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Which one of the following problems is most suitable for analysis by engineering economic analysis?
(a) One of your two favorite sandwich shops offers a 10-punch loyalty card and the other does not. Where should you stop today?
(b) A woman has $150,000 in a bank checking account that pays no interest. She can either invest it immediately at a desirable interest rate or wait a week and know that she will be able to obtain an interest rate that is 0.15% higher.
(c) Joe backed his car into a tree, damaging the fender. He has car insurance that will pay for the fender repair. But if he files a claim for payment, they may charge him more for car insurance in the future.
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You must fly to another city for a Friday meeting. If you stay until Sunday morning your ticket will be $250, rather than $800. Hotel costs are $200 per night. Compare the economics with reasonable assumptions for meal expenses. What intangible consequences may dominate the decision?
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In the fall, Jay Thompson decided to live in a university dormitory. He signed a dorm contract under which he was obligated to pay the room rent for the full college year. One clause stated that if he moved out during the year, he could sell his dorm contract to another student who would move into the dormitory as his replacement. The dorm cost was $6300 for the two semesters, which Jay had already paid.
A month after he moved into the dorm, he decided he would prefer to live in an apartment. That week, after some searching for a replacement to fulfill his dorm contract, Jay had two offers. One student offered to move in immediately and to pay Jay $500 per month for the seven remaining months of the school year. A second student offered to move in the second semester and pay $2800 to Jay.
Jay estimates his food cost per month is $350 if he lives in the dorm and $300 if he lives in an apartment with three other students. His share of the apartment rent and utilities will be $450 per month. Assume each semester is 4½ months long. Disregard the small differences in the timing of the disbursements or receipts.
(a)What are the three alternatives available to Jay?
(b)Evaluate the cost for each of the alternatives.
(c)What do you recommend that Jay do?
Sample Solution
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