1
ENGINEERING ECONOMIC
ANALYSIS SOLUTION
MANUAL –
WITH APROVED STUDY GUIDE
Chapter 1: Making Economic Decisions
1-1
A survey of students answering this question indicated that they thought about 40% of their decisions
were conscious decisions.
1-2
The choice of an engine has important money consequences so would be suitable
(a) Yes.
for engineering economic analysis.
Important economic- and social- consequences. Some might argue the social
(b) Yes.
consequences are more important than the economics.
Probably there are a variety of considerations much more important than the
(c) ?
economics.
(d) No. Picking a career on an economic basis sounds terrible.
(e) No. Picking a wife on an economic basis sounds even worse.
1-3
Of the three alternatives, the $150,000 investment problem is most suitable for economic analysis. There
is not enough data to figure out how to proceed, but if the ‗desirable interest rate' were 9%, then
foregoing it for one week would mean a loss of:
1
1
, 2
/52 (0.09) = 0.0017 = 0.17%
immediately. It would take over a year at 0.15% more to equal the 0.17% foregone now.
The chocolate bar problem is suitable for economic analysis. Compared to the investment Cardiovascular
assessmentCardiovascular assessmentproblem it is, of course, trivial.
Joe's problem is a real problem with serious economic consequences. The difficulty may be in figuring
out what one gains if he pays for the fender damage, instead of having the insurance company pay for it.
1-4
Gambling, the stock market, drilling for oil, hunting for buried treasure—there are sure to be a lot of
interesting answers. Note that if you could double your money every day, then:
2x ($300) = $1,000,000
and x is less than 12 days.
2
, 3
1-5
Maybe their stock market ‗systems' don't work!
1-6
It may look simple to the owner because he is not the one losing a job. For the three machinists it
represents a major event with major consequences.
1-7
For most high school seniors there probably are only a limited number of colleges and universities
that are feasible alternatives. Nevertheless, it is still a complex problem.
1-8
It really is not an economic problem solely — it is a complex problem.
1-9
Since it takes time and effort to go to the bookstore, the minimum number of pads might be related to
the smallest saving worth bothering about. The maximum number of pads might be the quantity
needed over a reasonable period of time, like the rest of the academic year.
1-10
While there might be a lot of disagreement on the ‗correct' answer, only automobile insurance
represents a substantial amount of money and a situation where money might be the primary basis for
choosing between alternatives.
1-11
The overall problems are all complex. The student will have a hard time coming up with
examples that are truly simple or intermediate until he/she breaks them into smaller and smaller
sub-problems.
1-12
These questions will create disagreement. None of the situations represents rational decision-
making.
Choosing the same career as a friend might be OK, but it doesn't seem too rational. Jill didn't
consider all the alternatives.
Don thought he was minimizing cost, but it didn't work. Maybe rational decision-making says
one should buy better tools that will last.
3
, 4
1-13
Possible objectives for NASA can be stated in general terms of space exploration or the generation of
knowledge or they can be stated in very concrete terms. President Kennedy used the latter approach
with a year for landing a man on the moon to inspire employees. Thus the following objectives as
examples are concrete. No year is specified here, because unlike President Kennedy we do not know
what dates may be achievable.
Land a man safely on Mars and return him to earth by .
Establish a colony on the moon by .
Establish a permanent space station by .
Support private sector tourism in space by .
Maximize fundamental knowledge about science through x probes per year or for $y
per year.
Maximize applied knowledge about supporting man's activities in space through x
probes per year or for $y per year.
Choosing among these objectives involves technical decisions (some objectives may be prerequisites
for others), political decisions (balance between science and applied knowledge for man's
activities), and economic decisions (how many dollars per year can be allocated to NASA).
However, our favorite is a colony on the moon, because a colony is intended to be permanent and
it would represent a new frontier for human ingenuity and opportunity. Evaluation of alternatives would
focus on costs, uncertainties, and schedules. Estimates of these would rely on NASA's historical
experience, expert judgment, and some of the estimating tools discussed in Chapter 2.
1-14
This is a challenging question. One approach might be:
(a) Find out what percentage of the population is left-handed.
(b) What is the population of the selected hometown?
(c) Next, market research might be required. With some specific scissors (quality and price) in mind,
ask a random sample of people if they would purchase the scissors. Study the responses of both
left-handed and right-handed people.
(d) With only two hours available, this is probably all the information one could collect. From the
data, make an estimate.
A different approach might be to assume that the people interested in left handed scissors in the future
will be about the same as the number who bought them in the past.
(a) Telephone several sewing and department stores in the area. Ask two questions:
(i) How many pairs of scissors have you sold in one year (or six months or?).
(ii) What is the ratio of sales of left-handed scissors to regular scissor?
(b) From the data in (a), estimate the future demand for left-handed scissors.
