Firms That Choose to Use a Fixed-Price Policy

question 40

Multiple Choice

Firms that choose to use a fixed-price policy:

• A) Will tend to experience larger inventory changes than firms that follow a flexible-price policy
• B) Will tend to experience smaller inventory changes than firms that follow a flexible-price policy
• C) Find that their inventories do not respond to demand shocks
• D) Will not hold inventories

---

Definitions:

Opportunity Cost

The cost of what is forgone in order to pursue a certain action; the value of the best alternative option that is not selected.

Subjective Values

The notion that the value of goods and services is determined by the preferences and perceptions of individuals, rather than by intrinsic characteristics.

Decision Making

The process of selecting among available alternatives based on the preferences and values of the decision-maker.

Sunk Cost

A cost that has already been incurred, cannot be recovered, and thus is irrelevant for present and future economic decisions.