Kate’s 24-hour breakfast diner menu offers one item, a $5.00 breakfast special. Kate’s costs of 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.

The answer is a. keep the business open in the short-run, and plan to expand the business in the long-run. Kate's costs per meal are $5.20 ($3.95 + $1.25), leaving her with a profit of only $0.80 per meal. However, because her menu offers only one item at a low price point, she is likely drawing in customers who are seeking a budget-friendly option. By keeping the business open in the short-run and planning to expand in the long-run, Kate can potentially attract more customers by offering a wider variety of menu items and expanding her marketing efforts. This can increase her overall revenue and offset her costs, allowing her to turn a larger profit. Raising prices above the competitive level or planning to go out of business are not viable options as they would likely result in a loss of customers and revenue. Laying off staff and closing the business down immediately is also not a viable option as it would result in a loss of investment and potential future profits.