ECONOMICS

Question 1

Engineering economy is that branch of economics which involve the application of definite laws of
economics, theories of investment and business practices to engineering problems involving cost.

Answer 1

Arreola

Question 2

It is also defined to be the study of economic theories and their application to engineering problems
with concept of obtaining the maximum benefit at the least cost as a basis for decision.

Answer 2

Arreola

Question 3

It also involves the study of cost features and other financial data and their application in the field of
engineering as a basis for decision.

Answer 3

Arreola

Question 4

Engineering economics is equated with practicality and economic feasibility. It is also the search for the
recognition of alternatives which are then compared and evaluated in order to come up with the most practical
design and creation.

Answer 4

Kasner

Question 5

An important use of engineering economy is
to seek new objectives for engineering application. Engineers are constantly seeking new and wider
application of their technical knowledge for the benefit of mankind and in line with this, engineering economy
provides basic principles and laws.

Answer 5

Seeking new objectives

Question 6

upon knowing the
objectives, next is to determine ways and means to attain such objectives. With Engineering Economy the
so-called limiting factors which may hinder the success of a project are being discovered.

Answer 6

Discovery of factors limiting

Question 7

– The principles of engineering economy
helps to point out the analysis of choosing the best alternatives on a quantitative basis.

Answer 7

Comparison of alternatives

Question 8

– Engineering economy enables engineers to consider
all aspects of investment from both the technical and financial viewpoints. It provides several patterns of
analysis to determine rate of return, annual costs and pay out periods, which all serves as bases for
decision.

Answer 8

Analysis of possible investment

Question 9

– Engineers‟ main concern is on future actions, that is on
what to do and not on what has been accomplished. Decisions on future actions are more valid and accurate
if the principles of engineering economy are correctly applied.

Answer 9

Determination of bases for decision

Question 10

later part of the
19
th
century made use of engineering economic analysis in building railroads in the U. S. In 1930,

Answer 10

Arthur Wellington

Question 11

published his book, Principles of Engineering Economy, which emphasized on techniques that depended on
financial and actuarial mathematics.

Answer 11

Eugene Grant

Question 12

The choice is among alternatives.

Answer 12

Develop the alternatives.

Question 13

Only the difference in expected outcomes is considered.

Answer 13

Focus on the differences.

Question 14

Prospective outcomes of the alternatives, economic, etc.

should be considered.

Answer 14

Use a consistent viewpoint.

Question 15

Using a common unit of measurement of the possible

outcomes in comparing alternatives.

Answer 15

Use a common unit of measure.

Question 16

Consider both monetary and other unit of measure in

measurement of outcomes.

Answer 16

Consider all relevant criteria.

Question 17

Uncertainty is inherent in projecting future outcomes and

should considered in their analysis and comparison.

Answer 17

Make uncertainty explicit.

Question 18

Projected results and decisions should be compared with actual

results to improve the decision process.

Answer 18

Revisit your decisions.

Question 19

– those that are unaffected by changes in activity level over a feasible range of operations for the
capacity or capability available. (Insurance and taxes on facilities, general management and administrative
salaries, license fees and interest costs of borrowed capital)

Answer 19

Fixed cost

Question 20

are those associated with an operation that vary in relation to changes in quantity of output or
other measures of activity level. For the example, the cost of materials and labor used in a product or service
are variable costs – because they vary with the number of output units even though the costs per unit stay
the same.

Answer 20

Variable cost

Question 21

(incremental revenue) – refers to the additional cost or revenue that will result for increasing
the output of a system by one of more units. This is often quite difficult to determine in practice. Thus, if to
produce 100 units will cost P200, and the total cost for producing 110 units is P215, then the increment cost
for additional 10 units is P15 or 1.50 per unit.

