If Firms Differentiate Their Products in Different Ways and Charge

question 132

Multiple Choice

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)transactions costs are being ignored.
• C)the firm must not be maximizing profit.
• D)demand must be perfectly elastic.

---

Definitions:

Collude

The act of cooperating or conspiring, especially in a deceitful way, between companies to limit competition and manipulate market prices or conditions.

Collusion Model

A theoretical framework that explains how firms within a market may work together to manipulate market conditions, such as price and output, to their advantage.

Perfectly Competitive

A market structure characterized by many buyers and sellers where no single entity can influence market prices.

Predatory Pricing

A pricing strategy where a firm sets its prices below cost in the short term to drive competitors out of the market and achieve a monopoly.