Problems

1.1 In which of the following situations would engineering economics analysis play a strong role, and why?

(a) Buying new equipment

(b) Changing design specifications for a product

(c) Deciding on the paint colour for the factor)- floor

(d) Hiring a new engineer

(e) Deciding when to replace old equipment with new equipment of the same type

(f) Extending the cafeteria business hours

(g) Deciding which invoice forms to use

(h) Changing the 8-hour work shift to a 12-hour one

(i) Deciding how much to budget for research and development programs (j) Deciding how much to donate for the town's new library

(k) Building a new factory

(1) Downsizing the company

1.2 Starting a new business requires many decisions. List five examples of decisions that might be assisted by engineering economics analysis.

1.3 For each of the following items, describe how the design might differ if the costs of manufacturing, use, and maintenance were not important. On the basis of these descriptions, is it important to consider costs in engineering design?

(b) A television set

1.4 Leslie and Sandy, recently married students, are going to rent their first apartment. Leslie has carefully researched the market and has decided that, all things considered, there is only one reasonable choice. The two-bedroom apartment in the building at the corner of University and Erb Streets is the best value for the money, and is also close to school. Sandy, on the other hand, has just fallen in love with the top half of a duplex on Dunbar Road. Which apartment should they move into? Why? Which do you think they will move into? Why?

1.5 Describe the process of using the telephone as you might describe it to a six-year-old using it for the first time to call a friend from school. Describe using the telephone to an electrical engineer who just happens never to have seen one before. What is the correct way to describe a telephone?

1.6 (a) Karen has to decide which of several computers to buy for school use. Should she buy the least expensive one? Can she make the best choice on price alone?

(b) Several computers offer essentially the same features, reliability, service, etc. Among these, can she decide the best choice on price alone?

1.7 For each of the following situations, describe what you think you should do. In each case would you do this?

(a) A fellow student, who is a friend, is copying assignments and submitting them as his own work.

(b) A fellow student, who is not a friend, is copying assignments and submitting them as her own work.

(c) A fellow student, who is your only competitor for an important academic award, is copying assignments and submitting them as his own work.

(d) A friend wants to hire you to write an essay for school for her. You are dead broke and the pay is excellent.

(e) A friend wants to hire you to write an essay for school for him. You have lots of money, but the pay is excellent.

(f) A friend wants to hire you to write an essay for school for her. You have lots of money, and the pay is poor.

(g) Your car was in an accident. The insurance adjuster says that the car was totalled and they will give you only the "blue book" value for it as scrap. They will pick up the car in a week. A friend points out that in the meantime you could sell the almost-new tires and replace them with bald ones from the scrap yard, and perhaps sell some other parts, too.

(h) The CD player from your car has been stolen. The insurance adjuster asks you how much it was worth. It was a very cheap one, of poor quality.

(i) The engineer you work for has told you that the meter measuring effluent discharged from a production process exaggerates, and the measured value must be halved for recordkeeping.

(j) The engineer you work for has told you that part of your job is to make up realistic-looking figures reporting effluent discharged from a production process.

(k) You observe- unmetered and apparently unreported effluent discharged from a production process.

(1) An engineer where you work is copying directly from a manufacturer's brochure machine-tool specifications to be included in a purchase request. These specifications limit the possible purchase to the particular one specified.

(m)An engineer where you work is copying directly from a manufacturer's brochure machine-tool specifications to be included in a purchase request. These specifications limit the possible purchase to the particular one specified. You know that the engineer's 'best friend is the salesman for that manufacturer.

1.8 Ciel is trying to decide whether now is a good time to expand her manufacturing plant.

The viability of expansion depends on the economy (an expanding economy means mr ore sales), the relative value of the currency (a lower-valued currency means more e xports), and changes in international trade agreements (lower tariffs also mean more exports). These factors may be highly unpredictable, however. What two things can she do to help make sure she makes a good decision?

