Lec%204_Full - IE 343 Engineering Economics Lecture 4:...

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IE 343 Engineering Economics Lecture 4: Chapter 2 - Cost Concepts and Design Economics Instructor: Tian Ni Aug. 29, 2011 IE 343 Fall 2011 1
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Homework 1 has been posted on Blackboard Vista You will find three files related to HW1 HW1.pdf (includes all the HW1 problems. Posted in document “Homework Problems”) HW1_template.pdf (posted in “Homework Template”) HW1_template.docx (posted in “Homework Template”) You can choose one of the two options to do your hw Option 1: Please print out HW1_template.pdf or docx , write your solutions on the template. Option 2: You can also submit the homework template printout with your solutions typed in HW1_template.docx. Failure to submit your homework with the template will lead to a grade deduction. IE 343 Fall 2011 Announcement – HW1 2
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• We will have one more TA: • All the updated information has been included in Syllabus. • Course Syllabus has been updated on Blackboard Vista IE 343 Fall 2011 Announcement – New TA 3
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• Important Cost Terminology and Classification – Fixed vs Variable – Recurring vs Nonrecurring – Direct vs Indirect Sunk Cost Opportunity Cost IE 343 Fall 2011 Last Time … 4
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Revisit Example 2.1 IE 343 Fall 2011 5
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Albert plans to charter a bus to take his friends to see a concert in the city. Albert’s costs: Item Cost 1. Bus Rental $ 100 2. Ticket $ 12.50 3. Gas Expense $ 75 4. Bus Driver $ 50 5. Refreshments $ 7.50 IE 343 Fall 2011 Example 2.1 6
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What is Albert’s total cost if he takes ‘q’ people to the city? IE 343 Fall 2011 Fixed Cost Variable Cost Item Cost Item Cost Bus Rental $100 Ticket $12.5/person Gas Expense $75 Refreshments $7.5/person Bus Driver $50 Total Fixed Cost $225 Total Variable Cost: $20/person Example 2.1 7
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Total Cost = Fixed cost + Variable cost = $225 + $20q. q Let’s say his friends are willing to pay $35 each, for the trip. - Total income: 35q Total cost IE 343 Fall 2011 $225 $225 + $20q Example 2.1 8
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Total Profit = Total Revenue – Total Cost 35q – (225 + 20q) = 15q – 225 Question : How many people does Albert need to break even? (not lose money on his venture) Answer : Break even, when Revenue = Cost (or) Profit = 0 35 q = 225 + 20 q (or) 15 q – 225 = 0 q = 15 If he gets 15 people he breaks even. With more than 15, he makes profit, with less than 15 he makes a loss. IE 343 Fall 2011
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This note was uploaded on 01/28/2012 for the course IE 343 taught by Professor Vincent,g during the Winter '08 term at Purdue University-West Lafayette.

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Lec%204_Full - IE 343 Engineering Economics Lecture 4:...

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