Prob Ex

# Prob Ex - MIME 310 ENGINEERING ECONOMY PROBLEM EXERCISES...

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M I M E 3 1 0 E N G I N E E R I N G E C O N O M Y PROBLEM EXERCISES PROBLEM EXERCISES F A L L 2 0 0 7 Department of Mining and Materials Engineering McGill University

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ii F O R E W O R D There are ten sets of problem exercises, one for each chapter in the notes. Their purpose is to help you practice solving typical Engineering Economy problems. The solutions to these prob- lems are available on the course WebCT site. You will benefit from these exercises by attempt- ing them before you look at the solutions. Acquiring the solutions a few days before the class tests or final exam without having spent time on solving the problems is of no practical use. If you have questions concerning any particular problem, please consult the TAs or course instruc- tor(s) during the appropriate hours. Prof. M.L. Bilodeau
iii C O N T E N T S CHAPTER #1 – INTRODUCTION 1 CHAPTER #2 – PRINCIPLES OF ACCOUNTING 2 CHAPTER #3 – THE TIME VALUE OF MONEY 5 CHAPTER #4 – PRODUCTION AND COST ANALYSES 8 CHAPTER #5 – SOURCES OF FUNDS AND THE COST OF CAPITAL 10 CHAPTER #6 – PROJECT EVALUATION CRITERIA 12 CHAPTER #7 – INCOME TAX CONSIDERATIONS 17 CHAPTER #8 – INFLATION 20 CHAPTER #9 – SENSITIVITY AND RISK ANALYSES 22 CHAPTER #10 – REPLACEMENT ANALYSIS 24

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1 CHAPTER #1 – INTRODUCTION 1. The demand and supply schedules for a product traded on the Canadian market are as fol- lows: Price (\$/unit) Quantity demanded (units/month) Quantity supplied (units/month) 60 12 500 28 500 55 14 250 27 000 50 16 250 25 000 45 18 750 22 500 40 21 750 19 500 35 25 000 16 000 30 28 750 12 000 i) Plot the demand and supply curves on an appropriate graph. Determine graphically the equilibrium levels of price and quantity of product sold. ii) Determine the arc elasticity of demand as well as of supply between prices of \$30 and \$35, \$40 and \$45, \$50 and \$55, and \$55 and \$60 per unit. How does the elasticity vary along the demand and supply curves? iii) Determine the total consumer expenditure associated with each price level given in the de- mand schedule above. At what price level is total consumer expenditure maximised? What should be the elasticity of demand at that price level? iv) Assume that the price is frozen at \$37.50 per unit. Would there be an excess demand or supply at this price? Determine graphically the price that could eventually be paid for the product on the black market. v) Assume that the supply for the product increases to a higher level (the supply curve shifts to the right) such that 4000 additional units are supplied at each price level. Determine graphically the new equilibrium price and quantity. vi) Assume that as a result of extensive advertising, the demand for the product increases to a higher level (the demand curve shifts to the right), in addition to the higher level of supply assumed above. Accordingly, 3500 additional units are now demanded at each price level. Determine graphically the new equilibrium price and quantity.
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Prob Ex - MIME 310 ENGINEERING ECONOMY PROBLEM EXERCISES...

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