Hahahaha if it wasn't for you my farmers would be driving their mules down the cliff! My God, good thing I don't own a farm! How does it look now?

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This part of the story is quite incomplete, so I wave plenty of leeway to change things.

The inn:
My intention for that place was not even an inn at the beginning, but just a mead-hall/tavern where the soldiers would run to from time to time. I'll turn it back into that.

The supply problem:

I was operating under the assumption that the city of Last Fort would support the castle since it is a key military point and indeed all that stands between the kingdom and the ruthless people of the south. But you are right, it would support ONLY the castle, the village is not vital to this purpose. I still have to feed the peasants.
So so far the options are:

The meadery . It was established to meet the demands of the soldiers garrisoned at the castle, and I don't think that with the short supply of water it would be able to make enough to be a significant trade option.

The horse breeder. It is located at the top of the ridge because getting horses up there was challenging. Likewise, making the horses climb down would be hard. So not a good option either.

Blacksimths. I like this one, maybe when the battles with the barbarians were abundant and bloody, they sent a fair amount of good blacksmiths to the castle to meet the ever increasing demand for weapons and armor. When the barbarians were broken, the blacksmiths started trading their high-quality goods and that sparkled the birth of the village. But for that to work they should have access to metal, preferably some good mines nearby. I know close to nothing about geology, do you know what conditions favor the creation of ferrous metal deposits?

Goats/sheep. I like that! So they rely heavily on herds of goats and sheep. That would help to feed them and with their hides and the Tanner it would also supply the blacksmiths.

How is that, do you see any problems?