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

question 5

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 behavior.
• 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:

Date of Declaration

The date on which a company's board of directors announces a dividend payment to shareholders.

Stock Split

A corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares, though the overall market capitalization remains unchanged.

Par Value

The nominal or face value of a bond, share of stock, or coupon as stated by the issuing company.

Retained Earnings

Retained earnings represent the cumulative amount of net income earned by a company that is retained by the company rather than distributed to its shareholders as dividends.