Firms that face menu costs react to a sustained increase in demand by:
A)increasing output and then raising the price of their output.
B)charging higher prices, without necessarily increasing the amount of output they are willing to sell.
C)charging lower prices, while simultaneously increasing the amount of output they are willing to sell.
D)increasing output and then reducing the price of their output.

Question

Quizplus · Accepted Answer

Firms facing menu costs may initially increase output to meet higher demand before raising prices, as changing prices frequently can be costly.

Firms That Face Menu Costs React to a Sustained Increase