In the Face of Rising Costs, Some Firms Reduce the Quality

Multiple Choice

In the face of rising costs, some firms reduce the quality of the goods they produce rather than maintain quality and increase prices. How would behavioral economics explain this strategy?

A) People have an aversion to losses, and consumers are more likely to feel the loss of a price increase than a quality reduction.
B) Consumers are more tolerant of diminished quality because diminishing marginal utility causes people to get rid of goods sooner than in the past.
C) Firms are myopic in their decision making, with little regard for future profitability.
D) The availability heuristic will cause people to buy whatever is offered, regardless of the quality.