Hi Everyone,
Welcome to Week 4 of the Challenge series 2022. We begin this week with the results post for Challenge 2: Buying and Selling Game (Business Version). This post contains a video of the ‘Buying and Selling Game’ Excel Model generating the demand for each good, quantities sold, and profits for each participant for this contest.
For the benefit of those who have not entered this challenge, here is a brief explanation of how the game works.
The participants are required to buy or produce goods with an allocated budget. They are given a choice of three types of goods to buy or produce. They are required to buy or produce these goods in combinations specified in the question. The participants are required to set the prices of the goods they have bought or produced. All costs are provided in the question. However, demand for each good is not provided.
The demand for the goods are determined using an Excel Model using triangle distributions. The participants are informed of the minimum, maximum, and mode values used to determine these distributions. The Excel Model uses the calculated demand and prices entered by the participants to calculate the number of goods sold. The prices, costs, quantities bought or produced, and quantities sold are used to determine the profit for each participant.
The participant with the highest profit after selling his or her goods is the winner.
Responses to the challenge are made in the comments section of the challenge post. The total prize for this challenge could reach as high as 60 Hive. The number of participants determines the value of the prize. For every entry, the prize is increased by 5 Hive (e.g. if challenge has 6 participants the prize will be 30 Hive (5 × 6)) until a value of 60 Hive is reached. The winner will receive 2/3 of the prize and second place will receive 1/3. The first 12 entries will be given upvotes. In addition to the prize in Hive, the winner receives 20 points, second place 10 points, and third place 5 points; these points contribute to determining the overall challenge series winner.
The format of the required entry is explained in detail in the contest itself.
For a more detailed explanation, you can access the challenge post using the following link.
There are six other challenges in the series. Four of them are now closed. One is still running. Two more will be posted in the upcoming weeks. See links below.
Figures 1, 2, and 3 contain the model-generated demand curves for shampoo, body wash, and bubble bath respectively.
Table 1 contains responses, quantities sold, revenue, and the profit made by each participant.
Congratulations to 
I would also like to thank 
After two challenges, the overall scores for the Challenge Series are as follows.
| Participants | Points |
|---|---|
| Pana1 | 35 |
| Fatherfaith | 35 |
| Emeka4 | 10 |
| Joshsticks28 | 5 |
This table will be updated in every results post.
For the business version of the Buying and Selling Game, a participant needs to understand three areas. These areas are:
The size of the budget plays an important role in determining how much of each good should be purchased or produced.
If the budget is large, production of goods should be more widely distributed across all three available types of goods. Generally, goods with elastic demand should be bought in higher quantities than goods with inelastic demand. Goods should be bought close to the point where new customers’ willingness-to-pay (i.e. marginal revenue) is almost at cost (per unit).
If the budget is small, goods with inelastic demand and high maximum price should be favoured over goods with elastic demand and lower maximum price. Prices should be high to capture as much consumer surplus from customers with high willingness-to-pay. If the budget is exceptionally small, it might be optimal to produce just one type of good.
Understanding the relationships between cost, demand, and price is essential for optimal pricing of goods. Goods must be priced above cost to make profit but if the prices are too high, insufficient customers will buy the goods, which will reduce profits.
The maximum, minimum, mode, and diminishing marginal utility determine the shape of the demand curve. High diminishing marginal utility increases inelasticity of demand. A large difference between maximum and mode price, increases inelasticity of demand in the top portion of the demand curve. A large difference between minimum and mode price, increases inelasticity of demand in the bottom portion of the demand curve. The top half of the demand curve is most relevant when the budget is small. The bottom half of the demand curve is normally more relevant when the budget is large.
Other important things to consider are batch size and costs of goods. Large batch sizes may force participants to focus on less goods, as the optimal number of some types of goods may fall short of the number in the batch. If the business is dealing with very low cost goods, a participant is more likely to make a higher profit by spreading purchases across all available goods. If the business is dealing with high cost goods, a participant is more likely to make a higher profit from focussing on one or two goods. This is because quantity demanded for high cost goods is normally lower than for low cost goods.
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.
▶️ 3Speak
