Engineering Economics &

Optimization
Lecture#1
What is Engineering?????
What is Economics?????
What is Optimization?????
 Economics
Economics is the science that deals with the production and consumption of
goods and services and the distribution and rendering of these for human
welfare.

It is the study how society manages scarce resources

Economics is also defined as the science that deals with the allocation or use of
scarce resources for the purpose of fulfilling the society’s needs and wants.
Engineering Economics
Engineering economics deals with methods that
enable one to take economic decisions towards
minimizing cost and maximizing benefits to
business organizations.

It involves systematic evaluation of economic

merits of proposed solution to engineering
problems. 1–6
Scope of Engineering Economics
• Efficiency
• Ratio of output to input
Types of Efficiency
• Technical Efficiency
• Economic Efficiency
Technical Efficiency
It is the ratio of output to input of physical system.
Physical system may be a diesel engine , a
machine working in a shop floor, computer system

Technical Efficiency(%)= Output/input

Technical Efficiency(%)=Heat eq. of mechanical
energy produced/Heat eq. of fuel used
Economic Efficiency
• It is the ratio of output to input of a business
system.
Economic Efficiency(%)= Output/Input
= Worth/Cost
 Productivity
Economic Efficiency is also called productivity.

• Productivity Improvement Techniques

Increased output for the same input
Decreased input for the same output.
Proportionate increase in output which is more than proportionate
increase in input.
Proportionate decrease in input which is more than proportionate
decrease in output.
Through simultaneous increase in output with decrease in the input.
Macro and Microeconomics
Microeconomics is the study of economics at an individual, group or
company level. This could mean studying the supply and demand for a
specific product, the production that an individual or business is capable
of, or the effects of regulations on a business.

Macroeconomics is the study of a national economy as a whole. Some

of the most common focuses of macroeconomics include unemployment
rates, the gross domestic product of an economy, and the effects of
exports and imports.
Flow in Economy
 Law of Supply and Demand

1) If the supply increases and demand stays the same, the price will go down.

2) If the supply decreases and demand stays the same, the price will go up.

3) If the supply stays the same and demand increases, the price will go up.

4) If the supply stays the same and demand decreases, the price will go down.
Factors Influencing Demand
• Income - If people have more money, the demand for
products can increase.
• Population - As the population increases, there are more
buyers. This will increase demand.
• Customer preference - Customers may no longer want a
product, reducing the demand.
• Changes in competition - If the competitors of a product
increase their price, then the demand for your product may
increase.
1–14
Factors Influencing Supply
• Number of sellers - If the number of sellers increases, then the
supply will increase.
• Technology - Improvements in manufacturing can increase supply.
• Resources - If resources needed to build a product are moved to
another product, then supply will decrease.
• Costs of manufacturing - If the costs for making a product
increase, the supply will decrease.

1–15
Law of Supply
and Demand
• Lowering of the price of the
product makes the producers
restrain from releasing more
quantities of the product in the
market. Hence, the supply of the
product is decreased.

• The point of intersection of the

supply curve and the demand curve
is known as the equilibrium point.

• At the price corresponding to this

point, the quantity of supply is
equal to the quantity of demand.
Hence, this point is called the
equilibrium point