Costs, Revenues, and Economic Principles

These flashcards cover key terms and concepts related to costs, revenues, market demand, investment, and related economic principles.

Total Cost

The complete cost of production, including fixed and variable costs.

Overhead Cost

Indirect costs associated with production (e.g., rent, utilities, administrative salaries).

Cash Costs

Actual cash expenditures (e.g., wages, materials).

Sunk Cost

Past costs that cannot be recovered and should not affect current decisions.

Recurring Cost

Costs that repeat over time, like maintenance or subscription fees.

Nonrecurring Cost

One-time expenses, like installation or equipment purchase.

Fixed Cost

Costs that remain constant regardless of production level.

Variable Cost

Costs that vary with the level of output.

Direct Cost

Costs directly traceable to a specific product or service.

Indirect Cost

Costs not directly attributable to a specific product (e.g., managerial salaries).

Incremental Cost

The additional cost associated with producing one more unit.

Disposal Cost

Cost incurred to dispose of equipment at the end of its useful life.

Operational and Maintenance Cost

Costs for operating and maintaining equipment over time.

Life-Cycle Cost

Total cost of ownership over the life of an asset.

Investment Cost

Initial outlay or capital required for a project.

Development Alternatives

Different design or investment options considered for evaluation.

Economic Life

The period over which an asset is economically useful.

Physical Life

Actual usable duration of an asset until it physically fails.

Ownership Life

Time span an asset is expected to be owned and operated.

Opportunity Cost

Value of the next best alternative foregone.

Noncash Cost

Accounting costs that do not involve cash (e.g., depreciation).

Working Capital

Funds used to support day-to-day operations.

Total Revenue

Total income from sales or services.

Profit

Revenue minus total cost.

Elastic Demand

Demand that changes significantly with price changes.

Unitary Elasticity of Demand

Percentage change in demand is equal to the percentage change in price.

Demand

The desire and ability to purchase goods or services.

Law of Diminishing Returns

Adding more of one input while holding others constant will yield progressively smaller output gains.

Law of Supply and Demand

Prices are determined by the relationship between supply and demand.

Perfect Competition

Market structure with many sellers offering identical products.

Perfect Monopoly

Market with only one seller and no close substitutes.

Oligopoly

Market dominated by a few large suppliers.

Economy of Number of Workers

Optimal labor quantity for maximum productivity with minimal cost.

Lenders

Entities or individuals who provide capital to borrowers.

Borrowers

Entities or individuals who receive capital with an obligation to repay.

Capital

Financial resources used for investment.

Engineering Economy

The application of economic principles to engineering projects for decision-making.

Engineering Design Process

A structured approach to solving design problems, often involving economic evaluation.

Interest

The cost of borrowing money or the return on investment.

Simple Interest

Interest calculated only on the principal amount.

Compound Interest

Interest earned on both the principal and previously earned interest.

Compounding Interest

The process of applying compound interest over multiple periods.

Ordinary Interest

Interest calculated based on a 360-day year.

Nominal Rate of Interest

Stated interest rate, not accounting for compounding.

Equivalent Nominal Rate

Converts interest rate from one compounding frequency to another but keeps the nominal annual rate consistent.

Effective Rate of Interest

Actual interest rate accounting for compounding.

Effective Interest Rate for Continuous Compounding

Interest rate under the assumption of continuous compounding.

Continuous Compounding

Compounding that happens infinitely frequently in a given period.

Return of Investment (ROI)

Percentage of gain or loss relative to the investment.

Rate of Return

Profit or loss on an investment as a percentage of its cost.

Annuity

A series of equal payments made at equal intervals of time.

Ordinary Annuity

Annuity where the payments are made at the end of each period.

Deferred Annuity

Annuity where the first payment is made later than the first or is made several periods after the beginning of the annuity.

Annuity Due

Annuity where payments are made at the beginning of each period.

Perpetuity

An annuity in which the periodic payments continue indefinitely.