engineering

Price–performance ratio

Price–performance ratio is a engineering topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand Price–performance ratio rather than just read about it. In short: In economics, engineering, business management and marketing the price–performance ratio is often written as cost–performance, cost–benefit or capability/price (C/P), refers to a product's ability to deliver performance, of any sort, for its price. Generally speaking, products with a lower price/performance ratio are more desirable on demand curve, excluding other factors.

Key takeaways

Price–performance ratio belongs to engineering; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect Price–performance ratio to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of Price–performance ratio from memory before moving on to harder problems.

Reference excerpt

In economics, engineering, business management and marketing the price–performance ratio is often written as cost–performance, cost–benefit or capability/price (C/P), refers to a product's ability to deliver performance, of any sort, for its price. Generally speaking, products with a lower price/performance ratio are more desirable on demand curve, excluding other factors. Even though this term would seem to be a straightforward ratio, when price performance is improved, better, or increased, it actually refers to the performance divided by the price, in other words exactly the opposite ratio (i.e. an inverse ratio) to rank a product as having an increased price/performance.

Examples

Consumer and medical products According to futurist Raymond Kurzweil, products start out as highly ineffective and highly expensive. Gradually, products become more effective and cheaper until they are highly effective and almost free to buy. Some of the products that have followed this example include AIDS medications (which are now affordable compared to initial pricing), text-to-speech programs, and digital cameras. However, products that rely primarily on paper (e.g., newspapers and toilet paper) and/or fossil fuels (e.g., electricity in most countries and petroleum gasoline for automobiles) have only increased in price. This directly contradicts the trend of electronic gadgets like netbooks, desktop computers, and laptop computers that also have been decreasing in price. However, the prevailing inflation rate of a country or province/state may negate the plummeting costs of software, AIDS medications, and/or digital cameras in certain regions along with certain governmental policies. This has the effect of keeping costs high in certain areas while they are dramatically reduced in others. In theory, this means that the rich people have earlier access to highly inefficient technologies, medical treatments, and therapies (that are prototypical in nature) while the poor get access to these same products when they become more efficient and easier to manufacture several years down the road.

Business world During the latter 1990s, the cost–performance ratios of the larger mainframe systems fell tremendously in comparison to a number of smaller microcomputers handling the same load. As a result, many of the older computer companies were shut down and people were put out of work. However, most of them were able to be re-hired at the newer corporations after undergoing a series of re-training involving the newer technologies. In the business world, there is usually a value associated with a typical cost–performance ratio analysis. This value can either be positive, neutral, or negative depending on the amount of money spent versus the results achieved by the spending of the available capital. A cost-performance ratio with a positive value (i.e. greater than 1) indicates that costs are running under budget. A negative value (i.e. less than 1) indicates that costs are running over budget. However, a neutral cost-performance ratio (between 1.0 and 1.9) could suggest a certain degree of stagnation in the budget. Business trips can also be factored into the cost–performance ratio because spending $50 to do a journey spanning 100 miles (160 km) in two hours is a better cost–performance ratio than spending $105 to do the journey in one hour.

Computer technology The term tends to be used quite a bit when comparing computer hardware. During the latter 1990s, the price–performance ratios of midrange and large mainframe systems fell tremendously in comparison to a number of smaller microcomputers handling the same load. Many companies were forced out of the industry as this happened, including DEC, Data General and many multiprocessor vendors such as Sequent Computer Systems and Pyramid Technology.

Worked examples

Example 1 — a first encounter with Price–performance ratio

Start with the simplest possible case. Write down what Price–performance ratio claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In engineering, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to Price–performance ratio before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about Price–performance ratio ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of Price–performance ratio

In research: Price–performance ratio appears in engineering research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses Price–performance ratio in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: Price–performance ratio is common in secondary-school and first-year university syllabi. It links to neighbouring topics Engineering ratios, Management theory, so understanding it makes those chapters shorter.
In everyday life: Look for Price–performance ratio outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

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How to study Price–performance ratio in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what Price–performance ratio means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain Price–performance ratio out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is Price–performance ratio in simple terms?

Why does Price–performance ratio matter?

Because it connects several engineering ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study Price–performance ratio?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on Price–performance ratio.