Airbus and Boeing dominate the large commercial jet aircraft industry.

Each company manufactures jet aircraft for commercial use by passenger and cargo airlines as well as for military use by national air forces. In February 2011, Boeing won a U.S. Air Force tender for 179 aerial refuelling tankers at an estimated price of $35 billion. The Boeing tanker is based on Boeing's 767 wide-body commercial aircraft.

(a)Which one of the following concepts best explains Boeing's adaptation of the Boeing 767 to supply an aerial tanker? (i) economies of scale; (ii) economies of scope; (iii) experience curve. Please explain your answer.

(b)Following the initial tender for 179 tankers, the U.S. Air Force is expected to buy additional tankers. Apply relevant cost concepts to explain Boeing's advantage in competing for follow-on orders.

(c)Comment on the following argument: "The more that an aircraft manufacturer spends on R&D, the higher the price that it must charge to recover its investment."