Firms are better off using rebates rather than just lowering the price of a good

Question

Firms are better off using rebates rather than just lowering the price of a good because Only those who place a low value on their time or are price sensitive actually redeem the rebate, making profits higher than if they just lowered the price. Customers overestimate the value of the rebate and so buy more of the good, making profits higher than if they just lowered the price. lowering the price is inefficient and creates additional deadweight loss. People view the firm in a positive light because now over people will be able to afford their good.

Explanation / Answer

B is the right answer

Customers always have expectations, if good has permanent price reduction there is no rush in buying so less amount gets sold.

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