Which of the following is true of product differentiation?
A) Product differentiation increases information asymmetry in a market.
B) Product differentiation reduces price differentials among competing goods by informing consumers about the features of a product.
C) Product differentiation can be based on perceived differences among products.
D) Product differentiation is the process of determining the optimal production of various products by a multi-product firm.
E) Firms in a perfectly competitive market practice product differentiation to attract consumers.

Question

Quizplus · Accepted Answer

Product differentiation can be based on perceived differences among products, such as differences in quality or design. This can allow firms to compete on something other than price and attract consumers who value those specific features. Option A is incorrect as product differentiation can increase or decrease information asymmetry depending on how much information is made available to consumers. Option B is incorrect because product differentiation can actually increase price differentials among competing goods if consumers are willing to pay more for certain features. Option D is incorrect as it describes product mix optimization rather than product differentiation. Option E is incorrect as firms in a perfectly competitive market do not differentiate their products as they are all considered identical by consumers.

Which of the Following Is True of Product Differentiation