Question

Which of the following statements is correct.

	a.	The less product differentiation, the more elastic demand will be.
	b.	When the product differentiation is strong the firm should follow a market share strategy.
	c.	When the product differentiation is weak the firm should follow a profit margin strategy.
	d.	The more product differentiation, the more elastic demand will be.

Answer 1

Option A is correct - The less product differentiation, the more elastic demand will be.

Product differentiation means producing slightly similar products with little variations in either packaging, quality or marketing strategy of the product which distinguishes one product from the other. Thus customers will choose the product they want based on the variations they specifically want. Thus people are even ready to pay a higher price for those differentiated products. This can happen only when the demand for the goods is inelastic (inelastic demand means that a change in price does not affect much the demnd of the product).

Thus we can conclude that the more product differentiation, the more inelastic demand will be OR the less product differentiation, the more ealstic demand will be.