1.9 Trevor started a high-tech business two years ago, and now wants to sell out to one of his larger competitors. Tvo different buyers have made firm offers. They are similar in all but two respects. They differ in price: the Investco offer would result in Trevor's walking away with S2 000 000, while the Venture Corporation offer would give him S3 000 000. The other way they differ is that Investco says it will recapitalize Trevor's company to increase growth, while Trevor thinks that Venture Corporation will close down the business so that it doesn't compete with several of Venture Corporation's other divisions. What would you do if you were Trevor, and why?

1.10 Telekom Company is considering the development of a new type of cell phone based on a brand new, emerging technology. If successful, Telekom will be able to offer a cell phone that works over long distances and even in mountainous areas. Before proceeding with the project, however, what uncertainties associated with the new technology should they be aware of? Can sensitivity analysis help address these uncertainties?

More Challenging Problem

1.11 In Example 1.1 it is stated that in most circumstances, the Corvette is the right economic choice. Under what circumstances would either the Toyota or the BMW be the right choice?

Imperial Oil v. Quebec

In 1979, Imperial Oil sold a former petroleum depot in Levis, Quebec, which had been operating since the early 1920s. The purchaser demolished die facilities, and sold the land to a real estate developer. The developer conducted a cleanup that was approved by the Quebec Ministry of the Environment, which issued a certificate of authorization in 1987. Following this, the site was developed and a number of houses were built. However, years later, residents of the subdivision sued the environment ministrv claiming there was remaining pollution.

The ministry, under threat of expensive lawsuits, then ordered Imperial Oil to identify the pollution, recommend corrective action, and potentially pay for the cost of cleanup. In response, Imperial Oil initiated judicial proceedings against the ministry, claiming violation of principles of natural justice and conflict of interest on its part.

In February 2003, the Supreme Court of Canada ruled that the ministry had the right to compel Imperial Oil to do the cleanup and save public money, because Imperial was the originator of the pollution and the minister did not personally benefit.

Source: Imperial Oil v. Quebec (Minister of the Environment), [2003] 2 S.C.R. 624, 2003 SCC 58, Canadian Legal Information Institute (CanLII) site, www.canlii. org/ca /cas /scc /2003 /2003scc58.html, accessed September 20, 2004.

Discussion

There is often strong motivation for companies to commit environmental offences. Companies primarily focus on profits, and preventing environmental damage is always a cost. It benefits society to have a clean environment, but almost never benefits the company directly. Sometimes, in spite of the efforts of upper management to be good citizens,

CHAPTER 1 Engineering Decision Making

the search for profit may result in environmental damage. In a large companv it can be difficult for one person to know what is happening everywhere in the firm.

Older companies have an additional problem. An older company may have been producing goods in a certain way for years, and have established ways to dispose of waste. Changes in society make those traditional methods unacceptable. Even when a source of pollution has been identified, it may not be easy to fix. There may be decades of accumulated damage to correct. A production process may not be easily changed in a way that would allow the company to stay in business. Loss of jobs and the effect on the local economy may create strong political pressure to keep the company running.

The government has an important role to offset the profit motive for large companies, for example, by taking action through the courts. Unfortunately, that alone will not be enough to prevent some firms from continuing to cause environmental damage. Economics and politics will occasionally win out.

Questions

1. There are probably several companies in your city or country that are known to pollute. Name some of these. For each:

(a) What sort of damage do they do?

(b) How long have they been doing it?

(c) Why is this company still permitted to pollute?

(d) What would happen if this company were forced to shut down? Is it ethically correct to allow the company to continue to pollute?

2. Does it make more sense to fine a company for environmental damage or to fine management personally for environmental damage caused by a companv? V\Try?

3. Should the fines for environmental damage be raised enough so that no companv is tempted to pollute? Why or why not?

4. Governments can impose fines, give tax breaks, and take other actions that use economics to control the behaviour of companies. Is it necessary to do this whenever a company that pursues profits might do some harm to society as a whole? Why might a company do the socially correct thing even if profits are lost?

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