Question

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Which entity is likely to have more outdated and rundown capital? Why? Explain in detail.

Answer 1

In the above example, it is highly likely that Federal Aviation Administration which is a government agency and has to take approvals form the Congress to have more outdated and run down capital because a government agency needs approval of the government which checks the availability of funds and only when all the parameters are taken into consideration, the bill for granting funds is passed. In some cases, it might not be passed. However, in case of a private agency like Apple Corporation, where the decisions are taken by owners and managers of the firm, the decision making is fast as the decision making does not pass through the many steps as in the case of public agency. If the return on investment is high and new and improved goods can be produced then the decision in favor of the investment will be taken.

Thus, considering all the parameters mentioned above, a public agency will tend to have more outdated and rundown capital.