The different consumption functions of products and product differentiation

Abstract

This paper develops a monopolistic competition model to study the characteristics of products, such as quality improvement and product diversity (function-specialization and individualization), and the division of labor in production. Different from the ordinary economic model, our utility function includes these characteristics and reveals economies of function-specialization and individualization. Moreover, our production function includes these characteristics and reveals economies of vertical specialization and function-specialization. Through comparative static analysis, we find the optimal characteristics and their correlations with population, transaction costs, management efficiency and production technology, etc.product diversity, quality, theory of the firm, division of labor, monopolistic competition