The world airline system is composed of the routes X and Y, each of which requires 10 aircraft. These routes can be serviced by three types of aircraft—A, B, and C. There are 5 type A aircraft available, 10 type B, and 10 type C. These aircraft are identical except for their operating costs, which are as follows: Annual Operating Cost ($ millions) Aircraft Type Route X Route Y A 1.60 1.60 B 2.60 2.10 C 4.60 3.60
The world airline system is composed of the routes X and Y, each of which requires 10 aircraft. These routes can be serviced by three types of aircraft—A, B, and C. There are 5 type A aircraft available, 10 type B, and 10 type C. These aircraft are identical except for their operating costs, which are as follows:
| Annual Operating Cost ($ millions) | ||
| Aircraft Type | Route X | Route Y |
| A | 1.60 | 1.60 |
| B | 2.60 | 2.10 |
| C | 4.60 | 3.60 |
The aircraft have a useful life of five years and a salvage value of $1.4 million.
The aircraft owners do not operate the aircraft themselves but rent them to the operators. Owners act competitively to maximize their rental income, and operators attempt to minimize their operating costs. Airfares are also competitively determined. Assume the cost of capital is 10%.
a-1. Which aircraft would be used on which route?
a-2. How much would each aircraft be worth?
b-1. Assume the number of type A aircraft increased to 10. Which aircraft would be used on which route?
b-2. How much would each aircraft be worth?
c-1. Assume the number of type A aircraft increased to 15. Which aircraft would be used on which route?
c-2. How much would each aircraft be worth?
d-1. Assume the number of type A aircraft increased to 20. Which aircraft would be used on which route?
d-2. How much would each aircraft be worth?
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