Final answer:
If interest rates rise, Esther might increase the prices of her dresses to cover higher borrowing costs, though options such as reducing inventory, closing, or maintaining her shop's current status are also possible depending on the impact of the rate increase on her costs and revenue.
Step-by-step explanation:
When interest rates rise, it inevitably affects the cost of borrowing money. For a business looking to expand, this means that loans for expansion will be more expensive. As a result, Esther's decision may vary. She might choose to increase prices to cover the higher costs of borrowing. However, either reducing inventory, closing the shop, or keeping things as they are could also be considered depending on her specific financial situation and ability to absorb higher costs. If hiring additional workers or expanding production would significantly increase her variable costs without guaranteed revenue to cover those costs, she might delay expansion plans. On the other hand, raising capital through borrowing or issuing stock is another consideration if she prefers not to increase prices or reduce stock.