UNIT - I

INTRODUCTION TO ECONOMICS

WHAT IS ECONOMICS?
Economics is a science that deals with
production of goods , service , and
distributing the same to human for their
welfare and consumption.

GOALS OF ECONOMICS
A high level of employment
Price stability
Efficiency ( technical , economic )
An equitable distribution of income
Growth

Flow in an Economy
Households and Business are the two
major entities in an economy.
Business organisation use land, labour
and capital of the households to produce
consumer goods and service.
The household in turns payment for
receiving the consumer goods and service
Thus a cyclic process exit between the
two enitities.

LAW OF SUPPLY AND DEMAND

When there is
decrease in the price
of a product the
demand of the
product increases and
its supply decreases

LAW OF SUPPLY AND DEMAND

The point of
intersection of the
supply curve and
demand curve is
known as equilibrium
point.
At this point the price,
the supply, and
demand remain the
same.

FACTOR INFLUENCING THE DEMAND

INCOME OF THE PEOPLE
PRICES OF THE RELATED GOODS
TASTE OF THE CONSUMER

FACTORS INFLUENCING THE SUPPLY

COST OF THE INPUT
TECHNOLOGY
WEATHER
PRICES OF THE RELATED GOODS

DEFINITION OF ENGINEERING ECONOMICS

Engineering economics deals with the

methods that enable one to take economic
decision towards minimizing cost and or
maximizing benefits to business
organizations.

Scope of Engineering Economics

Provides base for understanding present
worth and future worth.
Base for economic analysis.
Base for R.O.I
Make or Buy decision
Inventory control

ELEMENTS OF THE COST

THE TWO TYPES OF COST ARE:
i. VARIABLE COST
ii. OVERHEAD COST.

VARIABLE COST
The variable cost are those which varies
with the volume of production.
Variable cost is classified into
a. Direct material cost
b. Direct labour cost
c. Direct expenses

Direct labour cost - amount paid as wages

to the labour involved in the production.
Direct material cost - cost of the material
used in production of the product
Direct expenses expenses that vary with
the volume of production.

OVERHEAD COST
It is the sum of administrative overhead,
selling overheads, distribution overhead.
Administrative overhead cost involved in
the administrating the business
Selling overhead cost involved in the
promotional activity and sales forces
Distribution overhead total cost of
shipping the item from factory to
consumer.

OTHER TYPES OF COST

MARGINAL COST
Marginal cost is the cost of producing an
additional unit of that product.
Eg. Let the cost of producing 20 units of
product be Rs.10000 and the cost of
producing 21 units of the same product be
Rs.10045. Then the marginal cost is
Rs.45.

Marginal Revenue
Marginal revenue of a product is the
incremental revenue of selling an
additional unit of that product.
Eg. Let the revenue selling 20 units of a
product be Rs.15000 and the revenue of
selling 21 unit of the same product be
Rs.15085. Then marginal revenue is
Rs.85

Sunk cost
Sunk cost is the past cost of an equipments
and asset.
Eg. If an equipments is bought for Rs.100000
and been sold after three years then the
value of equipment is not as the same price.
Here the Sunk cost is Rs.100000.

Opportunity cost
Cost involved in not choosing the best
alternatives is called as opportunity cost.
Eg. Let a person invested a sum of Rs.50000 in
shares. The annual return is Rs.7500 then he
have 57500 at the end of the year. If the same
been invested in a bank paying 18% interest he
would have got Rs.9000 as interest and
Rs.59000 at the end. So the loss of money or
the opportunity cost is 1500 (9000-7500)

Formula from break even analysis

Profit = sales (fixed cost + variable cost)
Fixed cost
Break even quantity =
selling price variable

cost

Break even sales = (F.C / S.P.- V.C) * selling price/unit

Contribution = sales variable costs
Margin of sales = actual sales break even sales

P/v RATIO ANALYSIS

P/v ratio = (sales Variable cost )/ sales
BEP = (fixed cost ) / (P/v Ratio)
M.S.= Profit / (P/v Ratio)
Contribution = sales - variable costs

Alpha Associates has the following details:

Fixed cost = Rs. 20,00,000
Variable cost per unit = Rs. 100
Selling price per unit = Rs. 200
Find
The break-even sales quantity,
The break-even sales
If the actual production quantity is 60,000,
find (i) contribution; and (ii) margin of safety by
all methods

Consider the following data of a company for the

year 1998;
Sales = Rs. 80,000
Fixed cost = Rs. 15,000
Variable cost = 35,000
Find the following:
Contribution
Profit
BEP
M.S.

