Here’s a quick question? Have you ever visited your favorite restaurant, and discovered that the menu you were served isn’t the same one you received weeks ago? Especially when the new one contains new prices that are higher than the previous menu. <\/p>\n\n\n\n
How did you feel? Good? Bad? Just there? Let me know in the comments section. <\/p>\n\n\n\n
Changing these menus may seem very little to you as the customer, but to the management, it has incurred a cost that they need to get back. Hence the name, Menu costs. <\/p>\n\n\n\n
Continue reading, as we discuss menu costs in details.<\/p>\n\n\n\n
Menu costs are a type of cost incurred by companies as a result of a change in their prices. Let\u2019s take for instance, a restaurant. When the management of a restaurant intends to change the prices, the cost of changing the menus so that they show the new prices must be taken into consideration. <\/p>\n\n\n\n
In this situation, the management would need to calculate and determine if the increase in prices will cover the cost of printing new menus.<\/p>\n\n\n\n
Menu costs can be said to be one of the New Keynesian microeconomics explanation for macroeconomic price-stickiness, and this may be a leading cause of the inability of the economy to adapt to evolving macroeconomics conditions. <\/p>\n\n\n\n
With high inflation rates, companies must change their prices frequently so they can keep up with the changes in the economy.<\/p>\n\n\n\n
Furthermore, the name rises from restaurants literally printing new menus, but financial professionals use it to refer to the costs of changing nominal prices in general. <\/p>\n\n\n\n
They can be referred to as costs of information, decision, and implementation resulting in bounded rationality. <\/p>\n\n\n\n
Hence, due to these expenses, companies sometimes do not regularly change their prices with every change that happens in demand and supply and this, in turn, leads to nominal rigidity. <\/p>\n\n\n\n
In general, the aftermath of the company on a small shift in price is relatively small compared to the costs of letting the public know of this new development. <\/p>\n\n\n\n
Hence, the company would rather remain in a little disequilibrium than incur and have to deal with the menu costs.<\/p>\n\n\n\n
READ ALSO: Penetration Pricing Strategy: Guide for Emerging Markets<\/a><\/p>\n\n\n\n Menu costs are one of the costs of inflation. In an economy with hyperinflation -50% or more \u2013 menu costs can be a major problem, because you have to continuously change your prices.<\/p>\n\n\n\n As opposed to what economical professionals from the New Classical Macroeconomics think, which is that business cycles are founded by shifts in supply which emanate from technological shocks, New Keynesian economists are of the opinion that business cycles are originated by price stickiness. <\/p>\n\n\n\n This price stickiness might be explained by menu costs, since the slow adjustment of the economy may explain business cycles.<\/p>\n\n\n\n There has been a big debate over this particular question: are these menu costs really large enough to cause business cycles? <\/p>\n\n\n\nMenu Costs Inflation<\/span><\/h2>\n\n\n\n