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Engineering economics, previously known as engineering economy, is a subset of economics concerned with the use and “application of economic principles” in the analysis of engineering decisions. As a discipline, it is focused on the branch of economics known as microeconomics in that it studies the behavior of individuals and firms in making decisions regarding the allocation of limited resources. Thus, it focuses on the decisionmaking process, its context and the environment
As a discipline though, it is closely related to others such as statistics, mathematics, and cost accounting. It draws upon the logical framework of economics but adds to that the analytical power of mathematics and statistics
Engineers seek solutions to problems, and along with the technical aspects, the economic viability of each potential solution is normally considered from a specific viewpoint that reflects its economic utility to a constituency. Fundamentally, engineering economics involves formulating, estimating, and evaluating the economic outcomes when alternatives to accomplish a defined purpose are available.
Since engineering is an important part of the manufacturing sector of the economy, engineering industrial economics is an important part of industrial or business economics. For this reason, the major courses that are covered in this course are:

The economics of the management, operation, and growth and profitability of engineering firms;

Macrolevel engineering economic trends and issues;

Engineering product markets and demand influences; and

The development, marketing, and financing of new engineering technologies and products.
This Course Includes the following topics.

Introduction: Engineering economy defined, measures of financial effectiveness, nonmonetary factors and multiple objectives. Principles of engineering economy.

The Economic Environment: Consumer and producer goods, measures of economic worth. price, supply, & demand relationship. production. factors of production laws of return.

Cost Concepts & Analysis: Sunk & opportunity costs. fixed, variable, and incremental costs, recurring & nonrecurring costs. direct, indirect. and overhead costs, standard costs. Breakeven analysis, unit cost of production, costbenefit analysis, feasibility studies, value analysis in designing & purchasing.

Time Value of Money: Simple interest, compound interest, cash flow diagrams, interest formulas, nominal versus effective interest rate, continuous compounding.

Depreciation and Depletion: Purpose of depreciation, types of depreciation, economic life and what can be depreciated?

Comparing Alternatives: Present economy, selection among machines, materials, processes, and designs, payback period method, present worth method, uniform annual cost method, rate of return method, alternatives having identical lives, alternatives having different lives.

Linear Programming: Mathematical statement of linear programming problems graphic solution. Simplex method and duality problems.
RECOMMENDED BOOKS
(01) Engineering Economics by William G. Sullivan & James A. Bontadelli
(02) Operational Research: An Introduction by Hamdy A Taha
COURSE OUTLINE OF THIS COURSE IN DETAIL
Introduction of Economics
Introduction to Economics and Difference between Wants and Desires

Introduction to Economics

Difference between Want and Desires

Do resources fulfill wants or desires?
Macro and Micro Economics, Engineering Economics and Economic Behavior

Two Dimensions of Economics
Macro Economics
Micro Economics

Engineering Economics

Economic Environment/Behaviour

Classification of Consumer and Producer Goods
Theory and Laws of Demand and Supply

Theory of Demand and Supply

Law of Supply

Determination of Supply

Shifts in Supply

Law of Demand

Demand Schedule or Demand Curve

Determination of Demand

Shifts in Demand

Supply Function/Equation

Demand Function/Equation
Understanding the Market Equilibrium and Elasticity concepts in Economics

Market Equilibrium

Equilibriumâ€™s Mathematical Representation

Price Elasticity of Demand

Elasticity and Revenue

Special Cases of Elasticity
Market Structure and Types of Businesses

Market Structure

Types of Businesses
Understanding the Time Value of Money
Understand Simple and Compound Interest with Problems and Cash Flow Diagramming

Simple Interest

Compound Interest

Simple vs. Compound Interest

Notation and Cash Flows Diagram

Cash Flow Diagraming

Present and Future Values of Single Cash Flow

Discrete Cash Flow Examples Illustrating Equivalence

Present Equivalent of Future Amount of Money

Solving Problem related to Time Value of Money
Annuity and Deferred Annuity and Solving Example Problems related to them

Annuity

Relating a Uniform Series (Annuity) to its Present and Future Equivalence

Present Equivalent of Annuity

Solving Problems Related to the Annuity

Deferred Annuities (Uniform Series)

Present Equivalent of Deferred Annuity

Solving Problems related to Present Equivalent of Deferred Annuity

Uniform Arithmetic Gradient of Cash Flow
Gradient Problem and using Gradient Conversion for Solving Problems

Gradient Problem

Using Gradient Conversion Factor for solving Problems
Nominal and Effective Interest Rate and Concepts of APR and APY

Nominal and Effective Interest Rates

Concept of APR (Annual Percentage Rate) and APY (Annual Percentage Yield)

Timebased Units (Interest Rate Statement)
Solving Problems related to Nominal and Effective Interest Rates

Solving Problems related to Nominal and Effective Interest Rates

Derivation of Effective Annual Interest Rate
Equivalence Relation: Payment Period and Compounding Period
Effective Interest rate of any time and Financial Effectiveness and Efficiency

Effective Interest rate for any time period

Equivalence Relation (PP<CP)

Financial Effectiveness and Efficiency
Evaluating an Engineering Project (Comparison and Selection of Alternatives)
Taking Decision on the Basis of Present and the Future Worth Method

The Present worth Method

The decision of PW Method

Relation between i & PW

Find that the Project is Economically Justified?

