According to the menu cost theory,firms will be slow in changing their prices because
A)if prices changed frequently, individuals would reduce their demand for that good because of uncertainty.
B)frequent price changes would be a sign of monopolistic behavior.
C)the cost of changing the price might exceed the additional revenue the price change would generate.
D)demand for their product would fall because consumers would purchase goods from firms that had not raised their prices.

Question

Quizplus · Accepted Answer

According to the menu cost theory, firms will be slow in changing their prices because the cost of changing the price might exceed the additional revenue the price change would generate. This could be due to the costs associated with printing new menus, changing prices in computer systems, and other administrative tasks. While options A and D are related to demand-side factors, they do not directly explain why firms might be slow in changing their prices. Option B is also not directly related to the menu cost theory.

According to the Menu Cost Theory,firms Will Be Slow in Changing