Suppose the demand for hot dogs decreases. In the short run, firms that produce hot dogs will experience a fall in prices, which will induce them to
A) increase production and increase the number of workers.
B) decrease production and increase the number of workers.
C) decrease production and reduce the number of workers.
D) increase production and reduce the number of workers.

Question

Quizplus · Accepted Answer

As the demand for hot dogs decreases, firms will experience a fall in prices, and thus, a decrease in revenue. To maintain profitability, firms will have to decrease production and reduce the number of workers in the short run. This will help them to reduce their costs and maintain a profit margin. Increasing production or the number of workers would only increase costs and aggravate losses.

Suppose the Demand for Hot Dogs Decreases