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

question 2

Multiple Choice

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 behaviour.
• 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.

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Definitions:

Perfectly Competitive Firm

A theoretical concept where a company operates in a market where there are many buyers and sellers, all selling homogeneous products, with no barriers to entry or exit.

Monopolist's Product

A product that has no close substitutes, making the seller the sole provider and able to control market prices.

Price Taker

An entity (often a company or individual) that has no control to dictate prices for goods or services in the market and must accept the prevailing market price.

Maximum Profit

The highest possible financial gain that a business can achieve from its operations over a specific period.