Firms are willing to offer generous rebates because:

• A. Rebates always reduce the firm's total revenue.
• B. Rebates can increase sales by encouraging consumers to make purchases they might otherwise postpone.
• C. Rebates guarantee that all customers will pay the lowest possible price.
• D. Rebates are required by law in most markets.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of rebates in microeconomics. A rebate is a partial refund to someone who has paid too much money for tax, rent, or a utility. In the context of firms, rebates are used as a marketing tool to encourage purchases.
2. Step 2: Analyze the impact of rebates on consumer behavior. Rebates can incentivize consumers to buy products sooner rather than later, effectively increasing the quantity demanded at a given price.
3. Step 3: Consider the firm's perspective on revenue. While rebates reduce the price paid by some consumers, they can increase overall sales volume, potentially increasing total revenue despite the lower price per unit.
4. Step 4: Evaluate the incorrect options: rebates do not always reduce total revenue, they do not guarantee the lowest price for all customers, and they are not legally required in most markets.
5. Step 5: Conclude that firms offer rebates primarily because rebates can increase sales by encouraging consumers to make purchases they might otherwise postpone, which can be beneficial for the firm's revenue and market share.