FAITH COLLEGES

COLLEGE OF ENGINEERING

ENGINEERING ECONOMICS
SUMMER 2020-2021

ENGR. KENT PATRICK FERRARO

 TOPIC 1
INTRODUCTION
 WHAT IS
ECONOMICS ?
ECONOMICS

It is the science that deals

with the production,
consumption, distribution,
and rendition of goods and
services for human welfare.

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 WHAT IS
ENGINEERING ?
ENGINEERING

It is the science that deals

with creating solutions to
the world’s challenges and
designing of products or
services that support the
human’s quality of life.
🚩
ENGINEERING ECONOMICS

It is the application of engineering or

mathematical analysis and synthesis to
decision making in economics.
It is concerned with the systematic
evaluation of benefits and costs of projects
involving engineering design and analysis.
ENGINEERING ECONOMICS

Hence, engineering economics deals with

decision making and the methods to
implement towards the minimization of
costs and maximizing of benefits to
business organizations.

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FUNDAMENTAL PRINCIPLES

There are fundamental principles to be

followed in any engineering economic
decisions. These four principles are:
FUNDAMENTAL PRINCIPLES

(1) A nearby dollar is worth more than a distant

dollar.
(2) All that counts are the differences among
alternatives.
(3) Marginal revenue must exceed marginal cost.
(4) Additional risk is not taken without the
expected additional return.
OPPORTUNITY COST

It is the loss of the benefit that you could

have been enjoyed if the best alternative
choice was chosen instead.

If you choose not to sleep early to finish an

assignment, what is the opportunity cost of
finishing the assignment that night?
OPPORTUNITY COST

It can be expressed as:

𝑂𝐶 = 𝐹𝑂𝑟𝑒𝑡𝑢𝑟𝑛 − 𝐶𝑂𝑟𝑒𝑡𝑢𝑟𝑛
𝑂𝐶 = 𝑇𝑅 − 𝐸𝑃
𝑆𝑎𝑐𝑟𝑖𝑓𝑖𝑐𝑒𝑑
𝑂𝐶 =
𝐺𝑎𝑖𝑛𝑒𝑑
MARGINAL REVENUE

It is the increase in revenue that results

from the sale of one additional unit of
output.
MARGINAL REVENUE

It can be expressed as:

∆ 𝑇𝑅
M𝑅 =
∆ 𝑇𝑂
MARGINAL COST

It is the incremental costs incurred when

producing additional units of goods or
services.
MARGINAL COST

It can be expressed as:

∆ 𝑇𝐶
M𝐶 =
∆ 𝑇𝑂