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Engineering Economy Quiz #5 Date: February 28, 2003 1) NAME ___________________ ☺☺☺☺☺☺☺☺☺ A privately owned Engineering Economy summer camp for youngsters has the following data for a 12-week session: Charge per camper Fixed costs Variable cost per camper Capacity a. $220 per week $51,000 per session $85 per week 200 campers Develop the mathematical relationships for total cost and total revenue. Y = the number of campers per week Total cost = Fixed costs + (Variable cost per camper) x (the number of campers) x 12 = 51,000 + 85 x (Y) x 12 Total revenue = (charge per camper) x (the number of campers per week) x 12 = 220 x (Y) x 12 b. What is the total number of campers that will allow the camp to just break even? Break-even Volume = Or 51,000 377.78 378 for a 12-week session 220 85 378/12 = 32 for a week 2) a) What is opportunity cost? What is a sunk cost? How should sunk costs be included in an economic analysis? 1. Opportunity cost may be defined as the potential benefit that is given up as you seek an alternative course of action. 2. Sunk cost is one that has already been incurred by past actions. Sunk costs are not relevant to decisions because they cannot be changed regardless of what decision is made now or in the future. 3. Sunk cost should be ignored in an economic analysis. b) A new video card costs $2 million to develop, costs $54 for each card manufactured and sells for $100. If 100,000 are produced, what is the Average Cost of each board? What is the Marginal Cost of each board? 2,000,000 54 100,000 $74 100,000 2. Marginal cost is $54. 1. Average cost =