Engineering Economics

By the end of the course the student knows the fundamentals of microeconomics (demand and supply, market equilibrium, elasticity, production technology and cost functions, market structures from perfect competition to monopoly), macroeconomics (real and nominal GDP, GDP deflator, money and the banking system, inflation and unemployment, fiscal policy) and engineering economics (time value of money, simple and compound interest, discounting, cash flows).

The student is also able to apply this knowledge to engineering problems: computing market equilibria and elasticities, deriving supply curves and profit-maximisation conditions, assessing project profitability through NPV, IRR, payback and the benefit-cost ratio, and choosing among project alternatives even of different duration, developing independent judgement in economic decision-making within a technical context.

The course is delivered through lectures in which theory is presented with the support of graphs and real-world examples, alternating with guided exercise sessions where exam-type problems are solved step by step. Final-exam simulations and the discussion of applied cases are also planned.

Basic mathematical skills acquired in the first year are required: elementary algebra, linear and quadratic functions, solving systems of equations, derivatives (for marginal analysis of revenues and costs), as well as percentages and powers, essential for compounding and discounting techniques.

No prior knowledge of economics is needed, as concepts are introduced from the ground up; familiarity with reading and interpreting Cartesian graphs (demand/supply, cost and cash-flow curves) is nonetheless helpful.

Attendance is not formally compulsory but is strongly recommended. Classes are held on Wednesday (11:00–14:00, room V4) and Thursday (15:00–18:00, room D23); students should check the days and rooms published for the current academic year, as they may change.

Microeconomics module: scope and method of economics, positive vs normative analysis; demand, supply and market equilibrium; price elasticity of demand; production technology and short- and long-run cost functions; market structures, with a focus on perfect competition (profit maximisation, break-even and shutdown price, long-run dynamics) and an overview of monopoly, monopolistic competition and oligopoly.

Macroeconomics module: measuring output and income (real and nominal GDP, GDP deflator, GDP components), inflation and unemployment, money and money creation under fractional-reserve banking, the exchange rate and elements of fiscal policy (reference chapters 11, 12, 13 as reading, 16 and 17 up to §17.3). Investment-evaluation module: cash flows and project economic life, simple and compound interest, discounting; profitability criteria (NPV, payback, IRR, benefit-cost ratio, annual equivalent, future value) and comparison among alternatives, including projects of different duration (repeatability assumption and least common multiple) and the role of the minimum acceptable rate of return (MARR).

For the microeconomics and macroeconomics modules the reference textbook is O'Sullivan, Sheffrin, Perez, Elementi di economia, Pearson Italia, supplemented by the lecturer's slides and notes (reference chapters indicated in the programme).

For the investment-evaluation module, the lecturer's handouts and worked exercises are used, together with a reference text in engineering economics (e.g. Sullivan et al., Engineering Economy, Pearson); students are advised to confirm with the lecturer the edition adopted for the current year.

Attending students are given the opportunity to take a written exam. The exam includes exercises on the modules of Microeconomics, Macroeconomics, and Financial Analysis of Investments. For each exercise, there will be an open-ended theoretical question and a practical exercise consisting of several problems to address and solve.

Students who take the exam during the official exam sessions will have an oral examination with the lecturer. In this case, the exam will include theoretical questions and a practical exercise to be completed during the examination.

Sample exercises: derive the inverse and direct demand curve from a (P, Q) pair and the elasticity; determine equilibrium price and quantity with linear curves and analyse a supply shock; maximise short-run profit and identify the shutdown price; derive the long-run supply curve and the break-even point.

Sample macro/investment items: compute nominal GDP, real GDP and the deflator; describe money creation in a fractional-reserve system; compare two projects by NPV at a given rate, compute the IRR by linear interpolation and compare it with the MARR, determine the payback period. Sample theory questions: distinguish market structures, explain the difference between positive and normative analysis, discuss the advantages and limitations of the payback method.