Final answer:
Factories respond to decreased demand for their outputs by reducing production, which may involve laying off workers or closing facilities, thereby affecting the local economy.
Step-by-step explanation:
When demand for factory outputs declined, factories had to adjust their strategies to align with the changing economic conditions. This often included making the difficult decision to reduce production, which could lead to significant changes within the workforce. Factories would hire workers or lay them off depending on their needs, and in many cases, would initiate layoffs to cut costs. In extreme situations, factories might also close their facilities, further impacting local economies and contributing to higher unemployment rates. Such responses are seen historically in various industries, including the automotive sector, where decreased demand caused companies to sever ties with dealerships, impacting local economies and causing job losses.