As product differentiation decreases,________ increases.
A) markup
B) excess capacity
C) demand elasticity
D) demand inelasticity
E) marginal cost

Question

Quizplus · Accepted Answer

As product differentiation decreases, consumers have more options to choose from and are more likely to switch to substitutes if the price of the product increases. This means that the demand for the product becomes more elastic, or sensitive to changes in price. As a result, firms may need to lower their prices to remain competitive, potentially reducing their markup or profit margin. Additionally, excess capacity may arise if firms produce more than they can sell due to increased competition. However, there is no direct relationship between product differentiation and marginal cost.

As Product Differentiation Decreases,________ Increases