4
ENGINEERING ECONOMIC
ANALYSIS SOLUTION
MANUAL –
WITH APROVED STUDY GUIDE
Chapter 1: Making Economic Decisions
1-1
A survey of students answering this question indicated that they thought about 40% of their decisions
were conscious decisions.
1-2
The choice of an engine has important money consequences so would be suitable
(a) Yes.
for engineering economic analysis.
Important economic- and social- consequences. Some might argue the social
(b) Yes.
consequences are more important than the economics.
Probably there are a variety of considerations much more important than the
(c) ?
economics.
(d) No. Picking a career on an economic basis sounds terrible.
(e) No. Picking a wife on an economic basis sounds even worse.
1-3
Of the three alternatives, the $150,000 investment problem is most suitable for economic analysis. There
is not enough data to figure out how to proceed, but if the ‗desirable interest rate' were 9%, then
foregoing it for one week would mean a loss of:
1
1
, 2
/52 (0.09) = 0.0017 = 0.17%
immediately. It would take over a year at 0.15% more to equal the 0.17% foregone now.
The chocolate bar problem is suitable for economic analysis. Compared to the investment Cardiovascular
assessmentCardiovascular assessmentproblem it is, of course, trivial.
Joe's problem is a real problem with serious economic consequences. The difficulty may be in figuring
out what one gains if he pays for the fender damage, instead of having the insurance company pay for it.
1-4
Gambling, the stock market, drilling for oil, hunting for buried treasure—there are sure to be a lot of
interesting answers. Note that if you could double your money every day, then:
2x ($300) = $1,000,000
and x is less than 12 days.
2
, 3
1-5
Maybe their stock market ‗systems' don't work!
1-6
It may look simple to the owner because he is not the one losing a job. For the three machinists it
represents a major event with major consequences.
1-7
For most high school seniors there probably are only a limited number of colleges and universities
that are feasible alternatives. Nevertheless, it is still a complex problem.
1-8
It really is not an economic problem solely — it is a complex problem.
1-9
Since it takes time and effort to go to the bookstore, the minimum number of pads might be related to
the smallest saving worth bothering about. The maximum number of pads might be the quantity
needed over a reasonable period of time, like the rest of the academic year.
1-10
While there might be a lot of disagreement on the ‗correct' answer, only automobile insurance
represents a substantial amount of money and a situation where money might be the primary basis for
choosing between alternatives.
1-11
The overall problems are all complex. The student will have a hard time coming up with
examples that are truly simple or intermediate until he/she breaks them into smaller and smaller
sub-problems.
1-12
These questions will create disagreement. None of the situations represents rational decision-
making.
Choosing the same career as a friend might be OK, but it doesn't seem too rational. Jill didn't
consider all the alternatives.
Don thought he was minimizing cost, but it didn't work. Maybe rational decision-making says
one should buy better tools that will last.
3
, 4
1-13
Possible objectives for NASA can be stated in general terms of space exploration or the generation of
knowledge or they can be stated in very concrete terms. President Kennedy used the latter approach
with a year for landing a man on the moon to inspire employees. Thus the following objectives as
examples are concrete. No year is specified here, because unlike President Kennedy we do not know
what dates may be achievable.
Land a man safely on Mars and return him to earth by .
Establish a colony on the moon by .
Establish a permanent space station by .
Support private sector tourism in space by .
Maximize fundamental knowledge about science through x probes per year or for $y
per year.
Maximize applied knowledge about supporting man's activities in space through x
probes per year or for $y per year.
Choosing among these objectives involves technical decisions (some objectives may be prerequisites
for others), political decisions (balance between science and applied knowledge for man's
activities), and economic decisions (how many dollars per year can be allocated to NASA).
However, our favorite is a colony on the moon, because a colony is intended to be permanent and
it would represent a new frontier for human ingenuity and opportunity. Evaluation of alternatives would
focus on costs, uncertainties, and schedules. Estimates of these would rely on NASA's historical
experience, expert judgment, and some of the estimating tools discussed in Chapter 2.
1-14
This is a challenging question. One approach might be:
(a) Find out what percentage of the population is left-handed.
(b) What is the population of the selected hometown?
(c) Next, market research might be required. With some specific scissors (quality and price) in mind,
ask a random sample of people if they would purchase the scissors. Study the responses of both
left-handed and right-handed people.
(d) With only two hours available, this is probably all the information one could collect. From the
data, make an estimate.
A different approach might be to assume that the people interested in left handed scissors in the future
will be about the same as the number who bought them in the past.
(a) Telephone several sewing and department stores in the area. Ask two questions:
(i) How many pairs of scissors have you sold in one year (or six months or?).
(ii) What is the ratio of sales of left-handed scissors to regular scissor?
(b) From the data in (a), estimate the future demand for left-handed scissors.
4
