Helicopters are in short supply these days. You could blame a rise in military spending, a jump in disaster relief, even crowded airports pushing executives into private travel. But the fastest growth is coming from the offshore oil-and-gas industry, where helicopters are the only way to ferry crews to and from rigs and platforms. Hundred-dollar oil has pushed producers to work existing fields harder and to open new deep-sea wells in Brazil, India, and Alaska. The number of rigs and platforms has grown by 13% over the past decade. Oil companies are facing a two-year backlog in orders for the Sikorsky S92, a favorite of the oil industry, and a 40% rise in prices for used models.
a. Explain how high oil prices influence the market for helicopter leases and services (such as the Sikorsky S92).
b. What happens to the value of marginal product of a helicopter as a firm leases or buys additional helicopters?