ASSIGNMENT 1: ENGINEERING ECONOMICS (BEE-9) MARKS: 70(15%)

INSTRUCTIONS

➢ SUBMIT ASSIGNMENT IN NEXT WEEK’S LECTURE (18th Feb, 2020)

➢ ASSIGNMENT SHOULD BE IN PRINT FORM ONLY.
➢ PRINT THE ASSIGNMENT (Back-to-Back) AND ANSWER ON THE SAME.

STUDENT NAME: Gorav Kumar REG.NO.211873 SEC: C

Q-1 Answer the Following with brief justification: (16)

The three economic criteria for choosing the best alternative are minimize input, maximize
output, and maximize the difference between output and input.
For each of the following situations, what is the appropriate economic criterion?

(a) A manufacturer of plastic drafting triangles can sell all the triangles he can produce at a fixed
price. As he increases production, his unit costs increase as a result of overtime pay and so forth.
The manufacturer's criterion should be maximizing output.
The manufacturer should think about how to maximize the output instead of minimizing the cost.
So, he can sell more units being produced at a fixed price.

(b) An architectural and engineering firm has been awarded the contract to design a wharf for a
Petroleum company for a fixed sum of money. The engineering firm's criterion should be
maximizing the output.
The engineering firm's criterion should be to maximize the output as the input has already been
fixed to a certain value.

(c) A book publisher is about to set the list price (retail price) on a textbook. The choice of a low
list price would mean less advertising than would be used for a higher list price. The amount of
advertising will affect the number of copies sold. The publisher's criterion should be maximize
the difference between output and input.
Here we can change both the input and output. So, the publisher should select the price such that
the number of copies sold and the price of the text book gives him the maximum profit.

(d) At an auction of antiques, a bidder for a particular porcelain statue would be trying to
minimize input.
The output in this situation remains constant so the bidder should be aiming to minimize the input.

(e) The engineering school held a raffle of an automobile with tickets selling for 50 cents each or
three for $1. When the students were selling tickets, they noted that many people had trouble
deciding whether to buy one or three tickets. This indicates the buyers' criterion was maximize
the difference between output and input.
The trouble in decision making shows the buyer neither wanted to maximize the output nor
minimize the input but to maximize the profit.

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 (f) A student organization bought a soft-drink machine for use in a student area. There was
Considerable discussion over whether they should set the machine to charge 50cents, 75cents,
or $1 per drink. The organization recognized that the number of soft drinks sold would depend
on the price charged. Eventually the decision was made to charge 75cents. Their criterion was
maximize the difference between output and input.
The student organization wanted to sell maximum number of soft drinks that’s why they decided
to charge 75 cents to achieve maximum profit.

(g) In many cities, grocery stores find that their sales are much greater on days when they have
advertised their special bargains. However, the advertised special prices do not appear to
increase the total physical volume of groceries sold by a store. This leads us to conclude that
many shoppers' criterion is minimize input.
The goal of shop keeper’s sale is fixed, but his priority should be to minimize the input.

(h) A recently graduated engineer has decided to return to school in the evenings to obtain a
master's degree. He feels it should be accomplished in a manner that will allow him the maximum
amount of time for his regular day job plus time for recreation. In working for the degree, he will
minimize input.
He needs to minimize the input (the time he is investing in the degree) and maximize the output
(the time he is investing in job)

Q-2 Identify the alternatives, outcomes, criteria, and process for the selection of your
college major? Did you make the best choice for you? (08)

Alternatives: Computer science, Mechanical engineering, BBA, ACF, Software engineering

Outcomes: To get the degree that results in better job opportunities and better lifestyle

Criteria: Minimizing the input i.e. the finances and maximizing the output i.e. job opportunities.

Process: Search the opportunities and the data related to different fields in which pros and cons
of each should be listed and then choose the best one according to the priority.

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Q-3 Venus Computer can produce 23,000 personal computers a year on its daytime shift. The
fixed manufacturing costs per year are $2 million and the total labor cost is $9,109,000. To
increase its production to 46,000 computers per year, Venus is considering adding a second shift.
The unit labor cost for the second shift would be 25% higher than the day shift, but the total fixed
manufacturing costs would increase only to $2.4 million from $2 million. (06)
(a) Compute the unit manufacturing cost for the daytime shift.
(b) Would adding a second shift increase or decrease the unit manufacturing cost at the
plant?

(a)
(2 × 106 ) + (9,109,000)
𝑼𝒏𝒊𝒕 𝑴𝒂𝒏𝒖𝒇𝒂𝒄𝒕𝒖𝒓𝒊𝒏𝒈 𝑪𝒐𝒔𝒕 = 𝑼𝒅 =
23,000
Ud = $483

(b)
𝑼𝒏𝒊𝒕 𝑴𝒂𝒏𝒖𝒇𝒂𝒄𝒕𝒖𝒓𝒊𝒏𝒈 𝑪𝒐𝒔𝒕 𝒂𝒇𝒕𝒆𝒓 𝒂𝒅𝒅𝒊𝒏𝒈 𝒐𝒏𝒆 𝒎𝒐𝒓𝒆 𝒔𝒉𝒊𝒇𝒕 (day and night)
(2.4 × 106 ) + (9,109,000 × 1.25) + (9,109,000)
𝑼𝒅+𝒏 =
46,000
𝑼𝒅+𝒏 = $497.723

