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Chapter 25: Q. 12 (page 623)

Explain what economists mean by 鈥渕enu costs.鈥�

Short Answer

Expert verified

Menu costs are the costs incurred by a firm when it alters the prices it presents to its customers.

Step by step solution

01

Different types of costs

There are different types of costs that firms must pay.

A variable cost is a corporate expense that varies in proportion to how much a firm produces or sells. Fixed costs are expenses that do not vary when sales or production volumes rise or fall.

02

Explanation

This name comes from the restaurant industry.

When restaurants change their menus, they have to pay the costs of printing new menus.

Economists, however, use this as an expression that refers to any changes in nominal prices.

It also concerned with the effect that price-changing has on customers. A menu cost is a cost that a firm has when changing its prices.

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Most popular questions from this chapter

In the Keynesian framework, which of the following events might cause a recession? Which might cause

inflation? Sketch AD/AS diagrams to illustrate your answers.

a. A large increase in the price of the homes people own.

b. Rapid growth in the economy of a major trading partner.

c. The development of a major new technology offers profitable opportunities for business.

d. The interest rate rises.

e. The good imported from a major trading partner become much less expensive.

Do you think the Phillips curve is a useful tool for analyzing the economy today? Why or why not

Suppose the economy is operating at potential GDP when it experiences an increase in export demand. How might the economy increase production of exports to meet this demand, given that the economy is already at full employment?

Would you expect to see long-run data trace out a stable downward-sloping Phillips curve?

What is the Keynesian prescription for recession? For inflation?
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