Crucial assertions in the menu-cost literature are that those costs ________ be large for them to have an effect on firms' pricing, while potential total welfare losses ________ menu costs that have been avoided.
A) need not, may be several times larger
B) need not, are generally much less than
C) must, may be several times larger
D) must, are generally much less than

Question

Quizplus · Accepted Answer

Menu costs need not be large to affect pricing because even small costs can deter price changes. However, the potential total welfare losses from not changing prices can be much larger than the menu costs themselves.

Crucial Assertions in the Menu-Cost Literature Are That Those Costs