Engineering economics

• Engineering economics


  The body of knowledge that allowed engineers to determine the most economical alternative from several technically viable ones
• Engineering economics


  The science that deals with techniques of quantitative analysis useful for selecting a preferable alternative from several technically viable ones
• Areas where engineering economics is applied

  • Equipment purchases and leases
  • Chemical processes
  • Cyber security
  • Construction projects
  • Airport design and operations
  • Sales and marketing projects
  • Transportation systems of all types
  • Product design
  • Wireless and remote communication and control
  • Manufacturing processes
  • Safety systems
  • Hospital and healthcare operations
  • Quality Healthcare
  • Government services for residents and businesses
• Fixed costs


  • Unaffected by changes in activity level over a feasible range of operations for the capacity or capability available
• Fixed costs


  • Insurance and taxes on facilities
  • Salaries
  • Licensed fees
• Variable costs


  • Associated with an operation that varies in total with the quantity of output or other measures of activity level
• Variable costs


  • Material costs
  • Prices of goods and services
• Incremental cost (or incremental revenue)


  The additional cost (or revenue) that results from increasing the output of a system "go–no go" decisions that involve a limited change in output or activity level
• Incremental cost


  • The incremental cost per mile for driving an automobile may be P30.00
• Direct costs


  Costs that can be reasonably measured and allocated to a specific output or work activity
• Indirect costs


  Costs that are difficult to allocate to a specific output or work activity, normally allocated through a selected formula
• Indirect costs


  • Administrative and Office Staff
  • Insurance
• Standard costs


  Planned costs per unit of output that are established in advance of actual production or service delivery
• Economy analysis


  • Considers all factors affecting the economy of the project which can be reduced to specific monetary values
• Financial analysis


  • Determines the methods and sources of financing the project, either equity capital or borrowed capital or combination of both
• Intangible analysis


  • Determines all aspects of the project which cannot be reduced to monetary values and considers the uncertainty and the risk inherent in the project
• Tangible factors


  Factors that can be expressed in terms of monetary values
• Intangible factors (Irreducible factors)

  Factors that are difficult or impossible to express in terms or monetary value
• Perfect competition


  A certain product or services is offered for sale by many vendors or suppliers and there is no restriction against other vendors from entering the market
• Monopoly


  A unique product or service is available only from a single supplier and entry of all other possible suppliers is prevented
• Oligopoly


  There are few suppliers and any action taken by anyone of them will affect the course of action of others
• Price


  The amount of money or its equivalent which is given in exchange for a good or commodity
• Local market


  A limited locality where certain goods such as those which are perishable are sold
• National market


  Certain goods sold all over the country
• World market


  Goods that are exported to other countries
• Consumer goods


  Goods and services which serve to satisfy human needs
• Producer goods


  Goods and services that produce goods and services for human consumption
• Producer goods


  • ships
  • buses
  • airplanes
  • generators
• Demand


  The quantity of a certain commodity that is bought at a certain price at a given place and time
• Law of demand


  The demand for a commodity varies inversely as the price of the commodity though not proportionately
• Elastic demand


  A decrease in selling price will cause a greater than proportionate increase in the volume of sales
• Inelastic demand


  A decrease in selling price will cause a less than proportionate increase in sales
• Unitary elasticity of demand


  The mathematical product of price and volume of sales remains constant regardless of a
• Consumer goods


  Those that are consumed or used directly by people, or are things and services which serve to satisfy human needs
• Consumer goods


  • clothes
  • food
  • houses
  • Medical and dental services
• Producer goods


  Those which produce goods and services for human consumption
• Producer goods


  • shoes
  • ships
  • buses
  • airplanes
  • generators
• Unitary elasticity of demand


  The mathematical product of price and volume of sales remains constant regardless of any change in price
• Law of Supply


  The supply of a commodity varies directly as the price of the commodity, though not proportionately
• Law of Supply and Demand

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