The Covid-19 pandemic and government restrictions on dining in restaurants devastated the food and beverage industry. By December 2020, the Hong Kong Federation of Restaurants and Related Trades reported that 2,300 of the city's 16,000 restaurants had closed. Yet, 300 new outlets opened.

1. Classify the following as fixed or variable costs in the short run: (i) rent; (ii) salaries and wages; and (iii) ingredients and supplies. 2. In the short run, if demand falls, discuss whether a restaurant should shut down. 3. Classify the following as fixed or variable costs in the long run: (i) rent; (ii) salaries and wages; and (iii) ingredients and supplies. 4. Explain the effect of a drop in rents on the opening of new restaurants.