Arab Academy for Science and Technology
Industrial and Management Engineering Department
Course: NE-364 Engineering Economy
Tutorial Problems #2
The General Economic Environment
2-12. A lash adjuster keeps pressure constant on engine valves, thereby increasing fuel
efficiency in automobile engines. The relationship between price (p) and monthly demand (D)
for lash adjusters made by the Wicks Company is given by this equation: D = (2,000 − p)/0.10.
What is the demand (Dˆ) when total revenue is maximized? What important data are needed if
maximum profit is desired? (2.2)
2-14. A large wood products company is negotiating a contract to sell plywood overseas. The
fixed cost that can be allocated to the production of plywood is $800,000 per month. The
variable cost per thousand board feet is $155.50. The price charged will be determined by
p = $600 − (0.05)D per 1,000 board feet. (2.2)
a. For this situation, determine the optimal monthly sales volume for this product and calculate
the profit (or loss) at the optimal volume.
b. What is the domain of profitable demand during a month?
2-15. A company produces and sells a consumer product and is able to control the demand for
the product by varying the selling price. The approximate relationship between price and
demand is p = $38 +2,700/D −5,000/D2, for D > 1, where p is the price per unit in dollars and D
is the demand per month. The company is seeking to maximize its profit. The fixed cost is
$1,000 per month and the variable cost (cv) is $40 per unit. (2.2)
a. What is the number of units that should be produced and sold each month to maximize
profit?
b. Show that your answer to Part (a) maximizes profit.
2-20. A plant operation has fixed costs of $2,000,000 per year, and its output capacity is
100,000 electrical appliances per year. The variable cost is $40 per unit, and the product sells
for $90 per unit.
a. Construct the economic breakeven chart.
b. Compare annual profit when the plant is operating at 90% of capacity with the plant
operation at 100% capacity. Assume that the first 90% of capacity output is sold at $90 per unit
and that the remaining 10% of production is sold at $70 per unit. (2.2)
A manufacturing company leases a building for $100,000 per year for its manufacturing
facilities. In addition, the machinery in this building is being paid for in installments of $20,000
per year. Each unit of the product produced costs $15 in labor and $10 in materials. The product
can be sold for $40. Use this information to answer Problems 2-54 through 2-56.
Select the closest answer. (2.2)
2-54. How many units per year must be sold for the company to breakeven?
(a) 4,800 (b) 3,000 (c) 8,000
(d) 6,667 (e) 4,000
2-55. If 10,000 units per year are sold, what is the annual profit?
(a) $280,000 (b) $50,000 (c) $150,000
(d) −$50,000 (e) $30,000
2-56. If the selling price is lowered to $35 per unit, how many units must be sold each year for
the company to earn a profit of $60,000 per year?
(a) 12,000 (b) 10,000 (c) 16,000
(d) 18,000 (e) 5,143
1D 2000 p 1D
0 P = 2000 0
- -
=
. .
a= 2000 ,
b = 0 . 1
?
Rev .
=
2000D - 0 . ID
AR
2000 - 0 .
2D = 0
=
B
-
=
=
10000 units
To maximize profit ,
the incremental cost is needed
CF $800, 000/month
=
,
v= $155 5/thbf .
P =
600 -
0 .
05D >
- a = 600
b= 0 .
05
9) GOOD-0 05D2 .
- (800 000 + 155 5D)
,
.
=
P
P =
-
0 .
05D2 1444 -
5D -800, 000
& = - 01D + 444 5 .
=
0
D 4445 units/month
P = - 0 .
05(4445)3 + 444 .
5(44H5) -
800,000
P = $187901 25/month .
b) Di , D2 = 6383 56 .
,
2506 44 .
= 6384 2506
,
profitable range is from 2506 units to 6384 units
DA
38 +
price =
200 -, C $1 000/mo , v Shot
=
,
=
C+ =
1000 + HOD
Revenue = 38D + 2700 -
5000D"
Profit = 38D + 2700 - 5000D" -
1000 - HOD
dProfit = 2 + 5000D2 0
- =
&D
?
5000 = 2D
A
D = 50 unit/mo .
profit =
-
2150) + 1700 - 50001501" = $1500/mo .
6)
profit = -10, 000 D
3
- 10000 (50) =
-0 . 08 0
:. Max profit -
-
CF = $2 ,
000
, 000/yr u= $40/unit
p = $90/unit
TC = COM + 40D
$n
SM
&
&
T D'
=
uM *
3 6M 40
00es
·
Di =
.
3M
&
&
24 CF price at BEP
. is
3 600, 000D
,
>
D
lok 20k 30k nok 500 Gok
b) 90 %
capacity ,
90
,
000 unit Sold 905 = 8 100
, ,
000 $
profit = 8 ,
100
,
000 (2,
-
000 000 +
,
H0x90 000 , = 2 , 500 ,
000
100%
capacity >
90 000 * 90 = $8 100 000
000
, ,
7-8
,
,
800
70 =$700
,
>
10 ,
000 *
,
000
profit = 8 800
, ,
000 -
(2 ,
000 000 +
,
40x100 ,
000) = 2 800 000
, ,
$
at 100 % capacity more profit obtained.
CF $120 ,
= 000
,
v= $25 /unit , price =
Ho
TC = 120,000 + 25D
120 ,000
D' = -
8000 units
H0-25
profit [10
=
,
000 x40] [25-110000)
- -
120 , 000 = $30000
60 , 000 = [D * 35] -
[DA25] -
120,000
> D = 18 ,000