TYPES OF EFFICENCY
Efficiency of the system is the ratio
between the output to input.
Efficiency is classified into two types
Technical efficiency
Economic efficiency

Technical efficency

Technical efficency = heat equivalent of

mechanical energy
produced
heat equivalent of fuel used

ECONOMIC EFFICENCY
WORTH
ECONOMIC EFFICENCY=
COST
Worth revenue generated by operating the
business.
Cost is the annual expense incurred in
carrying the business

ECONOMICS ANALYSIS
Economics analysis is performed in day to
day life for decision making
For example an industry sourcing for raw
materials from nearby place or far away
place the following facts are been noted
Price of raw material
Transportation cost
Availability of the raw material
Quality of the raw material

EXAMPLE FOR SIMPLE ECONOMIC ANALYSIS

FOR AN INDUSTRY AS A WHOLE

Material selection for product
Design selection for product
Building material selection (transportation
cost)
Process planning

MATERIAL SELECTION FOR PRODUCT

In the design of a jet engine part, the designer
has a choice of specifying either an aluminium
alloy casting or a steel casting. Either material
will provide equal service, but the aluminium
casting will weigh 1.2 kg as compared with 1.35
kg for the steel casting.
The aluminium can be cast for Rs. 80.00 per
kg. And the steel one for Rs. 35.00 per kg. The
cost of machining per unit 150.00 for aluminium
and Rs. 170.00 for steel. Every kilogram of
excess weight is associated with a penalty of Rs.
1,300 due to increased fuel consumption. Which
material should be specified and what is the
economic advantage of the selection per unit?

DESIGN OF SELECTION FOR PRODUCT

Two alternatives are under consideration for tapered
fastening pin. Either design will serve the purpose
and will involve the same material and manufacturing
cost except for the lathe and grinder operations.
Design A will require 16 hours of lathe time and 4.5
hours of grinder time per 1,000 units. Design B will
require 7 hours of lathe time and 12 hours of grinder
time per 1,000 units. The operating cost of the lathe
including labour is Rs. 200 per hour. The operating
cost of the grinder including labour is Rs. 150 per
hour. Which design should be adopted if 1,00,000
units are required per year and what is the economic
advantage of the best alternative?

BUILDING MATERIAL SELECTION PROBLEM

In the design of buildings to be constructed in Alpha State, the
designer is considering the type of window frame to specify. Either
steel or aluminum window frames will satisfy the design criteria.
Because of the remote location of the building site and lack of
building materials in Alpha state, the window frames will be
purchased in Beta State and transported for a distance of 2,500 km to
the site. The price of window frames of the type required is Rs. 1,000
each for steel frames and Rs. 1,500 each for aluminium frames. The
weight of steel window frames is 75 kg each and that of aluminium
window frame is 28 kg each. The shipping rate is Re 1 per kg per 100
km.
Which design should be specified and what is the economic
advantage of the selection?

Top Most Firing IT Companies in India!

1) IBM --- Right now this is the most firing
company for IT professionals. In the last 6
months, this company has fired nearly 20% of
their employees because of BG check and
performance issues. This is the most insecure
company from an IT professional's point of view.
They don't have any strategic plans at HR
policies regarding employee security. No
appraisals (maximum 10%).

Top Most Firing IT Companies in India!

2) TCS --- Previously its an government IT
Company . Now a days TCS also
becoming firing IT company. Recently they
fired on 500 people.( the people below 2
years of experience) and TCS lost so many
projects recently( especially British
Telecom Projects).

Top Most Firing IT Companies in India!

3) Accenture --- This is second top most firing
company. The firing rate is around 5%. This
depends upon outsourced projects; they have a
unique system where Accenture development
centers around the world bid for a project
coming into the company. Currently Philippines
centre is taking the cake and the Indian centers
are in a firing mode.

Top Most Firing IT Companies in India!

4) WIPRO --- Firing people with very frequent back

ground checks and firing them with out even
experience letters and relieving letters (will
mention as terminated from services)but will
promise the employees that they will retain them.
After the project is over they will fire away. Will
threaten of criminal cases against such employees
if they oppose the move and has also filed against
some.

Top Most Firing IT Companies in India!

5) CTS --- Has a steady firing policy
(checking the Educational background
and previous employment and also
employee performance in work). In a
Recent HCL walk-in, around 50%
attendees were from this company. Sadly
the I-pods have not helped them.

Top Most Firing IT Companies in India!

5) CSC --- Excellent package but fires folks
in Background check and those on bench
regularly. Recently fired 400+ employees
from its subsidiary Covansys.

Top Most Firing IT Companies in India!

6) Intel --- Recently joined the league.
Running in heavy losses, hence firing
3000 employees in the Bangalore center
in a phased out manner.