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Engineering Economics

ENGINEERING ECONOMICS

Instructor: Nguyen Tai Vuong
School of Economics and Management
Hanoi University of Science and Technology

Course’s Objective

 Apply economic theory and tools for business
decision making

EE-NTVuong SEM-HUT 2013 2

NTV - FEM - HUT 1

Supply and Market Equilibrium  Demand elasticity  Production and cost theory EE-NTVuong SEM-HUT 2013 4 NTV .HUT 2 .Engineering Economics Contents  Part I: Principle of Microeconomics  Part II: Engineering Economy EE-NTVuong SEM-HUT 2013 3  Part I:  Demand.FEM .

HUT 3 .FEM .Engineering Economics  Part II:  Factors: How time and Interest Affect Money  Combining Factors  Nominal and Effective Interest Rates  Present Worth Analysis  Annual Worth Analysis  Rate of return analysis: single alternative  Rate of return analysis: multiple alternatives  Benefit/Cost analysis and public sector Economics EE-NTVuong SEM-HUT 2013 5 Your Participation  Reading related materials in advance  Actively participate in the class:  Discussion  Prepare presentation  Solve exercises  Reviewing mathematics knowledge in advance EE-NTVuong SEM-HUT 2013 6 NTV .

HUT 4 . Douglas. J. K. Prentice Hall International Editions. Blank & A. G.  Handouts  Case studies  Exercises/Workshops EE-NTVuong SEM-HUT 2013 7 Student Evaluation  Part 1:  Mid-term mark  Multiple choices test  Part 2:  Final term mark  Group presentation  Individual Case study  Final examination EE-NTVuong SEM-HUT 2013 8 NTV . Pearson International Education. 2009.FEM . Mc Graw Hill  Further reading: E. Tarquin. 3rd edition. Engineering Economy. 6th edition. Young. Keat & P. P. Managerial Economics: analysis and strategy. 5th edition. 2001.Y.Engineering Economics Your Learning Materials  Text book  Core: Managerial Economics. L. 2002.

 Application of these tools for business decision making.1 Definition of Engineering Economics 1.FEM .3 Theory of the firm 1.6 Role of Business in Society 1.  A study of different market structures.HUT 5 .Engineering Economics L01: Nature and Scope of Engineering Economics 1. using different economic analytical tools. EE-NTVuong SEM-HUT 2013 10 NTV .1 Engineering Economics EE refers to the use of economic theory and tools of analysis of decision science to examine how an organization can achieve its aims and objectives most efficiently.2 Relationship of EE 1.5 Why Do Profits Vary among Firms? 1.4 Profit Measurement 1.

 Provide production and marketing rules to help maximize net profits. and government decisions.  Making the Best Decision  Engineering economics can be used to efficiently meet management objectives.Engineering Economics Economic Principles Human man.  Engineering economics can be used to understand logic of company. Production Marketing Finance Suppliers EE-NTVuong SEM-HUT 2013 11 How is Engineering Economics useful?  Evaluating Choice Alternatives  Identify ways to efficiently achieve goals. EE-NTVuong SEM-HUT 2013 12 NTV .  Specify pricing and production strategies. consumer.FEM .HUT 6 .

forecasting EE-NTVuong SEM-HUT 2013 13 1. opportunity cost Management Science Linear programming. .2 Relationship of EE Marketing Finance Capital budgeting. Business are seen a profit-maximizing entities.3 Theory of the Firm . Set of criteria to ensure they meet some interim objectives EE-NTVuong SEM-HUT 2013 14 NTV . regression analysis. EE types of competition. Maximizing profit as their key goal . Main decisions: . breakeven analysis. structure- incremental conduct-performance analysis cost analysis. breakeven analysis. value added demand. Employment . . opportunity cost. Production ( types and quantities) .HUT 7 . Make or buy…. price elasticity Managerial accounting Strategy Relevant cost.FEM .Engineering Economics 1. Marketing .

4 Profit Measurement  Business Versus Economic Profit  Business (accounting) profit reflects explicit costs and revenues. EE-NTVuong SEM-HUT 2013 16 NTV .HUT 8 .Engineering Economics Firm’s stakeholders EE-NTVuong SEM-HUT 2013 15 1.FEM .  Economic profit:  Profit above a risk-adjusted normal return.  Variability of Business Profits  Business profits vary widely.  Considers cash and non-cash items.

cost incurred in the utilization of resources.Engineering Economics Economic cost of resources  Opportunity cost of using any resource is:  What firm owners must give up to use the resource  Market-supplied resources  Owned by others & hired.  Implicit – Alternative/Opportunity cost.HUT 9 . rented.FEM .4 Profit Measurement  Explicit – actual expenditures of the firm in business. Cost of not using resources at its next best option.  Both concepts are relevant to business decision making. EE-NTVuong SEM-HUT 2013 18 NTV . or leased  Owner-supplied resources  Owned & used by the firm EE-NTVuong SEM-HUT 2013 17 1.

4 Profit Measurement  Economic Profit = Total Revenue – (Explicit + Implicit Costs)  Economic Profit = Total Revenue – Economic Cost  Economic Profit = Accounting Profit – Implicit Cost EE-NTVuong SEM-HUT 2013 20 NTV . we must consider the total (“overall”) costs. Economic costs is the sum of explicit and implicit costs . If we are going to get a more accurate picture of actual benefit from a business decision.FEM .Engineering Economics 1.4 Profit Measurement . Accounting Profit = Total Revenue – Explicit Costs . Accounting profit is the normal concept we are familiar with. EE-NTVuong SEM-HUT 2013 19 1.HUT 10 . .

6 Role of Business in Society  Why Firms Exist  Business is useful in satisfying consumer wants. faster.  Obey laws and regulations. or cheaper than the competition is profitable.HUT 11 .  Business contributes to social welfare  Social Responsibility of Business  Serve customers.  Compensatory Profit Theories  Better.  Provide employment opportunities. EE-NTVuong SEM-HUT 2013 21 1. EE-NTVuong SEM-HUT 2013 22 NTV .  Rapid decline in costs.FEM .5 Why Do Profits Vary Among Firms?  Disequilibrium Profit Theories  Rapid growth in revenues.Engineering Economics 1.

Engineering Economics EE-NTVuong SEM-HUT 2013 23 NTV .HUT 12 .FEM .