Which of the Following Is True of Product Differentiation

question 4

Multiple Choice

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.

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Definitions:

Externality

A consequence of an economic activity experienced by unrelated third parties; it can be either positive or negative.

Precision-estimates

The accuracy of an estimate in terms of how closely it predicts the actual value, often relevant in statistical analyses and forecasting.

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen.

Investment Project

A project or activity that involves spending capital with the expectation of future financial returns.