Gather round everyone, Markco is going to share some wisdom with you which he has collected over the past few years. I’m going to try to make this lesson in economics as entertaining and useful as possible.
Instead of just spouting big words and catch phrases at you I’m actually going to explain what they mean and how they relate to your game play. After all is said and done you should not only understand opportunity cost but also the ins and outs of what your time is worth in game.
I’ll preface this by saying I’m no expert in professing economic terms and defining them as I’ve never taken a class in economics in my life. I am however an expert in developing methods that work and are practical. So if what I say doesn’t seem to perfectly match the status quo note that it’s done on purpose because that’s what works for me and will work for you. Being different is not a bad thing on the auction house.
“I farmed it so it’s free. I proc’d it so it’s free.”
If you farm something it’s not free because it took time to farm the item and that time is worth something. Let’s say you farm twenty eternal fires in an hour on your hunter. You can now say that your one hour was worth the gold you’ll get from selling twenty eternal fires (ignoring time spent auctioneering and mailing the items as it is rather small). If you say that you can post those eternals for 10 gold each when the market is 30 gold because you farmed them for “free” then you are ignoring opportunity cost. You are selling yourself short big time and reducing the value of that hour you spent farming. Instead of being worth 600 gold you have reduced the value of your hour of work down to 200 gold. Nothing is FREE in this game unless it costs you zero time to acquire it (a gift would be considered free and that’s about it). Procs from alchemy or other professions are not freebies. They are a mathematically predictable number of additional items you will get when transmuting or prospecting or anything else. They make the method you are performing more valuable which is not to say they are adding freebies to your normal rewards.
What people do with their “free” stuff is the real problem. More often than not they post items for ridiculously low prices in order to get gold right away. You probably take advantage of their mistake with a well defined snatch list.
Opportunity cost is how much gold you could be making with your time. If you can spend an hour farming eternal fires but you do it farming eternal waters then you have reduced your opportunity cost by the value of the fires minus the value of the waters. This is of course assuming that fires are the best thing to farm with your time based on competition and pricing. If you choose to drastically drop prices then you also lower your hour’s worth to far below your opportunity cost.
Bigjimm from P3P did a great job on the last Call to Auction podcast describing oppurtunity cost in a more technical manner. I’m just an orc, small words work better for me.
“This item makes the most profit for those mats, only sell this item.”
There are people who take this idea to the extreme and limit their professions only to a single market or whichever item is worth the most gold for their time. This is 9 times out of 10 a horrible mistake. Let’s take felsteel sets for example. One commenter argued that selling felsteel rods was much more profitable than the felsteel sets and sold more often so therefore they weren’t going to craft any of the armor in favor of the rods. First off, can you sell as many rods as you can make in a single day? Let’s say he can craft three rods per day based on how much fel steel he can acquire then he probably could just sell the rods and that would be maximizing the opportunity cost of his time. But if he were farming and gathering far more mats and creating a dozen rods per day he probably would end up with quite a bit left over and that’s ignoring additional competition from other auctioneers. Once you reach the point where you have too many items in one market to sell per day you need to diversify your efforts and that’s where less profitable items are worth selling. If he diversifies into felsteel sets and still maintains his feliron rod market he will be getting the maximum amount of return on his investment each day. There are other feliron markets but that’s just a quick and dirty example.
“I AFK-Craft and AFK-Post so it took me no time to make my gold.”
Time for the next fallacy of auctioneering. AFK work or automation does not mean you somehow didn’t spend time crafting or posting or collecting gold or whatever you have automated through addons. If you don’t include this time in your gold making analysis you are lying. If you for example make 4k gold a week crafting glyphs through “automation” and “afk time” you still spent that time and must include it in your gold per hour calculations. This lie also includes those players who don’t have addons and hit “craft all” in their professions tabs. The idea that if you go off and clean your house or walk the dog or do any additional activity while your character performs actions in game is not spending time is ridiculous! If I have to go do something outside of the game because my toon is spending a half hour posting auctions then I am not spending time doing other things in game. This gets back to opportunity cost and what your in game time is worth. AFK work is still time used in the game that could have been used doing something else. If the thing you’re doing right now (including afk work) is maximizing your efforts to make gold then it was worth your while but it still has to be measured up against what you could have been doing in the same time.
NOTE: The changes to addons in 4.0.1 have greatly reduced the opportunities to AFK-anything. Please keep this in mind as the post today was written almost a month ago. For addon help and a list of currently working addons read this post.
The counter to what I’m saying is to put a price on your real life time which you spend in game. Sadly this is just not an argument anyone can win because it’s too subjective and based on a person to person basis. For those who work they have even more factors to worry about when deciding what their time is worth. Trying to fit this discussion to every person out there reading this is just not worth the herculean effort and will probably not do much to improve your gold making skills so I’m going to drop it all together.
Learning from these Lies
Farming is an acceptable way to make gold on the auction house, and so are diversification and using addons. However, knowing this is not enough; you need to also decide what to do with your time in order to maximize your gold earned. Understanding the best methods and identifying what your time is worth (that’s basically what opportunity cost is) will make you a much better player. Be sure to also note that things change over time and one day it might be worth your effort to farm instead of playing the auction house or vice versa.
I hope this information has armed you with the knowledge necessary to take advantage of players who succumb to these lies. Buy out cheap items from rushed farmers, ignore trolling whispers from people telling you that you’re doing it wrong with regards to undercutting or time spent on the ah, diversify your portfolio and last but not least: include afk crafting/posting/mailing time in your calculations when determining the best ways for you to make gold.
Have you seen these lies in action? Do you believe them to instead be truths? Speak your opinion in the comments section.