No! They are not! A common fallacy I read sometimes is people arguing that since they farmed part of whatever it is they're selling, it's cheaper for them to make than it is for me to make. This is, quite simply, not true. It's easy to see where the error comes from, but much harder to win an argument about it.

Opportunity cost

If you farm herbs, you mill them, create inks, and then use those to make armor vellum, those vellums are not free, nor are they the cost of the vendor paper. The farmed materials can be sold a certain amount, and many people neglect to factor this. Farming feels like getting something for free -- after all, you're playing a game, and then when you finish playing, you have goods you didn't have before.

Opportunity cost is, simply, what something would have been worth had you done something differently. The opportunity cost of going to law school is not the tuition, but the money you would have made had you not been studying law. Add that to the direct cost (tuition, books, bribes, what have you), and you get the total cost. Compare this to the profits at the end of the run to determine whether it's worth it.

In game, the opportunity cost of using goods you farm (or earn, or get for free), is what you could have sold them for. Of course, if you are processing these farmed goods in some way, you are probably doing it to increase the final amount of money you get. If you still have to farm, this can be a valuable use of your time. If, however, you find yourself having to cut your prices below that the value of the unprocessed goods, you're officially wasting your time. You just took your mats, spent time to turn them into a finished product, and are now selling it for less than you would have gotten by not bothering.

Never tell yourself that you can afford to go below the total cost of your product just because you farmed for the ingredients of whatever you are selling.

Why argue?

I generally don't try very hard to convince people about this. Instead, I'll just buy their underpriced stuff and ask them to go farm more for me. This is probably the most effective way to demonstrate the principle of opportunity cost. They may feel that their cost is, say, half of mine, but when they run out of stock, they realize that their cost is really going to be based on the market value of their farmed goods.

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Being an auctioneer is like being able to print money. Or gold, as it were. Wait, that doesn't make sense... you can print on gold, but you can't print gold. That would be closer to transmutation? I can transmute titanium, but that's only worth it if the price of saronite is low enough to justify the time spent making it. I need some sort of analogy here. Whatever, I'll figure it out later. Making gold? Periodically, Time Is Money will give you short tips on how to make money.

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Filed under: Economy, Time Is Money