Question

Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should:

Answer 1

Answer:

C. continue producing in the short run, but plan to go out of business in the long run.

Explanation:

Given:

Average cost per meal = $5

The costs of waiters, cooks, power, food etc. = $3.95 per meal

costs of the lease, insurance and other such expenses = $1.25 per meal

Total cost = fixed cost + variable cost

= $3.95 + $1.25

= $5.2

Total cost, $5.2 per meal is greater than cost per meal, which is clearly a loss of $0.2 per meal.

In the long run, Bette will go out of business.

Answer 2

Answer:

Bette's Breakfast should increase the price or change the cost´s structure.

Explanation:

Bette's Breakfast should increase the price to get any profits because the total of the cost of serving that breakfast is higher than the price.  

Profit= price* sales -((Variable cost * sales) +Fixed cost)

Other option is changing the structure of cost per meal.