𝑰𝒏𝒄𝒓𝒆𝒂𝒔𝒆 𝒊𝒏 𝑼𝒏𝒊𝒕 𝑴𝒂𝒏𝒖𝒇𝒂𝒄𝒕𝒖𝒓𝒊𝒏𝒈 𝑪𝒐𝒔𝒕 = 𝑼𝒅+𝒏 − 𝑼𝒅

𝑼𝒅+𝒏 − 𝑼𝒅 = 497.723 − 483 = $14.723

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Q-4 A privately owned summer camp for youngsters has the following data for a
12-weeksession: (09)

Charge per camper $120 per week

Fixed costs $48,000 per session
Variable cost per camper $80 per week
Capacity 200 campers

(a) Develop the mathematical relationships for total cost and total revenue.
(b) What is the total number of campers that will allow the camp to just break even?
(c) What is the profit or loss for the 12-week session if the camp operates at 80% capacity?

(a)
let n be total number of campers
Total Cost = Ctotal = $48,000+($80×12×n)
Ctotal = $(48000+960n), where n ≤ 𝟐𝟎𝟎
Total Revenue = Rtotal =$120n×12
Rtotal = $1440n, where n ≤ 𝟐𝟎𝟎

(b)
For the camp to break even
The revenue must be equals to the cost i.e.,
Ctotal = Rtotal
48000+960n=1440n
n = 100

(c)
80% capacity mean n=160, Revenue for n=160 will be
R = 1440(160)
R = $230,400
and Cost for n=160 will be
C = 48,000+960(160)
C = $201,600

So, the profit will be Revenue – Cost

R – C = $230,400 - $201,600
Profit = $28,800

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Q-5 A small company manufactures a certain product. Variable costs are $20 per unit and
fixed costs are $10,875. The price-demand relationship for this product is P = -0.25D + 250, where
P is the unit sales price of the product and D is the annual demand. Use the data (and helpful
hints) that follow to work out answers to parts (a)-(e). (10)

Given:
Total cost = Fixed cost + Variable cost, Revenue=Demand x Price,
Profit = Revenue - Total cost
Set up your graph with dollars on the y axis, (between 0 and $70,000) and, on the x axis, demand
D: (units produced or sold), between 0 and 1000 units. (11)
(a) Develop the equations for total cost and total revenue.
(b) Find the breakeven quantity (in terms of profit and loss) for the product.
(c) What profit would the company obtain by maximizing its total revenue?
(d) What is the company's maximum possible profit?
(e) Neatly graph the solutions from parts (a), (b), (c), and (d).

Answer Q-5 on the next page:

Ans.5
(a)
let n be the number of Units produced then
Total Cost = Ctotal = 10,875+20n
Total Revenue = Rtotal = D ( -0.25D+250)
Rtotal = -0.25D2 + 250D

(b)
For break even let the demand be equals to units produced i.e.
n=D
For break even, we know Cost is equal to Revenue then,
Rtotal = Ctotal
10,875 + 20n = -0.25n2 +250D
Solving the above quadratic equation, we get two breakeven points i.e.
n = D = 50 and n = D = 870

(c)
To calculate the maximum Revenue, we must take the derivative of the Revenue and put that
equals to 0 I.e.,
𝒅(𝑹𝒕𝒐𝒕𝒂𝒍 )
= −0.5𝐷 + 250
𝒅𝑫
0.5𝐷 = 250
𝐷 = 500
For maximum revenue D=500,
Rmax = -0.25(500)2 +250(500)
Rmax = $62,500

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 Cost for n=500
Cn=500 = 10,875 + 20(500)
Cn=500 = $20,875

Profit will be Revenue – Cost

Profit = Rmax – Cn=500 = 62,500 – 20,875
Profit = $41,625

(d)
Profit will be Revenue – Cost
Profit = Rtotal – Ctotal
Profit = -0.25n2 + 250n – (10,875+20n)
Profit = -0.25n2 + 230n – 10,875
For maximum profit, we need to take the derivative of above equation
𝒅(𝒑𝒓𝒐𝒇𝒊𝒕)
= −0.5𝑛 + 230
𝒅𝒏
Put above equation equals to 0 to get the value of n
n = 460
For n = 460 we get maximum profit,
Profitmax = -0.25(460)2+230(460)-10,875
Profitmax = $42,025

(e)

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Q-6 Suppose that we are studying the market for cornflakes. Suppose further that during the
summer of 1999 the following events both occur: (1) The weather in the farm belt is
extraordinarily hot, with very little rain; and (2) A new research study is published and widely
disseminated which proves that eating cornflakes makes people healthier and adds years to
their lives.
(10)

(a) Show how the two events described above will change this market.
(b) Can you say what will happen to the equilibrium price in this market? Please explain
your answer.
(c) Can you say what will happen to the equilibrium quantity in this market? Please explain
your answer.
Ans.6:
a) Extreme weather conditions will decrease the production of cornflakes resulting in decrease
in supply and increase in price and hence the demand will decrease. Second event will increase
the demand as well as price.
b) Both the events, results in increase in price. This means equilibrium price will rise and this will
create the shortage of cornflakes in the market.
c) The market equilibrium will rise, as the demand has risen and the supply has fallen. Resulting
in shortage of cornflakes in the market.