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E421-1-sp11 - ECONOMICS 421 ECONOMICS • • • • •...

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Unformatted text preview: ECONOMICS 421 ECONOMICS • • • • • • • LECTURER: Donald C. Balch CLASSROOM: BA 582 CLASSTIME: 12:30 – 1:45 Tuesday and Thursday Tuesday OFFICE: BA 421 PHONE: 777-6828 EMAIL: [email protected] BLACKBOARD: Includes syllabus and will include BLACKBOARD: abbreviated powerpoint presentations for chapters to be covered, as well as quiz results to CHAPTER 1 CHAPTER 1 $$ $$ INTRODUCTION TO INTRODUCTION ENGINEERING ECONOMY ENGINEERING $$ $$ WHAT IS ENGINEERING? WHAT The application of science and The mathematics by which the properties of matter and the sources of energy in nature are made useful to people in structures, machines, products, systems and processes systems What Is Economics? The study of how individuals The and societies choose to use choose scarce resources that nature and previous generations have provided provided What Is Economics The study of how limited and scarce resources are chosen to satisfy unlimited human wants. What Is Economics? The study of man about the everyday business of life Alfred Marshal CHOICES, WANTS AND RESOURCES RESOURCES CHOICES WANTS 1 RESOURCES WANTS 2 WANTS 3 Resources • • • • Land Labor Capital Entrepreneurship LAND LAND All gifts of nature, such as: water, air, minerals, sunshine, plant and tree growth, as well as the land itself which is applied to the production process. LABOR LABOR The efforts, skills, and knowledge of people which are applied to the production process. CAPITAL • Real Capital (Physical Capital ) Dollar Bills – Tools, buildings, machinery -- things which Tools, have been produced which are used in further production production • Financial Capital – Assets and money which are used in the Assets production process production • Human Capital – Education and training applied to labor in the production process ENTREPRENURSHIP ENTREPRENURSHIP • Human resource that organizes the Human other resources to produce goods and services and • Humans that come up with new ideas Humans about how to produce; bear monetary, professional and reputation risk reputation PRODUCTION POSSIBILITY FRONTIER MP3 Players Personel Computers PRODUCTION POSSIBILITY FRONTIER MP3 Players 300 Personal Computers PRODUCTION POSSIBILITY FRONTIER MP3 Players 500 300 Personal Computers PRODUCTION POSSIBILITY FRONTIER MP3 Players 500 300 Personal Computers PRODUCTION POSSIBILITY FRONTIER MP3 Players 500 300 Personal Computers PRODUCTION POSSIBILITY FRONTIER MP3 Players 500 300 Personal Computers PRODUCTION POSSIBILITY FRONTIER MP3 Players 500 475 420 215 150 200 250 300 Personal Computers PRODUCTION POSSIBILITY FRONTIER MP3 Players 500 320 Unused Resources 100 300 Personal Computers PRODUCTION POSSIBILITY FRONTIER MP3 Players 500 Unavailable Resources 460 420 Unused Resources 200 300 Personal Computers PRODUCTION POSSIBILITY FRONTIER MP3 Players 500 Unused Resources 500 300 Personal Computers PRODUCTION POSSIBILITY FRONTIER MP3 Players 600 500 Unused Resources 300 400 Personal Computers PRODUCTION POSSIBILITY FRONTIER Origins of Engineering Economy Economy The perspective that ultimate economy is a concern to the engineer and the availability of sound techniques to address this concern differentiate this aspect of modern engineering practice from that of the past. Origins of Engineering Economy Economy • Pioneer: Arthur M. Wellington, civil Arthur engineer engineer latter part of nineteenth century; latter addressed role of economic analysis in engineering projects; engineering area of interest: railroad building • Followed by other contributions which Followed emphasized techniques depending on financial and actuarial mathematics. financial PRINCIPLES OF ENGINEERING ECONOMY ECONOMY 1. Develop the Alternatives; 2. Focus on the Differences; 3. Use a Consistent Viewpoint; 4. Use a Common Unit of Measure; 5. Consider All Relevant Criteria; 6. Make Uncertainty Explicit; 7. Revisit Your Decisions DEVELOP THE ALTERNATIVES DEVELOP The final choice (decision) is among alternatives. The alternatives need to be identified and then defined for subsequent analysis. analysis. FOCUS ON THE DIFFERENCES FOCUS Only the differences in expected future outcomes among the alternatives are relevant to their comparison and should be considered in the decision. should USE A CONSISTENT VIEWPOINT USE The prospective outcomes of the alternatives, economic and other, should be consistently developed from a defined viewpoint (perspective). defined USE A COMMON UNIT OF MEASURE MEASURE Using a common unit of measurement Using to enumerate as many of the prospective outcomes as possible will make easier the analysis and comparison of alternatives. comparison CONSIDER ALL RELEVANT CRITERIA CRITERIA Selection of a preferred alternative (decision making) requires the use of a criterion (or several criteria). The decision process should consider the outcomes enumerated in the monetary unit and those expressed in some other unit of measurement or made explicit in a descriptive manner. explicit MAKE UNCERTAINTY EXPLICIT MAKE Uncertainty is inherent in projecting (or estimating) the future outcomes of the alternatives and should be recognized in their analysis and comparison. comparison. REVISIT YOUR DECISIONS REVISIT Improved decision making results from an adaptive process; to the extent practicable, the initial projected outcomes of the selected alternative should be subsequently compared with actual results achieved. with ENGINEERING ECONOMY AND THE DESIGN PROCESS THE An engineering economy study is accomplished using a structured procedure and mathematical modeling techniques. The economic results are then used in a decision situation that involves two or more alternatives and normally includes other engineering knowledge and input. knowledge ENGINEERING ECONOMIC ANALYSIS PROCEDURE PROCEDURE 1. Problem recognition, formulation, and evaluation. evaluation. 2. Development of the feasible alternatives. 3. Development of the cash flows for each 3. alternative. alternative. 4. Selection of a criterion ( or criteria). 5. Analysis and comparison of the 5. alternatives. alternatives. 6. Selection of the preferred alternative. 7. Performance monitoring and postevaluation results. ACCOUNTING AND ENGINEERING ECONOMY STUDIES ECONOMY Modern cost accounting may satisfy any or Modern may all of the following objectives: all 1. To determine the cost of products or 1. services services 2. To provide a rational basis for pricing 2. goods or services goods 3. To provide a means for controlling 3. expenditures expenditures 4. To provide information on which operating 4. decisions may be based and the results ...
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