Kate's 24-Hour Breakfast Diner Menu Offers One Item, a $5

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

A) raise her prices above the perfectly competitive level set by the market.
B) keep the business open in the short-run, but plan to go out of business in the long-run.
C) keep the business open in the short-run, and plan to expand the business in the long-run.
D) lay-off her staff, break her lease, and close the business down immediately.

Correct Answer:

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