Charlie’s Chainsaw Company has reason to believe that one of its models of saw is defective. A recall of all of the saws would cost more than $5 million, and would probably result in a loss in market share over the next quarter because of bad publicity. Still, a recall is the right economic decision.
Which of the following, if true, most supports the conclusion above?
A. Defective chainsaws can seriously injure or even kill the people who use them.
B. Charlie’s chief rival has recalled two of its products within the past year.
C. Product recalls often result in a perception by customers that a given product is permanently defective, even after the defect has been remedied.
D. The stocks of publicly traded companies that announce product recalls often drop upon the announcement, but they generally return to the
pre-announcement level within 12 months.
E. Three years ago a rival company went out of business because of large punitive damages awarded to a plaintiff who had been injured by a defective chainsaw.
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