In the context of economics, which type of diversification is generally associated with the lowest performance for firms?

• A. Unrelated diversification
• B. Related diversification
• C. Product line diversification within the same industry
• D. Geographic diversification

Answer: (A)

Verified step by step guidance

1. Understand the concept of diversification in economics, which refers to a firm's strategy to enter into new markets or industries to reduce risk and increase growth opportunities.
2. Recognize the different types of diversification: related diversification (expanding into similar or connected industries), unrelated diversification (entering industries with no significant connection), product line diversification within the same industry, and geographic diversification (expanding into new locations).
3. Analyze how related diversification tends to leverage existing capabilities and resources, often leading to better performance due to synergies and shared knowledge.
4. Consider that unrelated diversification usually involves entering completely different industries, which can lead to a lack of expertise, higher management complexity, and inefficiencies, often resulting in lower firm performance.
5. Conclude that among the options, unrelated diversification is generally associated with the lowest performance for firms because it lacks the benefits of synergy and focus that related or more focused diversification strategies provide.