How does a firm's well known brand identity affect goodwill?

Correct answer: It can increase goodwill

The direct answer is option B: a well-known brand identity can increase goodwill. Goodwill is the value of advantages that help a firm earn better profits than an ordinary firm. A trusted and familiar brand can attract customers, encourage repeat purchases and support higher sales. These benefits can raise the firm’s earning capacity, so goodwill may increase. Option B is correct because it states a possible positive effect, not an automatic guaranteed amount. Option A is wrong because strong customer recognition normally supports, rather than reduces, goodwill. Option C is wrong because goodwill is an intangible asset or business advantage, not a liability merely because the brand is famous. Option D is wrong because goodwill is not automatically converted into cash; it remains a non-physical business value unless a transaction occurs. Remember: trust, reputation, loyal customers and a strong brand are common sources of goodwill.