1.

Explain why the subject engineering economy is important to a practicing

engineer.

Engineering economy is a subset field of economics for application

to engineering projects (www.wikipedia.org). People make decisions;
computer, mathematics, and other tools do not. The techniques and
models of engineering economy assist people in making decisions (Basics
of Engineering Economy by Leland Blank and Anthony Tarquin). As a
practicing engineer, one must learn the concept of decision making. That
is, through engineering economy, he is taught with the fundamentals in
order to take certain considerations before finally giving decisions. Since
cost is such an important component in decision-making, various
techniques for comparing alternatives on an economic basis must also be
learned (http://highered.mcgraw-hill.com/sites/0072432349). In today’s
competitive world of business it has become essential that engineers
should practice financial project analysis for engineering projects and
make rational decisions thus all the learning a practicing engineer learns
are very necessary in preparing him when he’ll work already as a licensed
engineer in the future.

2. List 10 typical situations in the operation of an organization where engineering

economic analysis would significantly assist decision making.

a. Should a new bonding technique be incorporated into the manufacture

of automobile brake pads?
b. If a computer-vision system replaces the human inspector in
performing quality tests on an automobile welding line, will operating
costs decrease over a time horizon of 5 years?
c. Is it an economically wise decision to upgrade the composite material
production center of an airplane factory in order to reduce costs by
20%?
 d. Considering the choice between reusable and disposable bottles for
high-demand beverages
e. Choosing the best design for a high-efficiency gas furnace
f. Selecting the most suitable robot for a welding operation on an
automotive assembly line
g. Will a stainless steel pump be better than a cast iron pump?
h. Making a recommendation about whether jet airplanes for an overnight
delivery service should be purchased or leased
i. Will we make the required rate of return if we install the newly offered
technology onto our medical laser manufacturing line?
j. Should the state university contract with a local community college to
teach foundation-level undergraduate courses or have university
faculty teach them?

Reference: www.ceet.niu.edu/cecourse/Revised_UEET101_IE_I.ppt

3. Assume that your employer is a manufacturing firm that produces several

electronics consumer products. What are the five non-monetary factors that
may be important when a significant change is considered in the design of the
product?

The following factors may be further considered upon the significant change:
• Meeting customer expectations consistently
• Leveling cyclic fluctuations in production
• Improvement of safety in operations
• Reduction of Wastes Disposed
• Reduction of pollutants

Reference: www.ise.ufl.edu/ein4354/Downloads/ch1/Ch1_print.ppt
4. Describe the outcomes that should be expected from a feasible alternative.
What are the differences between potential alternatives and feasible
alternatives?

In engineering environment, after a specific problem has been defined, an

engineer must search for alternatives or options must be developed. These
potential alternatives after searching must be screened to select a smaller
group of feasible alternatives for detailed analysis
Reference: (web.uettaxila.edu.pk/CMS/teEECbs2nd07/notes%5CEE%201.ppt).

Furthermore, the alternative which is most feasible shall then be

considered upon solving this process. Following the procedure, it is certainly
to be expected that the problem will be solved or the project will be
implemented smoothly or will operate effectively. “It takes money to make
money.” So, in choosing feasible alternatives, an engineer must choose the
one which it spends less amount of money and efforts too.

5. Explain the relationship between engineering economic analysis and

engineering design. How does economic analysis assist decision making in
the design process?

Engineering design is the systematic and creative application of scientific and

mathematical principles to practical ends such as the design, manufacture, and
operation of efficient and economical structures, machines, processes, and
systems (www.mse.drexel.edu/Programs/SENSORS/Links/do-engineers-have-
social-responsibilities.ppt). By definition itself, designing certain product requires
an engineer to consider careful analysis of the product as to its importance,
functionality, price, etc. Therefore, prior to arriving to the decision of designing a
product, the designer must follow engineering procedures, specifically,
engineering economic analysis to determine the overall feasibility of the product.
An engineering economy study is accomplished using a structured procedure
and mathematical modeling techniques. The economic results are then used in a
decision situation that involves two or more alternatives and normally includes
other engineering knowledge and input.

