Chapter 1

Problem 1.1
Power plant generates electricity from coal. If the price of the electricity per
unit energy is seven times the price of coal ($/KJ), and the coal cost represents 50%
of the total cost for generating electricity, determine the minimum physical
efficiency, nph, of the plant which ensures an economic efficiency, nec, of at least 120
per cent.

Solution 1.1:
nec = cost ratio * nph
nph = nec/cost ratio
cost ratio = sale price per unit/cost price per unit
= 7x/2x = 7/2
nph = 1.2 * 2/7
= 0.3429
Physical efficiency of 34.29% or more ensures economic efficiency at least
120%.

Problem 1.2
A 25 MW power plant is designed to generate electricity from fuel oil. The fuel
cost is a function of plant size, thermal conversion efficiency (i.e. heat rate or
physical efficiency), and the plant utilization factor. The fuel cost per year is
given by the following expression:
C * U  8760 hr yr 
f   p
 ph  10 3 
where
f  annual fuel cos t ($ / yr )
C  plant size in kw
U  plant utilization factor
 ph  physical efficiency
p  price of fuel oil per thousand kwh

Assume that the fuel oil price, p, is estimated as $ 5.3,the fuel cost
represents 42% of the total cost , the plant operates with utilization factor ,
U=0.55 and a physical efficiency , ph , of 0.38 while the electricity can be
sold at 3.7 cent per KWh.
a) Determine the plant’s efficiency.
b) What is the minimum physical efficiency for the plant to be
economically attractive?
c) What is the minimum electrical energy price for the plant to yield a
profit equal to 24% of the fuel cost?

Solution 1.2:
fuel oil price  $5.3 10 3 kwh  0.0053 $ / kwh
0.0053
Total fuel cos t   0.00126 $ / kwh
0.42

1
 sale price
 ec   ph 
cos t price
a) 0.037 $ / kwh
 ec  0.38   1.1142
0.0126 $ / kwh
b) For the plant to be economically attractive
0.037
1   ph    ph  0.341
0.0126
c) profit  0.24 fuel cos t  electricity price  fuel total
0.0053 0.0126
 0.24   electricit y price 
038 0.38
0.0053 0.0126
 electricit y price  0.24    0.03656 $ / kwh
0.38 0.38

Problem 1.5:
When the price of a certain mineral ore is increased from $15 to $21 per Ton,
the mining company increases its production activity from 700 to 1250 tons per
week
(a) Find the elasticity of supply?
(b) Determine the percentage increase in the amount spent on purchasing this
ore for each one percent increase in its price?
(c) What would be the expected behavior of the mining company when the ore
has a unitary supply?
(d) For 1.25 supply elasticity, determine the price change that justifies the above
production increase from 700 to 1250 tons per week?

Solution 1.5:
a)
Percentage change (increase) in quantitiessupplied based on the larger quantity
Es 
Percentagechange (increase)in price based on the higher price
Where Es ≡ Elasticity of Supply
Q
Q
Es 
% change in quantities supplied
 h
% change in price based on higher price P
P
h
1250  700
1250 0.44
Es    1.54
21  15 0.2856
21
- Since Es >1.0 then, supply is elastic with Es = 1.54

b)
Price of 700 tons/week = 700x$15 = $10500
Price of 1250 tons/week = 1250x$21 = $26250
26250 -10500
% increase in amount =  100 %  150 %
10500
$21- $15
% increase in price =  100 %  40 %
$15

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  The percentage increase in the amount for each 1% increase in price is
150%
 3.75%
40%
c) At unitary supply, value of Es = 1.0, so
Q NEW  700
Q NEW
1.0 
21  15
21
Q NEW  700
0.2857 
Q NEW
0.7143 Q NEW  700
QNEW = 980 tons/week
-The expected behavior would be to increase the production from 700
Tons/week to 980 Tons/week instead of 1250 Tons/week

1250  700
Es  1.25  1250
d) P
P
h
Ph = ΔP + Pl
Ph = Higher Price.
Pl = Lower Price.
ΔP = Change In Price.

