a potential customer hels insurance companies reduce adverse selection Furthermore,insuran companies reevaluate the premium somtime canceling the policy)when claims are made against the policy,thereby reducing moral hazard.Co-payments also reduce moral hazard by creating a disincentive for policyholders to engage in risky behavior. 4.Describe several ways in which sellers can convince buyers that their roducts are of high quality.Which methods apply in the following products: Maytag washing machines,Burger King hamburgers,large nds? signal the quality of their products to buyers through (1) investment in a good reputation,(2)the standardization of products,(3) certification (i.e.the use of educational degrees in the labor market),(4) guarantees,and (5)warranties.Mavtag signals the high quality of its washing machines by offering one of the best warranties in the market. Burger King on the standardization of its hamburge .g Whopper. The verifies the weight and shape of the stone and discloses any flaws. 5.Why might a seller find it advantageous to signal the quality of a product? How are guarantees and warranties a form ofmarket signaling? Firms producing high-quality products would like to charge higher prices hut to do this successfuilly notential consumers must he made aware of the quality differences among brands.One method of providing product quality information is through guarantees (ie the promise toeturn wha has been given in exchange if the product is defective)and warranties(i.e. the promise to repair or replace if defective)Since low-quality producers are unlikely to offer costly signaling devices,consumers can correctly view a guarantee or an extensive warranty as a signal of high quality,thus confirming the effectiveness of these measures as signaling devi 6. Joe earned a high grade-point average during his four r ye of college this a strong signal to Joe's future employer that he will be a highly productive worker?Why or why not? Yes.for the most part a high grade point average is a strong signal to the employer that the employee will perform at an above average level. Regardless of what he erform the On th padded his schedule with easy classes,and/or classes taught by easy professors. 7.Why might managers be able to achieve objectives other than profit maximization,which is the goal of the firm's shareholders? It is difficult and costly for shareholders to constantly monitor the actions of the firm's managers.a potential customer helps insurance companies reduce adverse selection. Furthermore, insurance companies reevaluate the premium (sometimes canceling the policy) when claims are made against the policy, thereby reducing moral hazard. Co-payments also reduce moral hazard by creating a disincentive for policyholders to engage in risky behavior. 4. Describe several ways in which sellers can convince buyers that their products are of high quality. Which methods apply in the following products: Maytag washing machines, Burger King hamburgers, large diamonds? Some sellers signal the quality of their products to buyers through (1) investment in a good reputation, (2) the standardization of products, (3) certification (i.e., the use of educational degrees in the labor market), (4) guarantees, and (5) warranties. Maytag signals the high quality of its washing machines by offering one of the best warranties in the market. Burger King relies on the standardization of its hamburgers, e.g., the Whopper. The sale of a large diamond is accompanied by a certificate that verifies the weight and shape of the stone and discloses any flaws. 5. Why might a seller find it advantageous to signal the quality of a product? How are guarantees and warranties a form of market signaling? Firms producing high-quality products would like to charge higher prices, but to do this successfully, potential consumers must be made aware of the quality differences among brands. One method of providing product quality information is through guarantees (i.e., the promise to return what has been given in exchange if the product is defective) and warranties (i.e., the promise to repair or replace if defective). Since low-quality producers are unlikely to offer costly signaling devices, consumers can correctly view a guarantee or an extensive warranty as a signal of high quality, thus confirming the effectiveness of these measures as signaling devices. 6. Joe earned a high grade-point average during his four years of college. Is this a strong signal to Joe’s future employer that he will be a highly productive worker? Why or why not? Yes, for the most part a high grade point average is a strong signal to the employer that the employee will perform at an above average level. Regardless of what he actually learned, it indicates that he is able to out-perform the majority of students. On the other hand, Joe could have padded his schedule with easy classes, and/or classes taught by easy professors. 7. Why might managers be able to achieve objectives other than profit maximization, which is the goal of the firm’s shareholders? It is difficult and costly for shareholders to constantly monitor the actions of the firm’s managers. The firm’s owners are in a better position to engage in monitoring, but a manager’s behavior still cannot be scrutinized one