Reference: web.uettaxila.edu.pk/CMS/teEECbs2nd07/notes%5CEE%201.ppt

6. What is an opportunity cost? Give example.

Opportunity cost is a benefit or advantage foregone that results from choosing

one alternative over another.
Reference: https://sharepoint.cisat.jmu.edu/isat/egekwuog/Shared%20Documents/
ISAT%20211/Lecture%20Materials/Module%209-Engr%20Economy.ppt

Example:
 An old painting bought for $5
 You plan to give it to a friend
 Just before you give it to your friend, you find out that it is a rare painting
by an old master which costs $5,000
 What is the cost of giving the painting to your friend?

7. What is the application of present economy?

The example of typical present economy studies is the choice among

alternative designs, materials, or methods. Present economy studies is therefore
an integral part of engineering economy since it deals with appropriate conduct of
study and investigation to determine or establish a certain decision concerning
engineering related ideas.

Reference: faculty.ksu.edu.sa/mramadan/GE401_LECTURE_
NOTES/Lecture_Notes03_Design%20Optimization.doc
8. Origin of interest
In the Middle Ages, time was considered to be property of God. Therefore, to
charge interest was considered to commerce with God's property. Also, St.
Thomas Aquinas, argued that the charging of interest is wrong because it
amounts to "double charging", charging for both the thing and the use of the
thing. The church regarded this as a sin of usury; nevertheless, this rule was
never strictly obeyed and eroded gradually until it disappeared during the
industrial revolution.
Usury has always been viewed negatively by the Roman Catholic Church.
The Second Lateran Council condemned any repayment of a debt with more
money than was originally loaned, the Council of Vienna explicitly prohibited
usury and declared any legislation tolerant of usury to be heretical, and the first
scholastics reproved the charging of interest. In the medieval economy, loans
were entirely a consequence of necessity (bad harvests, fire in a workplace) and,
under those conditions, it was considered morally reproachable to charge
interest.
Reference: www.wikipedia.org

9. Cite difficulties encountered in evaluating public sector projects using B/C.

a. It is very difficult to estimate monetary values for benefits and disbenefits
(en.wikipedia.org/wiki/Cost-benefit_analysis) which are to be considered
to acquire the B/C ratio. (It’s difficult to reach agreement on the economic
impacts of benefits and disbenefits for public sector projects.)
b. Results may depend upon viewpoints that define costs and benefits
c. Public Sector Projects do not have “profits” per se. Thus, it can be
controversial in nature
In the funding aspect:
 Generally low interest charges
 Public entities do not pay taxes
 Project investments basically backed by public agencies
 Cost-sharing arrangements often exist
  Less perceived risk with public projects
10. Application of depreciation

Depreciation is the reduction in the value of an asset due to usage, passage

of time, wear and tear, technological outdating or obsolescence, depletion or
other such factors.

Depreciation is applicable to most types of tangible property (except, land),

such as buildings, machinery, vehicles, furniture, and equipment are depreciable.
Likewise, certain intangible property, such as patents, copyrights, and computer
software is depreciable.
Reference: http://www.irs.treas.gov/businesses/small/article/0,,id=137026,00.html

11. Among the 3 economic environments, what is the most ideal to you?

Personally, among the three economic environments, the most ideal to me is

the producers since producers are hypothesized to be profit-maximizers,
meaning that they attempt to produce the amount of goods that will bring them
the highest profit. Supply is typically represented as a directly proportional
relation between price and quantity supplied (other things unchanged). In other
words, the higher the price at which the good can be sold, the more of it
producers will supply. The higher price makes it profitable to increase production.
At a price below equilibrium, there is a shortage of quantity supplied compared to
quantity demanded. This pulls the price up. At a price above equilibrium, there is
a surplus of quantity supplied compared to quantity demanded. This pushes the
price down. The model of supply and demand predicts that for given supply and
demand curves, price and quantity will stabilize at the price that makes quantity
supplied equal to quantity demanded. This is at the intersection of the two curves
in the graph above, market equilibrium.
 References: http://www.enviroliteracy.org/subcategory.php/12.html
en.wikipedia.org/wiki/Economics
12. Explain the elasticity of demand.

