Engineering Economy

Cover
About the Authors
Contents
Foreword
Preface
Chapter 1: Engineering Economy: A Prologue
	1.1 Consumer and Producer Goods and Services
	1.2 Necessities, Luxuries, and Relation Between Price and Demand
	1.3 Competition or Market Structure
	1.4 Relationship Between Total Revenue and Demand
	1.5 Cost Concepts
	1.6 Relation Between Cost and Volume
	1.7 The Law of Supply and Demand
	1.8 The Law of Diminishing Marginal Returns
	Problems
Chapter 2: Fundamentals of Mathematics and Engineering Economics
	2.1 Introduction
	2.2 Theory of Consumer Behaviour
		2.2.1 Meaning of Utility
		2.2.2 Meaning of Demand
	2.3 Concepts of Elasticity
		2.3.1 Own Price Elasticity
		2.3.2 Determinants of Price Elasticity
		2.3.3 Income Elasticity of Demand
		2.3.4 Cross-Price Elasticity of Demand
		2.3.5 Engel Curve and Income Elasticity
		2.3.6 Relationship Between Price Elasticity and Marginal Revenue
	2.4 Laws of Diminishing Marginal Utility
	2.5 Principle of Equimarginal Utility
	2.6 Indifference Curves (ICs) Theory/Ordinalutility Theory
		2.6.1 Indifference Curves
		2.6.2 Nature of Consumer Preferences
		2.6.3 Indifference Map
	2.7 Rate of Commodity Substitution
		2.7.1 Properties of Ics
		2.7.2 Budget Line
		2.7.3 Consumer’s Equilibrium/Maximization of Utility
		2.7.4 Alternative Method of Utility Maximization
	2.8 Application and Uses of ICs
		2.8.1 Income and Leisure Choice
		2.8.2 Revealed Preference Hypothesis
		2.8.3 Consumer’s Surplus
	Problems
Chapter 3: Elementary Economic Analysis
	3.1 Theory of the Firm
	3.2 Law of Supply
		3.2.1 Concepts of Elasticity of Supply
	3.3 Meaning of Production
		3.3.1 Production Function and Its Types
		3.3.2 General Production Function
		3.3.3 Cobb-Douglas Production Function
		3.3.4 CES Production Function
		3.3.5 Producer’s Equilibrium
	3.4 Concept of Isoquants
	3.5 Marginal Rate of Technical Substitution
	3.6 The Elasticity of Substitution
	3.7 Iso-Cost Line
	3.8 Producer’s Surplus
	3.9 Cost Minimization
		3.9.1 Cost Function for the Cobb-Douglas Technology
		3.9.2 The Cost Function for the Ces Technology
		3.9.3 The Cost Function for the Leontief Technology
		3.9.4 The Cost Function for the Linear Technology
	3.10 Returns to Scale and Returns to Factor
	3.11 Cost Theory and Estimation
		3.11.1 Concept of Costs and Its Types
	3.12 Profits
		3.12.1 Normal Profits
		3.12.2 Economic Profits
		3.12.3 Profit Maximization
	3.13 Market Structure and Degree of Competition
		3.13.1 Perfect Competition
		3.13.2 Monopoly
		3.13.3 Monopolistic Competition
		3.13.4 Oligopoly Models
	Problems
Chapter 4: Interest Formulae and their Applications
	4.1 Introduction
	4.2 Why Return to Capital is Considered?
	4.3 Interest, Interest Rate and Rate of Return
	4.4 Simple Interest
	4.5 Compound Interest
	4.6 The Concept of Equivalence
	4.7 Cash Flow Diagrams
	4.8 Terminology and Notations/Symbols
	4.9 Interest Formula for Discrete Cash Flow and Discrete Compounding
		4.9.1 Interest Formulae Relating Present and Future Equivalent Values of Single Cash Flows
		4.9.2 Interest Formulae Relating a Uniform Series (Annuity) to Its Present and Future Worth
	4.10 Interest Formulae Relating an Arithmetic Gradient Series to Its Present and Annual Worths
		4.10.1 Finding P When Given G
		4.10.2 Finding a When Given G
	4.11 Interest Formulae Relating a Geometric Gradient Series to Its Present and Annual Worth
	4.12 Uniform Series with Beginning-of-Period Cash Flows
	4.13 Deferred Annuities or Shifted Uniform Series
	4.14 Calculations Involving Uniform Series and Randomlyp Laced Single Amounts
	4.15 Calculations of Equivalent Present Worth and Equivalent Annual Worth for Shifted Gradients
	4.16 Calculations of Equivalent Present Worth and Equivalent Annual Worth for Shifted Decreasing Arithmetic Gradients
	4.17 Nominal and Effective Interest Rates
	4.18 Interest Problems with Compounding More Often than Once Per Year
		4.18.1 Single Amounts
		4.18.2 Uniform Series and Gradient Series
		4.18.3 Interest Problems with Uniform Cash Flows Less Often than Compounding Periods
		4.18.4 Interest Problems with Uniform Cash Flows More Often than Compounding Periods
	Problems
Chapter 5: Methods for Making Economy Studies
	5.1 Introduction
	5.2 Basic Methods
	5.3 Present Worth (P.W.) Method
	5.4 Future Worth (F.W.) Method
	5.5 Annual Worth (A.W.) Method
	5.6 Internal Rate of Return (I.R.R.) Method
	5.7 External Rate of Return (E.R.R.) Method
	5.8 Explicit Reinvestment Rate of Return (E.R.R.R.) Method
