Question

Product differentiation and advertising are profitable ventures only when:

the market is monopolistic
both revenues and costs increase
they do not affect entry barriers
the gain in total revenue outweighs the extra cost
the market is oligopolistic
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Answer 1

Product differentiation and advertising are profitable ventures only when:

the gain in total revenue outweighs the extra cost

Step-by-step explanation:

When Company XYZ differentiates its product from competitors' through trademarks and other differentiating factors and embarks on advertising, it must watch out for cost overrun. The undertaking for the product differentiation and advertising should be able to generate more revenue than the costs. This will make Company XYZ determine that its differentiation and advertising make economic meaning by producing positive NPV.

Answer 2

Product differentiation as well as advertising can be considered as profitable ventures in a case whereby D: the gain in total revenue outweighs the extra cost.

• Product differentiation can be regarded as activity that us been carried out by producer so that his product/service stand out to target audience. Advitisement on the other hand helps in promoting the goods/services .

• However, they a profitable ventures when the extra cost in production is less than the gain.

Therefore, option D is correct.

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