Production cost

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Kaiser
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Production cost

#1 Post by Kaiser » Apr 07 2013

Why is it I can never make more than 20% in profits? If the price of coal shoots up from $8 to $110 when my production costs were previously only $9, now they are easly $90+ in production cost? Why is this? My supply hasn't changed, my GDP hasn't changed, my number of mines hasn't changed? Why would my operating cost go up so drastically?

Thanks,

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George Geczy
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Re: Production cost

#2 Post by George Geczy » Apr 07 2013

When we took a look at our economic model over the last few updates of SRCW, one thing that became apparent is that our economic system did not properly respond to resources that experience a "windfall profit" due to big jumps in commodity prices.

An interesting comparison is to look at how the 'real world' has responded when certain commodities, such as oil or gold, jump suddenly in price. One thing that seems to happen is that the big mining and oil companies somehow manage to 'absorb' those big increases into their process. Since the Supreme Ruler games are not meant to simulate 100% state control, it can be thought of more as a "public-private partnership" - and when the cost of a resource goes up, the private elements suck up much more of that revenue into their costs. This could be considered a combination of profits by middlemen, market speculators, rich CEO's, rich shareholders, etc. One thing to remember is that the bigger cost of production does add directly to the GDP, so depending upon how big that resource sector is (compared to the rest of the economy), you should see a change as those production costs rise.

It's not a perfect method, but in the end it does more accurately represent the real world, and the end result is that as the state entity it's not possibly to make huge raw profits (at least not for long).

-- George.

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tkobo
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Re: Production cost

#3 Post by tkobo » Apr 07 2013

I thought the way diplo trade profits were eaten up by mysterious cost increases in SRCW was too pat and too much "you guys" to be a bug.Thanks for finally confirming it.

Its a horrible idea as implemented though ......
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Kaiser
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Re: Production cost

#4 Post by Kaiser » Apr 07 2013

Thanks george, I appreciate the explanation. :)

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George Geczy
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Re: Production cost

#5 Post by George Geczy » Apr 08 2013

I thought the way diplo trade profits were eaten up by mysterious cost increases...
Not sure that would be entirely accurate, unless I'm misunderstanding you. In general diplomatic trades, and trades of existing stock, would not be affected at all.

However, what does happen is that if the world market price increases, then your local production cost (on current and future production) will increase.

The real-world 1980's comparison to this is when OPEC raised the price of oil, the cost of oil being pumped from Texas and Alberta also increased as well. (More recently, replace "OPEC" with "Speculative Oil futures markets"). The same when the price of gold, or copper, or iron ore etc shoots up. I do understand that the workings of resource markets are much more complex than that in the real world, but this system is what gives us the closest approximation. And, for democratic/capitalist governments, it's relatively accurate. For a true Soviet-communist system it isn't as accurate, but the game engine had to lean one way or the other on this.

It may have been interesting to create a true "centralized state controlled" model as an option (for use in communist governments), but on the other hand the Soviet system was not integrated with world trade, and so it wouldn't fit the game from that standpoint. Plus, as was the case in the real world, the centralized system would have to suffer huge efficiency and production penalties.

-- George.

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Re: Production cost

#6 Post by burock82 » Apr 09 2013

Hello again

I kindly ask you to correct me if it is wrong what i understand from your explanation.

When prices go up , production cost of those goods also increase; so sometimes, depending on conditions, shutting down some facilities and mines could be reasonable!
For exeample, i am producing steel with a market price is 25 usd but production cost is 21 usd and demand is not good! i am paying production cost for steel production. Instead of it, i can shut down all steel facilities and purchase it from outside !
With shutting down the facilities my production costs will decrease !

I explained a little complicated :) but i will glad if you are able to comment on it.

regards,

burak

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George Geczy
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Re: Production cost

#7 Post by George Geczy » Apr 09 2013

There will certainly be cases where it makes sense to import instead of produce locally if you are a high-cost (high GDP) region such as the US. This actually tends to happen more on the low end (when demand is soft and production costs are very low), in that you can often buy from the market cheaper than you can produce the resource yourself. Usually as demand tightens up, the world market price will rise faster than your own cost, so that you can start making money on that resource again.

-- George.

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tkobo
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Re: Production cost

#8 Post by tkobo » Apr 09 2013

What your describing as your new feature,perfectly explains most of this...

http://www.bgforums.com/forums/viewtopi ... 66&t=21178
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burock82
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Re: Production cost

#9 Post by burock82 » Apr 11 2013

burock82 wrote:Hello again

I kindly ask you to correct me if it is wrong what i understand from your explanation.

When prices go up , production cost of those goods also increase; so sometimes, depending on conditions, shutting down some facilities and mines could be reasonable!
For exeample, i am producing steel with a market price is 25 usd but production cost is 21 usd and demand is not good! i am paying production cost for steel production. Instead of it, i can shut down all steel facilities and purchase it from outside !
With shutting down the facilities my production costs will decrease !

I explained a little complicated :) but i will glad if you are able to comment on it.

regards,

burak

Hello again


It is definetly this case :)

I shut down my several facilities which does not have good oppurtinity and high cost with deciding that buying them from outside. After shutting down those facilities my expenses decreased a lot and my profit rose from 7M to 13M.

Also i think constructing factory on a region cost(hex) which has low supply rate, cause extra expense:(I do not say it is totaly true just a observation and it might be wrong :) )

For example :

If i construct CG factory on a hex with a 45% supply rate, it will bring more cost than a factory built on hex with a 60% Supply rate.

Can it be true ?

Regards,

Burak

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