Question

Kate’s 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate’s variable costs (e.g., servers, cooks, electricity, food, etc.) per meal average $3.95. Her fixed costs (e.g., rent, insurance, cleaning supplies and business license) per meal average $1.25. Since the market is highly competitive, Kate should: Group of answer choices raise her prices above the perfectly competitive level set by the market. keep the business open in the short-run, and plan to expand the business in the long-run. lay-off her staff, break her lease, and close the business down immediately. keep the business open in the short-run, but plan to go out of business in the long-run.

Answer 1

Kate should keep the business open in the short run, but plan to go out of business in the long-run

Step-by-step explanation:

Using the information given, we see that:

1. Kate's 24-hour diner offers one item
2. item is $5.00
3. Average variable cost is $3.95.
4. Average fixed cost is $1.25

Therefore we have,

`Average Variable Cost + Average Fixed Cost`

$
`3.95 +`$
`1.25`

`=`$
`5.2`

The result gotten shows that the Average total cost is $5.2 which is higher than price.

Because the Average Variable Cost is less than Price and the Average Total Cost is greater than Price, Kate should keep the business open in the short-run, but plan to go out of business in the long-run.