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Note for Engineering Economics - EE by shweta sharma

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www.Vidyarthiplus.com 2.10 Supply curve - law of supply 40 2.11 Elasticity of supply 42 2.12 time element in the determination of value 43 2.13 Market price and normal price 44 2.14 Perfect competition 45 2.15 Monopoly - monopolistic competition. 3 4 50 ORGANISATION 3.1 Forms of business 54 3.2 Proprietorship - partnership 54 3.3 Joint stock company 54 3.4 Cooperative organisation - state enterprise 55 3.5 Mixed economy 55 3.6 Money and banking 56 3.7 Commercial banks 56 3.8 Central banking functions 57 3.8 Control of credit 57 3.9 Monetary policy 59 3.10 Credit instrument. 62 FINANCING 4.1 Types of Loans 66 4.2 External Commercial Borrowings (Ecb) 67 4.3 International Finance Corporations. 68 4.4 Objectives of Funds Flow: 69 www.Vidyarthiplus.com

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www.Vidyarthiplus.com 4.5 Financial Statement Analysis 4.6 Long-Term Borrowing 4.7 Short-Term Borrowing: 4.8 Balance sheet: 4.9 Profit or Loss Account: 5 70 71 72 72 73 COST AND BREAK EVEN ANALYSES 5.1 Methods of Costing and Types of Costing 74 5.2 Cost out put relation 78 5.3 Short run Cost Output Relations 78 5.4 Long run Cost Output Relations 78 5.5 Full cost pricing 79 5.6 Marginal-cost pricing 79 5.7 Definition Of 'Bid Priceing' 80 5.8 Rate of return pricing. 80 5.9 Basics for Assessing Rate of Return. 81 5.10 Internal Rate Of Return - Irr 82 5.11 Net Present Value 83 5.12 Payback Method 84 5.13 Profitability Index 84 5.14 Net Present Value 84 5.15 Cost–benefit analysis 85 5.16 Feasibility report: 87 5.17 Technical feasibility. 88 5.18 Permanent settlement. www.Vidyarthiplus.com 88

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www.Vidyarthiplus.com 5.19 Economic feasibility study. 5.20 Economic Feasibility Analysis. 5.21 Break-even Analysis 89 90 90 5.22 Financial Feasibility Study 92 5.23 Break-Even Analysis Assumptions: 93 5.24 Managerial Uses of Break-Even Analysis: 93 www.Vidyarthiplus.com

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www.Vidyarthiplus.com CE 2451 Engineering economics and cost analysis Chapter-1 Basic Economics 1.1 DEFINITION - ECONOMICS Economics is the science that deals with production, exchange and consumption of various commodities in economic systems. It shows how scarce resources can be used to increase wealth and human welfare. The central focus of economics is on scarcity of resources and choices among their alternative uses.The resources or inputs available to produce goods are limited or scarce. This scarcity induces people to make choices among alternatives, and the knowledge of economics is used to compare the alternatives for choosing the best among them. For example, a farmer can grow paddy, sugarcane, banana, cotton etc. In his garden land. But he has to choose a crop depending upon the availability of irrigation water.Two major factors are responsible for the emergence of economic problems. They are: i) the existence of unlimited human wants and ii) the scarcity of available resources. The numerous human wants are to be satisfied through the scarce resources available in nature. Economics deals with how the numerous human wants are to be satisfied with limited resources. Thus, the science of economics centres on want - effort - satisfaction. Economics not only covers the decision making behaviour of individuals but also the macro variables of economies like national income, public finance, international trade and so on. A. DEFINITIONS OF ECONOMICS Several economists have defined economics taking different aspects into account. The word ‘Economics’ was derived from two Greek words, oikos (a house) and nemein (to manage) which would mean ‘managing an household’using the limited funds available, in the most satisfactory manner possible.i) Wealth DefinitionAdam smith (1723 - 1790), in his book “An Inquiry into Nature and Causes of Wealth of Nations” (1776) defined economics as the science of wealth. He explained how a nation’s wealth is created. He considered that the individual in the society wants to promote only his own gain and in this, he is led by an “invisible hand” to promote the interests of the society though he has no real intention to promote the society’s interests. Criticism: Smith defined economics only in terms of wealth and not in terms of human welfare. Ruskin and Carlyle condemned economics as a ‘dismal science’, as it taught selfishness which was against ethics. However, now, wealth is considered only to be a mean to end, the end being the human welfare. Hence, wealth definition was rejected and the emphasis was shifted from ‘wealth’ to‘welfare’. ii) Welfare Definition Alfred Marshall (1842 - 1924) wrote a book “Principles of Economics”(1890) in which he defined “Political Economy” or Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of well being”. The important features of Marshall’s definition are as follows: SCE 1 Department of civil engineering www.Vidyarthiplus.com

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