Spectrumecons 7 Week Challenge – Challenge 6: Buying and Selling Ga...

Hi Everyone,

Welcome to the Spectrumecons 7 Week Challenge. During the months of July and August, I will be running an economics challenge series. This series will consist of 7 challenges. Some of these challenges will be familiar to my followers, while others will be completely different to any previous challenges or contests I have run.

Each challenge will reward winners with as much as 60 Hive. The value of the prize will depend on the level of participation. For each new participant, the prize will increase by 5 Hive. This will continue until 60 Hive is reached (12 participants). The first 12 participants will also receive a 50% upvote from this account. In addition to the prize money, the top few participants will be given points. These points will be used to determine the overall challenge series winner. This winner may receive as much as 80 Hive. The value of the prize will equal the sum of the number of participants across all challenges. This will continue until 80 Hive is reached.

For more information on the challenge series and the upcoming challenges, read my post Spectrumecons Seven-Week Challenge (Coming Soon).

Other Challenges in the Series

Welcome to Challenge 6: Buying and Selling Game (Business Version)

I introduced this challenge in my post/video 'Buying and Selling Game (Business Version) Explanation Video'. The video explains how the game is played and how a winner is determined. The Business Version of the Buying Selling Game has also been included as one of my monthly contests. I recommend that you read the posts and watch the video to learn a little more about the challenge.

How to play?

The ‘Buying and Selling’ Game (Business Version) involves two simple steps.

Choose the quantity of each good you want to buy or make.
Choose the selling price of each good you bought or made.

All the information you need to know to play the game is provided in the question; i.e. no external research is required as all costs and demand estimates are hypothetical.

All entries must be made in the comments section of this post.

Each account is only permitted one entry.

Objectives of the game

The objective of the game is to make the highest profit from the sale of the goods you have bought or made. If two participants make the exact same profit, the participant that entered first wins.

Game assumptions

Each good has 100 potential customers. Each customer can buy up to 6 items of a particular good if he or she values the goods above the selling price (i.e. has a willingness-to-pay higher than the selling price). Each customer is only interested in one type of good. Therefore, selling more types of goods increases the potential number of customers. For examples selling three types of goods grants access to 300 potential customers.

Demand for the goods for each customer is determined using triangle distributions. The question provides the minimum, maximum, and mode willingness-to-pay for each good. Demand is further adjusted for diminishing marginal utility using a fixed percentage adjustment. The demand curve is the summation of demand of all potential customers. See example of triangle distribution below. A sample demand curve is shown later in the post.

Triangle Distribution

Each customer has diminishing utility (diminishing willingness-to-pay as more goods are bought) for each good. For example, a customer may have a willingness-to-pay of $1.00 for the first item, $0.80 for the second item, $0.60 for the third item, $0.40 for the fourth item, $0.20 for the fifth item, and $0.00 for the sixth item. The question will state this diminishing utility as 20% (i.e. 0.2/1 = 20%), which is applied linearly. If a participant prices the good at $0.50, the customer will buy three items, as the customer values the fourth item below $0.50 (i.e. $0.40).

The business will have overhead costs, which need to be deducted from the budget before goods can be bought. There are zero transaction and transport costs.

If some goods remain unsold, they will be treated as being wasted, which is equivalent to being sold for $0. This could occur if a participant prices a good too high.

What information is provided?

All the goods that can be bought in the game are provided.
All costs (i.e. costs to buy/make goods and overhead costs) are provided.
Any special purchasing requirements are provided. For example, a good may need to be bought in fixed quantities.

How are the results of the game determined?

A Microsoft Excel Model is used to determine the demand of each good. The costs, quantities bought, quantities sold, and prices will be used to calculate the profits made by each participant. In the results post, the calculation of the demand and profits will be presented in a video.

Challenge Prizes

The account with the winning entry may receive up to 60 Hive. The number of participants determines the value of the prize. For every entry, the prize is increased by 5 Hive until a value of 60 Hive is reached. The first 12 entries will be given upvotes. The winner of this challenge will be given 20 points, second place 10 points, and third place 5 points. These points will be tallied at the end of the challenge series to determine the overall winner. An additional 5 Hive and 5 points can be won if the winning participant obtains a higher or equivalent profit to the model’s built in estimator.

Let the challenge begin

For this challenge, participants will be running a toy business. Participants will be able to produce three types of toys.

Dolls
Action Figures
Plush Toys

The participants will only be able to produce dolls in batches of 5, action figures in batches of 10, and plush toys in batches of 5. The costs of producing each batch, the average cost per toy and daily overheads are provided in the tables below.

Cost Information

Note: Budget includes Daily Overhead. If the budget is $1,000 and the daily overhead is $100, there is $900 remaining to produce toys.

The parameters to determine demand are provided in the table and graphs below.

Demand Information

Note: The graphs for the triangle distribution are based on the minimum, maximum, and mode prices for the first toy a customer buys. The demand curve is adjusted to include diminishing utility expressed in the last column of the table. This will increase the elasticity of demand.

It has been assumed each type of toy has 100 potential customers. Each customer will potentially buy a maximum of 6 toys. Therefore, it is possible a maximum of 600 of each toy could be sold. The Figure below contains a sample of a possible demand curve that could be generated by the model using the parameters described in this question.

Possible Demand Curve

Note: Sample demand curve for Action Figures. The actual demand curve will be determined in the results post.

Entry format

For this challenge, I expect to see entries made in the following format:

Dolls
Quantity: XXX Selling Price: XXX
Action Figures
Quantity: XXX Selling Price: XXX
Plush Toys
Quantity: XXX Selling Price: XXX

Example:

Dolls
Quantity: 35 (7 Batches) Selling Price: $22.00
Action Figures
Quantity: 60 (6 Batches) Selling Price: $24.00
Plush Toys
Quantity: 50 (10 Batches) Selling Price: $14.00

The closing date and time for this challenge is 6PM coordinated universal time (UTC) 05/08/2021. Responses after this time will not be accepted. The answers will be provided in the results post along with the video containing the generation of demand and profits using the model.

I hope everyone has fun and enjoys this sixth challenge. If you have any questions, feel free to ask in the comments section. I look forward to your participation in the final challenge.

If you want to read any of my other posts, you can click on the links below. These links will lead you to posts containing my collection of works. These 'Collection of Works' posts have been updated to contain links to the Hive versions of my posts.

My CBA Udemy Course

The course contains over 10 hours of video, over 60 downloadable resources, over 40 multiple-choice questions, 2 sample case studies, 1 practice CBA, life time access and a certificate on completion. The course is priced at the Tier 1 price of £20. I believe it is frequently available at half-price.

Spectrumecons 7 Week Challenge – Challenge 6: Buying and Selling Game (Business Version)