Explain the two seemingly contradictory statements “The greater the quality the greater the cost and greater...

Explain the two seemingly contradictory statements “The greater the quality the greater the cost and greater the price” and “The greater the quality the lower the cost and lower the price.”

Expert Solution

If we define quality as consistency in the parameters on which a product is evaluated, then it takes a lot of resources and effort to ensure that each (or a very high percentage) of the products that we produce are within the parameters which will make them high quality. These resources and effort cost money, and the firm which is able to produce goods at a high quality is able to charge the customers for the same. We have numerous examples of this across different product categories.

On the other hand, if a firm is looking at producing its goods at a lower cost by foregoing the strict quality control mechanisms, it can probably save on the costs that are associated with ensuring quality, but it will experience very high reject rates and once the customers experience the products they won't buy them again and it would prevent the firm from charging high price. So an attempt to lower cost actually results in higher cost. Which, therefore, implies that the right way to lower the cost and lower the price (meaning the price to utility ratio in the customers' minds) is to produce high-quality goods.

Rahul Sunny answered 2 years ago

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