Business Proposal

Boeing, the largest aerospace manufacturer in the world, produces many products such as commercial aircraft, military defense systems, and space security systems (Boeing, 2014). The Boeing F-15E Strike Eagle is a Mach 2.5 class, multirole fighter jet used primarily by the United States Air Force for long-range, enemy bombardment (“Aerospace Facts and Figures 2006/2007”, 2007). The Boeing F-15E Strike Eagle contains highly advanced avionics systems and can attack on an air-to-air or air-to-ground basis (Boeing, 2014). Boeing, like any other non-monopolistic company, faces a particular, competitive market structure where it competes with other firms within its industry. Economic principles such as supply and demand, elasticity, and costs have an ongoing effect on Boeing’s daily operations and bottom line.

Boeing’s Market Structure for the F-15E Strike Eagle

Market structure is a critical factor for every firm and knowing the structure enables the firm to adjust factors such as price, costs, and supply accordingly. Boeing’s market structure is an oligopoly as there are few primary competitors in the industry and a relatively small number of sellers for such specialized products (Aerospace & Defense Intelligence Report, 2014). Boeing’s primary competitors are General Dynamics, Lockheed Martin, Northrop Grumman, Raytheon, and United Technologies (Aerospace & Defense Intelligence Report, 2014). Non-price competition presents itself in this industry as the involved firms attempt to distinguish themselves within the industry by improving designs for products, bettering the workmanship of competitors, and product differentiation (McConnell, Brue, & Flynn, 2009). Two distinguishing features of an oligopoly present here are difficult entry and exit into the industry and a differentiated product (McConnell et al., 2009).

Elasticity of the Boeing F-15E Strike Eagle

The Boeing F-15E Strike Eagle, for many nations, is quite unattainable because of its price. In fact, the only other countries with access to this fighter jet are Israel, Japan, Saudi Arabia, South Korea, and Singapore (Aerospace & Defense Intelligence Report, 2014). The fact that this military weapon is a luxury item on the battlefield makes its demand quite elastic. The price elasticity of demand states that a change in the price of the Strike Eagle will drastically change the quantity demanded because of its high price and luxury item status (McConnell et al., 2009). Elasticity is an important factor in setting the price of the F-15E Strike Eagle for Boeing, and the elasticity will determine demand in this way, as well. Elastic demand states that a price decrease will increase total revenue because of the additional units sold (McConnell et al., 2009).

The Relationship between Elasticity and Price

According to McConnell et al. (2009), the elasticity of the F-15E Strike Eagle relates directly to the way a price change affects total revenue and total profits. The total-revenue test is an easy method for determining the elasticity of the F-15E, and the test does so by comparing the change in total revenue with a change in price (McConnell et al., 2009). The Strike Eagle is elastic because total revenue changes in the opposite direction of price (McConnell et al., 2009). In this way, elasticity and price are related to one another, and elasticity and price will affect one another in almost every case. Also, because demand for the F-15E is elastic this means that a certain percentage change in price will result in a larger percentage change in quantity demanded (McConnell et al., 2009).

The Effect of Quantity Supplied on Marginal Cost and Marginal Revenue

Marginal cost is, “the addition either to total cost or to total variable cost resulting from one or more unit of output” (McConnell et al., 2009, Relation of MC to AVC and ATC, p. 165). Marginal revenue is, “the change in total revenue (or the extra revenue) that results from selling one more unit of output” (McConnell et al., 2009, Average, Total, and Marginal Revenue, p. 178). Quantity supplied affects the marginal costs because an increase in quantity supplied will increase the total cost to the supplier. Quantity supplied affects marginal revenue by increasing the revenue of Boeing when more units of the F-15E sell. The marginal-revenue-marginal-cost approach states that Boeing should produce more F-15E Strike Eagles when the marginal revenue is greater than the marginal cost (McConnel et al., 2009)

Non-pricing Strategies

There are several strategies that Boeing can use to increase the barriers to entry for other firms attempting to enter the industry. Some examples of these barriers are the new development of technologies, patents, licenses, and the ownership of the industry’s essential resources (McConnell et al., 2009). Boeing should attempt to gain barriers to entry by patenting its designs, and the company should gain government contracts by obtaining licenses for all of its work. Another strategy available to Boeing is the control of resources and new technology. Boeing should create barriers to entry by designing better aircraft and defense systems than its competitors, and should attempt to buy resources that are essential to creating its products.

Changes in Business Operations (Fixed and Variable Costs)

The changes Boeing can make to its business operations will incur new fixed and variable costs for the company. The patents and licenses will create fixed costs for Boeing because the costs are universal and will not change. The development of new technology will create fixed and variable costs for Boeing as the company must pay for labor, materials, and research as well as salesmen. Resource acquisition is a variable cost to the company because the prices and the needed quantity will vary based on the project. Boeing, therefore, will increase its total variable and total fixed costs based on the new changes in business operations.

Conclusion

Boeing is a unique aerospace company that can utilize economics in its daily business operations to its advantage. The F-15E Strike Eagle is an elastic product with some competition from sources other than Boeing. The maximization of profits is critical to Boeing’s success with this military aircraft, and knowing the market structure and elasticity of the product will help management make crucial decisions. Boeing can alter the industry by using the non-pricing strategies mentioned and gaining market share. Boeing and the F-15E Strike Eagle will benefit greatly from the knowledge of the market and economics as a whole.