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Introduction to Engineering Economics

Engineering Economics applies economic techniques to evaluate engineering alternatives and supports rational decision-making by comparing their economic merits. It is important for capital investment decisions, project evaluations, and optimizing resource utilization. Key concepts include the Time Value of Money, Cost-Benefit Analysis, and various types of costs such as fixed, variable, and sunk costs.

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Ayana Berako
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5 views3 pages

Introduction to Engineering Economics

Engineering Economics applies economic techniques to evaluate engineering alternatives and supports rational decision-making by comparing their economic merits. It is important for capital investment decisions, project evaluations, and optimizing resource utilization. Key concepts include the Time Value of Money, Cost-Benefit Analysis, and various types of costs such as fixed, variable, and sunk costs.

Uploaded by

Ayana Berako
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Engineering Economics - Chapter 1: Introduction

1.1 What is Engineering Economics?

Engineering Economics is the application of economic techniques to evaluate engineering

alternatives.

It supports rational decision-making by comparing the economic merits of different solutions.

Definition:

"Engineering economics deals with the systematic evaluation of the economic merits of proposed

solutions to engineering problems."

1.2 Importance in Engineering

- Assists in capital investment decisions

- Evaluates project alternatives

- Optimizes resource utilization

- Measures economic feasibility

1.3 Objectives of Engineering Economics

- Understand economic consequences of engineering decisions

- Select the best alternative among competing choices

- Maximize returns or minimize costs

1.4 Key Concepts

- Time Value of Money

- Cost-Benefit Analysis

- Interest and Discounting


- Economic Life and Depreciation

- Inflation and Deflation

1.5 Types of Costs

- Fixed Costs: Costs that do not vary with output (e.g., rent)

- Variable Costs: Costs that vary directly with output (e.g., materials)

- Marginal Cost: Cost of producing one additional unit

- Sunk Cost: Past cost that cannot be recovered

1.6 Example Problem:

An engineer is choosing between two machines.

- Machine A costs $10,000 and saves $2,000 annually.

- Machine B costs $12,000 and saves $2,500 annually.

Decision tools such as Present Worth or Payback Period (discussed in Chapter 2) are used to

evaluate.

Quiz Questions:

Q1. What does engineering economics primarily deal with?

A. Financial accounting

B. Technical specifications

C. Economic evaluation of engineering decisions <- Correct

D. Production scheduling

Q2. Which cost is never recovered once spent?

A. Sunk Cost <- Correct


B. Fixed Cost

C. Variable Cost

D. Marginal Cost

--- End of Chapter 1 ---

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