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Engineering Economy 16th Edition by William Sullivan ,Elin Wicks, Koelling,
Edition 16ISBN: 978-0133439274Engineering Economy 16th Edition by William Sullivan ,Elin Wicks, Koelling,
Edition 16ISBN: 978-0133439274 Exercise 1
Stan Moneymaker needs 15 gallons of t!L. gasoline to top off his automobile's gas tank. If he drives an extra eight miles (round trip) to a gas station on the outskirts of town, Stan can save $0.10 per gallon on the price of gasoline. Suppose gasoline costs $3.00 per gallon and Stan's car gets 25 mpg for in-town driving. Should Stan make the trip to get less expensive gasoline Each mile that Stan drives creates one pound of carbon dioxide. Each pound of CO2has a cost impact of $0.02 on the environment. What other factors (cost and otherwise) should Stan consider in his decision making
Explanation
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The gas required in the car is 15 gallons. The price of gas in-town is $3 per gallon. If the person drives extra 8 miles, the cost of gas there is $2.90 per gallon. The mileage of the car is 25 miles per gallon. Each mile drive creates one pound of carbon dioxide which costs $0.02 on environment (social cost).
The person-S is dealing with two alternatives; one is to obtain gas near the house (in-the town) and other is to obtain gas on the outskirt of the town.
Alternative-A
If the person-S buys the gas in-town, following is the formula to calculate the cost:
Thus, the total cost of buying gas in-town is $45
Alternative-B
To get the gas at lesser rate, the person must drive extra 8 miles. It means the person needs extra gas to drive that extra 8 miles. It is given that the mileage of the car is 25 miles per gallon. Following is the formula to calculate the additional gas required to drive that extra 8 miles:
Thus, the person-S requires 0.32 gallons more to get the gas at $2.90 per gallon.
If the person-S buys the gas on the outskirt of town, following is the formula to calculate the cost:
Thus, the cost of buying gas on outskirt of the town is $44.428. This is not the total cost of buying gas on outskirt of the town because the cost to environment is not added till now.
The cost to environment is $0.02 per mile. The person-S drives 8 miles to get the gas at cheaper rate. Thus, the total cost to environment of that extra 8 miles is $0.16 ($0.02×8 miles)
Adding the two costs give the total cost of obtaining the gas at the cheaper rate. Thus, the total cost of buying gas on the outskirt o the town is $44.588 ($44.428+$0.16)Conclusion:
Yes, the person-S must take the trip to get less expensive gasoline because the total cost of obtaining the gasoline on the outskirt of the town ($44.588) is less than the total cost of obtaining the gasoline in-town ($45 ).
The other factors the person-S must consider are as follows:
1) Depreciation of car
2) Probability of accident
3) Traffic Jam
4) Opportunity cost of time
The person-S is dealing with two alternatives; one is to obtain gas near the house (in-the town) and other is to obtain gas on the outskirt of the town.
Alternative-A
If the person-S buys the gas in-town, following is the formula to calculate the cost:
Thus, the total cost of buying gas in-town is $45 Alternative-B
To get the gas at lesser rate, the person must drive extra 8 miles. It means the person needs extra gas to drive that extra 8 miles. It is given that the mileage of the car is 25 miles per gallon. Following is the formula to calculate the additional gas required to drive that extra 8 miles:
Thus, the person-S requires 0.32 gallons more to get the gas at $2.90 per gallon. If the person-S buys the gas on the outskirt of town, following is the formula to calculate the cost:
Thus, the cost of buying gas on outskirt of the town is $44.428. This is not the total cost of buying gas on outskirt of the town because the cost to environment is not added till now.The cost to environment is $0.02 per mile. The person-S drives 8 miles to get the gas at cheaper rate. Thus, the total cost to environment of that extra 8 miles is $0.16 ($0.02×8 miles)
Adding the two costs give the total cost of obtaining the gas at the cheaper rate. Thus, the total cost of buying gas on the outskirt o the town is $44.588 ($44.428+$0.16)Conclusion:
Yes, the person-S must take the trip to get less expensive gasoline because the total cost of obtaining the gasoline on the outskirt of the town ($44.588) is less than the total cost of obtaining the gasoline in-town ($45 ).
The other factors the person-S must consider are as follows:
1) Depreciation of car
2) Probability of accident
3) Traffic Jam
4) Opportunity cost of time
Engineering Economy 16th Edition by William Sullivan ,Elin Wicks, Koelling,
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