Product differentiation:
A)is carried out by perfectly competitive and monopolistically competitive firms.
B)is succesful if a firm faces a relatively inelastic demand curve.
C)does not allow the firm to raise its price without losing all of its customers.
D)cannot be accomplished through advertising or trivial product changes.
E)if carried out successfully enables the firms to enjoy market power.

Question

Quizplus · Accepted Answer

Product differentiation, if carried out successfully, allows a firm to create a unique product that sets them apart from competitors, enabling them to enjoy market power and potentially charge higher prices. It is often used by monopolistically competitive firms to differentiate their products and gain a competitive edge. In contrast, perfectly competitive firms cannot differentiate their products as they are selling homogeneous goods. While advertising and trivial changes to the product can be used to enhance brand image, they may not necessarily result in successful product differentiation. Lastly, while a relatively inelastic demand curve may make product differentiation more effective, it is not a necessary condition for successful differentiation.

Product Differentiation