Engineering Economics Overview
40 Questions
1 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Which of the following best describes the 'do-nothing' alternative?

  • An alternative that is always the most cost-effective option.
  • An alternative that involves making major changes to the current system.
  • An alternative that involves taking no action and maintaining the current state. (correct)
  • An alternative that is only considered when all other options are deemed unsuitable.

    • When evaluating alternatives, what is the primary factor considered in economic analysis?

  • Intangible factors like goodwill and convenience
  • Financial units, usually in dollars or other currency (correct)
  • The potential for future profits
  • The number of available alternatives

    • What is the most significant concept in engineering economy?

  • Time value of money (correct)
  • Cash flow
  • Direct costs
  • Variable costs

    • Which of the following is NOT an example of a fixed cost?

    <p>Cost of raw materials used in production (C)</p> Signup and view all the answers

    What type of cost is associated with the labor and materials directly used in creating a product?

    <p>Direct costs (D)</p> Signup and view all the answers

    Which of the following is an example of a variable cost?

    <p>Cost of raw materials used in production (D)</p> Signup and view all the answers

    What kind of factors are difficult to quantify and may influence decisions when economic differences between alternatives are minimal?

    <p>Intangible factors (A)</p> Signup and view all the answers

    What are the estimated inflows and outflows of money called?

    <p>Cash flows (C)</p> Signup and view all the answers

    Which of these is an example of an intangible factor that can influence a decision?

    <p>Brand reputation (B)</p> Signup and view all the answers

    What is the primary goal when selecting among multiple alternatives in economic analysis?

    <p>Minimizing cost (A)</p> Signup and view all the answers

    What is the primary goal of engineering economy?

    <p>To objectively evaluate the economic merits of proposed engineering solutions. (D)</p> Signup and view all the answers

    What is an 'alternative' in the context of engineering economy?

    <p>A stand-alone solution to a specific engineering problem. (C)</p> Signup and view all the answers

    Which of the following is NOT a primary resource area for the operation phase?

    <p>Capital (D)</p> Signup and view all the answers

    What is the significance of Principle No. 2, 'Focus on the Differences'?

    <p>It emphasizes the need to compare only relevant differences between alternatives. (C)</p> Signup and view all the answers

    What is the primary difference between consumer goods and producer goods?

    <p>Consumer goods are used for personal consumption, while producer goods are used for production. (C)</p> Signup and view all the answers

    According to Principle No. 3, why is it crucial to maintain a consistent viewpoint in evaluating alternatives?

    <p>To ensure all relevant factors are considered from a single perspective. (B)</p> Signup and view all the answers

    Which of the following is an example of a producer good?

    <p>A sewing machine (A)</p> Signup and view all the answers

    What is the main purpose of using a common unit of measure (Principle No. 4) in evaluating alternatives?

    <p>To simplify the analysis and comparison of alternatives. (C)</p> Signup and view all the answers

    What is the relationship between price and demand according to the provided content?

    <p>Price and demand are inversely proportional. (A)</p> Signup and view all the answers

    Which of the following market structures describes a situation where a single supplier controls a unique product or service?

    <p>Monopoly (A)</p> Signup and view all the answers

    Which of the following is NOT a principle of engineering economy?

    <p>Evaluate the Environmental Impact. (C)</p> Signup and view all the answers

    How does Principle No. 6, 'Make Risk and Uncertainty Explicit,' contribute to better decision making?

    <p>By identifying potential risks and uncertainties, it helps to minimize the impact of unforeseen events. (D)</p> Signup and view all the answers

    What is the main characteristic of a perfectly competitive market?

    <p>A large number of suppliers offer similar products. (C)</p> Signup and view all the answers

    What is the primary objective of Principle No. 7, 'Revisit your Decisions'?

    <p>To monitor the performance of the selected alternative and make necessary adjustments. (D)</p> Signup and view all the answers

    When are engineering economic analyses referred to as present economy studies?

    <p>When comparing alternatives over a period of one year or less. (B)</p> Signup and view all the answers

    According to Rule No. 1 of present economy studies, when should you choose an alternative?

    <p>When it maximizes overall profitability based on the number of defect-free units of a product or service produced. (A)</p> Signup and view all the answers

    The statement 'solutions to engineering problems must demonstrate a positive balance of long-term benefits over long-term costs' implies that:

    <p>The long-term economic impact of an engineering solution is a crucial factor in its feasibility. (B)</p> Signup and view all the answers

    Which of the following is a key element often considered when evaluating engineering alternatives?

    <p>The anticipated resale value (salvage value) of the solution. (B)</p> Signup and view all the answers

    When would you apply Rule No. 2 of present economy studies?

    <p>When revenues and other economic benefits are not present or are constant among all alternatives. (A)</p> Signup and view all the answers

    Which of the following best describes disposal cost?

    <p>The cost of shutting down an operation and disposing of assets. (C)</p> Signup and view all the answers

    Which of these is NOT a characteristic of sunk costs?

