The Economist ~ Advice to a young tradesman

Day 3,782, 05:19 • Published in United Kingdom United Kingdom • by Spite313


Dear friends,

“Time is money” is a phrase often used but rarely understood. It seems obvious that your time is worth money, after all most of you have (or will have) jobs, where you are compensated for your time with a salary. But the reality is that few people who aren’t actually economists or business people in the real world understand what this statement actually means. The theory is actually quite a new one, relatively speaking, in the real world, and came into itself in the early 1900s. At that time the Austrian economist who wrote Theory of Social Economy called it the Opportunity Cost. In this article I hope to explain how this applies to you, as players in an online game.

Firstly, what is the opportunity cost? The simplest explanation is it is the cost of not doing something. So if you were a shift worker, and decided not to take on a shift at work, the opportunity cost is the money that you would have earned if you had attended. You have not lost any money from your bank account, but you have lost money in potentia.

To take this one step further, imagine you work as a casual labourer and get two offers, one for £50 and one for £60. If you took the £50 job, the opportunity cost would be £10, as you could have made more money if you had chosen the other option. When you consider the opportunity cost you also have to think about any investments you have made up to this point in one or all of the options available to you. Selling all your investments and starting again should always be an option on the table that you consider, and if that genuinely is the best option, you should take it.

So how does this apply to the average person? In the real world, we are psychologically attached to both routine and to material possessions. That is why, as an example, people continue to follow the same practice in failing business even when it is apparent that it doesn’t work. The trap here is that people do not often rationally assess their options- or even see that there are options available.

In erepublik, the economy module currently has 20 companies available for manufacturing, and 20 for producing raw materials. It is common knowledge that not all of these companies are equally profitable- generally with raw materials the higher quality companies are more profitable than the lesser ones. With manufacturing it is a little more complicated (housing for example does not follow this rule).

When you have a fixed amount of money to spend and you have to make a choice how you spend it, you are being presented with an opportunity cost decision. You cannot choose option A, B, C and D. You have to pick.

Now some of you are probably thinking “well surely I would work out which option is most profitable, and then pick that”. Some of you will also be thinking “I have a lot of money so I can pick ALL the options and diversify my holdings”.

The reality is that few people actually follow the first option, despite it being apparently obvious. And many people consider the second one a valid position, despite it being easy to prove that choosing a less optimal business strategy is never a good idea, even in the name of diversity/market protection.



Before I give a few examples, let me recap the cost in erep of making any sort of investment. Firstly, you have the gold/currency investment in the company. Secondly you have the cost of running the company. Finally you have the time required to gather the resources (for example if you spend 3 months saving gold for a Q7 company, what else could you have bought in that time, and would it be better to have less profitable companies earning money or to have nothing whilst you wait for a quarter year).

I saw someone the other day shout about housing companies for sale. Right now, housing companies are profitable- every single Q, from Q1 to Q5 will turn some type of profit. However, the question is not “can my company make a profit”, the question is “what is the opportunity cost of building a housing company, in comparison to any other company”.

For example, if a Q7 weapon company makes 3500 currency a day, and a Q5 housing company makes £2500 currency a day, the opportunity cost appears to be around 1000 currency. However you also have to factor in that you can buy a Q5 housing company for 342 gold, whereas a Q7 weapon company is 1107 gold, almost three times as much. Therefore logically you would buy three Q5 housing companies rather than 1 Q7 weapon companies, and the opportunity cost of saving for the Q7 would not just be:

(2500*3)-3500= 4000cc


But would also include the fact that the first of those companies would be producing income in 1/3 of the time it would take for the Q7 to begin producing. Of course these numbers are just an example, and this does not take into account demand for Q5 housing vs Q7 guns, and this is something you would have to consider. The important thing is that once you have worked out the most profitable business, you should build that (and only that), and sell your surplus to buy the other products you need from the marketplace. Because that’s how opportunity cost works.

Opportunity cost doesn’t just apply to buying businesses, but also to managing them. Workers in the modern world are expensive- almost 1g a day. Allocating them to your businesses should be something done carefully, especially if you have a finite amount of them. One example I recently discussed was regarding worker communes. Imagine you have 20 soldiers in your MU, all working for “free”. You want all of them to have a Q1 house, and you own a Q1 house company. What do you do?

Many people will follow the traditional erep method of having the people work in the house company, then sharing out the houses they make. But that, in opportunity cost terms, makes no sense. The profit per worker for a Q7 weapons company is about 325 currency. For a Q1 house company it is around 150 currency. The opportunity cost of using them in the house company is 175 currency per day. In other words, if you made weapons, sold the weapons, and bought a house from the market, you’d still be 175 currency a day better off.

Something to think about.

Iain