	5.9 Capitalized Cost Calculation and Analysis
	5.10 Payback (Payout) Method
	Problems
Chapter 6: Selection Among Alternatives
	6.1 Introduction
	6.2 Alternatives Having Identical Disbursements and Lives
	6.3 Alternatives Having Identical Revenues and Different Lives
		6.3.1 Comparisons Using the Repeatability Assumption
		6.3.2 Comparisons Using the Coterminated Assumption
	6.4 Alternatives Having Different Revenues and Identical Lives
	6.5 Alternatives Having Different Revenues and Different Lives
	6.6 Comparison of Alternatives by the Capitalized Worth Method
	6.7 Selection Among Independent Alternatives
	Problems
Chapter 7: Replacement and Retention Decisions
	7.1 Introduction
	7.2 Reasons for Replacement
	7.3 Terminologies Used in Replacement Study
	7.4 Economic Service Life
	7.5 Procedure for Performing Replacement Study
	7.6 Replacement Study Over a Specified Study Period
	Problems
Chapter 8: Depreciation
	8.1 Introduction
	8.2 Depreciation Terminology
	8.3 Methods of Depreciation
		8.3.1 The Straight Line (SL) Method
		8.3.2 The Declining Balance (DB) Method
		8.3.3 Sum-of-the-Years’-Digits (SYD) Method
		8.3.4 The Sinking Fund Method
		8.3.5 The Service Output Method
	Problems
Chapter 9: Economic Evaluation of Public Sector Projects
	9.1 Public Sector Projects
	9.2 Benefit/Cost Analysis of a Single Project
	9.3 Selection Between Two Mutually Exclusive Alternatives Using Incremental B/C Analysis
	9.4 Selection Among Multiple Mutually Exclusive Alternatives Using Incremental B/C Analysis
	Problems
Chapter 10: Economy Study with Inflation Considered
	10.1 Introduction
	10.2 Effects of Inflation
	10.3 Present Worth Calculations Adjusted for Inflation
	10.4 Future Worth Calculations Adjusted for Inflation
	10.5 Capital Recovery Calculations Adjusted Forinflation
	Problems
Chapter 11: Make or Buy Decision
	11.1 Introduction
	11.2 Feasible Alternatives for Launching New Products
	11.3 Decisive Factors for Make or Buy Decision
		11.3.1 Criteria for Make Decision
		11.3.2 Criteria for Buy Decision
	11.4 Techniques Used to Arrive At Make or Buy Decision
		11.4.1 Simple Cost Analysis
		11.4.2 Economic Analysis
		11.4.3 Break-Even Analysis
	Problems
Chapter 12: Project Management
	12.1 Introduction
	12.2 Phases of Project Management
		12.2.1 Planning
		12.2.2 Scheduling
		12.2.3 Monitoring and Control
	12.3 Bar or Gantt Charts
	12.4 Network Analysis Technique
	12.5 Critical Path Method (CPM)
		12.5.1 Arrow Diagrams
		12.5.2 Activity Description
		12.5.3 Understanding Logic of Arrow Diagrams
		12.5.4 Dummy Activities
	12.6 Guidelines for Drawing Network Diagrams or Arrow Diagrams
	12.7 CPM Calculations
		12.7.1 Critical Path
		12.7.2 Critical Activities
		12.7.3 Non-Critical Activities
		12.7.4 Earliest Event Time
		12.7.5 Latest Event Time
	12.8 Calculation of the Earliest Occurrence Time of Events
	12.9 Calculation of the Latest Occurrence Time of Events
	12.10 Activity Times
		12.10.1 Earliest Start Time
		12.10.2 Earliest Finish Time
		12.10.3 Latest Finish Time
		12.10.4 Latest Start Time
	12.11 Float
		12.11.1 Types of Float
		12.11.2 Negative Float
	12.12 Identification of Critical Path
	12.13 Programme Evaluation and Review Technique (PERT)
		12.13.1 Pert Activity Time Estimates
		12.13.2 Pert Computations
		12.13.3 Computation of Probabilities of Completion by a Specified Date
	12.14 Project Crashing
		12.14.1 Cost Slope
		12.14.2 Cost of Crashing
	Problems
Chapter 13: Value Engineering
	13.1 What is Value Engineering or Value Analysis?
		13.1.1 Definition of VE or VA
		13.1.2 Defining Cost and Value
	13.2 Nature and Measurement of Value
	13.3 How is a VE or VA Study Conducted?
	13.4 The VE or VA Process
	13.5 Types of VE or VA
	13.6 How to Use VE or VA
		13.6.1 Keys to Success
		13.6.2 Origination Phase
		13.6.3 Information Phase
		13.6.4 Innovation Phase
		13.6.5 Evaluation Phase
		13.6.6 Implementation Phase
	13.7 Summary
	Problems
Chapter 14: Forecasting
	14.1 Introduction
	14.2 Basic Categories of Forecasting
	14.3 Extrapolative Methods
		14.3.1 Components of Demand
		14.3.2 Moving Average Method
		14.3.3 Weighted Moving Average Method
		14.3.4 Exponential Smoothing Methods
	14.4 Causal or Explanatory Methods
		14.4.1 Regression Analysis
		14.4.2 Simple Regression Analysis
	14.5 Qualitative or Judgmental Methods
		14.5.1 Build Up Method
		14.5.2 Survey Method
		14.5.3 Test Markets
		14.5.4 Panel of Experts
	14.6 Forecast Errors
	Problems
Bibliography
Appendix  A
Appendix B
Appendix C
Index