Answer to Question #132838 in Economics for DURRE ADAN

Question

“In the long run, a profit-maximizing firm would never knowingly market unsafe products. However, in the short run, unsafe products can do a lot of damage.” Discuss this statement.

Answer 1

A company counting on a long-term presence in the market will always take care of its reputation and control the quality of products for compliance with both external and internal standards. Consequently, it is in the interests of the company to cut off substandard goods on its own.

If the company does not count on the long term, that is, it expects to receive excess profits and stop its activities, then the desire to get the maximum profit at the minimum cost always leads to a loss in the quality of the goods.