engineering economy (on an excel spread sheet) 1-1. To illustrate the law of lar

Question

engineering economy (on an excel spread sheet)


1-1. To illustrate the law of large numbers in an economic setting, consider the “One Laptop per Child project pioneered by a team of engineers from M.I.T. This computer will be sold in remote parts of the world (e.g., rural Cambodia and Nepal) for $50 apiece. If the profit per computer is a mere #0.10 and the estimated market size in 2009 is 100 million students, what is the total profit on this humanitarian effort? (1.3)

1-4. Tyler just wrecked his new Nissan, and the accident was his fault. The owner of the other vehicle got two estimates for the repairs: one was for $803 and the other was for $852. Tyler is thinking of keeping the insurance agencies out of the incident to keep his driving record “clean”. Tyler’s deductible on his comprehensive coverage insurance is $500, and he does not want the premium to increase because of the accident. In this regard, Tyler estimates that his semiannual premium will rise by $60 if he files a claim against his insurance company. In view of the above information, Tyler’s initial decision is to write a personal check for $803 payable to the owner of the other vehicle. Did Tyler make the most economical decision? What other options should Tyler have explored? In your answer, be sure to state you assumptions and quantify your thinking. (1.3)


1-9. Automobile repair shops typically recommend that their customers change theirs oil and oil filter every 3,000 miles. Your automobile user’s manual suggests changing you oil every 5,000-7,000 miles. If you drive your car 15,000 miles each year and an oil and filter change costs $30, how much money would you save if you had this service performed every 5,000 miles? (1.3)

Explanation / Answer

1.1 Profit per piece = $ 0.10

Estimated market size = 100 million units

Total estimated profit = $ 0.10 * 100 million = $ 10 million

1.4 Let's review the two options that Tyler has

Option 1 - Tyler writes a personal check for $ 803 to pay the owner of the vehicle

Option 2 - Tyler files an insurance claim. In this case, Tyler would pay $ 500 towards the compulsory deductible and rest of $ 303 would be paid by the insurance company. Additionally Tyler would have to pay $ 60 additional insurance premium on semiannual basis. So if Tyler is keeping his car for 2.5 years more, then his total cost over the 2.5 years period will be $ 60*5 = $ 300, In this case the total cost paid by him ( = 500+300 = $ 800) will nearly equal the upfront payment made by him of $ 803 in option 1.

So if Tyler is keeping the car for less than 2.5 years, then it is more economical to file the insurance claim, otherwise it is more economical to write personal check for $ 803 and not involve the insurance company in this and keep his record clean.

1.9 Changing the oil and filter every 3000 miles will require 5 services for the 15000 miles every year. This will cost $ 30*5 = $ 150

The second option of getting this service performed every 5000 miles will require 3 services for the 15000 miles every year. So the oil and filter change will cost every year = $ 30*3 = $ 90

Money saved = $ 150 - $ 90 = $ 60 per year

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