Final answer:
Menu costs are the expenses firms incur when adjusting prices and informing customers, not necessarily related to economic conditions such as a recession. Sunk costs are already incurred costs that cannot be recovered and should be ignored in future decision-making. Menu costs contribute to the phenomenon of sticky prices in macroeconomics.
Step-by-step explanation:
Menu costs refer to the costs that firms face when changing prices and communicating them to customers. These costs arise from various activities related to price adjustments, such as analyzing market demand, updating sales materials, and altering billing records. In the context of a recession, firms may be more hesitant to change prices due to uncertain market conditions, potentially leading to sticky prices. However, the statement that menu costs increase or decrease during a recession is not explicitly implied by the definition of menu costs. Therefore, the correct answer to the student's question is C) are the costs to firms of changing prices and communicating them to customers.
Sunk costs, on the other hand, represent expenses that have already been incurred and cannot be recovered. These are different from menu costs, as sunk costs are not relevant to future pricing decisions and should typically be disregarded when planning future actions within a firm.
From an economic perspective, menu costs contribute to price stickiness, meaning that prices do not adjust instantly to changes in supply and demand. The concept of the Phillips curve illustrates the tradeoff between unemployment and inflation, but is not directly related to the concept of menu costs.