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

The firm should focus on operating during the short-term and plan to exit in the long run.

Step-by-step explanation:

Given that:

Price of the meal = $5

Fixed cost = $ 1.25

Variable cost = $3.95

Therefore,

Total cost = 1.25 + 3.95 = $5.20

The price which is offered i.e. $5 is less than total cost i.e. $5.20

The price offered is also greater than the variable cost which is $3.95

Thus, the firm should focus on operating during the short-term and plan to exit in the long run as the market seems to be highly competitive.