    <p>Relevant in the analysis of future alternatives (D)</p> Signup and view all the answers

    Which cost is associated with the recovery of past expenditures over a set period?

    <p>Book Cost (B)</p> Signup and view all the answers

    What type of cost is associated with the decision to use a resource for one purpose, potentially missing out on another opportunity?

    <p>Opportunity Cost (A)</p> Signup and view all the answers

    During which phase of the life cycle would investment costs typically be incurred?

    <p>Acquisition Phase (B)</p> Signup and view all the answers

    What is the term for the total costs associated with a product throughout its entire lifespan?

    <p>Life-Cycle Cost (D)</p> Signup and view all the answers

    Which of the following is an example of an incremental cost?

    <p>The cost of hiring an additional worker to increase production (A)</p> Signup and view all the answers

    Which of the following expenses is commonly associated with the operation phase of the life cycle?

    <p>Cost of routine maintenance and repairs (A)</p> Signup and view all the answers

    What term refers to costs that do not involve actual cash outlays but rather represent the allocation of past expenses?

    <p>Book Costs (A)</p> Signup and view all the answers

    Which of the following is NOT a factor considered when establishing standard costs?

    <p>Projected interest rates (A)</p> Signup and view all the answers

    What is the difference between incremental cost and standard cost?

    <p>Incremental costs are associated with changes in output, while standard costs are pre-determined estimates for unit costs. (D)</p> Signup and view all the answers

    Flashcards

    Cash Flow

    Estimated revenues and costs (inflows and outflows of money).

    Do-Nothing Alternative

    The option of inaction; the status quo condition.

    Evaluation Criteria

    Basis for comparing alternatives, usually in terms of cost or net income.

    Intangible Factors

    Non-economic factors that influence decision-making, hard to quantify.

    Signup and view all the flashcards

    Time Value of Money

    The change in the value of money over time, crucial in economics.

    Signup and view all the flashcards

    Fixed Costs

    Costs that remain unchanged with activity level within capacity.

    Signup and view all the flashcards

    Variable Costs

    Costs that change with the level of output or activity.

    Signup and view all the flashcards

    Direct Costs

    Costs that can be directly allocated to a specific output or activity.

    Signup and view all the flashcards

    Indirect Costs

    Costs that are hard to trace to a specific activity or output.

    Signup and view all the flashcards

    Overall Net Income

    The total income after all costs have been deducted.

    Signup and view all the flashcards

    Engineering Economy

    Systematic evaluation of economic merits of engineering solutions.

    Signup and view all the flashcards

    Alternatives

    Standalone solutions to specific engineering problems.

    Signup and view all the flashcards

    First Cost

    The initial purchase cost of an asset.

    Signup and view all the flashcards

    Useful Life

    Anticipated lifespan of an asset before replacement.

    Signup and view all the flashcards

    Annual Maintenance Cost

    Yearly costs required to maintain an asset.

    Signup and view all the flashcards

    Salvage Value

    Estimated resale value of an asset at the end of its useful life.

    Signup and view all the flashcards

    Focus on Differences

    Only consider differences in future outcomes for alternatives.

    Signup and view all the flashcards

    Common Unit of Measure

    Using a standard metric to compare outcomes efficiently.

    Signup and view all the flashcards

    Risk and Uncertainty

    Inherent factors in estimating future outcomes that must be acknowledged.

    Signup and view all the flashcards

    Revisit Decisions

    Comparing projected outcomes to actual results for improvement.

    Signup and view all the flashcards

    Incremental Cost

    Additional cost or revenue from increasing output by one unit.

    Signup and view all the flashcards

    Standard Costs

    Planned costs per unit established before production based on estimates.

    Signup and view all the flashcards

    Cash Cost

    Costs that require actual cash payment.

    Signup and view all the flashcards

    Book Cost

    Costs representing past expenditures, not involving cash payments.

    Signup and view all the flashcards

    Sunk Costs

    Irretrievable costs from past decisions, irrelevant for future choices.

    Signup and view all the flashcards

    Opportunity Cost

    The benefit lost when choosing one option over another with limited resources.

    Signup and view all the flashcards

    Life-Cycle Cost

    Total costs related to a product over its life span, including acquisition and operation.

    Signup and view all the flashcards

    Acquisition Phase

    Initial stages involving needs assessment, design, and procurement.

    Signup and view all the flashcards

    Operation Phase

    Period of operation, customer use, maintenance, and disposal of a product.

    Signup and view all the flashcards

    Investment Cost

    Capital required for activities in the acquisition phase, often a one-time expense.

    Signup and view all the flashcards

    Operation Phase Resources

    Five key areas for managing operations: People, Machines, Materials, Energy, Information.

    Signup and view all the flashcards

    Disposal Cost

    Costs incurred for shutting down operations and retiring assets at the end of their life cycle.

    Signup and view all the flashcards

    Consumer Goods

    Products or services directly used by people to satisfy their wants, like food and clothing.

    Signup and view all the flashcards

    Producer Goods

    Goods used to create consumer goods or other producer goods, such as machinery.

