CCP Economic Analysis and Engineering Economics 3

Question 1

Life Cycle Cost (LCC) analysis in engineering economics encompasses:

Accepted Answer

All costs from acquisition through disposal over the asset's entire life

Answer

LCC includes all costs — acquisition, installation, operation, maintenance, and disposal — over the full life of an asset, ensuring total economic comparison.

Question 2

The 'sunk cost' principle in engineering economics states that sunk costs should be:

Accepted Answer

Ignored when making future economic decisions because they are unrecoverable

Answer

Sunk costs are past expenditures that cannot be recovered regardless of future actions, so they are irrelevant to forward-looking economic decisions.

Question 3

In economic analysis, 'opportunity cost' is best defined as:

Accepted Answer

The value of the best foregone alternative when a resource allocation decision is made

Answer

Opportunity cost is the economic value of the best alternative that must be sacrificed when a choice is made among competing uses of scarce resources.

Question 4

Break-even analysis identifies the point at which:

Accepted Answer

Total revenues exactly equal total costs, yielding neither profit nor loss

Answer

Break-even is the output level or sales volume at which total revenue equals total cost, resulting in zero profit — the minimum viable performance threshold.

Question 5

According to the Fisher equation, how does inflation affect the relationship between nominal and real rates of return?

Accepted Answer

The real rate of return is lower than the nominal rate when inflation is positive

Answer

The Fisher equation shows that the real rate ≈ nominal rate − inflation rate; positive inflation reduces the real purchasing power of returns below the nominal rate.

CCP - Certified Cost Professional Practice Test

CCP - Certified Cost Professional Practice Test

CCP Economic Analysis and Engineering Economics 3