A leather company produces shoes and belts.What will the company do if it expects the price of shoes to rise in the near future?

Question

Quizplus · Accepted Answer

If the company expects the price of shoes to rise in the near future, it would be best for them to move resources from belt production to shoe production. This would decrease the supply of belts, which could potentially raise the price of belts, while also increasing the supply of shoes, which could potentially take advantage of the expected price rise. Entering into a new product line or doing nothing would not directly address the issue at hand, while moving resources from shoe to belt production would have the opposite effect of what the company is anticipating.

A Leather Company Produces Shoes and Belts