Question: A hybrid automobile has two motors, gasoline and electric. It switches between motors for power, sometimes using both motors. When accelerating, both electricity and gasoline are providing power to the wheels. When cruising, the electric motor is not being used. The gasoline engine provides power to the wheels and uses excess power to slowly charge the batteries. When going downhill or braking, the wheels drive the generator, slowing the car and charging the battery.
a. How could two engines possibly make for a more efficient automobile? What does this have to do with real options?
b. What must be true of the various capital and operating costs for the option to switch/mix two motors (which also includes cost) to add value to the car?