Dr. A. Q.

Khan Institute of Computer Sciences & Information

Program: BSCE-VIII Semester: Spring 2019

Note: Thoroughly study the cases and answer to the questions asked.

Q. No. 1: Explain why the subject of engineering economics is important to the practicing engineer?
Q. No. 2: During your first month as an employee at Greenfield Industries (a large drill-bit manufacturer),
you are asked to evaluate alternatives for producing a newly designed drill bit on a turning machine. Your
boss’ memorandum to you has practically no information about what the alternatives are and what criteria
should be used. The same task was posed to a previous employee who could not finish the analysis, but she
has given you the following information: Anold turning machine valued at $350,000 exists (in the
warehouse) that can be modified for the new drill bit. The in-house technicians have given an estimate of
$40,000 to modify this machine, and they assure you that they will have the machine ready before the
projected start date (although they have never done any modifications of this type). It is hoped that the old
turning machine will be able to meet production requirements at full capacity. An outside company,
McDonald Inc., made the machine seven years ago and can easily do the same modifications for $60,000.
The cooling system used for this machine is not environmentally safe and would require some disposal
costs. McDonald Inc. has offered to build a new turning machine with more environmental safeguards and
higher capacity for a price of $450,000. McDonald Inc. has promised this machine before the startup date
and is willing to pay any late costs. Your company has $100,000 set aside for the start-up of the new product
line of drill bits. For this situation,
a. Define the problem.
b. List key assumptions.
c. List alternatives facing Greenfield Industries.
d. Select a criterion for evaluation of alternatives.
e. Introduce risk into this situation.
f. Discuss how nonmonetary considerations may impact the selection.
g. Describe how a postaudit could be performed.
Q. No. 3: Consider this situation faced by a first-semester senior in civil engineering who is exhausted from
extensive job interviewing and penniless from excessive partying. Mary’s impulse is to accept immediately
a highly attractive job offer to work in her brother’s successful manufacturing company. She would then be
able to relax for a year or two, save some money, and then return to college to complete her senior year and
graduate. Mary is cautious about this impulsive desire, because it may lead to no college degree at all!
a. Develop at least two formulations for Mary’s problem.
b. Identify feasible solutions for each problem formulation in Part (a). Be creative!

Q. No. 4: Storm doors have been installed on 50% of all homes in Anytown, USA. The remaining
50% of homeowners without storm doors think they may have a problem that a storm door could solve, but
they’re not sure. Use Activities 1, 2, and 3 in the engineering design process (Table 1-1 on book) to help
these homeowners systematically think through the definition of their need (Activity 1), a formal statement
of their problem (Activity 2), and the generation of alternatives (Activity 3). The design process begins in
Figure 1 with a statement of need and terminates with the specifications for a means of fulfilling that need.

Figure 1
Q. No. 5: You have been invited by friends to fly to Germany for Octoberfest next year. For international
travel, you apply for a passport that costs $97 and is valid for 10 years. After you receive your passport,
your travel companions decide to cancel the trip because of “insufficient funds.” You decide to also cancel
your travel plans because traveling alone is no fun. Is your passport expense a sunk cost or an opportunity
cost? Explain your answer.

Q. No. 6: A friend of yours has been thinking about quitting his regular day job and going into business for
himself. He currently makes $60,000 per year as an employee of the Ajax Company, and he anticipates no
raise for at least another year. He believes he can make $200,000 as an independent consultant in six-sigma
“black belt” training for large corporations. His start-up expenses are expected to be $120,000 over the next
year. If he decides to keep his current job, what is the expected opportunity cost of this decision? Attempt
to balance the pros and cons of the option that your friend is turning away from.

Q. No. 7: A large wood products company is negotiating a contract to sell plywood overseas. The fixed
cost that can be allocated to the production of plywood is $800,000 per month. The variable cost per
thousand board feet is $155.50. The price charged will be determined by 𝑝 = $600 − (0.5)𝐷 per 1,000
board feet.
a. For this situation, determine the optimal monthly sales volume for this product and calculate the
profit (or loss) at the optimal volume.
b. What is the domain of profitable demand during a month?

Q. No. 8: A company produces and sells a consumer product and is able to control the demand for the
product by varying the selling price. The approximate relationship between price and demand is:
2,700 5,000
𝑝 = $38 + − , 𝑓𝑜𝑟 𝐷 > 1
𝐷 𝐷2
where 𝑝 is the price per unit in dollars and 𝐷 is the demand per month. The company is seeking to maximize
its profit. The fixed cost is $1,000 per month and the variable cost (𝑐𝑣 ) is $40 per unit.