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Questions and Answers
What is the primary focus of engineering economy?
What is the primary focus of engineering economy?
- Maximizing production efficiency with minimal costs
- Design and production of consumer goods
- Systematic evaluation of economic factors in engineering projects (correct)
- Financial forecasting of future trends
Which term describes the total money received from selling a product?
Which term describes the total money received from selling a product?
- Total Cost
- Net Income
- Gross Profit
- Total Revenue (correct)
In a perfect competition market, what characterizes the number of vendors?
In a perfect competition market, what characterizes the number of vendors?
- Only one vendor provides the product
- Exclusive contracts limiting vendor access
- Several vendors but few market entrants
- A large number of vendors with free market entry (correct)
What does a perfect monopoly imply regarding the product or service?
What does a perfect monopoly imply regarding the product or service?
What distinction is made between consumer goods and producer goods?
What distinction is made between consumer goods and producer goods?
What encompasses total cost in an economic context?
What encompasses total cost in an economic context?
Which statement accounts for profit/loss in economics?
Which statement accounts for profit/loss in economics?
What is a core consideration under cost comparisons in engineering?
What is a core consideration under cost comparisons in engineering?
What type of cost is affected by the level of output in production?
What type of cost is affected by the level of output in production?
Which cost is characterized by its inability to be attributed to a specific product or activity?
Which cost is characterized by its inability to be attributed to a specific product or activity?
What type of cost refers to payments made in cash?
What type of cost refers to payments made in cash?
What defines a cost that has already been incurred and is irrelevant to future decisions?
What defines a cost that has already been incurred and is irrelevant to future decisions?
Which term refers to costs that occur repetitively as an organization produces similar goods or services?
Which term refers to costs that occur repetitively as an organization produces similar goods or services?
What type of cost includes expenditures over a product's entire lifespan, both recurring and nonrecurring?
What type of cost includes expenditures over a product's entire lifespan, both recurring and nonrecurring?
Which cost includes general operational expenses not directly connected to materials or labor?
Which cost includes general operational expenses not directly connected to materials or labor?
What type of cost is incurred due to the unused potential of limited resources?
What type of cost is incurred due to the unused potential of limited resources?
What does the variable 'n' represent in the equation for future cost?
What does the variable 'n' represent in the equation for future cost?
Which statement accurately describes an ordinary annuity?
Which statement accurately describes an ordinary annuity?
How is the future equivalent value (F) defined in relation to the present value (P)?
How is the future equivalent value (F) defined in relation to the present value (P)?
What distinguishes a simple annuity from a general annuity?
What distinguishes a simple annuity from a general annuity?
In the formula for future cost (FC = PC (1 + f)^n), what does 'f' represent?
In the formula for future cost (FC = PC (1 + f)^n), what does 'f' represent?
What is the basis for calculating ordinary simple interest?
What is the basis for calculating ordinary simple interest?
If a nominal rate of interest is 6% annually with monthly compounding, what would be the effective rate of interest approximately?
If a nominal rate of interest is 6% annually with monthly compounding, what would be the effective rate of interest approximately?
Which type of interest calculation involves compounding on both principal and previously accumulated interest?
Which type of interest calculation involves compounding on both principal and previously accumulated interest?
What does the Rule of 72 help to estimate?
What does the Rule of 72 help to estimate?
What is the effect of inflation on money's purchasing power?
What is the effect of inflation on money's purchasing power?
Which formula represents the present worth factor for a single payment?
Which formula represents the present worth factor for a single payment?
What does continuous compounding use to calculate the amount after time t?
What does continuous compounding use to calculate the amount after time t?
What is the primary purpose of the Equation of Value in finance?
What is the primary purpose of the Equation of Value in finance?
What does a downward arrow represent in a cash flow diagram?
What does a downward arrow represent in a cash flow diagram?
Which type of cash flow series consists of cash flows that increase by a fixed amount each period?
Which type of cash flow series consists of cash flows that increase by a fixed amount each period?
In the formula for future value $F = P(1 + in)$, what does 'i' represent?
In the formula for future value $F = P(1 + in)$, what does 'i' represent?
Why does money have a time value?
Why does money have a time value?
Which statement about simple interest is true?
Which statement about simple interest is true?
What is represented by the horizontal line in a cash flow diagram?
What is represented by the horizontal line in a cash flow diagram?
Which series consists of equal cash flows occurring at regular intervals?
Which series consists of equal cash flows occurring at regular intervals?
From the borrower's perspective, what does interest represent?
From the borrower's perspective, what does interest represent?
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Study Notes
Engineering Basics
- Engineering applies mathematical and natural sciences to optimize production economically.
- Engineers must effectively plan for capital expenditure to acquire necessary production equipment.
Engineering Economy and Economics
- Engineering Economy evaluates the economic merits of engineering solutions systematically.
- Engineering Economics applies economic techniques to assess design alternatives and substantiate project viability.
Economic Terminology
- Consumer Goods and Services: Directly satisfy individual needs.
- Producer Goods and Services: Used in the creation of consumer goods.
- Demand: Quantity demanded at a specific price point.
- Supply: Quantity available for sale at a given price.
- Perfect Competition: Many suppliers of a product with no barriers to entry.
- Perfect Monopoly: One supplier controls a unique product, barring competition.
- Oligopoly: A few suppliers influence market dynamics collectively.
Revenue and Cost Concepts
- Total Revenue: Calculation of selling price per unit multiplied by quantity sold.
- Total Cost: Combination of fixed and variable costs.
- Profit/Loss: The difference between total revenue and total costs.
Cost Classifications
- Fixed Costs: Remain constant regardless of activity levels.
- Variable Costs: Change with production quantities.
- Incremental Cost: Extra costs from increased output.
- Recurring Costs: Ongoing expenses from continuous operations.
- Nonrecurring Costs: One-time expenditures that do not repeat regularly.
- Direct Costs: Traceable to specific outputs.
- Indirect Costs: Not easily allocated to specific activities.
Cash Flow and Financial Metrics
- Single Cash Flows: Present and future money equivalence.
- Equal Uniform Series: A series of consistent payments at regular intervals.
- Cash Flow Diagram: Visual representation of inflows and outflows over time.
- Interest: Money charged for borrowing, calculated as a percentage of the principal.
Interest Types and Formulas
- Simple Interest: Calculated on the principal only.
- Compound Interest: Interest calculated on both principal and accumulated interest from previous periods.
- Nominal vs. Effective Interest Rate: Nominal specifies quoted rates; effective accounts for compounding within a year.
Inflation and Cost Implications
- Inflation: Reduces money's purchasing power over time.
- Future Cost Calculations: Use formulas involving present cost and inflation rates to determine future values.
Annuities
- Annuity: Series of equal payments at consistent intervals; can be certain (fixed duration) or uncertain (event-triggered).
- Ordinary Annuity: Payments made at the end of each period, with future and present values defined accordingly.
Mortgages
- Financial instrument for property purchase, often involving complex calculations related to loan repayment and interest accrual.
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