Another game I played during my summer months while home from college was RuneScape. In RuneScape, individuals can fish, mine, chop trees, cook, or pick from a dozen other skills to level. Each skill produces items which can be sold to a vendor or alternatively sold to other players. RuneScape is a Massive Multiplayer Online RPG, meaning thousands of people can play together at the same time.
Early on I decided on a path of leveling my mining and not increasing my overall level. This allowed me to focus all my play time into building one super skill. From there I could branch out to fighting skills.
My mining progressed rapidly; so much so that other players would claim I was a bot (a player character which uses a computer based script to use actions). Soon I could out-mine all my competitors. Reality would kick in from time to time, and I would leave my game to go serve tables at a local restaurant. I would return and resume my RuneScape profit making in mining (branching out to smithing). My profit was rolling in steadily (I could mine a load of iron in about 5 minutes and sell the load for about $4K each trip). I was no doubt the best miner around.
But then reality set in again, and I set out to work as a server at the restaurant. While working I thought to myself: “Playing RuneScape is fairly similar to working. I grind for money. I bet there is a way to convert my time working into time savings playing RuneScape.” Sure enough, I found out there are websites that sell RuneScape gold. Currently the price is $3 for about $10 million gold (I don’t know the prices for circa 2004). Because my server job netted me about $16 per hour, I did the math and found out that I could work for one hour as a server and use my real cash on the fake gold. Using one hour of real time to pay for fake gold would net me $55 million RuneScape gold. Using one hour of real time to earn money in RuneScape would net me $38 thousand RuneScape gold.
I learned Opportunity Cost: the cost of the next best alternative. My opportunity cost for spending 1 hour grinding for $38 thousand RuneScape gold was the $55 million gold I did not gain from spending my time serving tables instead.
How is this possible? Because people in China literally earn RuneScape gold for a living. Even though I might be a better miner than they, or quicker at making RuneScape gold (probably not the case), my time is better spent serving tables and using the earnings to enjoy a game instead of grinding. The Chinese, who earn 30 cents per hour, cannot get an alternative job (with the same benefits) for more than 30 cents per hour. I am best suited serving tables and outsourcing my RuneScape gold production to someone with lower opportunity cost (the cost of the next best alternative).
I learned Comparative Advantage: that although someone might be better at doing all things, they should still specialize where they can maximize their output value.
As I have written before, RuneScape also taught me the value of Middle Men. If someone specializes at producing Rune Scimitars, the time they spend selling the Scimitars is opportunity cost of building new Scimitars. Sometimes it is best to offload production to a Middle Man to maximize profit. Hypothetically, if it takes 10 minutes to build 1 Scimitar which can be sold in bulk to a Middle Man at $18k, but the producer instead takes 5 minutes to find a buyer at $25k, the profit is only $7k. Within the time it takes to make $14k by selling two Scimitars, the producer could have sold the middle man one brand new Scimitar at a profit of $18k. If the producer sells the Scimitar himself, he would have lost $4k.
I learned that Middle Men provide an important function in the economy.
Lastly, I encountered individuals who would sell me the same items which I was selling, but at a lower cost (if the market price was $100 per item and someone was selling at $90 per item, I would buy them out). Sometimes these individuals were independent merchants, and sometimes I just commissioned individuals to bring me iron at the below market price. Although I was a miner at heart, by outsourcing I gained extra income without must effort.
I learned that outsourcing is beneficial.