The world airline system is composed of the routes X and Y, each of which requires 16 aircraft. These routes can be serviced by three types of aircraftA, B, and C. There are 8 type A aircraft available, 16 type B, and 16 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	1.64	1.64
B	2.64	2.14
C	4.64	3.64

The aircraft have a useful life of five years and a salvage value of $1.2 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 8%.

QUESTIONS:

a-1. Which aircraft would be used on which route? (Multiple Choice)

	Aircraft Usage
X	a) 8A+8B, b) 8B+8C, c) 8C, d) 8A+8C, e) 16B+16C
Y	a) 8A+8B, b) 8B+8C, c) 8C, d) 8A+8C, e) 16B+16C
Scrap	a) 8A+8B, b) 8B+8C, c) 8C, d) 8A+8C, e) 16B+16C

a-2. How much would each aircraft be worth? (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.)

Aircraft Type	Aircraft Value
A		million
B		million
C		million

b-1. Assume the number of type A aircraft increased to 16. Which aircraft would be used on which route? (Multiple Choice)

	Aircraft Usage
X	a) 16A, b) 16B, c) 16C, d) 8A+8C, e) 16B+16C
Y	a) 16A, b) 16B, c) 16C, d) 8A+8C, e) 16B+16C
Scrap	a) 16A, b) 16B, c) 16C, d) 8A+8C, e) 16B+16C

b-2. How much would each aircraft be worth? (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.)

Aircraft Type	Aircraft Value
A		million
B		million
C		million

c-1. Assume the number of type A aircraft increased to 24. Which aircraft would be used on which route? (Multiple Choice)

	Aircraft Usage
X	a) 16A, b) 16B+16C, c) 8A+16C, d) 8A+8B, e) 8B+16C
Y	a) 16A, b) 16B+16C, c) 8A+16C, d) 8A+8B, e) 8B+16C
Scrap	a) 16A, b) 16B+16C, c) 8A+16C, d) 8A+8B, e) 8B+16C

c-2. How much would each aircraft be worth? (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.)

Aircraft Type	Aircraft Value
A		million
B		million
C		million

d-1. Assume the number of type A aircraft increased to 32. Which aircraft would be used on which route? (Multiple Choice)

	Aircraft Usage
X	a) 8A, b) 16A, c) 16C, d) 8A+8C, e) 16B+16C
Y	a) 8A, b) 16A, c) 16C, d) 8A+8C, e) 16B+16C
Scrap	a) 8A, b) 16A, c) 16C, d) 8A+8C, e) 16B+16C

c-2. How much would each aircraft be worth? (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.)

Aircraft Type	Aircraft Value
A		million
B		million
C		million