In: Economics
The Federal Aviation Administration is a government agency that is in charge of air traffic control. All of the capital equipment (radar, etc.) used by air traffic controllers is purchased through appropriations from Congress. When Apple Corporation purchases new capital equipment, the decision is made by owners and managers that believe the firm can get a return on investment from the new capital because the new capital can be used to produce new and improved goods for Apple customers. Which entity is likely to have more outdated capital and capital in need of repair or replacement? Why? Explain in detail.
The Federal Aviation Administration would have more outdated capital and capital in need of repair or replacement.
The Federal Aviation Administration being a government agency is established and operate with a purpose of achieving public objectives and as a tool to serve the government's objective of providing service to the people rather then earning and maximizing their profits. The private corporations on the other hand are driven by profit maximization motives and channelize all their effort and investments in that direction. When entities make investment in capital they make it with the objective of improving their efficiency, productivity which would in return help them augment their revenue and profits. When entities are not strongly driven by motives of improving their efficiency, productivity and profitability this gets reflected in their choices and investments they make in capital and other assets. Apple Corporation is not a government corporation, its survival depends on the its ability and capacity to earn revenue and profits, which in turn is determined by their decisions to make investments in augmenting their capacity, efficiency and productivity. If Apple corporation does not earn meaningful profits its very existence will be threatened as it will not have any other source for supporting its existence, whereas a government cooperation earning profits is not a concern as it is for the private entities as the government cooperation can always be bailed out by the government when they are not. This causes the private entities to be agile, proactive in making investment and other operating decisions so that they stay ahead in the game and do not lose their competitive advantage. They have to ensure that they operate in a productive manner and have a sustainable means of being relevant and lucrative in the market, this also enables them to earn and maintain the goodwill of the shareholders. Private corporations are required to be proactive and decisive if they want to survive and grow in the market by and this can be achieved through being proactive and decisive in terms of making investment and operations plans and decisions, to be able to effectively for-see the future conditions and thus make a proactive - good, calculated, effective decisions pertaining to investments in capital and other avenues to improve their efficiency, productivity and profitability. They will adopt measures to ensure that they get best returns on their investment and take all the necessary steps to leverage their investments to the most to earn high returns. Government corporations are not bogged down by such headache and this gets reflected in their outlook which is usually lackadaisical and not proactive pertaining to making investments in capital, improving their revenue and profit earning capacity.