Elasticity of demand is an important variation on the concept of demand.

Demand can be classified as elastic, inelastic or unitary. An elastic demand is
one in which the change in quantity demanded due to a change in price is large.
An inelastic demand is one in which the change in quantity demanded due to a
change in price is small.

Elasticity of demand is illustrated above. Note that a change in price results

in a large change in quantity demanded. An example of products with an elastic
demand is consumer durables. These are items that are purchased infrequently,
like a washing machine or an automobile, and can be postponed if price rises.
For example, automobile rebates have been very successful in increasing
automobile sales by reducing price.

Close substitutes for a product affect the elasticity of demand. It another

product can easily be substituted for your product, consumers will quickly switch
to the other product if the price of your product rises or the price of the other
product declines. For example, beef, pork and poultry are all meat products.
The declining price of poultry in recent years has caused the consumption of
poultry to increase, at the expense of beef and pork. So products with close
substitutes tend to have elastic demand.

Reference: www.agmrc.org/agmrc/business/gettingstarted/elasticityofdemand.htm
 The Role of Engineering Economy in the Fiscal Crisis of the Country

A country faces fiscal crisis when the government is too much in debt.
Basically, the solution is for the government to increase revenue by raising taxes
or to reduce spending. How would engineering economy help then regarding the
fiscal crisis of the country as to helping the government increase revenues or
reduce spending?

Engineering practitioners, as thoroughly trained by engineering economy

curriculum, can be also considered as potential effective businessmen in the
future or they skills may be utilized to make a certain business effectively work
and sustain. By then, it contributes to the government in one way or another.

Engineers seek solutions to problems. Thus, engineering economy can be

a tool to solve problems on the financial aspect of the country. How? That would
happen when a person who has the sufficient knowledge of engineering
economy is employed in the government and is tasked to do decision-makings
which are related to finance.

Individuals, particularly engineers and the practitioners, who are

acquainted of engineering economy, are effective in selecting most appropriate
and feasible among alternatives given since they are trained to think critically and
rationally. Through it then, future problems in all aspects are certainly avoided
because they have been anticipated already by these individuals.

Truly, learning the essentials of engineering economy is of a great help to

the economy of the country, though the particular contribution of engineers and
practitioners is often unnoticed. I am certain enough, that if our government
agencies, specifically the Department of Finance, will be run by engineers,
problems on debts and other financial matters, will be minimized and soon,
eliminated.
Engineering Economy: A Tool in my Financial Management

As a student, being dependent still to parents’ financial support, it is of a

significant consideration to manage and spend my money properly in order not to
run out of budget. Luckily, I am living with my parents in our home. Anytime I
need some money, I could easily ask them. To those who are living in boarding
houses, they are forced to do stricter financial management on their own.

Studying and learning engineering economy may be boring as

experienced by many engineering practitioners. Truly, it is. Yet, learning the real
core of engineering economy, it certainly helps a person to be wise in decision
making. In dealing with financial problems, developing alternatives as learned
would help me conduct proper study and investigation so as to further solve
them. Practicality is also learned in engineering economy, and it should be
considered in our daily living. In choosing between two or more items to buy,
what I learned should be used so I won’t regret on the product I bought, granting
it is worth the price.

Critical thinking and analysis as also taught in the subject, prepares me for
applying such in different situations that may arise and would need logical
thinking.

Since in the world today, people do lots of various things just to make
money, I, who have learned engineering economy, am somehow assured that I
would not be fooled by their strategies since I have learned dealing such in my
engineering economy subject.
 In my own too, I can then build a small business, which is certainly
feasible, even when I am still studying because, what I learned is quite enough
for me to earn money, rest assured, the business is truly feasible.
 Submitted to:

ENGR. PROSPERO R. CACAYAN

Instructor

Submitted by:

Tabungao, joe randy b.