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.

Question

Quizplus · Accepted Answer

Under conditions of inflexible prices, firms typically adjust inventories in response to short-term demand shocks, as changing production levels can be costly and time-consuming. For more persistent changes in demand, firms are more likely to adjust production levels.

Which of the Following Statements Best Describes How Firms Respond