If firms are price setters,a small decline in the demand for their outputs will cause them to
A)reduce price and reduce the level of output produced.
B)reduce output in the short run, but reduce price in the long run.
C)reduce price in the short run, but reduce output only in the long run.
D)increase price in the short run to offset the effect on profits of a decline in output.

Question

Quizplus · Accepted Answer

When firms are price setters (also known as price makers), they have some control over the price of their products due to a lack of perfect competition in the market. In the short run, these firms are more likely to adjust their output levels in response to a decline in demand, as changing prices frequently can lead to undesirable market perceptions or logistical challenges. In the long run, however, they might adjust prices once they have a better understanding of the market demand and have had time to consider the long-term implications of the demand shift. This strategy allows firms to manage their resources and market position more effectively over time.

If Firms Are Price Setters,a Small Decline in the Demand