is one of the social sciences

which consists of that body of

ECONOMICS knowledge dealing with people
and their assets or resources.

is defined as that branch of

Economics which involves the
ENGINEERING application of definite laws of
ECONOMY Economics, theories of
investment and business
practices to engineering problems
involving cost
Engineers have wrought immense
changes in improving the well –
being of mankind through their
inventions and their applications of
scientific principles to the varied
problems of industry.
It is observed that the most successful
ones are those who gradually divorce
themselves from the technical aspects of
engineering and who devote their time
and effort to financial problems related to
engineering work.
Seeking of new objectives for the
applications of engineering.
Discovery of factors limiting the success
of a venture of enterprise.
Analysis of possible investment of capital
Comparison of alternatives as a basis for
decision.
Determination of bases for decision
The Economy Analysis

The Financial Analysis

The Intangible Analysis

Tangible Factors
– are those which can be expressed in terms of
monetary values.
Intangible Factors
– are those which are difficult or impossible to
express definitely in terms of monetary values.
Perfect Competition
– Perfect competition occurs when a certain
product is offered for sale by many vendors or
suppliers and there is no restriction against other
vendors from entering the market.
Monopoly
– Monopoly is the opposite of perfect competition.
A perfect monopoly occurs when a unique
product or service is available only from a single
supplier and entry of all other possible suppliers is
prevented.
Oligopoly
– Oligopoly occurs when there are few suppliers
and any action taken by anyone of them will
definitely affect the course of action of the
others.
Price and Production
– The price of a good or commodity is defined to be
the amount of money or its equivalent which is
given in exchange for it.
Local and National Market
– A market is defined to be a place where sellers
and buyers come together.
Consumer and Producer Goods
– Consumer goods are those that are consumed or
used directly by people, or are things and services
which serve to satisfy human needs.
Demand
– Demand is the quantity of a certain commodity
that is bought at a certain price at a given place
and item.
 Law of Demand
– The demand for a commodity varies inversely as
the price of the commodity, though not
proportionately.
Law of Demand
Elasticity of Demand
– Elastic demand occurs when a decrease in selling
price will cause a greater that proportionate increase
in the volume of sales.
– Inelastic demand occurs when a decrease in selling
price will cause a less than proportionate increase in
sales.
– Unitary elasticity of demand occurs when the
mathematical product of price and volume of sales
remains constant regardless of any change in price.
Utility and Demand
– Utility is defined to be the capacity of a
commodity to satisfy human want.
Law of Diminishing Utility
– An increase in the quantity of any good
consumed or acquired by an individual will
decrease the amount of satisfaction derived from
that good.
Marginal Utility
– Marginal utility of a commodity is the utility of
the last unit of the same commodity which is
consumed or acquired.
Supply
– Supply is the quantity of a certain commodity
that is offered for sale at a certain price at a given
place and time.
Law of Supply
– The supply of a commodity varies directly as the
price of the commodity, though not
proportionately.
Law of Diminishing Returns
– When one of the factors of production is fixed in
quantity or is difficult to increase, increasing the
other factors of production will result in a less
than proportionate increase in output.
Marginal Revenue and Marginal Cost
– Marginal revenue is that amount received from
the sale of an additional unit of a product.
– Marginal cost is the additional cost of producing
one more unit.
Physical and Economic Efficiency

PHYSICAL OUTPUT IN PHYSICAL UNITS

EFFICIENCY INPUT IN PHYSICAL UNITS

ECONOMIC INCOME IN PESOS

EFFICIENCY COST IN PESOS

ANNUAL NET PROFIT

RATE OF RETURN
CAPITAL INVESTED

CAPITAL INVESTED
PAYOUT PERIOD
NET ANNUAL CASH FLOW
Present Economy involves the analysis of
problems for manufacturing a product or
rendering a service based on present or
immediate costs.
Present economy studies occur in the
following situations:
Selection of Material
Selection of Method
Selection of Design
Site Selection
Comparison of Proficiency of Workers
Economy of Tool and Equipment
Maintenance
Economy in the Utilization of Personnel
A machine part to be machined may be made
either from an alloy of aluminum or steel.
There is an order for 8000 units. Steel costs
P3.80 per kg, while aluminum costs P8.70 per
kg. If steel is used, the steel per unit weighs
110g; for aluminum, 30g. When steel is used,
50 units can be produced per hour; for
aluminum, 80 units per hour with the aid of a
tool costing P640, which will be useless after
the 8000 units are finished. If all other costs
are identical, determine which material will
be more economical.
 Material
Cost
110
3.80  P 30
8.70  P
1,000 1,000
0.418 0.261
Labor and 10.80 10.80
 
