Engineering Economy Techniques

1. What is the difference between economics and engineering economy?
Economics is the social science that describes the factors that determine the production,
distribution and consumption of goods and services.
Engineering economy is a subset of economics for application to engineering projects.
Engineers seek solutions to problems, and the economic viability of each potential
solution is normally considered along with the technical aspects. Engineering economy
involves formulating, estimating, and evaluating the economic outcomes when
alternatives to accomplish a defined purpose are available.
2. Reasons for Studying Engineering Economy
It is necessary to balance the unlimited desire versus the resource-constrained world; to
maximize output (worth) given input (cost) and to take the necessary for maximizing
efficiency (output / input or worth / cost).
3. Important applications of Engineering Economy
Seeking of new objectives for the applications of engineering.

Discovery of factors limiting the success of a venture or enterprise.
Analysis of possible investment of capital.
Comparison of alternatives as a basis for decision.
Determination of bases for decision.
4. Engineering Economy Techniques
Economy Analysis: Considers all factors affecting the economy of the project which
can be reduced to specific monetary values.
Determines the initial cost of the project, the cost 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
Determines the methods and sources of financing the project, either through equity
capital or borrowed capital, or a combination of both.
Tries to discover the best methods of financing the project to the extent of the amount
obtained in the economy analysis.
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.
Its scope includes the so-called judgment factor whose analysis depends upon the
judgment of responsible persons involved in the project.
5. Define the following
a. Tangible And Intangible factors:

Tangible Factor would include the money, land and products that are in the economy
which can be depended on to be a part of the decision and can be counted and
considered and touched as part of a solution.
Intangible Factors would be the value placed on the products in the economy that
affect a decision, but that cannot be expressed in monetary terms. Examples include
employee morale, safety, system reliability, environmental effects, and politics
b. Competition - is the rivalry among sellers trying to achieve such goals as increasing
profits, market share, and sales volume by varying the elements of the marketing mix:
price, product, distribution, and promotion.
c. Monopoly - is a situation in which a single company or group owns all or nearly all
of the market for a given type of product or service. By definition, monopoly is
characterized by an absence of competition, which often results in high prices and
inferior products.
d. Oligopoly - (is a market structure in which a small number of firms has the large
majority of market share. An oligopoly is similar to a monopoly, except that rather
than one firm, two or more firms dominate the market.
e. Price and Production
Price is the quantity of payment or compensation given by one party to another in
return for goods or services. In modern economies, prices are generally expressed in
units of some form of currency.
Production is a process of combining various material inputs and immaterial inputs
(plans, know-how) in order to make something for consumption (the output). It is the
act of creating output, a good or service which has value and contributes to the utility
of individuals.
f. Local and National Market
Local market includes customers located within the region the product or service is
produced or made available.
National market describes the supply and demand for all securities that are traded in a
country.
g. Consumer and Producer Goods
Consumer goods are products that are purchased for consumption by the average
consumer. Consumer goods are the end result of production and manufacturing and
are what a consumer will see on the store shelf.
Producer Goods are machinery, raw materials, etc., that are used in the process of
creating consumer goods.
h. Elastic Demand is a Demand that increases or decreases as the price of an item goes
down or up.
i. Inelastic Demand - A situation in which the demand for a product does not increase
or decrease correspondingly with a fall or rise in its price. From the supplier's
viewpoint, this is a highly desirable situation because price and total revenue are
directly related; an increase in price increases total revenue despite a fall in the
quantity demanded. An example of a product with inelastic demand is gasoline.
j. Law of Diminishing Utility : a principle in social science: such as one acquires
successive units of a good, the intensity of desire for additional units declines
k. Law of Diminishing Returns - A concept in economics that if one factor of
production (number of workers, for example) is increased while other factors
(machines and workspace, for example) are held constant, the output per unit of the
variable factor will eventually diminish.
l. Supply is a fundamental economic concept that describes the total amount of a
specific good or service that is available to consumers. Supply can relate to the
amount available at a specific price or the amount available across a range of prices if
displayed on a graph.
m. Physical and Economic efficiency
Physical efficiency compares the volumes delivered and beneficially consumed,
economic efficiency relates the value of output and the opportunity costs used in
production to the value applied.
Economic efficiency is related to the value (rather than the physical amounts) of all
inputs used in producing a given output. The production of a given output is
economically efficient if there are no other ways of producing the output that use a
smaller total value of inputs. For example, a firm may have several alternative
production methods that it could use. One may require a lot of labour but only a little
capital whereas another requires a lot of capital and only a little labour. A third
production method may require a lot of land but relatively little of both labour and
capital. In order to maximize its profits, the firm should choose the production
method that costs the least.
n. Present Economy are economic analyses where alternatives for accomplishing a
specific task are being compared over one year or less and the influence of time on
money can be ignored.

Engineering Economy Techniques

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1. What is the difference between economics and engineering economy?

Seeking of new objectives for the applications of engineering.

4. Engineering Economy Techniques

5. Define the following

a. Tangible And Intangible factors:

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