Final answer:
A line extension is the development of a product closely related to current products but designed to meet different customer needs and is a key aspect of product differentiation. It can help increase company market share and consumer loyalty. Therefore, the correct option is B.
Step-by-step explanation:
The development of a product that is closely related to one or more products in an existing product line but is designed specifically to meet somewhat different customer needs is known as a line extension. This type of innovation is part of product differentiation, which means firms are taking actions to make consumers perceive their products as distinct from their competitors'. Line extensions may involve variations in terms of size, flavor, color, or other attributes to address additional market segments or to further saturate the existing market.
By extending their product lines, companies can utilize their established reputation and expertise within a specific category, while also potentially raising consumer loyalty and market share. An increase in the diversity of products offered can result in an increase in need and thus an increase in demand, depicted as a rightward shift in the demand curve.