Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on

Question

ingredients and other variable costs. Also for the past several months she has earned $4,500 in monthly revenue. In the short run, Susan should
a. shut down her business, and in the long run she should exit the industry.
b. continue to operate her business, but in the long run she should exit the industry.
c. continue to operate her business, but in the long run she will probably face competition from newly entering firms.
d. continue to operate her business, and she is also in long-run equilibrium.

Answer 1

c