GDB3023

ENGINEERING ECONOMICS & ENTREPRENEURSHIP

JANUARY 2021
ASSIGNMENT #2 [CLO1]

2-3 A group of enterprising engineering students has developed a process for

extracting combustible methane gas from cow manure (don’t worry, the
exhaust is odorless). With a specially adapted internal combustion engine,
the students claim that an automobile can be propelled 15 miles per day
from the “cow gas” produced by a single cow. Their experimental car can
travel 60 miles per day for an estimated cost of $5 (this is the allocated
cost of the methane process equipment—the cow manure is essentially
free).
[10 marks]

(a.) How many cows would it take to fuel 1,000,000 miles of annual driving
by a fleet of cars? What is the annual cost?

(b.) How does your answer to Part (a) compare to a gasoline-fueled car
averaging 30 miles per gallon when the cost of gasoline is $3.00 per
gallon?

2-4 A municipal solid-waste site for a city must be located at Site A or Site B.
After sorting, some of the solid refuse will be transported to an electric
power plant where it will be used as fuel. Data for the hauling of refuse
from each site to the power plant are shown in Table P2-4.

Table P2-4
Site A Site B
Average hauling distance 4 miles 3 miles
Annual rental fee for solid-waste site $5,000 $100,000
Hauling cost $1.50 / yd3-mile $1.50 / yd3-mile

If the power plant will pay $8.00 per cubic yard of sorted solid waste
delivered to the plant, where should the solid-waste site be located? Use
the city’s viewpoint and assume that 200,000 cubic yards of refuse will be
hauled to the plant for one year only. One site must be selected.
[10 marks]
2-13 A large company in the communication and publishing industry has
quantified the relationship between the price of one of its products and
the demand for this product as Price = 150 – (0.01 × Demand) for an annual
printing of this particular product. The fixed costs per year (i.e., per
printing) is $50,000 and the variable cost per unit is $40. What is the
maximum profit that can be achieved if the maximum expected demand is
6,000 units per year? What is the unit price at this point of optimal
demand?
[10 marks]

2-15 A company produces and sells a consumer product and is able to control the
demand for the product by varying the selling price. The approximate
relationship between price and demand is

2,700 5,000
𝑝 = $38 + − , 𝑓𝑜𝑟 𝐷 > 1,
𝐷 𝐷2

where p is the price per unit in dollars and D is the demand per month. The
company is seeking to maximize its profit. The fixed cost is $1,000 per
month and the variable cost (CV) is $40 per unit.

(a.) What is the number of units that should be produced and sold each
month to maximize profit?
(b.) Show that your answer to Part (a) maximizes profit.
[10 marks]

2-29 One component of a system’s life-cycle cost is the cost of system failure.
Failure costs can be reduced by designing a more reliable system. A
simplified expression for system life-cycle cost, C, can be written as a
function of the system’s failure rate:
𝐶𝐼
𝐶 = + 𝐶𝑅 . 𝜆. 𝑡
𝜆

Where; CI = investment cost ($ per hour per failure)

CR = system repair cost
𝜆 = system failure rate (failure/operating hour)
t = operating hours
[10 marks]

(a.) Assume that CI , CR, and t are constants. Derive an expression for
𝜆, say 𝜆∗, that optimizes C.
(b.) Does the equation in Part (a) correspond to a maximum or minimum
value of C? Show all work to support your answer.
(c.) What trade-off is being made in this problem?