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# Possible error on figure 4?

New answer on Sep 25, 2023
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On figure 4 of this question, we are told that the fixed costs are \$ per plane per year:

• The startup must pay satellite operators an annual satellite fee. (50K)
• In addition, the startup must pay the operator for every megabyte downloaded in-flight. (0.1 / MB)
• The airline charges a yearly licensing fee. (75K)
• The investment costs include amortized acquisition and installation costs. (25K)

We calculate that the total fixed costs are 50K + 75K + 25K = 150K.

However, in the solution, we are told to find the fixed cost per plane to be 150K / 600 (where 600 is the number of planes in its fleet) = \$250 per plane.

Is this not a contradiction? To me, this shows that the metric in table 4 is NOT per plane per year.

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Dear,

Thanks for the question. After reviewing the case, I believe the confusion can be clarified as follows:

• The total fixed costs per plane are \$150,000
• When we break down these fixed costs on a per-flight basis, it amounts to \$250 per flight (\$150,000/600).

The case instructions state that each plane completes 600 flights over the years, indicating that they operate more than once per year, which is a reasonable assumption.

Therefore, it is essential to determine whether you intend to conduct the break-even analysis on a per-flight or per-plane basis. The solution provided in the case follows the former approach, focusing on calculating the required number of customers for each flight.

This involves:

1. Calculating the fixed cost per flight, which is \$250, as demonstrated earlier
2. Assuming an average data consumption of 100 MB per customer per flighy
3. Assuming that the revenue per customer on each flight remains constant at \$15.

I hope this clarification addresses any concerns. I think it's only a matter of understanding that “flight” is a different concept of “plane”.

If you have any further questions or require additional clarification, please do not hesitate to reach out to me via direct message.

Best,

Antonio