If firms differentiate their products in different ways and charge different price because of these differentiation factors, then
A) the law of one price is not violated.
B) transaction costs are being ignored.
C) the firm must not be maximizing profit.
D) demand must be perfectly elastic.

Question

Quizplus · Accepted Answer

The law of one price is not violated because the different prices are charged based on the differentiating factors of the products. In other words, these differences in prices are not due to market imperfections or discrimination, but rather reflect the different costs involved in producing and marketing them. Therefore, consumers have a choice to buy the product that best fits their preferences and budget, and firms can still compete on the basis of quality, innovation, and service.

If Firms Differentiate Their Products in Different Ways and Charge