The Fly-Right Airplane Company builds small jet airplanes
to sell to corporations for the use of their executives. To meet the
needs of these executives, the company’s customers sometimes order
a custom design of the airplanes being purchased. When this
occurs, a substantial start-up cost is incurred to initiate the production
of these airplanes.
Fly-Right has recently received purchase requests from three
customers with short deadlines. However, because the company’s
production facilities already are almost completely tied up filling
previous orders, it will not be able to accept all three orders. Therefore,
a decision now needs to be made on the number of airplanes
the company will agree to produce (if any) for each of the three
customers.
The relevant data are given in the next table. The first row
gives the start-up cost required to initiate the production of the airplanes
for each customer. Once production is under way, the marginal
net revenue (which is the purchase price minus the marginal
production cost) from each airplane produced is shown in the second
row. The third row gives the percentage of the available pro-