It costs $ 12 to produce a low-quality stapler and $ 16 to produce a high-quality stapler. Consumers cannot distinguish good staplers from poor staplers when they make their purchases. Consumers value staplers at their cost of production and are risk neutral. The three firms in the market produce low-quality staplers at a price of $ 12. A fourth firm is considering entering the market. Given that each firm produces and sells the same quantity of staplers, will the fourth firm be able to produce high-quality staplers without making losses? How does your answer change if consumers are willing to pay $ 36 for high-quality staplers?

  • CreatedNovember 13, 2014
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