Business Economics – Learn to Evaluate Business & Projects

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 decision-making 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;
• Macro-level 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, non-monetary 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. Break-even analysis, unit cost of production, cost-benefit 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
• Equilibrium’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)
• Time-based 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 Break-Even Point for any Start-up 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

  · Differential Cost

  · Opportunity Cost

  · Sunk Cost

  · Standard/Average/Budgeted Cost

  · Controllable Cost

  · Uncontrollable Cost

Understanding Curve of Demand, Supply and Break-Even Point for Profit and Loss

• Concept of Cost, Volume, and Break-Even Point
• Understanding about Break-Even Point
• Conditions for the Profit and Loss in the Business
• The curve of Demand, Supply and Break-Even Point for Determining Conditions for the Profit and Loss
• Solving Problems related to the Topic

Evaluating Projects with Benefit-Cost Ratio Method and Dis Benefits

• Evaluating Projects with Benefit-Cost Ratio Method
• Using Conventional and Modified Approaches of Present Worth
• Dis benefits of Benefits Cost Ratio Method