Business Insider highlights that question as one that's particular important for managers and leaders. Obviously if you've never held a senior role it shouldn't come up, but as your career progresses it is likely to become more relevant. "You can't build a great team without occasionally deconstructing and rebuilding it," Contour CEO Marc Barros points out.
The response you give should focus on both the process involved (to demonstrate that you're capable of handling tough decisions) and how you dealt with the fired person afterwards (to demonstrate that you're not a heartless corporate monster). How would you answer the question?
This Revealing Interview Question Identifies A Natural-Born Leader [Business Insider]