Question 1 (14 points) Imagine that you own your business. You are producing a product (it could be a service). You would like to differentiate your product.

a. (6 points) Why would you want to differentiate your product?

b. (8 points) How would you do it? How would your product differ? Please provide a specific product: a detailed explanation of your original product and how you would differentiate it. Please do not use the examples covered in class.

Question 2 (15 points)

Imagine that you own your business. It does not need to be the same as in other questions, you are allowed to pick a different firm or product. Imagine further that you or your consumers face an asymmetric information problem.

a. (5 points) Please explain in detail what this asymmetric information problem, and who is facing it (your firm or your consumers).

b. (10 points) Please explain how you solved this problem.

Question 3 (11 points)

Imagine that you own your business. It does not need to be the same as in other questions, you are allowed to pick a different firm or product.

a. (3 points) Think about your production process. Please explain the technology that you use in the production process.

b. (8 points) How do you think the technology that you use, affects the market structure and/or the demand of your product? Note that this question is NOT about how technology affects your production process, therefore, NOT about productivity, NOT about the cost structure.

a. (6 points) Why would you want to differentiate your product?

Because differentiating your product is one of the two basic business strategies, the other one being reducing the price of the product. Differentiating your product allows you to gain competitiveness in a contested market.

b. (8 points) How would you do it? How would your product differ?

An product that can be differentiated is a yogurt. The market for yogurt is very competitive so differentiation is necessary. The yogurt could be flavored in less common ways: like saffron, kiwi or cucumber, and the technique could be adapted from Greek Yogurt to give a healthier style.

a. (5 points) Please explain in detail what this asymmetric information problem, and who is facing it (your firm or your consumers).

The problem of asymmetric information occurs when one party of the transaction has more information than the other party. In a typical business transaction, the managers of the firm have more information than consumers, so consumers would be facing the problem of asymmetric information.

b. (8 points) How do you think the technology that you use, affects the market structure and/or the demand of your product?

Technology can make the market structure more competitive or less, but it usually makes it more competitive. Technology also improves the productiviy and efficiency of the production process, which leads to costs reductions than pass through price. This in turn raises demands for the product.

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