Menu Costs


DEFINITION of 'Menu Costs'

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.


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.

  1. Switching Costs

    The negative costs that a consumer incurs as a result of changing ...
  2. Price Stickiness

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

    The cost incurred by a company to produce, store and sell one ...
  4. Absorption Costing

    A managerial accounting cost method of expensing all costs associated ...
  5. Irrelevant Cost

    A managerial accounting term that represents a cost, either positive ...
  6. Transaction Costs

    Expenses incurred when buying or selling securities. Transaction ...
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