How product differentiation affects equilibrium prices, production, profit and allocative efficiency?

Efficient means to reduce waste and loss of resources of all kinds and reduce costs, thereby increasing profit margins and reduce the price of the product on the consumer to achieve an increase in sales and profits

Profit-maximizing firms wish to differentiate their products because it helps them to earn greater profits. This statement may seem self evident, but it must be made with care. Some firms may product differentiate because they are unable to directly imitate their competitors’ products (e.g. due to patents, trademarks, copyright etc). However, this still leaves open the question of why the competitors chose to product differentiate in the first place. Presumably this is because it would increase their profits. We must also distinguish between the short run and the long run. For example, new firms enter a perfectly competitive industry which is expanding because they are able to make greater profits in the short run, even though they know that in the long run profits will be driven back down to zero.

When firms sell differentiated products, each firm faces a downward sloping demand curve. This is because if it raises its price above the price that its competitors are charging, it does not lose all of its customers, because some of them are willing to pay more for the special features of that particular differentiated product. However, since the firms are selling close substitutes, the activities of firms will have large effects on the slope and position of the demand curves for all the other firms. For example, if a competitor lowers their price, then this would cause an inward shift of the firm’s demand curve. If a competitor made their product more similar, this would make the firm’s demand curve more elastic. As new firms enter the industry, this probably causes both an inward shift and an increase in elasticity because there will then be more close substitutes and less consumer demand available for each individual firm (because there are more firms chasing the same amount of overall demand for goods in that sector).

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I agree with Mr. Sameer answer. Thanks for the invitation..........................................