Why Rocket Launches Are So Expensive

Sending astronauts, satellites, and other cargo—called the payload—into space costs thousands of dollars per kilogram. As payload increases, more fuel is needed, and because fuel itself has weight, even more fuel is required to lift it. As a result, total fuel cost increases faster than the payload weight.—medium.com

Relationship Between Payload and Fuel Cost for Low Earth Orbit (LEO) Missions

Table 1 presents the total variable cost (TVC), average variable cost (AVC), and marginal cost (MC) associated with different levels of total product (TP), measured as payload delivered to Low Earth Orbit (LEO), a region of space close to earth where most satellites and space missions operate. The data is based on observed heavy-lift rocket performance trends.

The calculations are based on RP-1 (Rocket Propellant-1), a refined kerosene that serves as the primary fuel in heavy launch vehicles such as Saturn V (now retired), Falcon 9, and Falcon Heavy. The estimated cost of RP-1 is approximately $3,000 per ton.

Answer the following questions to check your understanding of the story.

What are the appropriate horizontal and vertical axes for the total variable cost graph in the rocket launch market?

Horizontal axis shows _________, and vertical axis shows __________.

a) payload delivered to LEO; total fuel cost

b) total fuel cost; payload delivered to LEO

c) payload delivered to LEO; the cost of rocket construction

d) fuel mass; payload delivered to LEO

Wrong! - The axes are reversed. A product curve takes input on the horizontal axis and output on the vertical axis, not a cost curve. Rocket construction cost is a fixed cost and not included in the total variable cost.

Correct! - Cost curves place output (payload to LEO) on the horizontal axis and cost on the vertical axis. If it is a variable cost curve, then variable cost is placed on the vertical axis.

Describe the relationship between payload and fuel cost in figure 1.

The relationship is ___________.

a) negative, becoming less steep

b) negative, becoming steeper

c) positive, becoming steeper

d) positive, becoming less steep

Wrong! - Fuel increases by larger amounts, not smaller amounts, as payload increases. The variables do not move in opposite directions.

Well Done! - Payload and fuel cost increase together, and fuel increases by larger amounts as payload increases.

What relationship between marginal cost (MC) and average variable cost (AVC) does figure 2 illustrate?

a) When marginal cost lies above average variable cost, average variable cost increases.

b) When marginal cost lies below average variable cost, average variable cost increases

c) The marginal cost is always above average variable cost in all production processes.

d) The marginal cost and average variable cost never intersects in any production process.

Wrong! - The marginal cost curve is not below the average variable cost curve in the graph shown.

The marginal cost intersects the average variable cost curve at its minimum and can lie below average variable cost curve, but not in the rocket launch market.

Good Job! - Average values rise when marginal values lie above average values.

Why do we see upward-sloping AVC and MC curves instead of the typical U-shaped AVC and MC curves?

A rocket launch exhibits ___________, hence why the AVC and MC curves are upward sloping.

a) increasing marginal returns to fuel initially and diminishing marginal returns eventually

b) diminishing marginal returns to fuel initially and increasing marginal returns eventually

c) diminishing marginal returns to fuel from the start

d) increasing marginal returns to fuel from the start

Wrong! - With increasing marginal returns from the start, AVC and MC would be downward sloping. A U-shape would result from increasing then diminishing marginal returns, while an inverted U-shape is a typical characteristic of average and marginal product curves.

Great Work! - Each additional unit of fuel carries less and less additional payload from the start, so each extra unit of payload requires more and more fuel. As a result, AVC and MC are upward sloping.

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