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Chapter 1.2 Principles of Engineering Economics

Intended Learning Outcomes: At the end of this chapter, the students are expected to:

1. xxxx xxxx xxxxx ;

1.2.1 The Four Principles of Engineering Economics

Principle 1: A nearby dollar/peso is worth more than a distant dollar/peso.

– money has a time value associated with it.

– it is better to receive money earlier than later

Principle 2: All that counts is the differences among alternatives.

– economic decision should be based on the differences among

alternatives considered; should be based on the best use of limited
resources
Opportunity – the value of the best alternative given up
Cost

Principle 3: Marginal revenue must exceed marginal cost.

Marginal – is the additional revenue made possible by increasing the activity by

Revenue one unit (or a small unit).

Marginal – the additional cost incurred by the same increase in activity

Cost

Principle 4: Additional risk is not taken without the expected additional return.

1.2.2 Engineering Economic Decisions

This term refers to all investment decisions relating to engineering projects.

Types of Engineering Economic Decisions

1. Service or quality improvement

2. New products or product expansion
3. Equipment and process selection
4. Cost reduction, and
5. Equipment replacement

Engineering Economics
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1.2.3 Professional Ethics

Universal/ – fundamental moral beliefs held by virtually all people.

Common
Morals

Individual/ – the moral beliefs that a person has and maintains over time
Personal
Morals

Professional/ – formal standard/code that serves as a guide for decision making and
Engineering performance of work activities in a specific engineering discipline
Ethics

Engineering Economics
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