(Solved):An apartment owner advertises for lawn mowing services for a number of apartments he owns. He has some idea of the going price and so he advertises that he will pay $100 per month per apartment com… View Answer…

 

Question

An apartment owner advertises for lawn mowing services for a number of apartments he owns. He has some idea of the going price and so he advertises that he will pay $100 per month per apartment complex. So why is he disappointed that the winning contractor only provides minimal services? (Keyword for the answer is adverse selection.)

 

EXPERT ANSWER

By offering fixed price, the apartment owner only attracted contractors who add value

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