Which of the Following Statements Best Describes How fiRms Respond

question 13

Multiple Choice

Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices?

• A) Firms respond to shorter-term demand shocks by adjusting production levels; more persistent changes in demand result in changes in inventories.
• B) Firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels.
• C) Firms are reluctant to adjust inventory levels because the costs are higher than changing the quantity of output produced.
• D) Firms are quick to let go of workers when negative demand shocks occur.

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Definitions:

Selling Price

The amount of money for which a product or service is sold to the consumer.

Units-Of-Production Depreciation

A depreciation method that allocates expense based on the actual usage or production of an asset.

Salvage Value

The anticipated worth of an asset at the conclusion of its effective life.

Service Life

The estimated use period or duration over which an asset is expected to be economically usable by one or more users, with proper maintenance and repairs.