Answer 21

Incremental cost

Question 22

costs that are repetitive and occur where an organization produces similar goods or services
on a continuing basis. Variable cost are also recurring costs, because they repeat with each unit of output.
Fixed cost that is paid on a repeatable basis is a recurring cost (ex. office space rental)

Answer 22

Recurring costs

Question 23

are those that are not repetitive even though the total expenditures maybe cumulative
over a relatively short period of time. Usually it involves the developing or establishing a capability or capacity
to operate.

Answer 23

Non-recurring costs

Question 24

those that can be reasonably measured and allocated to a specific output or work
(Labor and materials).

Answer 24

Direct cost

Question 25

costs that are difficult to attribute or allocate to a specific output. They are costs allocated through a selected formula (such as proportional to direct labor hours or direct materials) to the outputs or work activities (ex. Cost of common tools, general supplies equipment maintenance).

Answer 25

Indirect cost

Question 26

used to mean all expenditures that are not direct cost (administrative, insurance, taxes, electricity, general repairs)

Answer 26

Overhead cost

Question 27

– representation cost per unit of output that are established in advance of actual production or service delivery. They are developed from anticipated direct labor hours, materials and overhead categories. Standard costs play an important role in cost control and other management functions like estimating future manufacturing costs.

Answer 27

Standard cost

Question 28

cost that involves payment of cash.

Answer 28

Cash cost

Question 29

does not involve cash transaction; non-cash. The most common example of book cost is the depreciation. It is included in an analysis for it affects income taxes, which are cash flows.

Answer 29

Book cost

Question 30

is one that has occurred in the past and has no relevance to estimates of future costs and revenues related to an alternative course of action. It represents money which has been invested and which cannot be recovered due to certain reasons. A sunk cost is common to all alternatives and is not part of the future cash flows and can be disregarded in an engineering economic analysis.

Answer 30

Sunk cost

Question 31

– is incurred because of the use of limited resources such that the opportunity to use those resources to monetary advantage in alternative use is foregone. It is the cost of the best rejected opportunity and is often hidden or implied.

Answer 31

Opportunity cost

Question 32

refers to the summation of cost estimates from inception to disposal for both equipment and projects as determined by an analytical study and estimate of total costs experienced during their life. The objective of LCC analysis is to choose the most cost-effective approach from a series of alternatives so the least long-term cost of ownership is achieved.

Answer 32

Life cycle cost

Question 33

– first cost or cost incurred during the acquisition phase. It is the capital required for most of the activities in the acquisition phase.

Answer 33

Investment cost

Question 34

– series of expenditures over an extended period on a large construction project.

Answer 34

Capital investment

Question 35

– refers to the funds required for current assets (equipment, facilities) that are needed for the start-up and support of operational activities.

Answer 35

Working capital

Question 36

– includes many of the recurring annual expense items associated with the operation phase of the life cycle. The direct and indirect costs of operation in five primary resource areas, 1) people 2) machines 3) materials 4) energy 5) information – are major parts of the costs in this category.

Answer 36

Operation and maintenance cost

Question 37

includes those non-recurring costs of shutting down the operation and the retirement and disposal of assets at the end of the life cycle. Ex. Costs associated with personnel, materials.

Answer 37

Disposal cost

Question 38

are those products or services that are directly used by people to satisfy their wants. (Food, clothing, homes, cars, appliances, medical services, etc)

Answer 38

Consumer goods and services

Question 39

are used to produce consumer goods and services or other producer goods. (Machine tools, factory buildings, buses, etc.).

Answer 39

Producer goods and services

Question 40

are those products or services that are required to support human life and activities, that will be purchased in somewhat the same quantity even though the price varies considerably.

Answer 40

Necessities

Question 41

are those products or services that are desired by human and will be purchased if money available after the required necessities have been obtained.

Answer 41

Luxuries

Question 42

is the quantity of a certain commodity that is bought at a certain price at a given place and time. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a certain product people are willing to buy at a certain price.

Answer 42

Demand

Question 43

The demand for a commodity varies inversely as the price of the commodity, though not proportionately.

