Chapter 2

Question 1

Name the engineering costs.

Answer 1

Fixed, Variable, Marginal, and Average costs

Question 2

Define each cost.

Answer 2

Fixed cost= constant or unchanging level of output or activity

Variable cost= depends on the level of output or activity

Marginal cost= variable cost for an additional unit.

Average cost= total cost divided by the number of units

Question 3

Provide examples for each costs

Answer 3

Fixed: equipment, floor space

Variable: number of employees, number of hours of employees.

Question 4

Define the break-even point.

Answer 4

When total costs= total revenue

Question 5

What are the 2 costs that are based on decision making.

Answer 5

Sunk cost and opportunity cost

Question 6

Define those 2 costs.

Answer 6

Sunk cost= money already spent bc of a past decision

Opportunity cost= an activity given up for another

Question 7

True or False: We should always focus on sunk cost because it helps us see how our business will be in the future.

Answer 7

False. Sunk cost should be ignored because money spent on past decisions aren’t relevant for future opportunities. Engineering Economics deals with present and future opportunities.

Question 8

What does Cash Flow Diagram illustrates?

Answer 8

CFD illustrates the size, sign, and timing of individual cash flows.

Question 9

Steps to create the Cash Flow Diagram

Answer 9

(1) Time-based horizontal line, divided into time units,
(2) Time units can be years, quarters, months, or other consistent time units,
(3) At each time at which a cash flow will occur, a vertical arrow is added– pointing down for costs or up for revenue.

Question 10

True or False: Cash Flow Diagrams provide a consistent view of the problem and alternatives to support economic analysis.

Answer 10

True.