Question

While Fun Frames incurs a cost of $12 for a pair of eyeglasses, Highwire, its competitor, manufactures a pair of glasses at $10. Both the companies are able to sell their glasses for a maximum of $30 per pair. Which of the following statements is true in this scenario?
A) Fun Frames and Highwire have achieved differentiation parity.
B) Fun Frames is a cost-leader when compared to Highwire.
C) Fun Frames has created a greater economic value than Highwire.
D) Highwire has a higher opportunity cost than Fun Frames.

Answer 1

Answer: A) Fun Frames and Highwire have achieved differentiation parity.

Explanation:

Two companies are known to have reached Differentiation parity if they can make products of the same perceived value to customers despite the cost of their products.

Even though both Fun Frames and Highwire spend different amounts on their products, they can still only charge a certain amount meaning they have reached Differentiation Parity.