M1-CPR

CLASS PRODUCED REVIEWER

 Economics - Economics is a social science that delves into the production, distribution, and consumption
of goods and services. It analyzes how individuals and societies allocate limited resources to meet their
desires and requirements. Furthermore, economics studies the impact of different policies and institutions
on human welfare and behavior.
 Engineering Economy - is a branch of economics that utilizes economic principles to assess engineering
projects. It involves comparing the costs and benefits of various design options and problem-solving solutions
over the lifespan of a project. Additionally, the engineering economy considers the time value of money,
the decision-making process, and the contextual and environmental factors that impact engineering
decisions. Eugene L. Grant, the father of engineering economy, wrote "Principles of Engineering
Economy" in 1930. The book discussed short-term investment evaluation and conventional
comparisons of long-term investments based on compound interest calculations. Grant also developed
engineering economy techniques such as present worth, annual worth, future worth, capitalized worth,
benefit-cost ratio, payback period, and rate of return.
 Engineering Economic analysis - a process that involves using engineering economy techniques to
assess the economic feasibility and attractiveness of engineering projects. This analysis requires
estimating the project's cash flows, costs, revenues, and profits over its useful life and applying various
methods to determine its net present value, internal rate of return, benefit-cost ratio, payback period, and
other indicators of economic performance. The main purpose of engineering economic analysis is to
help engineers and managers select the best alternative among competing options and justify their
decisions to stakeholders. Eugene L. Grant is widely recognized as the father of engineering economic analysis.
He held a professorship in industrial engineering at Stanford University and was an eminent figure in engineering
education. Through his work and teachings, he influenced several generations of engineers and economists.
 Consumer Goods/Services - are products and services that are intended for personal, family, or
household use. These can be tangible items like clothing, appliances, and automobiles or intangible
services such as legal advice, consulting, and house cleaning. Additionally, consumer goods and services
 may also comprise personal investment and business opportunities, courses of instruction or training,
and consumer fireworks.
 Producer Goods/Services - are essential for businesses to produce other goods or provide services.
Producers are the individuals or companies that manufacture or cultivate products and offer services.
Examples of producer goods are machinery, tools, raw materials, production and service parts,
components, assemblies, and accessories, as well as tooling, design, engineering, or other services.
 Necessities - refer to goods and services that are crucial for sustaining life and ensuring the well-being
of individuals, including food, water, shelter, clothing, healthcare, and education. Additionally, necessities
can also include goods and services that are mandatory under law or societal norms, such as taxes,
insurance, and sanitation. It is important to note that necessities have a low elasticity of demand,
indicating that consumers are less likely to alter their consumption patterns in response to changes in
price or income.
 Luxuries - goods and services are non-essential items that add pleasure to our lives. People enjoy
luxuries and are willing to pay a premium for them. Examples of luxury goods and services include
jewelry, perfume, cosmetics, fine dining, travel, entertainment, art, fashion, and sports. Luxuries have a
high elasticity of demand, meaning that consumers are highly responsive to changes in price or
income.
 Demand - refers to the amount of a particular product or service that consumers are willing and able to
buy at a certain price and time. Several factors, such as personal preferences, income, the prices of
other goods and services, future expectations, and population, can influence demand. The demand
curve illustrates the relationship between the price of a product or service and the quantity demanded
while keeping all other factors constant.
 Supply - refers to the amount of a particular good or service that producers are willing and able to sell
within a given time period and at a specific price. Supply is influenced by a variety of factors, including
production costs, advances in technology, the prices of competing goods and services, the expectations
of producers, and the number of sellers in the market. This relationship between price and quantity
supplied is represented by a supply curve, which holds all other factors constant."
 Elastic Demand - refers to the degree of responsiveness of consumers to a change in price. When
demand is elastic, even a slight increase in price can cause a significant decrease in the quantity
demanded, and vice versa. The measurement of demand elasticity is derived by dividing the percentage
change in quantity demanded by the percentage change in price. If the resulting ratio is greater than
one, it indicates that demand is elastic.
 Inelastic Demand - When the price of a good or service changes, there are some cases where the
demand for that good or service does not change at the same rate. This happens when the percentage
change in demand is less than the percentage change in price. This usually takes place with goods or
services that are considered essential, or ones that don't have many alternatives available.
 Unitary Elasticity - refers to a situation where a change in one variable results in a proportional change
in another variable. For instance, if the price of a product increases by 10%, and the quantity demanded
also increases by 10%, then the product's demand is unitary elastic. The term "unit elasticity" is often
used to describe demand or supply curves that are perfectly responsive to changes in price, with both
variables increasing or decreasing proportionally. This concept is closely related to elasticity, which
measures the sensitivity of one variable to changes in another variable.

 Perfect Competition – a market structure characterized by numerous firms offering identical products.
 Due to the freedom of entry and exit, as well as perfect information, firms generate normal profits, and
competitive pressure keeps prices low.
 Monopoly - occurs when a single seller or producer dominates a market, discouraging competition and
limiting consumer choice.
 Oligopoly - a market structure where a small number of large firms dominate a specific market
segment. These firms offer similar products or services, so they control prices rather than the market.
They achieve this through collusion, which leads to higher prices and fewer product choices for
customers. Oligopoly encourages existing brands to improve product quality and originality by instilling a
sense of rivalry.
 Law of Supply and Demand - is influenced by the relationship between its supply and demand. This is
know as the law of supply and demand, which is based on two economic principles: the law of supply
and the law of demand. According to the law of supply, when the prices of a commodity increase, its
supply also increases. On the other hand, the law of demand states that when the prices of a
commodity increase, its demand decreases. Conversely, if the prices of a commodity decrease, then its
supply decreases, whereas its demand increases.
 Law of Diminishing Returns - an economic theory that predicts a decrease in output per unit of input
when an additional factor of production is added after reaching the optimal level of capacity. For
instance, a company employs workers in a factory to manufacture its products and eventually reaches
an optimal level of operation. Beyond this point, adding more workers without changing other production
factors will result in less efficient operations. The law of diminishing returns is closely related to the
concept of diminishing marginal utility.
 Valuation - refers to the act of evaluating the value or worth of something by a professional appraiser. It
is a process used to determine the fair value of a business, asset, security, or liability for various
purposes, such as sale, taxation, accounting, or litigation. There are different approaches to valuation,
including market- based, income-based, and asset-based methods.

