Question

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should__________.

Answer 1

Answer:

Kate will continue to operate in the short-run but plan on she will  exit the business in the long-term

Explanation:

Kate's decision should be guided by her business's performance in terms of profitability. Kate is selling her meal at $5, but her total cost of serving the meal is $5.20.  It means the business is operating at a loss.

Kate must start plantation on how she will leave that business. She may continue operating but only for a short while. Soon, she will find it hard to stay open because the business is loss-making. Kate will, therefore, continue operations in the short run. In the long term. Kate must plan on exiting the business.