at 2
The company “World Airline System” is composed of the routes X and Y, and each route
requires 10 aircrafts. These routes can be serviced by three types of aircrafts — A, B, and C.
There are (five) 5 type A aircraft available, 10 type B, and 10 type C. These aircrafts are identical
except for their operating costs, which are as follows:
Annual operating cost ($ millions)
Table (**************)
The aircrafts have a useful life of five years and a salvage value of $1 million.
The aircrafts owners do not operate the aircrafts 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. Which aircraft would be used on which route, and how much would each aircraft be
worth?
b. What would happen to usage and prices of each aircraft if the number of type A
aircrafts increased to 10. 15, or 20?
State any additional assumptions you need to make.
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2pages . must get citation from the book flow APA 7 format. get introduction and conclusion
