Question

which of the following possible explanations of sticky prices is incorrect? a. menu costs (small costs of price adjustment) b. consideration of long-term relationship with customers c. long-term contracts among firms or between firms and workers d. firms may not want to change prices before their competitors do e. none of the above are incorrect.

Answer 1

The incorrect explanation of sticky prices among the given options is consideration of long-term relationship with customers. Therefore, the correct option is B.

Step-by-step explanation:

Among the given options, the incorrect explanation of sticky prices is b. consideration of long-term relationship with customers.

The concept of sticky prices refers to the phenomenon where prices do not adjust quickly or frequently in response to changes in supply and demand. This can be due to various reasons, such as the costs of changing prices, long-term contracts, or firms not wanting to change prices before their competitors.

However, the consideration of long-term relationships with customers is a valid explanation for sticky prices. Firms may be hesitant to change prices frequently to maintain trust and loyalty among their customers.