Homework Solutions for Engineering Economic Analysis, 10th Edition
Newnan, Lavelle, Eschenbach
Chapter 1: Making Economic Decisions
1-1
A survey of students answering this question indicated that they thought that about
40% of their decisions were conscious decisions.
1-2
(a) Yes. The choice of an engine has important money consequences, so it
would be suitable for engineering economic analysis.
(b) Yes. Important economic and social consequences. Some might argue that the
social consequences are more important than the economics.
(c) ? Probably there are a variety of considerations much more important than the
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 an
immediate loss of:
1/52 (0.09) = 0.0017= 0.17%
It would take over a year at 0.15% more to equal the 0.17% foregone now.
The candy bar problem is suitable for economic analysis. Compared to the
investment problem 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
, Homework Solutions for Engineering Economic Analysis, 10th Edition
Newnan, Lavelle, Eschenbach
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.
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.
2
, Homework Solutions for Engineering Economic Analysis, 10th Edition
Newnan, Lavelle, Eschenbach
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 subproblems.
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
, Homework Solutions for Engineering Economic Analysis, 10th Edition
Newnan, Lavelle, Eschenbach
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.
4
Newnan, Lavelle, Eschenbach
Chapter 1: Making Economic Decisions
1-1
A survey of students answering this question indicated that they thought that about
40% of their decisions were conscious decisions.
1-2
(a) Yes. The choice of an engine has important money consequences, so it
would be suitable for engineering economic analysis.
(b) Yes. Important economic and social consequences. Some might argue that the
social consequences are more important than the economics.
(c) ? Probably there are a variety of considerations much more important than the
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 an
immediate loss of:
1/52 (0.09) = 0.0017= 0.17%
It would take over a year at 0.15% more to equal the 0.17% foregone now.
The candy bar problem is suitable for economic analysis. Compared to the
investment problem 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
, Homework Solutions for Engineering Economic Analysis, 10th Edition
Newnan, Lavelle, Eschenbach
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.
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.
2
, Homework Solutions for Engineering Economic Analysis, 10th Edition
Newnan, Lavelle, Eschenbach
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 subproblems.
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
, Homework Solutions for Engineering Economic Analysis, 10th Edition
Newnan, Lavelle, Eschenbach
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.
4
