Question

Why do differential products often have a higher price than fungible products

A) Differentiated products are mixed together with light products and sold at a higher price.
B) Differentiated products are sold under limited supplies, so the amount of demand that's the price.
C) Differentiated products are perceived as superior to others and command a higher price.
D) Differentiated products are made with higher quality ingredients, and people pay more for better.

Answer 1

Differentiated products often have a higher price due to their perceived value and uniqueness, which allows firms to have increased pricing power. These products are tailored to specific consumer preferences, thereby contributing to monopolistic competition.

Step-by-step explanation:

Differential products often command a higher price than fungible products for several reasons related to product differentiation. Product differentiation is achieved through various means such as physical aspects of the product, the location from which it is sold, intangible aspects of the product, and perceptions of the product. These distinctive characteristics allow firms to tailor their products to specific consumer preferences, contributing to monopolistic competition where firms have some degree of market power.

Answering the question, the primary reason for the higher price of differentiated products is that they are perceived as superior to others and therefore can command a higher price, which corresponds to option C of the multiple choices given. This perception of superiority may be due to factors such as quality, branding, and customer service. Additionally, differentiated products are not as easily substitutable, which means companies may have more pricing power.