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

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Kate's total costs per meal are $3.95 (variable costs) + $1.25 (fixed costs) = $5.20, which is higher than her selling price of $5.00. This means she is losing money on each meal sold. In the short run, she might keep the business open if she can cover her variable costs and some of her fixed costs, but in the long run, if she cannot find a way to reduce costs or increase prices profitably, continuing the business is unsustainable.

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