Product differentiation:
A) refers to the attempt of firms to make their products look like those of the other firms in the industry and is used in a perfectly competitive market structure.
B) refers to the attempt of firms to make real or apparent differences in essentially substitutable products look different in the minds of the consumers and is used in a monopolistically competitive market structure.
C) leads to nonprice competition in a perfectly competitive market structure.
D) leads to price equaling the minimum average total cost in the long run in a monopolistically competitive market structure.

Question

Quizplus · Accepted Answer

Product differentiation is when firms try to make their products look different from other firms' products. This is done to create a unique selling proposition and to make the products seem more attractive to consumers. This strategy is commonly used in monopolistically competitive markets, where firms have some degree of market power and can differentiate their products to gain a competitive advantage. In a perfectly competitive market, firms cannot differentiate their products, as all products are considered the same. Therefore, Option A is incorrect. Nonprice competition arises when firms differentiate their products, so Option C is incorrect. Finally, in a monopolistically competitive market, firms are able to charge a price above the minimum average total cost in the long run, so Option D is incorrect.

Product Differentiation