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Homework answers / question archive / Which of the following statements about expenditures on advertising is true? A
Which of the following statements about expenditures on advertising is true?
A. When a firm spends a small amount of money on advertising , this signals that the quality of the good is high.
B. If a firm knows its product is of low quality, it will be willing to spend large amounts of money on advertising.
C. When a firm spends a large amount of money on advertising, advertising can be construed as a signal of quality.
Expenditure on advertising refers to an expense which is done by an organization in order to promote his or her business, product or services. Advertising of a product which is established refers to a signal of quantity, but it is a signal which is imperfect that leaves the uncertainty which influences the repurchase decision of the consumers. Thus, when an organization spends a large sum on the advertisement, it may be construed as a signal of quality. (Correct answer: C)
