Stan Moneymaker has been informed of a major automobile manufacturer’s plan to conserve on gasoline consumption through improved engine design. The idea is called “engine displacement,” and it works by switching from 8-cylinder operation to 4-cylinder operation at approximately 40 miles per hour. Engine displacement allows enough power to accelerate from a standstill and to climb hills while also permitting the automobile to cruise at speeds over 40 miles per hour with little loss in driving performance. The trade literature studied by Stan makes the claim that the engine displacement option will cost the customer an extra $1,200 on the automobile’s sticker price. This option is expected to save 4 miles per gallon (an average of in-town and highway driving). A regular 8-cylinder engine in the car that Stan is interested in buying gets an average of 20 miles per gallon of gasoline. If Stan drives approx-imately 1,200 miles per month, how many months of ownership will be required to make this $1,200 investment pay for itself? Stan’s
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Engineering Economy
- Your boss has asked you to evaluate the economics of replacing 1,000 60-Watt incandescent light bulbs (ILBs) with 1,000 compact fluorescent lamps (CFLs) for a particular lighting application. During your investigation you discover that 13-Watt CFLs costing $2.00 each will provide the same illumination as standard 60-Watt ILBs costing $0.50 each. Interestingly, CFLs last, on average, eight times as long as incandescent bulbs. The average life of an ILB is one year over the anticipated usage of 1,000 hours each year. Each incandescent bulb costs $1.90 to install/replace. Installation of a single CFL costs $2.90, and it will also be used 1,000 hours per year. Electricity costs $0.12 per kilowatt hour (kWh), and you decide to compare the two lighting options over an 8-year study period. If the MARR is 10% per year, compare the economics of the two alternatives and write a brief report of your findings for the boss. Assume that both installation cost and cost of the bulbs occur at the…arrow_forwardThe town council of Frostbite, Ontario, is trying to decide whether to build an outdoor skating rink which would cost $1.2 million and last for only one season. Operating costs would be zero. Yearly passes would be sold to anyone who wanted to use the rink. If p is the price of the pass in dollars, the number demanded would be q = 1600 - 0.5p. The council has asked you to advise them on building the rink. You should tell them that Group of answer choices a. revenues won’t cover construction costs at any ticket price. There is no way to increase total consumer surplus by building the rink. b.if the rink is built and price is set to maximize profits, the town makes a profit and consumers will be better off. c.if the rink is built and price is set to maximize profits, the town makes a profit but consumers are worse off than without a rink. d.there is no price at which ticket revenues cover costs but the total consumer surplus from the rink exceeds costs. e.None of the above.…arrow_forwardPravjot Limited is launching a new product in 12 weeks and has a project team working on pricing strategy. The team has conducted some initial market research and considers that at a price of £400 no items will be sold, however for each successive price reduction of £25, weekly sales will increase by 10 units. The weekly product specific fixed costs are £2,500 and the variable costs are £75. Required: Calculate the optimum selling price and the quantity that would be sold at that price.arrow_forward
- The town council of Frostbite, Ontario, is trying to decide whether to build an outdoor skating rink which would cost $1.2 million and last for only one season. Operating costs would be zero. Yearly passes would be sold to anyone who wanted to use the rink. If p is the price of the pass in dollars, the number demanded would be q = 1600 - 0.8p. The council has asked you to advise them on building the rink. You should tell them that Group of answer choices revenues won’t cover construction costs at any ticket price. There is no way to increase total consumer surplus by building the rink. if the rink is built and price is set to maximize profits, the town makes a profit and consumers will be better off. if the rink is built and price is set to maximize profits, the town makes a profit but consumers are worse off than without a rink. there is no price at which ticket revenues cover costs but the total consumer surplus from the rink exceeds costs. None of the above. The function is…arrow_forwardWhile studying for the engineering economy final exam, you and two friends find yourselves craving a fresh pizza. You can’t spare the time to pick up the pizza and must have it delivered. “Pick-Up-Sticks” offers a 1-1/4-inch-thick (including toppings), 20-inch square pizza with your choice of two