The Air Force awarded a $93 billion (or more) contract to a group led by Lockheed, Boeing and General Dynamics to build th new fighter plane for the 21st century, the YF-22 Lightning 2. A group headed by Northrop and McDonnell Douglas, which had spent more than $1 billion on development for their alternative YF-23, lost out on the contract. It was explained that Lockheed group got the contract because their "quality for the price per plane was higher". He did not elaborate. In terms of the theory (consumer theory) did he mean (a) the Lockheed quality was higher? (b) the Lockheed price was lower? or (c) neither, what did he mean?
There is not enough information to answer the question. could be a) could be b) could be both a and b.
Now you know why I am confused. But what I orginially wrote was something the airforce did and when the Secretary of Defense explained briefly why Lockheed group got this contract is because the quality for the per plane was higher, He did not elaborate. Can you still help?
Im not sure I can help as an economist. But, I would suggest you fall back on first principals. Each plane has a marginal cost -- for now assume its simply the price of the plane, plus some probability that the plane will need to go into the shop for repairs. With each plane come a myriad of benefits. The benefits from each plane may be different. And DOD has notions of what the probability of repairs are and what the difference in benefits each plane provides.
Second, if you are still having trouble getting a grasp on the problem, try putting the problem in terms of something you can relate to (e.g., why dad bought the Caddy instead of the Buick. ) And finally be a good economist and don't be afraid to assume away the intractable parts of the problem.
To understand what the Secretary of Defense meant when he said that the Lockheed group got the contract because their "quality for the price per plane was higher," we can approach the question from an economic perspective.
In consumer theory, individuals or organizations make choices based on their preferences and budget constraints. When making a purchasing decision, they aim to maximize their utility or satisfaction given their limited resources.
In this case, the Air Force awarded the contract to Lockheed, Boeing, and General Dynamics, indicating that this group offered the best option among the alternatives, including the group led by Northrop and McDonnell Douglas with their YF-23 design.
To interpret the Secretary of Defense's statement, we can consider two factors: quality and price. The Secretary did not explicitly mention whether Lockheed had a higher quality, lower price, or a combination of both. Therefore, we cannot definitively conclude which factor he meant based on the information provided.
However, we can use economic reasoning to analyze the possible implications of the Secretary's statement. If he meant that Lockheed's quality was higher, it suggests that their design, performance, reliability, or other qualitative aspects were superior compared to its competitors. This could have been a decisive factor in the contract award, indicating that the Air Force valued the qualitative characteristics of Lockheed's design over other considerations.
On the other hand, if he meant that Lockheed's price was lower, it implies that their bid offered a more cost-effective solution compared to the alternate group's bid. In this case, the Air Force may have considered the price per plane to be a critical factor in their decision-making process.
It is also possible that the Secretary's comment encompassed both quality and price considerations. It could mean that Lockheed's bid offered a better combination of high quality and a relatively lower price per plane, contributing to their selection.
Without more information or clarification from the Secretary of Defense, it is difficult to determine whether he referred to higher quality, lower price, or a combination of both.