Menu Costs

What are 'Menu Costs'

Menu costs refer to an economic term used to describe the cost incurred by firms in order to change their prices. How expensive it is to change prices depends on the type of firm. For example, it may be necessary to reprint menus, update price lists or retag merchandise on the shelf. Even when there are few apparent costs to changing prices, changing prices may make customers apprehensive about buying at a given price, resulting in a menu cost of lost sales.

BREAKING DOWN 'Menu Costs'

The net result of menu costs is that prices are sticky. That is to say, firms are hesitant to change their prices until there is a sufficient disparity between the firm's current price and the equilibrium market price. In theory, a firm should not change its price until the price change will result in enough additional revenues to cover the menu costs. In practice, however, it may be difficult to determine the equilibrium market price or to account for all menu costs, so it is hard for firms and consumers to behave precisely in this manner.



RELATED TERMS
  1. Cost Of Carry

    Costs incurred as a result of an investment position. These costs ...
  2. Price Stickiness

    The resistance of a price (or set of prices) to change, despite ...
  3. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  4. Implicit Rental Rate

    The opportunity costs that a firm incurs as a result of using ...
  5. Full Costing

    A managerial accounting method that describes when all fixed ...
  6. Price Change

    The difference in the cost of an asset or security from one period ...
Related Articles
  1. Professionals

    Effects on Equilibrium in the Short and Long Run

    Effects on Equilibrium in the Short and Long Run. Examines how various short and long term changes affects equilibrium.
  2. Stock Analysis

    The Winners and Losers in the Fast-Food Industry (MCD, BOJA)

    Learn about the winners and losers among top chain restaurants in 2015. McDonald's finished a winner, while foodborne illness negatively impacted Chipotle.
  3. Trading Systems & Software

    Guide to TD Ameritrade's Thinkorswim - Charts

    Charts provide a visual depiction of the price movement of a tradable instrument. There many ways to view charts and to analyze them within thinkorswim. Three Charting Platforms There are three ...
  4. Professionals

    Perfectly Competitive Markets

    Perfectly Competitive Markets. Learn the aspects of a purely competitive market and how firms can maximize profit under these conditions.
  5. Economics

    What is a Firm?

    A firm is a business or organization that sells goods or services on a for-profit basis.
  6. Forex Education

    Beginner's Guide To NinjaTrader: NinjaTrader Control Center

    Upon successful installation, the NinjaTrader Control Center will open. The Control Center provides a centralized view of order, strategy, execution, position, account, account performance and ...
  7. Retirement

    Financial Career Shift: Get In The Driver's Seat

    Before you agree to work for another investment firm, be sure you know what you're getting into.
  8. Economics

    Calculating Economic Profit

    Economic profit is the difference between the revenue a firm earns from sales and the firm’s total opportunity costs.
  9. Stock Analysis

    Why Is Starbucks Expanding Its Evening Menu? (SBUX)

    Discover how Starbucks aims to increase revenue growth by $1 billion over the next fiscal year with new and improved evening menus.
  10. Professionals

    Break-Even Analysis

    This analysis is used to determine the point at which revenue received equals the costs associated with receiving the revenue
RELATED FAQS
  1. How are fixed costs treated in cost accounting?

    Learn how fixed costs and variable costs are used in cost accounting to help a company's management in budgeting and controlling ... Read Answer >>
  2. What is the difference between cost and price?

    Consider how cost affects a product's price. Corporate expenses and the current cost of living both impact the final sticker ... Read Answer >>
  3. What are the differences between period costs and product costs?

    Find out why GAAP separates all company expenses into either period or production costs and how this impacts the way expenses ... Read Answer >>
  4. How do fixed and variable costs each affect the marginal cost of production?

    Learn about the marginal cost of production, how to calculate the marginal cost, and how fixed costs and variable costs affect ... Read Answer >>
  5. How do sunk costs create a barrier to entry for new firms?

    Learn about sunk costs, what these costs are and how the size of sunk costs can create barriers of entry to a market for ... Read Answer >>
  6. What are the main objectives of cost accounting?

    Learn about the main benefits of cost accounting systems, why they are different from financial accounting and why they are ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center