In April 2004, Boeing launched the new 787 Dreamliner with 50 firm orders from All Nippon Airways of Japan. Boeing aimed to secure 200 firm orders by December. However, by December 2004, Boeing had only 52 orders. Then Airbus introduced the A350, a derivative of the existing A330, enhanced with a new wing, more fuel-efficient engines, and other new technologies. Airbus's Chief Commercial Officer, John Leahy, predicted that the A350 would draw Boeing customers and so "put a hole in Boeing's Christmas stocking."

(a) Draw a timeline to mark when a manufacturer incurs thecosts of development and production.

(b) How would the costs of developing the 787 Dreamlinervary with the total quantity manufactured?

(c) Referring to Figure 7.5, compare Boeing's average costwith cumulative production of 50 and of 200 units. (Notethat, in Figure 7.5, the average cost is not absolute butrather indexed to 100 with production of the first unit.)

(d) Suppose that the price of a Boeing 787 is $120 millionand that Boeing would just break even on the costs ofdevelopment ($10 billion) and manufacturing withcumulative production of 200 units. How much wouldBoeing lose with cumulative production of 50 units?