Suppose that it costs $10 to produce a low-quality electric stapler and $25 to produce a high-quality stapler. consumers cannot distinguish between good staplers and poor staplers when they make their purchases. there are four firms producing staplers. consumers value staplers at their cost of production and are risk neutral. will any of the four firms be able to produce high quality staplers without making losses? suppose each firm produces 1 comma 000 staplers. if one firm makes high-quality staplers, then each firm that produces low-quality staplers will earn profit of $ nothing and the firm that makes the high-quality staplers will earn $ nothing.

Secured loans are protected by collateral security. examples: title loans where the borrower uses the car title as collateral security interest rates are lower and repayments are longer therefore risk is low as a collateral security is given as guarantee to the bank in case of failure to pay the loanunsecured loans are not protected by collateral security but it is given on the creditworthiness of the borrower, trusting that she/he will pay on time. examples; payday loans is a short term loan where the borrower lends money from the bank and pays is back when the borrower receives his/her wages.interest rates are high and repayments are shorter. but the risk is high as no collateral security is given as a guarantee to the bank for payment of the loan

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