference firms.Grossman (1981) argued that indicating enhanced efficient functioning of a perfectly competitive market in a situation where there is information deficiency. Warranties offered by most increaseion companies are considered common types of signal move by high-quality harvest-festivalion companies. This is at reducing consumers quality doubt and information gaps in the ingatherings quality. Quality has been used to refer to observable and unobserved product characteristics in terms of product performance and persuasiveness. The common arrogance is that firms producing low-quality products find it very(prenominal) expensive to offer a warranty. This product assumption makes offering of product warranty a credible signal of unobservable product performance and durability among many other features.In the production industry, product failures are highly linked with product quality and workmanship hence the cost of offering the warrant will be higher for poor quality products. As a result of innovation and technological advancements, the information asymmetry between consumer and manufacturer is great. This comes closely due to an increase product modifications and releases on an annual basis. In the situation of new products, consumers have very little information on product information and quality due to the unavailability of past experiences and third gear party reviews. The injection of costly warranties in asymmetric information implies that warranties serve as pertinent projections of product quality in the production sector. The primary objective of all businesses remains profit-making through cost minimisation and revenue maximization. In case the producers manufactured goods with high chances of product failures, they will be forced to incur hig h costs through repair and replacement which will