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

Question

Quizplus · Accepted Answer

Firms that choose to use a fixed-price policy will tend to experience larger inventory changes than firms that follow a flexible-price policy because they are not able to adjust their prices in response to changes in demand. This can lead to them holding excess inventory during periods of low demand and running out of inventory during periods of high demand.

Firms That Choose to Use a Fixed-Price Policy