University of Illinois, Urbana Champaign

ACE 240

1.
Zippy Drone Company’s economic environment mainly aligns with the expansion phase
of the business cycle. Some of the characteristics of this phase include increased
consumer confidence and spending (Zippy experienced high holiday sales, which
indicates consumer confidence), growing business investment (Zippy is on the verge of a
distribution deal with Costco, which shows increased investment in production and
distribution), rising inflation pressure (Inflation has increased the cost of purchasing
inventory, which impacts production costs), and borrowing to finance expansion (Zippy
borrowed a million dollars last year, which indicates the need for external funding to
support growth).
2.
Zippy Drone Company is facing both cost-push inflation and demand-pull inflation. Costpush occurs when rising production costs like increased inventory and labor costs lead to
a higher price for goods and services. Demand-pull inflation comes from increased
consumer demand, like an anticipated surge in demand from the Costco deal. In order to
lessen risks, Zippy can consider a few different strategies. These strategies include:
negotiating favorable prices with suppliers in order to offset the rising input costs,
implementing improvements in production processes to streamline efficiency, which can
help mitigate the increased cost of labor, and finally they can also adjust their pricing
strategies in order to still be profitable