Porco Rosso, an Aircraft Manufacturer, Develops a New Engine Model

question 73

Multiple Choice

Porco Rosso, an aircraft manufacturer, develops a new engine model, PR-4, with safety features lacking in the earlier model, PR-3, which is still being manufactured. During the first year that both were sold, the PR-3 far outsold the PR-4, even after rigorous presentations and negotiations with potential customers for PR-4. Porco Rosso thus concluded that safety was not the customers' primary consideration. Which of the following, if true, would weaken Porco Rosso's conclusion?

• A) Both private plane owners and commercial airlines buy engines from Porco Rosso.
• B) Several customers of Porco Rosso also bought engines from other manufacturers who did not provide additional safety features in their newer models.
• C) The PR-4 model can be used in all planes in which the PR-3 model can be used.
• D) There was no significant difference in price between the PR-3 and PR-4.
• E) Customers prefer and find safer, earlier engine models that have been tried and tested to newer engine models.

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Definitions:

Market Prices

The current value at which an asset or service can be bought or sold in an open and competitive market.

Unexpected News

Information that comes without warning, often having a potential impact on market prices and investor decisions.

Efficient

Describes an economy, market, or decision-making process that effectively allocates resources and inputs in a way that maximizes output or returns with minimal waste.

Semi-Strong Efficiency

A form of market efficiency that asserts all public information is reflected in stock prices, making it impossible to gain abnormal returns.