The small-menu cost theory suggests that
A)there will be no unemployment.
B)wages and prices move freely and quickly.
C)firms find frequent price changes to be costly.
D)the economy is characterized only by perfect competition.

Question

Quizplus · Accepted Answer

The small-menu cost theory suggests that firms find frequent price changes to be costly. This is because changing prices requires updating menus, price tags, advertising materials, and other such costs. As a result, firms tend to avoid frequent price changes and instead adjust their prices infrequently in response to changes in costs or demand conditions. This can lead to sticky prices and wage rigidities, which may contribute to economic fluctuations and unemployment.

The Small-Menu Cost Theory Suggests That