toppings for $15 plus 5% sales tax and a $1.50 delivery charge (no sales tax on delivery charge). “Fred’s” offers the round, deep-dish Sasquatch, which is 20 inches in diameter. It is 1-3/4 inches thick, includes two toppings, and costs $17.25 plus 5% sales tax and free delivery. Solve, a. What is the problem in this situation? Please state it in an explicit and precise manner. b. Systematically apply the seven principles of engineering economy (pp. 3–6) to the problem you have defined in Part (a). c. Assuming that your common unit of measure is dollars (i.e., cost), what is the better value for getting a pizza based on the criterion of minimizing cost per unitof volume? d. What other…arrow_forwardThe table below displays the cost and output per week (in EUR) of the company «Creativia» which produces community textile face masks. Total Product Quantity Total variable costs, Euro 0 0 250 350 450 450 650 600 750 750 800 950 830 1300 850 1800 Assume the price is EUR 4,00 and is constant at any quantity, Calculate the profit at the profit-maximizing output and show the area of profit on the graph. Determine below what price would the firm exit the market in the long run. Explain your answer.arrow_forward
- Ken’s firm is committed to reducing greenhouse gas by 10 tons per year. The firm’s cost of abating a ton of carbon is shown below: Quantity of Carbon Abated in tons Marginal Cost of Carbon Abatement 1 $3 2 $4 3 $5 4 $6 5 $7 6 $8 7 $9 8 $10 9 $11 10 $12 Ken also has the option to instead pay for a reforestation project that offsets a ton of carbon. Each reforestation project cost $7. What is the best combination of production abatement and reforestation abatement for Ken? How much money does Ken save byusing the reforestation abatement?arrow_forwardYou are the marketing manager of the Business Unit (BU) that produces polystyrene (which is an input to making lightweight rigid foam). The current Demand/Supply balance, as measured by the ICIS price, is $800 per ton of polystyrene. The BU has 2 plants and can produce a total of 1800 tons. At full capacity utilization, the BU’s average variable cost equals $1300/t and its average total cost equals $1700/t. Plant 1 has a capacity of 600 tons and a marginal cost of $900/t. Plant 2 has capacity of 1200 tons and a marginal cost of $1500/t. Due to exit of one competitor, you expect next year’s polystyrene ICIS price to increase to $1200. How much volume of polystyrene do you expect to produce next year, ifany? 2.What is your expected contribution margin for nextyear? 3. What is your expected profit for nextyear?arrow_forwardYou are the marketing manager of the Business Unit (BU) that produces polystyrene (which is an input to making lightweight rigid foam). The current Demand/Supply balance, as measured by the ICIS price, is $800 per ton of polystyrene. The BU has 2 plants and can produce a total of 1800 tons. At full capacity utilization, the BU’s average variable cost equals $1300/t and its average total cost equals $1700/t.Plant 1 has a capacity of 600 tons and a marginal cost of $900/t. Plant 2 has capacity of 1200 tons and a marginal cost of $1500/t. Due to exit of one competitor, you expect next year’s polystyrene ICIS price to increase to $1200. 1. How much volume of polystyrene do you expect to produce next year, if any? 2. What is your expected contribution margin for next year? 3. What is your expected profit for next year?arrow_forward
- Compare the three alternative global pricingstrategies.arrow_forwardA diesel refinery is upstream of an industrial farm. The runoff from the refinery pollutes the river and damages the crops. The farm earns $499 using the polluted water, but would earn $628 if it were clean. The refinery earns $1772 but would only earn $1607 if it had to divert resources to prevent the runoff. There are no environmental laws. Assume that a scrubbing machine that would prevent the runoff costs $24 plus an installation cost. What is the most that installation could cost for clean water to be the socially optimal outcome achieved through private bargaining? O a. $141.00 O b. $36.00 O c. Anything, the machine is not required as clean water will already be achieved. O d. $105.00 O e. $165arrow_forwardA large company in the communication and publishing industry has quantified the relationship between the price of one of its products and the demand for this product as Price=160−0.02×Demand for an annual printing of this particular product. The fixed costs per year (i.e., per printing)=$47,000 and the variable cost per unit=$40. What is the maximum profit that can be achieved? What is the unit price at this point of optimal demand? Demand is not expected to be more than 4,000 units per year. The maximum profit that can be achieved is $? (Round to the nearest dollar.) The unit price at the point of optimal demand is $? per unit. arrow_forward
- Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning