Sunny Island Coffee: A Mount Holyoke Coffee Supplier

Sunny Island Coffee: A Mount Holyoke Coffee Supplier

By Dorothy, Kate, Niole, Thu

Sunny Island Coffee is the main supplier of coffee beans to Mount Holyoke College. The school recently had to reevaluate Sunny Island’s ability to fulfill the school’s demand for coffee in light of bad weather affecting coffee bean crops. In 2012, the plantation became a victim of flood damage. In years previous, Sunny Island Coffee broke even in terms of their net profit. The equilibrium price in the coffee market was p = $8per lb. In 2012, the Island’s crops were severely damaged. The firm decided to prevent further issues by investing in a drainage system, but they will have to incur the cost of laborers to maintain this system which they considered a variable cost.

This has also increased the cost of running the plantation. The cost per lb of coffee produced became: C(y)=,y-2.+5y. The supply function looked like this: p=2y+5

Mount Holyoke College’s Economist decided to investigate further and found the the profit equation,π=py-5y-,y-2.=8y-5y-,y-2..

As P=8, ATC=y+5, the firm can easily produce the right amount of coffee so that P>AVC (8>y+5, 3>y) and make profits. Therefore the firm can continue to produce in the short run.

For now, because Sunny Island Coffee is able to continue production in the short run, Mount Holyoke College decided to continue giving Sunny Island their business. But will need to evaluate other options, as it is unclear whether or not they will be able to continue business in the long run. However, as we all know, Mount Holyoke students need their coffee, and Sunny Island is able to produce it.