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 =