ENGINEERING ECON QUIZ 1

ECONOMICS

one of the social sciences which consists of that body of knowledge dealing with people and their assets or resources.

the sum total of knowledge which treats of the creation and utilization of goods and services for the satisfaction of human wants

economics has also been defined as

EGINEERING ECONOMY

branch of Economics which involves the application of definite laws of Economics, theories of investment and business practices to engineering problems involving cost.

cost features and other financial data and their applications in the field of engineering as bases for decision

engineering economics also involves study of

- Engineers, as a group, have wrought immense changes in improving the economic well-being of mankind through their inventions and their applications of scientific principles to the varied problems of Industry.

- In the professional life of engineers, it is readily observed that the most successful ones are those who gradually divorce themselves from the technical aspects of engineering and who devote their time and efforts to financial problems related to engineering work.

reasons for studying engineering economics

1.) Seeking of new objectives

2.) Discovery of factors

3.) investment of capital.

4.) Comparison of alternatives

5.) bases for decision.

IMPORTANT APPLICATIONS OF ENGINEERING ECONOMY

SEEKING OF NEW OBJECTIVES

Engineers all

over the world are constantly seeking new and wider

applications of their technical knowledge for the benefit of mankind. In this search, engineering economy provides basic principles and laws.

DISCOVERY OF FACTORS

Engineering Economy seeks to discover so called-limiting factors, there are some outstanding ones, called strategic factors, which if altered may be made to insure the success of a venture.

INVESTMENT OF CAPITAL

With the exception of a few cases, capital is invested to earn profit for the owners of the capital. Engineering Economy enables engineers to consider all aspects of the investment from both the technical and financial viewpoints.

COMPARISON OF ALTERNATIVES

Most anything that has to be done can be accomplished in many ways with satisfactory end results, but with varying expenditures. Usually the alternative that will accomplish the objective with the least expense is the most desirable. The principles of Engineering Economy point out the analysis of such problems on a quantitative basis enable decision makers to choose the right decision.

BASES FOR DECISION

The work of engineers is fundamentally concerned with future actions– on what to do, not on what has been accomplished. Decisions on future actions are more valid and their chances for accuracy are improved when principles of Engineering Economy are correctly applied. A working knowledge of Engineering Economy should improve the ability of an engineer to make correct decisions on all technical matters involving cost.

1. The economy analysis

2. The financial analysis

3. The intangible analysis

BULLINGER’S ENGINEERING ECONOMY TECHNIQUE

economy analysis

considers all factors affecting the economy of the project which can be reduced to specific monetary values. It determines the initial cost of the project, the costs for operation and maintenance, the needed working capital, the probable income the project will generate when operational, the rate of return on the investment, and all other cost factors.

financial analysis

determination of the methods and sources of financing the project, either through equity capital borrowed capital, or a combination of both. It tries to discover the best methods of financing the project to the extent of the amount obtained in the economy analysis. The financial analysis follows the economy analysis since it is dependent upon the latter for necessary data.

intangible analysis

determines all aspects of the project which cannot be reduced to monetary values and consists scope includes the so-called judgement factor whose analysis depends upon the judgement of responsible persons involved in the project.

Tangible factors

those which can be expressed in terms of monetary values

Intangible factors

those which are difficult or impossible to express definitely in terms of monetary values. also called irreducible factors.

Perfect competition

occurs when a certain product is offered for sale by many vendors from entering the market. Buyers are free to buy from any vendor, and the vendors, likewise, are free to sell to anyone.

Monopoly

opposite of perfect competition. A perfect monopoly occurs when a unique product or service is available only from a single supplier and entry of all other possible suppliers is prevented.

Oligopoly

occurs when there are few suppliers and any action taken by anyone of them will definitely affect the course of action of others. Examples of Oligopolies in the Philippines are the oil companies and the manufacturers of soft drinks who hold franchises to produce drinks of foreign origin.

price of a good product or commodity

defined to be the amount of money or its equivalent which is given in exchange for it.

market

place where sellers and buyers come together.

local market

limited locality where certain goods such as those which are perishable are sold

national market

Certain goods sold all over the country are said to have

world market

Goods that are exported to other countries are said to have a

consumer goods and producer goods

two kinds of goods

Consumer Goods

consumed or used directly by people, or are things used services which serve to satisfy human needs.

Producer Goods

produce goods and services for human consumption, such as lathes, generators, tools ships, busses and airplanes.

Demand

quantity of a certain commodity that is bought at a certain price at a given place and time.

The demand for a commodity varies inversely as the price of the commodity, though not proportionately.

law of demand

Elastic demand

occurs when a decrease in selling price will cause a greater than proportionate increase in the volume of sales. Goods which are considered luxuries are said to have elastic demand, because a small decrease in cost will usually result in a big increase in sales.

Inelastic demand

occurs when a decrease in selling price will cause a less than proportionate increase in sales. Goods which are classified as necessities usually have inelastic demand, because even a big decrease in selling price will not cause a big increase in the volume of sales.

Unitary elasticity of demand

occurs when the mathematical product of price and volume of sales remains constant regardless of any change in price.

PV = C,

P = price of the product

V = volume of sales, and

C= a constant

unitary elasticity of demand formula

Utility

capacity of a commodity to satisfy human want.

marginal utility of a commodity

the utility of the last unit of the same commodity which is consumed or acquired.

marginal unit

last unit of similar commodities consumed or acquired is called

Supply

quantity of a certain commodity that is offered for sale at a certain price at a given place and time.

When free competition exists, the price of a product will be that value where supply is equal to the demand.

law of supply and demand

The supply of a commodity varies directly as the price of the commodity, though not proportionately. As the price increases, the supply also increases. Likewise, as price decreases, the supply also decreases.

law of supply

An increase in the quantity of any good consumed or acquired by an individual will decrease the amount of satisfaction derived from that good.

LAW OF DIMINISHING UTILITY

When one of the factors of production is fixed in quantity or is difficult to increase, increasing the other factors of product will result in a less than proportionate increase in output.

LAW OF DIMINISHING RETURNS

Marginal revenue

amount received from the sale of an additional unit of a product.

Marginal cost

additional cost of producing one more unit.

output/input

efficiency formula

output in physical units/input in physical units

physical efficiency formula

income pesos/cost in pesos

economic efficiency

annual net profit/capital invested

rate of return formula

capital invested/net annual cash flow

payout period formula