Chapter 1

Question 1

Define Engineering Economics

Answer 1

Are techniques of quantitative analysis which aids in the selection of the best alternative from several viable ones.

Question 2

Eng Econ mostly consists of…

Answer 2

The evaluation of costs and benefits.

Question 3

Name the 3 groups of problems in which eng econ helps deal with

Answer 3

1. Feasibility Studies
2. Working equipment / eng business in general
3. Working equipment gets obsolete due to physical, environmental, or technological impacts

Question 4

Describe the Feasibility Studies stage

Answer 4

• exists some eng idea/design
• estimate its viability
• analysis has high degree of uncertainty
• economic evaluation is very general

Question 5

Describe the Working equipment/eng business in general stage

Answer 5

• possible to collect real data about performance of equipment or business
• reduces uncertainty
• can introduce some changes according to the changing economic environment

Question 6

Describe the Working equipment gets obsolete due to physical, environmental, or technological impacts stage

Answer 6

• necessary to find optimal time of equipment/tech replacement and choose the best possible replacement

Question 7

Define Simple Problems and give 3 examples

Answer 7

problems that require minimum calculations to make optimal decision.

1. financed by myself or other sources?
2. value of equipment after x amount of years?
3. maintenance/operating costs for equipment for x years?

Question 8

Define Intermediate Problems and give 3 examples

Answer 8

problems that require detailed financial calculations to make optimal decision under existing economic conditions.

1. net present worth of eng design?
2. tech/business making profit? How much taxes should I pay?
3. optimal lifespan of my equipment? When should I replace it?

Question 9

How is eng econ helpful?

Answer 9

• helps with simple and intermediate problems

- helps with some elements of complex problems

Question 10

9 steps of rational choice in eng econ.

Answer 10

1. recognize the problem
2. define the goal/objective
3. collect relevant data
4. identify feasible alternatives
5. select the right criterion/criteria
6. construct a model
7. predict consequences of each feasible alternative
8. choose best alternative
9. check results

Question 11

Engineering decisions are evaluated in terms of…

Answer 11

costs and benefits

Question 12

costs are…

Answer 12

what is given up to address the engineering problem

Question 13

benefits are…

Answer 13

what a consumer is willing to pay for the product (goods/services)

Question 14

costs and benefits should be…

Answer 14

comparable and reflect the real trade-off between them

Question 15

what is a model?

Answer 15

• simplification of reality
• captures useful information
• used to analyze a situation in order to make predictions

Question 16

what are engineering economic models?

Answer 16

• typically represents a project through estimates of costs/benefits over time

Question 17

what is a sensitivity analysis?

Answer 17

• econ models explain future costs/benefits which creates uncertainty
• this analysis is a means of dealing with that uncertainty
• assesses effect of uncertainty on decisions by an analysis for range of estimated and/or predicted values
• can identify robust decisions