This document discusses various topics related to decision making, including: 1) It describes decision making as encompassing many small decisions made throughout the day, as well as more complex problems that require organized thought and have economic components. 2) It discusses different types of costs like fixed, variable, and semi-variable costs that are considered in economic analysis and how they relate to volume. Capital expenditures and new product design are provided as examples of problems requiring decision making. 3) An example is given showing how total costs change with volume based on the cost-volume relationship, with fixed costs remaining constant and variable costs and average unit costs decreasing as volume increases.

2. Decision making is an all encompassing
topic.
 How many decisions have you made
already today?
Should I get out of bed this morning?
Should I shower, brush my teeth, comb my
hair, etc.?

3. Complex problems – a mixture of
economic, political, and humanistic
When do we use engineering economic
analysis?

4. Average Unit Cost – cost on a per unit
basis
Variable cost per unit of volume is
constant
As volume increases, fixed cost per unit
decreases
While semi-variable cost changes
slightly

5. You get the picture. These are mini-
problems (or events that call for
decisions) that we are solving every
minute of every day.
These are what one would call “simple
problems”, that an individual can
solve.
Intermediate problems usually call for
decisions that are economic in nature.

6. The problem:
1) Is it sufficiently important.
2) Does it require organized thought.
3) Does it have an economic
component.

7. Capital expenditures – equipment
purchases
Design of new products

8. Proprietorship – a
business owned by an
individual
Partnership – more
than one owner
Corporation – a legal
entity created by a
state, lots of owners
from stock
(Government – the
ultimate corporation)

9. There are advantages of each type of business
and engineers are involved in all three types of
busines structures

11. 1) Equipment and process selection
2) Equipment replacement
3) New product and product expansion
4) Cost Reduction
5) Service Improvements

12. Made on the basis of the
Cost-Volume Relationship
(Price vs Quantity in
Micro.)
Volume index – unit
measure of volume
(based on inputs or
outputs)
Input – person/hours
Output –
hamburgers/day that
are made
Volume of activity,
quantity of product
produced, is related to
the cost of producing the
product (or the price
charged).

13. Fixed Costs – cost of doing business,
basic operating cost
Variable Costs – cost related to the
volume of business performed
The materials put into the product,
increases with the amount of
product produced
Semi-Variable Costs – characteristics of
both (i.e. car value depreciation)

14. Fixed costs
Lease ($2000/month)
Dishes ($300/month)
Variable Costs
Amount of food
($1/person)
Paper products
($0.25/person)
Semi-Variable Costs
Utilities($1/50serv)
Wages($1/pers-serv)

15. Cost per person served
Servings/mon. 200 400 600 800
Lease 2000 2000 2000 2000
Dishes 300 300 300 300
Food 200 400 600 800
Paper 50 100 150 200
Utilities 4 8 12 16
Wages 200 400 600 800
Total Costs 2754 3208 3662 4116
Cost/serving 13.77 8.02 6.1 5.15

16. 200 400
1150
2300
3450
4600
Number of Servings
Total Costs
Variable Costs
Fixed Costs

17. This is the supply side of economic analysis.
The side that determines how much a
business, once doing this analysis will charge
as a price.
The demand side is how much an individual is
willing to pay for a product. As price
increases.

18. Price/Unit
Quantity Demanded
(Unit/time)
D
S
Volume and Price
Equilibrium