The poultry industry in Floriana is made up of numerous firms selling more or less homogeneous products. The smallerplayers, however, give low priority to quality and hygiene. GoodrickCorporation, one of the oldest firms in thisindustry, has recently introduced its brand of processed chilled chicken called"Better Chicken.""Better Chicken" is priced higher than the local unbranded varieties and is promoted for its tenderness and hygienic methods of production and refrigeration."Better Chicken" has become very popular and Goodrick is now making substantial profits.Consequently, some of the other firms have begun to introduce different varieties of processed poultry items.

AshleePatterson, a student ofeconomics, argues that product differentiation by these firms will reduce economic welfare.However, TonyPrescott, herfriend, disagrees. According toTony, social welfare will increase because consumers now have more choices.

While claiming that social welfare will increase because consumers now have more choices Tony is ignoring the factthat:

A.

producer surplus increases when firms differentiate their products from what their rivals offer.

B.

firms selling identical products face perfectly elastic demand curves.

C.

different people have different preferences.

D.

efficiency under monopoly is lower than efficiency under monopolistic competition.

E.

product differentiation allows firms to enjoy monopoly power.