Question

You are the manager of Fast & Easy donuts. Almost all of your donut sales are derived from the drive-through window. You know from experience that coffee is a complement for your donuts. The morning newspaper says that a major storm has just destroyed 50 percent of this year’s coffee bean crop. How will this affect your future business? Describe as many impacts as possible - be sure to include a discussion of how this will affect your coffee and donut sales (and prices), how much flour you will order, and how many employees you will need to schedule. What other impacts might you observe?

Answer 1

Answer.

Here coffee is a complement of donut which means their demand and price are positively related. If the price of donut rise the demand for coffee will decrease and vice versa.

Because crop of coffee has been destroyed then there will be the shortage of coffee in future will lead to increase in the price of coffee. Due to increase in the price of coffee the demand for donuts will fall as they are complements. The future business will tend to make fewer profits then it was in earlier. The sales of donuts will fall as the price of coffee increased. A manager should order flour equal to the ratio of sales of coffee and donut they were selling. A manager will fire the workers as the production will also fall. Other impacts will increase in inflation and unemployment in an economy.