The Existence of Menu Costs Are Often Used to Explain

question 48

Multiple Choice

The existence of menu costs are often used to explain why:

• A) the price of services, like those provided by restaurants and barbers, rise at a faster rate than the price of goods, like automobiles and clothing.
• B) price and wage adjustments will be relatively rapid.
• C) food prices tend to rise disproportionately rapidly in the consumer price index.
• D) people prefer to look backward, instead of forward, when anticipating the future.
• E) fiscal and monetary policies should be relatively effective.

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Definitions:

Contribution Margin

Contribution margin is the difference between sales revenue and variable costs of a product or service, highlighting how much revenue contributes towards covering fixed costs and generating profit.

Fixed Manufacturing Overhead

The portion of manufacturing overhead costs that remains constant regardless of the level of production, such as salaries of supervisors and rent of the factory.

Outside Supplier

An external company or individual that provides goods or services to another company.

Contribution Margin

The amount by which sales revenue exceeds variable costs, indicating how much revenue contributes towards covering fixed costs and generating profit.