Final answer:
Product differentiation can be achieved through quality and price, but not through opportunity cost or tacit collusion. Quality is the source of product differentiation among the options provided, as it greatly influences consumer preference and market competition, leading to varied product offers. The correct answer is A.
Step-by-step explanation:
Product differentiation refers to the process through which firms make their products different from their competitors in order to attract more customers and gain a competitive advantage in the market.
Quality is one of the key sources of product differentiation. For example, Apple differentiates its products by focusing on high quality and innovative design.
Price can also be a source of product differentiation. Some firms choose to differentiate their products by offering lower prices compared to their competitors. For instance, Walmart is known for offering products at lower prices than other retailers.
Opportunity cost is not a source of product differentiation. Opportunity cost refers to the value of the next best alternative foregone when making a choice.
Tacit collusion refers to a situation where firms in the same industry coordinate their actions to maximize their joint profits. It is not a source of product differentiation.
Quality is the source of product differentiation among the options provided, as it greatly influences consumer preference and market competition, leading to varied product offers.
Among the options provided, Quality is a source of product differentiation. Product differentiation arises when the variety of styles, flavors, locations, and product characteristics create distinct choices for consumers, leading to monopolistic competition. This differentiability can be significantly impacted by the product's quality, which influences consumer preference and demand.
On the other hand, tacit collusion refers to a situation where firms in an oligopoly informally agree to avoid competition, which can affect prices and output but is not directly related to product differentiation itself. Price is also not a source of differentiation because it is simply a result of competition, not a characteristic that makes a product unique. Lastly, opportunity cost is a concept in economics that represents the cost of forgoing the next best alternative, and while important in decision-making, does not contribute to product differentiation.