Functions and Uses of Engineering Economy

1. Analysis of possible investment of capital - Engineering economy enables engineers to evaluate project
costs and benefits and optimize resource allocation.
2. Material management planning - Engineers use engineering economy to manage materials for their
projects.
3. Programming or preliminary design of materials management - Engineers use engineering economy to
optimize material management systems.
4. Purchase and vendor control - Engineers use engineering economy to select and manage project
suppliers and contractors.
5. Sourcing skills and equipment capital expenditure projects - engineering economy assists engineers in
acquiring necessary skills and equipment through financing.

Engineering Economy Techniques

1. Present worth - to compare different alternatives, a useful technique is to evaluate the present value of
their cash flows, using a specified interest rate. The present worth of a cash flow refers to the amount of
money that would have the same value as that cash flow if it was received at the present time.
2. Annual worth - to compare different alternatives, this technique evaluates the equivalent annual value of
their cash flows using a specific interest rate. The annual worth of a cash flow is determined by
calculating the uniform annual amount that would be equivalent to that cash flow over a specified
period of time.
 3. Future worth - when making a decision between different options, this technique compares the value of
their future cash flows. It does this by using a specified interest rate. The future worth of a cash flow is the
amount of money that it would be worth if it happened at a specific future time.
4. Benefit-cost ratio - in order to evaluate different alternatives, this technique compares the present value
of benefits to the present value of costs, using a specified interest rate. The benefit-cost ratio of a cash
flow is calculated by dividing the sum of positive cash flows (benefits) by the sum of negative cash flows
(costs) over a specified period of time.
Engineering Economic Analysis Procedures
1. Problem recognition, formulation, and evaluation - the initial stage of engineering economic analysis.
The engineer identifies the problem or opportunity, defines the objectives and constraints, and
assesses the feasibility and scope of the project.
2. Development of suitable alternatives – in this step, the engineer generates and evaluates different
possible solutions or courses of action for the problem. The alternatives should be technically sound and
economically, environmentally, and socially acceptable.
3. Development of the cash flows for each alternative - engineer estimates cash inflows and outflows over
the planning horizon. These should account for costs, revenues, profits, taxes, depreciation, salvage
value, and relevant factors.
4. Selection of the preferred alternative - engineer selects the best feasible alternative after analyzing and
comparing results. Other factors like risk, uncertainty, and intangible values may also be considered.

Intangible Values
1. Goodwill - refers to the additional value of a business beyond its net tangible assets. This value is a
reflection of the business's reputation, customer base, market share, and potential for future earnings.
Goodwill can be established through mergers and acquisitions, effective advertising, quality customer
service, innovation, and social responsibility.
2. Brand recognition - refers to the degree of consumer familiarity with a brand's name, logo, image, or
slogan. It has the potential to impact customer loyalty, preferences, and purchasing decisions.
3. Trademarks - unique symbols, words, phrases, or signs that serve as an identifier of the source, origin,
or quality of goods or services. They distinguish products and services from those offered by competitors
and help consumers to recognize and trust a brand. A trademark also plays a crucial role in preventing
any confusion or deception in the market.

Costs
1. Direct costs - expenses that can be traced to a specific product, service, or activity. They are usually
variable and include raw materials, direct labor, and direct expenses.
2. Indirect costs - Indirect costs are expenses that cannot be traced to a specific product, service, or
activity. They are often fixed or semi-variable costs and include expenses such as rent, utilities, salaries,
depreciation, and overheads.
3. Standard costs - are predetermined or estimated costs that are based on historical data, industry
benchmarks, or engineering studies. These costs are used to measure and control the actual costs of
production or operation. Some examples of standard costs include standard material cost, standard
labor cost, and standard overhead cost.
4. Opportunity costs - refer to the expenses incurred due to the loss of potential benefits from the next
best alternative, which is not pursued. These costs are not documented in financial records but are
taken into account for economic evaluations. For instance, the income that could have been earned by
investing in a different project is a typical example of an opportunity cost.
Overlapping Costs
1. There are two factors that can increase labor costs, namely overtime and shift work or hiring more
workers.
2. One of the factors that can increase material costs in a project is waste, spoilage or rework. These can
result in the need to purchase additional materials, which can lead to an increase in overall project
expenses.
3. One of the reasons for additional costs may be due to renting, leasing, or purchasing extra equipment.
4. The increased complexity and interdependence lead to additional costs related to coordination and
communication.
5. Increased risk and uncertainty costs due to errors, delays, or failures.

Payments
1. Advance payment - an up-front payment made prior to the delivery or completion of a good or service,
such as a deposit, reservation fee, or pre-order.
2. Deferred payment - refers to a payment made after a good or service is delivered or completed.
Examples include paying with a credit card, a post-dated check, or an invoice.
3. One-time payment - payment made for a single purchase, such as buying a book, paying a bill, or
making a donation.
4. Recurring payment - continuous services or subscriptions such as rent, Netflix, or gym memberships.
5. Installment payment - allows for the purchase to be made in installments over a period of time.
Examples include car payments, mortgages, and student loans.