1.25  ( P )  0.44
P  15
 ΔP=$8.148
Ph = ΔP + 15 = $8.148 + $15 = $23.148
-The Change in price to justify a production increase from 700 to 1250
tons/week => $8.148; in other words the new price = $23.148

Problem 1.7:
The demand, Q, for a certain commodity with 2.8 demand elasticity is 60,000 units
when it is offered for $ 22 per unit. If the total unit cost is $ 19.80, determine the
optimum selling price, to the nearest dollar, for this commodity based on the initial
demand condition.

Solution 1.7:
ED = (Q/Qh)/ (P/Ph)
Where
ED = 2.8
Qh = 60,000
ΔQ = ((60,000)*(2.8)*P)/Ph
ΔQ=168000*P/Ph

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 Total profit Quantity demand Profit ($) Selling Price
($) Qh (Ph-19.80) Ph ($)

132000 60000 2.2 22

168626 52695.65 3.2 23
193200 46000 4.2 24
207168 39840 5.4 25
211754 34153.85 6.2 26
208000 28888.89 7.2 27
196800 24000 8.2 28
178924 19448.28 9.2 29
155040 15200 10.2 30

* P = $26 is the optimum selling price since the total profit = $211754 is maximum
at this price.

Problem 1.8:
An engineer can do certain required computations in 5 hours or he can
delegate the work to an engineer aide. If the work is delegated it will take 50
minutes to explain the computational procedure and 35 minutes to check the results.
The actual calculations will take 6.5 hours to do if done by the aide. If the engineer
receives a monthly salary of 1800$ and the aide receives 980$ per month,
determine:
a) Which method you recommend, assuming a working month of 160 hours.
b) What is the minimum change of each following items (taking one at a time)
required for reversing your recommendation:
i) The assistance's salary?
ii) The engineer's salary?
iii) The explanation time?

Solution 1.8:
Engineer's salary per hour = 1800/160 = $11.25
Aide's salary per hour = 980/160 = $6.125
Method 1:
Actual calculations cost for work done by engineer = 5(11.25) = $56.25
Method 2:
Actual calculations cost for work done by the aide = 6.125(6.5) = $39.8125$
Explanation cost = (11.25+6.125)50 = $14.4792$
60
Checking cost = (11.25+6.125)35 = $10.1354
60
Total cost of work done by the aide = 39.8125+14.4792+10.1354 = $64.4271
*So it is recommended that the engineer should do the work him self.
The total savigs due that is equl to:
Cost of work done by the aide — cost of work done by the engineer himself=
64.4271 — 56.25 = $8.1771

b) i) To reverse recommendation:

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 Total cost of work done by the aide must be less than the total cost of work done by
the engineer himself.
Assume aide's salary per hour = S
Total cost for work done by the aide = S(6.5)+(11.25+S)85 < 56.25
60
Solving this equation to find the value of S:
S< 5.0921
So the assistant's salary month should not exceed (5.0921*160) = $814.736

ii) To reverse our recommendation:

Total cost of work done by the engineer himelf must be greater than the total cost of
work done by the aide.
Engineer’s salary per hour = E
(5)E > (E+6.125)85 + (6.125) (6.5)
60
E > $13.7236
So the monthly salary for the engineer should be more than (13.7236*160) =
$2195.77

iii) To reverse recommendation:

Total cost of work done by the aide must be less than the total cost of work done by
the engineer himself.
The explanation time per hour = T
(11.25+6.125)35 + (6.125) (6.5) +(11.25+6.125)T < 56.25
60
T < .36271 hours
So the explanation time should be less than (.36271*60) = 21.76264 minutes
If the explanation time is reduced to less than 21.76264 min. method (2) becomes
more attractive:
21.76264 = 43.525%
50
Explanation time should be reduced by at least 56.477% of its original value in
order to reverse the above recommendation.