Answer 43

Law of Demand

Question 44

is the quantity of a certain commodity that is offered for sale at certain price at a given place and time. It represents how much the market can offer.

Answer 44

Supply

Question 45

the supply of the commodity varies directly as the price of the commodity, though not proportionately.

Answer 45

Law of supply

Question 46

occurs in a situation where a commodity or services is supplied by a number of vendors and there is nothing to prevent additional vendors entering the market. There is no restriction against other vendors from entering the market. Buyers are free to buy from any vendor, and the vendors likewise are free to sell to anyone.

Answer 46

Perfect competition

Question 47

which exist when a unique product or service is available from only a single vendor and that vendor can prevent the entry of all others into the market. Examples of monopolies are the services offered by Meralco electric pants throughout the country, the telephone companies and other public utilities, in which the sole right are being granted by the government.

Answer 47

Perfect monopoly

Question 48

exists when there are so few suppliers of a product or service that action by one will almost inevitable result in similar action by the others. Examples of oligopoly in the Philippines are the oil companies and manufacturers of soft drinks who hold franchises to produce drinks of foreign origin. Any change in price of anyone of them is usually accompanied by a similar change by the other competitors.

Answer 48

Oligopoly

Question 49

The focus of economics is to understand the problem of scarcity: the problem of fulfilling the unlimited wants of humankind with limited and/or scarce resources. Underlying the laws of demand and supply is the concept of utility, which represents the advantage or fulfillment a person receives from consuming a good or service. Utility, then, explains how individuals and economies aim to gain optimal satisfaction in dealing with scarcity.

Answer 49

Utility

Question 50

Usually, the more the person consumes, the larger his or her

Answer 50

total utility

Question 51

additional satisfaction, or amount of utility, gained from each extra unit of consumption.

Answer 51

Marginal utility

Question 52

Because there is a certain threshold of satisfaction, the consumer will no longer receive the same pleasure from consumption once that threshold is crossed.In other words, total utility will increase at a slower pace as an individual increases the quantity consumed.

Answer 52

the law of diminishing marginal utility

Question 53

TR, that will result from a business venture during a given period is the product of the selling price per unit, p, and the number of units sold, D.

Answer 53

The Total revenue,

Question 54

refers to wealth in the form of money or property that can be used to produce more wealth.

Answer 54

Capital

Question 55

“Money makes money”. This is true because if we invest money today, by tomorrow we will have accumulated more money that what we had originally invested. And also if you borrow money today you will have to pay in the future an amount that is larger that what you have originally owed. This change in the amount of money over a given time period is called time value of money”.

Answer 55

The Concept of Time Value of Money

Question 56

is owned by individuals who have invested their money or property in a business project or venture in the hope of receiving a profit and sometimes in exchange for a share of ownership in the company. Equity financing allows a business to obtain funds without incurring debt or having to repay a specific amount of money at a particular time.

Answer 56

Equity capital

Question 57

– also called borrowed capital, is represented by funds borrowed by a business that must be repaid over a period of time, usually with interest. Debt financing can be either short-term, with full repayment due in less than one year, or long-term, with repayment due over a period greater than one year.

Answer 57

Debt Capital

Question 58

measures of how effectively a company uses the money (borrowed or owned) invested in its operations.

Answer 58

Return On Capital

Question 59

is used to indicate the rent paid for the use of money. It is also used to represent the percentage earned by an investment in a productive operation. From the lender's point of view, the interest is the income produced by the money which he has lent. From the borrower's point of view, interest is the amount of money paid for the use of borrowed capital. The percentage of money charge as interest is called as interest rate.

Answer 59

Interest

Question 60

if the interest to be paid is directly proportional to the length of time the amount or principal is borrowed. The principal is the amount of money borrowed or invested.

Answer 60

Simple Interest

Question 61

the difference between total cash coming

Answer 61

Cash flow