CA 1 (SESSION 23-24

ODD)
NAME : SOUVIK MONDAL

UNIV. ROLL NO. : 13030822065

SEMESTER : 3RD SEM

SUBJECT NAME : Economics for Engineers

(Humanities-II)
  CODE : HSMC 301
 INTRODUCTION
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. The following are the economic goals. A high level of employment
Price stability Efficiency An equitable distribution of income Growth Some
of the above goals are interdependent. The economic goals are not always
complementary; in many cases they are in conflict. For example, any move to
have a significant reduction in unemployment will lead to an increase in
inflation.
QUESTION
1
A person is planning for his retired life. He has 10 more years of service. He would
like to deposit Rs. 8500 at the end of the first year and thereafter he wishes to
deposit the amount with an annual decrease of Rs 500 for the next 9 years with an
interest rate of 15%. Find the amount at the end of 10th year of the above series.

QUESTION
2
Discuss the following---
a) Marginal cost. (b) Sunk cost. (c) Opportunity cost. (d) Learning curve. (e)
Decremental cost.
 ANSWER
(1)
The problem is related to Uniform Gradient series annual equivalent
method.
The objective of this mode of investment is to find the annual equivalent amount
of a series with an amount (A1) at the end of the first year and with an equal
increment (G) at the end of each of the following (n – 1) years with an interest
rate(i) compounded annually.

Given data :
Amount of the series at the end of the 1st year (A1) =Rs. 8,500
Increment(G) =Rs. 500
Interest Rate(i)=15%
Number of years(n)=10 years
 
Formula used : A= A1 — G and F=A(F/A, i, n)
Solution :
A = A1 — G
=A1— G (A/G, i, n)
=8,500 — 500(A/G, 15%, 10)
= 8,500 —(500 X 3.3832)
= Rs. 6,808.40
This is equivalent to paying an equivalent amount of Rs. 6,808.40 at the Cash
end offlow diagram
every year forofthe
uniform
next 10gradient
years. series annual equivalent
amount.
The future worth sum of this revised series at the end of the 10th year is obtained as follows:
F = A(F/A, i, n)
= A(FIA, 15%, 10)
= 6,808.40(20.304)
= Rs. 1,38,237.75
 Result :
The total amount received by a person who deposits Rs 8500/- at the end of the first year and deposit the amount with
an annual decrease of Rs 500/- for the following 9 years with an interest rate of 8% is Rs. 1,38,237.75
at the end of the 10th year.
 ANSWER
a) Marginal Cost : Marginal cost of a product is(2)
the cost of producing an additional unit of that product. Marginal cost
refers to the additional cost incurred by producing one more unit of a product or service. It is a crucial concept in
economics and business decision-making. The marginal cost considers the change in total cost as output levels change. As
production increases, the marginal cost helps businesses assess the cost-effectiveness of producing additional units. It is
important to note that marginal cost can fluctuate based on various factors, including changes in raw material prices, labor
costs, and economies of scale. Let the cost of producing 20 units of a product be Rs. 10,000, and the cost of producing 21
units of the same product be Rs. 10,045. Then the marginal cost of producing the 21st unit is Rs. 45.
Marginal Cost (MC) = Change in Total Cost / Change in Quantity

b) Sunk Cost : This is known as the past cost of an equipment/asset. A sunk cost is a cost that has already been incurred
and cannot be recovered or changed, regardless of future decisions or actions. These costs are in the past and have no impact
on future business choices. Since sunk costs cannot be recovered, they should not influence current decision-making. Let us
assume that an equipment has been purchased for Rs. 1,00,000 about three years back. If it is considered for replacement,
then its present value is not Rs. 1,00,000. Instead, its present market value should be taken as the present value of the
equipment for further analysis. So, the purchase value of the equipment in the past is known as its sunk cost. The sunk cost
should not be considered for any analysis done from now onwards.

c) Opportunity Cost : In practice, if an alternative (X) is selected from a set of competing alternatives (X,Y), then the
corresponding investment in the selected alternative is not available for any other purpose. If the same money is invested in
some other alternative (Y), it may fetch some return. Since the money is invested in the selected alternative (X), one has to
forego the return from the other alternative (Y). The amount that is foregone by not investing in the other alternative (Y) is
known as the opportunity cost of the selected alternative (X). So the opportunity cost of an alternative is the return that will
foregone by not investing the same money in another alternative. Consider that a person has invested a sum of Rs. 50,000 in shares.
Let the expected annual return by this alternative be Rs. 7,500. If the same amount is Introduction 9 invested in a fixed deposit, a bank
will pay a return of 18%. Then, the corresponding total return per year for the investment in the bank is Rs. 9,000. This return is
greater than the return from shares. The foregone excess return of Rs. 1,500 by way of not investing in the bank is the opportunity cost
of investing in shares.
Opportunity Cost =FO−CO FO = Return on best forgone option
CO = Return on chosen option
d)Learning curve : A learning curve is a mathematical concept that graphically depicts how a process is improved over time due
to learning and increased proficiency. A learning curve is typically described with a percentage that identifies the rate of improvement.
In the visual representation of a learning curve, a steeper slope indicates initial learning that translates into higher cost savings, and
subsequent learnings result in increasingly slower, more difficult cost savings.
Y=aXb
Where,
Y=Cumulative average time per unit or batch
a=Time taken to produce initial quantity
X=The cumulative units of production or the cumulative number of batches
b=The slope or learning curve index, calculatedas the log of the learning curve percentagedivided by the log of 2
e) Decremental Cost means the cost of fuel, operating labor and maintenance which would have been incurred to provide the Operating
Reserves at any time and which are avoided by the other Participant, including the cost of avoiding the starting and operating of a generating
unit or units and a proportional amount of the annual debt service on the capital investment of the highest cost (per kw) generating unit on the
receiving Participant’s system. The decremental cost of Operating Reserves shall be the total of such avoided costs to the receiving Participant. In
situations where a Participant would have incurred replacement fuel costs which are higher than the cost of existing fuel supply, replacement
costs shall be utilized​.