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6.8: Chapter 6 Excercises

  • Page ID
  • P6.1 (4 pts)

    Suppose you have an electric powered building water heater.
    a. Graph the Short Run Total Cost (SRTC) and the Long Run Total Cost (LRTC) of a water heater.
    b. Suppose you have an electric water heater and your utility introduces variable pricing by time of day. How do you minimize cost of providing your hot water needs?

    P6.2 (16 pts)

    Develop a life cycle cost estimate for the differences between compressed gas (CNG) and bio-diesel (B20) alternative buses. We can ignore drivers and other overhead expenses since they are the same for the two vehicles. Use the following data:

    • Bus purchase: $ 342,366 for CNG, $ 319,709 for B20.
    • Assume 12 year life, with 37,000 miles per year of operation.
    • Assume average speed of 12.72 mph, 3.27 mpg for CNG (where 1 gal = 126 cu.ft. NG) and 3.80 mpg for B20.
    • Assume CNG is $ 2.00 per gallon and B20 is $ 3.00 per gallon in current dollars.
    • Assume maintenance cost of $ 9,000 per year for CNG bus and $ 7,000 for B20.
    • Assume a discount rate of 4%.

    a. What is the annual operating cost of the two buses (excluding drivers and other overhead items)?

    b. What is the net present value of the two buses’ cost streams?

    c. What is the annualized uniform cost of the two buses?

    d. What is the annualized cost per mile of the two buses?

    e. Assuming 40 seats per bus, what is the annualized cost per seat-mile of the two buses?

    f. What would be the impact on net present value of the cost differences if CNG doubled in price? What if both CNG and bio-diesel doubled?

    g. Capital costs for buses are usually 100% subsidized and do not appear in the agency operating costs. How much is the annualized cost per mile of the two buses excluding capital costs?

    h. Suppose that a driver and other expenses added $ 50. per hour to operating costs. How many riders would be needed to cover the costs of the cheaper of these buses for the 28X route? (Assume a one hour, 20 mile trip and a fare per rider of $ 3.25).