EngineeringEconomy

uses mathematical formulasto account for the time value of money and to balancecurrent and future
revenues and costs.
Necessities and Luxuries
Necessities
are products or services that arerequired to support human and activities
thatwill be purchased in somewhat the samequantity even though the prices varyconsiderably.
Luxuries
are products and services that
aredesired by humans and will be purchased ifmoney is available after the requirednecessities have
been obtained.
Supply and Demand
Supply
refers to how many of a certain good orservices are available for people to purchase.
Demand
means how many people wish to buythat good or service.
LawofSupplyandDemand
Under conditions of perfect competition, the
priceat which a given product will be supplied andpurchased is the price that will result in the supplyand
demand being equal.
The law of diminishing returns, also referred to as the law of diminishing marginal returns, states
that in a production process, as one input variable is increased, there will be a point at which the
marginal per unit output will start to decrease, holding all other factors constant. In other words,
keeping all other factors constant, the additional output gained by another one unit increase of the
input variable will eventually be smaller than the additional output gained by the previous increase in
input variable. At that point, the diminishing marginal returns take effect.
What is 'Perfect Competition'

Perfect competition is a market structure in which the following five criteria are met: 1) All firms sell an
identical product; 2) All firms are price takers - they cannot control the market price of their product; 3)
All firms have a relatively small market share; 4) Buyers have complete information about the product
being sold and the prices charged by each firm; and 5) The industry is characterized by freedom of entry
and exit. Perfect competition is sometimes referred to as "pure competition".

Market

is the place where the vendors and buyers meet totransact.

PerfectCompetition

occurs in a situation where a commodity orservice is supplied by a number of vendor and there is
nothing toprevent additional vendors entering the market.

PerfectMonopoly

exist when a unique product or services isavailable from a single vendor and that the vendor can
prevent theentry of all others into the market.

Oligopoly

exist when there are so few suppliers of a product orservice that action by one will almost inevitably
result in similaraction by the others.