Economics for Today 9th Edition by Irvin Tucker

Exercise 37

FEDEX WASN'T AN OVERNIGHT SUCCESS
Applicable Concept: entrepreneurship
Frederick W. Smith is a classic entrepreneurial success story. Young Fred went to Yale University, had a good new idea, secured venture capital, worked like crazy, and made a fortune, and the Smithsonian Institution rendered its ultimate accolade. It snapped up an early Federal Express jet for its collection, displaying it for a time in the National Air and Space Museum in Washington, D.C., not far from the Wright brothers' first airplane.
Smith's saga began with a college economics term paper that spelled out a nationwide overnight parcel delivery system that would be guaranteed to "absolutely, positively" beat the pants off the U.S. Postal Service. People, he said, would pay much more if their packages arrived at their destination the next morning. To accomplish his plan, planes would converge nightly on Memphis, Tennessee, carrying packages accepted at any location throughout the nation. Smith chose this city for its central U.S. location and because its airport has little bad weather to cause landing delays. In the morning hours, all items would be unloaded, sorted, and rerouted to other airports, where vans would battle rush-hour traffic to make deliveries before the noon deadline.
Smith's college term paper only got a C grade. Perhaps the professor thought the idea was too risky, and lots of others certainly agreed. In 1969, after college and a tour as a Marine pilot in Vietnam, the 24-year-old Smith began pitching his parcel delivery plan to mostly skeptical financiers. Nevertheless, with $4 million of his family's money, he persuaded a few venture capitalists to put up $80 million. At the time, this was the largest venture capital package ever assembled. In 1973, delivery service began with 33 jets connecting 25 cities, but on the first night, only 86 packages showed up.
It was years before Smith looked like a genius. The company posted a $27 million loss the first year, turned the corner in 1976, and then took off, helped by a 1981 decision to add letters to its basic package delivery service. Today, Smith's basic strategy hasn't changed, but the scale of the operation has exploded. FedEx is the world's largest express transportation company serving over 200 countries.
Draw a production possibilities curve for an economy producing only pizzas and computers. Explain how Fred Smith and other entrepreneurs affect the curve.