PRELIMS Flashcards
(44 cards)
What is Engineering Economy?
The analysis and evaluation of the factors that will affect the economic success of engineering projects to the end that a recommendation is made which will insure the best use of capital.
What is demand?
The quantity of a certain commodity that is bought at a certain price at a given place and time.
What is supply?
The quantity of a certain commodity that is offered for sale at a certain price at a given place and time.
What is producers?
Market participants selling goods and services.
What is consumers?
Market participants buying goods and services.
Market Price
The economic price for which good or service is offered in the marketplace which is significantly affected by the demand, availability of substitutes and the competitive landscape.
Equilibrium
The price-quantity pair where the quantity demanded is equal to quantity supplied, represented by the intersection of the demand and supply curves.
The Law of Diminishing Returns
When the use of one of the factors of production is limited, either in increasing cost or by absolute quantity, a point will be reach beyond which an increase in the variable factors will result in a less than proportionate increase in output.
Perfect Composition and examples
- It occurs in a situation where a commodity or service is supplied by a number of vendors and there is nothing to prevent additional vendors entering the market.
- Examples: Wheat farming and textile firm
Monopoly and examples
- It is the opposite of perfect competition. It exists when a unique product or service is available from a single vendor and that vendor can prevent the entry of all others into the market.
- Examples: Public utility and patented drug
Monopolistic Competition and examples
- It is characterized by a large number of firms, none of which can influence market price by virtue of size alone.
- New firms can enter and established firms can exit such an industry with ease.
- Some degree of market power is achieved by firms producing differentiated products.
- Examples: Restaurants and clothing stores
Product Differentiation
It is a strategy that firms use to achieve market power and is accomplished by producing products that have distinct positive identities in consumer’s minds.
Oligopoly and examples
- A form of industry (market) structure characterized by a few dominant firms.
- The behavior of any one firm in an oligopoly depends to a great extent on the behavior of others.
- It exists when there are so few suppliers of a product or service that action by one will almost inevitably result in similar action by the others.
- Examples: Manufacturing industries (automobiles, computers)
Capital
It refers to wealth in the form of money or property that can be used to produce more wealth.
Fixed Costs and examples
These are those unaffected by changes of inactivity level over a feasible range of operations for the capacity or capability available and does not change with an increase or decrease in the amount of goods and services.
Examples: rent for buildings or spaces, salaries for management and administrative employees, property taxes, insurance
Variable Costs and examples
These are those associated with an operation that varies in total with the quantity of output or other measures of activity level. This is the corporate expense that changes in proportion to production volume.
Examples: cost of raw materials and packaging, sales commission, utility costs (electricity, water, etc.), direct labor costs (regular working hours, overtime)
Direct Costs and examples
These are costs that can be reasonably measured and allocated to a specific output or work activity. The labor and material costs directly associated with a product, service, or construction activity are direct costs.
Examples: raw materials cost, wages for production staff, manufacturing supplies
Indirect Costs and examples
These are costs that are difficult to allocate to a specific output or work activity. Normally, they are costs allocated through a selected formula (such as proportional to direct labor hours, direct labor dollars, or direct material dollars) to the outputs or work activities. It can also be called overhead costs.
Examples: salary for administrative employees, general repairs, taxes and fees
Cost Estimation
It is an integral part in any engineering economic analysis being performed which requires the participation from engineering designers, marketing, manufacturing, finance and top management.
Top-Down Approach
You review the overall scope of your project, identify the major elements of the work and make general estimations.
Key Characteristics:
* frequently used for creating rough order of magnitude (ball-park)
* used at the early stage of the project when data is limited (to be further used for data validation)
* generally takes less time and effort to produce
* uses historical data from similar projects to estimate costs, revenues, energy consumption, etc.
* generally produces larger estimates
Bottom-Up Approach
You generate a detailed breakdown of the requirements down to the lowest possible level to generate your estimates. This approach covers the project scope based on the task defined.
Key Characteristics:
* frequently referred to as detailed estimating or as an engineering build-up
* usually works best when the detail concerning the desired output (a product or a service) has been defined and clarified
* generates more tangible estimates than top-down approach
* higher risk of excluding allowance for additional work needed
Cash Flow Diagram
It is an indispensable tool for clarifying and visualizing a series of cash flows. It is a graphical representation of cash flows drawn on a time scale.
Simple Interest
Total interest earned or charged is linearly proportional to the initial amount loaned (principal). It is calculated using the principal only, ignoring any interest accrued in preceding interest periods. It is infrequently used in modern practice.
Ordinary Simple Interest vs Exact Simple Interest
Ordinary Simple Interest: It is computed on the basis of 12 months of 30 days each or 360 days a year; 1 interest period = 360 days
Exact Simple Interest: It is computed based on the exact number of days in a year, 365 days for an ordinary year and 366 days for a leap year.
