Opportunity Cost

Economics class today!  As I mentioned a few posts ago, I tend to play the Auction House in whichever game I play.  I like tangible rewards for effort.  Back in the nebulous days I used eBay with UO and that made my gaming hobby free (other than time).  You know, back when a PC was 2000$.  Skip ahead to today and my online guides have paid for pretty much every high tech toy in the house.  Still, there’s a certain cache to in-game money so I play the AH.

Everyone has heard the buy low, sell high motto.  The concept is simple enough, sell for more than you bought.  The sell portion is pretty easy, it’s (sale cost – posting fee – AH % cut).  So in fact, the number you post for sale is not the number you will actually get.  Important distinction.

The buy portion though, that’s where people get confused.  If you are outright buying from the AH to sell, then the number is the buy price.  If you are farming, then you have two cases.  First, you are passively farming; that is, you are collecting items while doing something else, like questing.  WoW cooking mats are a great example, you’re getting meat and fish all the time without trying.  Second is active farming, where you run routes to collect X.  Here you need to calculate your time.  If you spend an hour actively farming, then keep track of it.  If you are crafting things, then you need to calculate your source cost (buying or farming), the cost of making the item (usually free) and then take into account the amount of time to make the item.  This time factor is called Opportunity cost (for farming and crafting).

The Ore Shuffle is a good example.  In WoW you buy stacks of ore.  You end up prospecting it into gems.  Gems can either be sold as is, cut into better gems or you can make them into jewellery.  The latter option is sent to your enchanter to disenchant into mats, than you then sell.  You can also Transmute the gems or Enchant with the mats but that’s a bit more complex.  Figure out your sales numbers and go to town on the best profit.  But wait!  What about the time it takes to run all of this?

WoW Ore Shuffle

Prospecting a stack of 5 takes 2 seconds.  A stack of 20 gives 6 uncommon gems and 1 blue gem. Cutting a gem takes 2 seconds.  Crafting jewellery takes 1.5 seconds.  So your best case is 8 seconds of work to get those gems at a basic level and worst case, 20 seconds to cut/jewellery them.  Then it’s 2 seconds to DE per item, so another 12 seconds at minimum.  All said and done, you’re 1 stack in, ~35 seconds of work.   Take 10 stacks and you’re at 5 minutes.  Let’s say those 10 stacks give you 100g profit, you’re actually making 2000g an hour.

Second option in the same vein is outright buying the gems that you know sell well cut.  It’s 2 seconds per gem and each gem gives you 10g profit.  You might think it’s not worth it but you’re making 18,000g per hour now.  Your opportunity cost is the time spent doing something for a lower profit potential than something with a higher profit potential.

When you’re looking to make money on the AH, it isn’t only about the cash you get in the end.  It’s about being as efficient as possible with your time so that your effort per hour gives back the largest amount of money.

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