The Future worth Method
Taking Decision on the Basis of Annual Worth Method

The Annual worth Method
Comparing the Business Alternatives for taking the Decision

Comparing Alternative Businesses

Solving Problems related to Present worth analysis

Solving Problems related to Future worth analysis
Linear Programming
Objective Functions, Constrains and Main Elements of Linear Programming

Operations Research

Objective Functions and Constraints of Linear Programming

Main Elements of Linear Programming
The Reddy Mikks Company Model
Payback Period of any Investment
Understand Payback and Discounted Payback Period of any Business

Case 1 : For Even Cash Flow

Case 2: For Uneven Cash Flow

Solving Problems related to the Payback Period (Even and Uneven Cash Flows)

Discounted Payback Period
Internal Rate of Return and Solving Problems related to it

Internal Rate of Return

Solving Problems Related to Internal rate of Return
Understand about Incremental Cash Flow and Mutually Exclusive Project Analysis

Incremental Cash Flow

Mutually Exclusive Project Analysis
Replacement Decision Analysis and Lives of Asset

Replacement Decision Analysis

Type of Lives of Asset
1. Economic Life
2. Ownership Life
3. Physical Life
4. Useful Life

Replacement Analysis Using PW (Present worth Analysis)
Replacement Analysis using Estimated Uniform Annual Cost (EUAC)

Solving Problems related to EUAC for Replacement Analysis
Understand about the Economic Life of New Asset
Depreciation
Deprecation of Tangible and Intangible Property and Methods of Deprecation

Deprecation of Tangible and Intangible Property

Types of Depreciation (Normal and Monetary)

Methods of Deprecation
1. Straight Line (SL) Method
2. Sum of the Year Digit Method
3. Declining Balance Method
4. Double Declining Balance
Modified Accelerated Cost Recovery (MACRS)

Declining Balance with switch over Straight Line Method

Modified Accelerated Cost Recovery (MACRS)
Solving Problems related to Depreciation and MACRS
Cost Concept in Economics
Concepts of Cost, Volume and BreakEven Point for any Startup Business

What is meant by Cost?

Elements of the Product
Prime Cost vs Conversion Cost , Fixed Cost vs Variable Cost and Types of Cost

Prime Cost vs Conversion Cost

Fixed Cost vs Variable Cost

Types of Cost
Â· Differential Cost
Â· Opportunity Cost
Â· Sunk Cost
Â· Standard/Average/Budgeted Cost
Â· Controllable Cost
Â· Uncontrollable Cost
Understanding Curve of Demand, Supply and BreakEven Point for Profit and Loss

Concept of Cost, Volume, and BreakEven Point

Understanding about BreakEven Point

Conditions for the Profit and Loss in the Business

The curve of Demand, Supply and BreakEven Point for Determining Conditions for the Profit and Loss

Solving Problems related to the Topic
Evaluating Projects with BenefitCost Ratio Method and Dis Benefits

Evaluating Projects with BenefitCost Ratio Method

Using Conventional and Modified Approaches of Present Worth

Dis benefits of Benefits Cost Ratio Method
Understanding the Time Value of Money

1Introduction to Economics and Difference between Wants and Desires.

2Macro and Micro Economics, Engineering Economics and Economic Behavior

3Theory and Laws of Demand and Supply

4Understanding the Market Equilibrium and Elasticity concepts in Economics

5Market Structure and Types of Businesses
Evaluating a Engineering Project (Comparison and Selection of Alternatives)

6Understand Simple and Compound Interest with Problems and Cash Flow Diagramming

7Annuity and Deferred Annuity and Solving Example Problems related to them

8Gradient Problem and using Gradient Conversion for Solving Problems

9Nominal and Effective Interest Rate and Concepts of APR and APY

10Solving Problems related to Nominal and Effective Interest Rates

11Equivalence Relation: Payment Period and Compounding Period

12Effective Interest rate of any time and Financial Effectiveness and Efficiency
Linear Programming in Economics.
Payback Period of any Investment
Depreciation

18Understand Payback and Discounted Payback Period of any Business

19Internal Rate of Return and Solving Problems related to it

20Understand about Incremental Cash Flow and Mutually Exclusive Project Analysis

21Replacement Decision Analysis and Lives of Asset

22Replacement Analysis using Estimated Uniform Annual Cost (EUAC)

23Understand about the Economic Life of New Asset