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:

Overconfidence Effect

A cognitive bias where an individual's subjective confidence in their judgments is greater than their objective accuracy.

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.

Cognitive Biases

Cognitive biases are systematic patterns of deviation from norm or rationality in judgment, often leading to illogical interpretation or decision-making.

Behavioral Economics

A field of economics that examines how psychological, cognitive, emotional, cultural, and social factors affect the economic decisions of individuals and institutions and how those decisions vary from those implied by classical theory.