AP Business with Personal Finance · Free-response skill

Scenario analysis: a startup’s advantage and risks

The move. Read a short business scenario and use it as evidence: name an advantage, judge how outside forces push the business, and weigh an ethical risk with a fix.

How to do it

  1. Every answer should point to a detail in the scenario. A general definition with no link to the business earns little.
  2. When a part asks you to work something out, show the numbers you use and the result with its unit. For an advantage, say what the business offers that customers value, then say what stops rivals from offering the same thing.
  3. For an outside force, name it and say which way it pushes: an opportunity helps the business, a threat hurts it. Then give the chain of cause and effect: what the force makes customers or partners do, and what that does to the business.
  4. For an ethical risk, name who could be harmed or misled, and how. Then say what the business should do, and check that your answer deals with the risk you named.

Practice prompt Try it

Lumi Loop is a fictional startup in the town of Westbrook. It rents reusable, washable takeout boxes to local restaurants for 0.40 dollars each time a box is used. Restaurants now pay 0.55 dollars for each single-use plastic container they buy. Diners drop used boxes in bins around town, and Lumi Loop washes them in a kitchen it rents. Its founder holds a patent on the box’s leak-proof folding lid. Last year Westbrook passed a law that will ban single-use plastic takeout containers starting next year; reusable containers are not affected. In a survey, many diners said they like the idea, but some said they worry the boxes may not be cleaned properly. To save money, the founder is thinking about washing the boxes at a lower water temperature than food-safety experts recommend; the town’s rules do not set a temperature.

Use the scenario to respond to each part.

  1. Using the prices in the scenario, work out how much a restaurant saves each time it uses a Lumi Loop box instead of buying a single-use plastic container.
  2. Explain how the founder’s patent helps keep new rivals from copying the box’s leak-proof lid.
  3. Name the new law in the scenario, and explain why it is an opportunity for Lumi Loop.
  4. In the survey, some diners worried that the boxes may not be cleaned properly. Explain one way this worry could hurt Lumi Loop’s business, and name one step Lumi Loop could take to ease the worry.
  5. Describe one ethical risk of washing the boxes at the lower temperature. Then say what Lumi Loop should do about the water temperature.

Write each part, then check yourself against the checklist. Nothing you type here is saved or graded.

Check yourself and see a model answer

Checklist

Our own checklist of what a full answer does, one line per point. Tick each one your response earns.

0 of 8 points

Model answer, annotated

(a) A single-use plastic container costs 0.55 dollars and a Lumi Loop box costs 0.40 dollars per use, so the restaurant saves 0.55 - 0.40 = 0.15 dollars each time it uses a box.

  • Point 1 Shows the subtraction with both prices and gives 0.15 dollars.

(b) The patent gives the founder the legal right to stop other companies from making or selling a box with the same leak-proof folding lid. A new rival would have to design a different lid or pay the founder for permission, which makes copying Lumi Loop slower and more costly.

  • Point 2 States what the patent lets the founder stop others from doing, and what that means for a rival.

(c) The new law is Westbrook’s ban on single-use plastic takeout containers starting next year. It is an opportunity because restaurants will soon need another way to package takeout, and Lumi Loop’s reusable boxes are allowed under the ban, so they can fill that need.

  • Point 3 Names the ban on single-use plastic containers as the new law.
  • Point 4 Gives the reason it is an opportunity: restaurants need a replacement, and the boxes are allowed.

(d) If diners think the boxes may be dirty, they may refuse takeout packed in them, and restaurants that fear losing those diners may not sign up with Lumi Loop. To ease the worry, Lumi Loop could have an independent inspector check its washing kitchen and print the inspection seal on every box.

  • Point 5 Explains how the worry could cost Lumi Loop business, through diners and then restaurants.
  • Point 6 Names a concrete step that gives diners evidence the boxes are clean.

(e) The ethical risk is that boxes washed below the recommended temperature may not be fully cleaned, so diners could get sick while believing the boxes are safe. Lumi Loop should keep washing at the temperature food-safety experts recommend and look for savings elsewhere, such as a more energy-efficient washer.

  • Point 7 Names the harm to diners: illness from boxes that are not fully cleaned.
  • Point 8 Keeps the recommended temperature, which removes the risk instead of hiding it.