    Signup and view all the flashcards

    Price and Demand Relationship

    As prices rise, demand falls; as prices drop, demand rises.

    Signup and view all the flashcards

    Perfect Competition

    Market condition with many vendors and no restrictions on market entry.

    Signup and view all the flashcards

    Monopoly

    Market condition where a single supplier controls the market for a unique product.

    Signup and view all the flashcards

    Present Economy Studies

    Comparing alternatives over a short time (one year or less) ignoring time value of money.

    Signup and view all the flashcards

    Rule No. 1

    Choose the alternative with maximum profitability based on defect-free output when economic benefits vary.

    Signup and view all the flashcards

    Rule No. 2

    If economic benefits are constant, select the alternative minimizing total costs per defect-free unit produced.

    Signup and view all the flashcards

    Study Notes

    Engineering Economics Overview

    • Engineering economy systematically evaluates the economic merits of proposed solutions to engineering problems.
    • Proposed solutions must demonstrate a positive balance of long-term benefits over long-term costs to be considered economically acceptable.
    • Engineering economy uses techniques to simplify comparisons of alternatives on an economic basis.
    • An alternative is a stand-alone solution for a situation.

    Principles of Engineering Economy

    • Develop the Alternatives: Carefully define the problem, identify, and then define alternatives for analysis.
    • Focus on the Differences: Only the differences in expected future outcomes among alternatives are relevant to comparisons.
    • Use a Consistent Viewpoint: Develop prospective outcomes (economic & others) from a defined perspective.
    • Use a Common Unit of Measure: Use a consistent unit to measure outcomes for easier analysis.
    • Consider All Relevant Criteria: Decision making considers criteria that include monetary and non-monetary factors.
    • Make Risk and Uncertainty Explicit: Recognize and analyze risk and uncertainty in estimating future outcomes.
    • Revisit Your Decisions: Continuously improve decision-making by comparing projected outcomes to actual results.

    Cash Flow

    • Cash flow refers to estimated inflows (revenues) and outflows (costs) of money.

    Alternative Selection

    • Every situation has at least two alternatives: the formulated alternatives and the "do-nothing" (DN) alternative (the status quo).

    Evaluation Criteria

    • Financial units (dollars or currency) are the primary basis for evaluation.
    • In situations with multiple alternatives, the optimal one is determined by the lowest overall cost or highest overall net income.

    Intangible Factors

    • Alternatives may have non-economic or intangible factors affecting the decision, such as goodwill, convenience, or morale.
    • Intangible factors are critical when alternatives are difficult to distinguish economically.

    Time Value of Money

    • The change in the amount of money over time is an important concept in engineering economy.

    Cost Terminology and Concepts

    • Fixed Costs: Unchanged by activity level within operation range
      • Examples: Insurance, taxes, general management, salaries.
    • Variable Costs: Vary with activity level.
      • Examples: Materials costs, labor costs, advertisement.
    • Direct Costs: Costs easily allocated to a specific output (e.g., materials, labor for a product).
    • Indirect Costs: Difficult to allocate (e.g., common tools, general supplies).
    • Incremental Costs: Additional cost from increasing output.
    • Standard Costs: Planned costs per unit of output.
    • Cash Costs: Costs involving cash payment.
    • Book Costs: Costs not involving direct cash payment.
    • Sunk Costs: Irretrievable costs from past decisions, irrelevant in future analysis.
    • Opportunity Costs: Lost potential gain from alternative use of resources.
    • Life-Cycle Costs: All costs related to a product, structure, system, or service during its life.

    Phases of the Life Cycle and Their Relative Cost

    • Investment costs are capital required for acquisition-phase activities (e.g., equipment).
    • Operation and maintenance (O&M) costs are recurring expenses during the operation phase (e.g., people, machinery, materials, energy, information).

    Cost Terminology and Concepts (Disposal & Categorization)

    • Disposal Costs: Non-recurring costs of shutting down operations and asset retirement.
    • Consumer Goods/Services: Directly used by people to satisfy wants (e.g., food, clothing).
    • Producer Goods/Services: Used to produce other goods/services (e.g., machine tools, farm machinery).

    Relationship between Price and Demand

    • As price increases, demand decreases; as price decreases, demand increases.
    • This applies to various economic concepts.

    Economic Competition

    • Perfect Competition: Many vendors supply a product with no restrictions on entrants.
    • Monopoly: A single supplier controls a product or service market and restricts entry of others.

    Present Economy Studies

    • When alternatives are compared over a short time period, economic benefits are analyzed with minimal time considerations.
    •  Maximize overall profit given varying revenues among alternatives (Rule 1).
    •  Minimize total cost per defect-free unit when revenues are constant across alternatives (Rule 2).

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    Engineering Economics PDF

    Description

    This quiz covers the fundamental principles of engineering economics, highlighting the systematic evaluation of proposed solutions to engineering problems. It emphasizes the importance of developing alternatives, focusing on differences, and using consistent measurements for thorough analysis. Understanding these concepts is crucial for making economically sound engineering decisions.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser