Chapter 1
1-2
(a) Yes. Selecting a hybrid versus a traditional combustion engine has important
money and tax consequences, so it would be suitable for engineering economic
analysis.
(b) Yes. This situation involves important economic and social consequences.
Some might argue that the social consequences are more important than the
economics.
(c) No.There probably are a variety of considerations much more important than
the economics.
(d) No. Picking a career on an economic basis sounds terrible.
(e) Yes. Some financial factors that could be considered include the loan amount
and interest rate, your starting salary level, the amount of time your graduation
is delayed and the impact of the delay on lifetime earnings. However, a nonfinancial factors that should not be overlooked is the impact of working on
academic performance that could ultimately impact your chance of getting a job
and increase your starting salary.
1-3
Of the three alternatives, the $150,000 investment problem is most suitable
for economic analysis. There is not enough data to figure out how to proceed,
but if the “desirable interest rate” were 9%, then foregoing it for one week
would mean an immediate loss of:1/52 (0.09) = 0.0017= 0.17%
It would take over a year at 0.15% more to equal the 0.17% foregone now.
The sandwich shop is suitable for economic analysis. Compared to the
investment problem it is, of course, trivial.
Joe’s problem is a real problem with serious economic consequences. The
difficulty may be in figuring out what one gains if he pays for the fender
damage, instead of having the insurance company pay for it.
1-10
While there might be a lot of disagreement on the “correct” answer, only (c)
the problem addressing car insurance represents a substantial amount of money
and a situation where money might be the primary basis for choosing between
alternatives.
1-18
(a)
(b)
(c)
(d)
Maximize
Minimize
Maximize
Minimize
the difference between output and input.
input.
the difference between output and input.
input.
1-24
The remaining costs for the year are:
(a) and (b) Alternatives and their costs:
1. To stay in the dormitory the rest of the year
Food: 8 months at $500/month = $4000
2. To stay in the dormitory the balance of the first semester; apartment for
second semester (consider person paying $2,500 for second semester)
Housing: 4½ months × $400 apartment − $2,500 dorm = -$700
Food: 3½ months × $500 + 4½ × $450 = $3,775
Total = $3,075
3. Move into an apartment now
Housing: 8 months × $400apartment – 8 × $300dorm = $800
Food: 8 months × $450 = $3600
Total= $4,400
(c) He should stay in the dormitory for the rest of this semester and then
move into an apartment. This alternative (#2) is the lowest cost.
1-59
The car can be driven: 28 mpg*16 gal = 448 miles
Three options exist:
1. Return it with a full gas tank. So we must pay for gas to fill it up at
market rate of
$3.95/gallon.
2. Return it without filling it and pay $5.45/gallon. So company fills the
tank and we pay their rate of $5.45/gallon.
3. Accept a fixed price of $50 for the gas
a) Drive 150 miles:
Consumed: 150 miles/28 mpg = 5.357 gallons
Option 1 Cost: 5.357 gal * $3.95/gal = $21.16
Option 2 Cost: 5.357 gal * $5.45/gal = $29.20
Option 3 Cost: $50
Option 1 is best.
b) Drive 300 miles:
Consumed: 300 miles/28 mpg = 10.714 gallons
Option 1 Cost: 10.714 gal * $3.95/gal = $42.32
Option 2 Cost: 10.714 gal * $5.45/gal = $58.39
Option 3 Cost: $50
Option 1 is best.
c) Drive 400 miles:
Consumed: 400 miles/28 mpg = 14.286 gallons
Option 1 Cost: 14.286 gal * $3.95/gal = $56.43
Option 2 Cost: 14.286 gal * $5.45/gal = $77.86
Option 3 Cost: $50
Option 3 is best.
d) Considering our time
option 1 in each case.
Drive 150 miles: Option
Drive 300 miles: Option
Drive 400 miles: Option
to fill 15 min at $12/hr will add $3 to the cost of
1 Cost is $24.16– Option 1 remains the best option
1 Cost is $45.32 – Option 1 remains the best option
1 Cost is $59.43 – Option 3 remains the best option
1-60
Total Cost = Cost of Gas + Cost of Time Spent on the Road
= (Miles Driven/Miles per gal)(Cost/gal) + (Miles Driven/Speed)*(Cost/hr)
= (Miles Driven)[ (Cost/gal)/(Miles per gal) + (Cost/hr)/(Speed) ]
a) Cost (60 mph) = (500 miles) [($3/gal)/(24mpg)+($18/hr)/(60mph)] = $212.50
Cost (70 mph) = (500 miles) [($3/gal)/(20mpg)+($18/hr)/(70mph)] = $203.57
Cost of
Cost of
$/gal $/hr Speed MPG Gas
Total Cost
Time
3
18
60
24
$62.50
$150.00
$212.50
3
18
70
20
$75.00
$128.57
$203.57
4
12
60
24
$83.33
$100.00
$183.33
4
12
70
20
$100.00
$85.71
$185.71
5
9
60
24
$104.17
$75.00
$179.17
5
9
70
20
$125.00
$64.29
$189.29
a)
b)
c)
d)
Driving at
Driving at
Driving at
Worksheets
70 mph is cheaper
60 mph is cheaper
60 mph is cheaper
are below.
1-64
To maximize net income, Jim should not advertise and charge $72 per night.
Chapter 2
2-2
(a) 500 parts
Average cost = $13
Marginal cost = $13
(b) 1500 parts
Average cost = ((1000)($13) + (500)($12)) / 1500 = $ 12.67
Marginal cost = $12
(c) 2500 parts
Average cost = ((1000)($13) + (1500)($12)) / 2500 = $12.40
Marginal cost = $12
(d) 3500 parts
Average cost = ((1000)($13) + (2000)($12) + 500($11)) / 3500 = $12.14
Marginal cost = $11
2-4
Unit Manufacturing Cost
(a) Daytime Shift = ($2,000,000 + $9,109,000)/23,000
= $483/unit
(b) Two Shifts = [($2,400,000 + (1 + 1.25) ($9,109,000)]/46,000
= $497.72/unit
Second shift increases unit cost.
2-8
The basic cost of production can be expressed as:
Cost = Regular Time Production Cost + Overtime Production Cost
Regular time production cost = 90 units/hr
Overtime production = 90*(0.95) = 85.5 units/hr
So, the hour required to produce the specified number of units can be
determined as: #units/(90 units/hr) = # hrs of production required.
If this time is greater than 8 we will have overtime, if less than 6 we will
use 6 hours.
Over
Time hrs
Worked
Cost
Reg
Time
Cost
Ovr
Time
Total
Cost
Average
Cost/Unit
Marginal
Cost/Uni
t
Units to
Produce
Hours
Required
Reg Hrs
Worked
(a) 450
(b) 600
5.00
6.67
6.00
6.67
0.00
0.00
$27,000
$30,000
$0
$0
$27,000
$30,000
$60.00
$50.00
$0
$50.00
(c) 720
(d) 900
8.00
10.00
8.00
8.00
0.00
2.11
$36,000
$36,000
$0
$14,211
$36,000
$50,211
$50.00
$55.79
$78.95
$78.95
Average cost/unit = Total Cost/units produced.
a) Marginal Cost = $0 since there is extra capacity in production. Only 5 of
the 6 available hours have been used. So, no extra cost to produce another
unit.
b) Marginal cost = ($4,500/hr)/(90unit/hr) = $50/unit
c) Since the 720 units required a total of 8 hours, the next unit will require
the use of overtime. Marginal Cost = ($4,500/hr)(1+0.5)/(90*0.95unit/hr) =
$78.95/unit
d) We are in overtime area at this level, so marginal cost is same as part
(c),
$78.95/unit.
2-14
x = no. of maps dispensed per year
a) Fixed Cost (I) = $1,000
b) Fixed Cost (II) = $5,000
c) Variable Costs (I) = 0.900
d) Variable Costs (II) = 0.100
e) Set Total Cost (I) = Total Cost (II)
$1,000 + 0.90 x= $5,000 + 0.10 x
x = $4,000/$0.80/map = 5,000 maps dispensed per year.
Students can visually verify this from the figure.
f) System I is recommended if the annual need for maps is 5,000
h) Average Cost @ 3,000 maps:
TC(I) = (0.9) (3.0) + 1.0 = 3.7/3.0 = $1.23 per map
TC(II) = (0.1) (3.0) + 5.0 = 5.3/3.0 = $1.77 per map
Marginal Cost is the variable cost for each alternative, thus:
Marginal Cost (I) = $0.90 per map
Marginal Cost (II) = $0.10 per map
2-16
(a) x = number of visitors per year
Breakeven when: Total Costs (Tugger) = Total Costs (Buzzer)
$10,000 + $2.5 x = $4,000 + $4.00 x
x = 4000 visitors is the breakeven quantity
(b) See the figure below that plots costs as a function of the number of
visitors:
X
0
4,000
8,000
2-34
Y1 (Tug)
10,000
20,000
30,000
Y2 (Buzz)
4,000
20,000
36,000
a) $7000 The book cost results strictly from depreciation and can be more or
less than the market value.
b) $4000 The pump could be sold for this amount. If the pump is used instead,
then it would be viewed as an opportunity foregone.
c) $6000 – 4000 – 500 = $1500 cheaper than buying the brass pump.
2-41
Cost (total) = Cost (paint) + Cost (labor) + Cost (fixed)
Number of Cans Needed = (6,000 ft2/300 ft2/can) (2 coats) = 40 cans
Cost (paint) = (10 cans) $15 = $150.00
= (15 cans) $12.50 = $187.50
= (15 cans) $12 = $180.00
Total Cost = $517.50
Cost (labor) = (5 painters) (8hrs/day) (4.5 days/job) ($18/hr*painter)= $3,240
Cost (total) = $517.50 + $3,240+ $1,200 = $4,957.50 = $4,958
2-42
a) Unit Cost = $250,000/2,000 = $125/ft2
b) i. If all items change proportionately, then:
Total Cost = ($125/ft2) (4,000 ft2) = $500,000
b) ii.For items that change proportionately to the size increase we multiply
by:
4,000/2,000 = 2.0 all the others stay the same.
[See table below]
Cost
Item
1
2
3
4
5
6
7
8
2,000 ft2 House Cost
($250,000) (0.08) = $20,000
($250,000) (0.15) = $37,500
($250,000) (0.13) = $32,500
($250,000) (0.12) = $30,000
($250,000) (0.13) = $32,500
($250,000) (0.10) = $25,000
($250,000) (0.12) = $30,000
($250,000) (0.17) = $42,500
Increase
×1
×1
×2
×2
× 1.5
×2
×2
×2
4,000 ft2
House Cost
$20,000
$37,500
$65,000
$60,000
$48,750
$50,000
$60,000
$85,000
Total Cost
= $426,250
2-46
CA/CB = IA/IB
C50 YEARS AGO/CTODAY = AFCI50 YEARS AGO/AFCITODAY
CTODAY = ($2,050/112) (55) = $1,007
2-47
ITODAY = (90/12) (100) = 750
CLAST YEAR= (600/750) (90) = $72
2-50
Scaling up cost:
Cost of 4,500 g/hr centrifuge = (4,500/1,500)0.75 (40,000)= $91,180
Updating the cost:
Cost of 4,500 model= $91,180 (300/120) = $227,950
2-56
Time for the first pillar is
T10= 260 = T1 × 10log(0.75)/log(2.0)
Solve for T1
= 676 person hours
Time for the 20th pillar is
T20 = 676 x 20log(0.75)/log(2.0)= 195 person hours
2-75
Engineering Economics -- Homework Format
Instructions
Do all your work below; use this as a text file or use the Excel functions if you need them.
List each problem number and do the work here.
Save this file to your computer as you work.
When you are finished, go back to the Assignments page where you found this and open the Assignment.
On this specific Assignment, you will find a section called “Assignment Materials.” Near the bottom of that section
Browse for Local File.
Again do your work, save it, and them use the above to attach it.
Note although this course is largely following the schedule in the Syllabus there will be some date changes. Regard
assignment, check the Syllabus (which will be updated) from time to time.
Do your work here
1 .1
1 .2
1 .3
1 .12
1 .18
1 .28
1 .31
1 .42 a)
open the Assignment.
ear the bottom of that section is “Attach File” and a button to
be some date changes. Regardless, if there is no posted
H.W 1: Chapter 1
H.W 2
HW 2 Problems
Homework 2
Chap 1
1
Purchase answer to see full
attachment