Machine 50 80
0.216 0.135640
Tool ----- ----- 
8000
0.080
Cost per pc P P
Cost of 8000 0.634 0.476
units
P 5, P 3,
072 808
A Diesel engine uses Type A filter and high –
grade lubricating oil costing P5.50/L. With this
filter, the oil and the filter have to be changed
every 500 hours of operation and 5 liters of oil
have to be added every 100 hours. This filter
costs P148 a piece. 80 liters of oil fill the engine.
Another type, filter B, costing P120 may be used
with a lower grade of oil costing P4.80 per liter.
However, if this filter is used, the oil and filter
have to be changed every 300 hours and 10 liters
are added after each 150 hours the engine is
used. Which type of filter and oil would you
The ore of a gold mine in the Mountain Province
contains, on the average, 0.5g of gold per ton.
One method of processing costs P1,650 per ton
and recovers 93% of the gold, while another
method costs only P 1, 500 per ton and recovers
81% of the gold. If gold can be sold at P8, 500
per gram, which method is better and by how
much?
A certain manufacturing company received an
order for producing 100, 000 pieces of a certain
machine part. A jig is necessary for production
and two designs are presented whose properties
are as follows: JIG A JIG B
Estimated Life 100, 000 pcs 100, 000 pcs
First Cost P5, 000 P4, 200
Hourly Wage of P30 P 25
Operator
No. of pcs 100 80
produced/hr

If the only consideration is economy of operation,

determine which jig should he used.
A company manufactures 1, 000, 000 units of a
product yearly. A new design of the product will
reduce materials cost by 12%, but will increase
processing cost by 2%. If materials cost is
P1.20/unit and processing will cost P0.40/unit,
how much can the company afford to pay for
the preparation of the new design and making
changes in equipment?
A certain masonry dam requires 200, 000 cu.m.
of gravel for its construction. The contractor
found two possible sources for the gravel with
the following data:
SOURCE A SOURCE B
Average distance, gravel pit to 3.0 km 1.2 km
dam site
Gravel cost/cu.m at pit ---------- P 10.00
Purchase price of pit P 800, 000 -----------
Road construction necessary P 450, 000 None
Overburden to be removed at -------------- 90, 000 cu.m
P4.20/cu.m
Hauling cost/cu.m per km P 4.00 P 4.00

Which of the two sites will give lesser cost?

Interest
Simple Interest
Ordinary Simple Interest
Exact Simple Interest
Compound Interest
SIMPLE INTEREST
If the interest to be paid is directly proportional to the
length of time the amount or principal is borrowed.
The principal is the amount of money borrowed and
on which interest is charged.
The rate of interest is the amount earned by one unit
of principal during a unit of time.
SIMPLE INTEREST

I  Pin
The total amount F to be repaid is equal to the
sum of the principal and the total interest earned:

F  P 1  in 
 Ordinary simple interest is computed on the basis
of one banker’s year (360 days).

 Exact simple interest is based on the exact

number of days, 365 days for an ordinary year
and 366 days for a leap year.
Determine the ordinary simple interest on P10,
000for 9 months and 10 days if the rate of
interest is 12%
Determine the ordinary and exact simple interests
on P5, 000 for the period from January 15 to
June 20, 1993, if the rate of interest is 14%.
Determine the ordinary and exact simple interests
on P1, 200 for the period from January 16 to
November 26, 1992, if the rate of interest is
24%.
 Compound Interest, the interest earned by the
principal is not paid at the end of each interest
period, but is considered as added to the
principal and therefore will also earn interest for
the succeeding periods.
F  P 1  i  n

 Continuous Compounding

F  Pe rn
If the sum of P12, 000 is deposited in an account
earning interest at the rate of 9% compounded
quarterly, what will it become at the end of 8
years?
At a certain interest rate compounded quarterly,
P1000 will amount to P4, 500 in 15 years. What
is the amount at the end of 10 years?
A man possesses a promissory note, due 3 years
hence, whose maturity value is P6, 700.48. If the
rate of interest is 10% compounded semi –
annually, what is the value of this note now?
The expansion plan of a business form requires
the purchase of a parcel of land on which to
build a structure, which they will need 5 years
hence. The current costs are: land, P1, 000, 000;
building P3, 500, 000. Since these are not
needed immediately, the firm plans to defer the
purchase of the land and the construction of the
building until they are needed. If the value of the
land and the cost of the building are expected to
appreciate at the rates of 20% and 8% per
annum, respectively, what will be the total cost
of the land and the structure 5 years hence?
Nominal Rate of Interest
For compound interest, the rate of interest
usually is quoted is nominal rate of interest
which specifies the rate of interest and the
number of interest periods per year.