Which of the following is true of product differentiation?
A)Product differentiation ensures that firms face a horizontal market demand curve.
B)Product differentiation allows monopolistically competitive firms to make positive economic profits in the long run.
C)Prices of differentiated products have to vary substantially for product differentiation to be successful.
D)Successful product differentiation can be based on differences that are perceived by consumers.

Question

Quizplus · Accepted Answer

Successful product differentiation can be based on differences that are perceived by consumers, such as differences in quality, style, convenience or image. This creates a preference for a particular brand or product, which can lead to market power and the ability to charge higher prices. However, prices do not necessarily have to vary substantially for product differentiation to be successful, and firms in monopolistically competitive markets may make only normal profits in the long run rather than positive economic profits. Additionally, product differentiation does not ensure that firms face a horizontal market demand curve, as their demand may still be downward sloping depending on the elasticity of their product's demand.

Which of the Following Is True of Product Differentiation