menu costs

Examples of menu costs in the following topics:

• The Costs of Inflation

  • The costs of inflation include menu costs, shoe leather costs, loss of purchasing power, and the redistribution of wealth.
  • In economics, a menu cost is the cost to a firm resulting from changing its prices.
  • The name stems from the cost of restaurants literally printing new menus, but economists use it to refer to the costs of changing nominal prices in general.
  • Other costs of high and/or unexpected inflation include the economic costs of hoarding and social unrest.
  • The cost to a restaurant to change the prices on menus is incurred even with low and expected inflation.

• Arguments For and Against Inflation Targeting Policy Interventions

  • High levels of inflation eat away at savings, increase menu costs and shoe-leather costs, discourage lending, and may create an inflationary spiral that leads to hyperinflation.
  • On the other hand, some argue that the costs of inflation targeting exceed the benefits.

• Average and Marginal Cost

  • Marginal cost is the change in total cost when another unit is produced; average cost is the total cost divided by the number of goods produced.
  • Marginal cost is not related to fixed costs.
  • When the average cost declines, the marginal cost is less than the average cost.
  • When the average cost increases, the marginal cost is greater than the average cost.
  • This graph is a cost curve that shows the average total cost, marginal cost, and marginal revenue.

• Types of Costs

  • In economics, the total cost (TC) is the total economic cost of production.
  • It consists of variable costs and fixed costs.
  • Total cost is the total opportunity cost of each factor of production as part of its fixed or variable costs .
  • Variable costs are also the sum of marginal costs over all of the units produced (referred to as normal costs).
  • Economic cost is the sum of all the variable and fixed costs (also called accounting cost) plus opportunity costs.

• Economic Costs

  • An example of economic cost would be the cost of attending college.
  • So, the economic cost of college is the accounting cost plus the opportunity cost.
  • So, the economic cost of college is the accounting cost plus the opportunity cost.
  • Total cost (TC): total cost equals total fixed cost plus total variable costs (TC = TFC + TVC) .
  • Variable cost (VC): the cost paid to the variable input.

• Cost of capital

  • The cost of capital refers to the cost of the money used to pay for the capital.
  • In order to determine a company's cost of capital, the cost of debt and the cost of equity must be calculated.
  • This determines the "market" cost of equity.
  • One way of combining the cost of debt and equity to generate a single cost of capital number is through the weighted-average cost of capital (WACC).
  • The cost of capital is the cost of the money used to finance the plant.

• The Supply Curve in Perfect Competition

  • The total revenue-total cost perspective and the marginal revenue-marginal cost perspective are used to find profit maximizing quantities.
  • In economics, a cost curve is a graph that shows the costs of production as a function of total quantity produced.
  • In a free market economy, firms use cost curves to find the optimal point of production (minimizing cost).
  • There are two ways in which cost curves can be used to find profit maximizing quantities: the total revenue-total cost perspective and the marginal revenue-marginal cost perspective.
  • The total revenue-total cost perspective recognizes that profit is equal to the total revenue (TR) minus the total cost (TC).

• Costs and Production in the Short-Run

  • AFC is fixed cost per Q.
  • Sometimes VC is called total variable cost (TVC).
  • It is the variable cost per Q.
  • Total Cost (TC) is the sum of the FC and VC.
  • Average Total Cost (AC or ATC) is the total cost per unit of output.

• Difference Between Economic and Accounting Profit

  • Explicit costs are costs that involve direct monetary payment.
  • Wages paid to workers, rent paid to a landowner, and material costs paid to a supplier are all examples of explicit costs.
  • In contrast, implicit costs are the opportunity costs of factors of production that a producer already owns.
  • These consist of the explicit costs a firm has to maintain production (for example, wages, rent, and material costs).
  • Economic profit is the difference between total monetary revenue and total costs, but total costs include both explicit and implicit costs.

• Natural Monopolies

  • The total cost of the natural monopoly is lower than the sum of the total costs of two firms producing the same quantity .
  • Along with this, the average cost of production decreases and then increases.
  • In contrast, a natural monopoly will have a marginal cost that is constant or declining, and an average total cost that drops as the quantity of output increases.
  • Natural monopolies tend to form in industries where there are high fixed costs.
  • The total cost of the natural monopoly's production is lower than the sum of the total costs of two firms producing the same quantity.