Tycoon Zone

Producing goods at a loss

In Tycoon Online, it’s not that unusual to find that some goods are priced so low that you lose money by producing them. For example, both wheat and flour might be priced at 5 iKr. The producer of flour needs two units of wheat to produce one unit of flour, so his cost of goods sold is 10 iKr/unit. But at a selling price of 5 iKr/unit, he is losing 5 iKr for each unit he sells.

Why would a business owner tolerate such a condition? Nobody likes to lose money, but there are reasons to keep producing, even if you are losing money.

A business will usually try to calculate opportunity costs using concrete numbers. In real life a business can respond to this situation a number of ways.

• They can choose to raise the price of their good. This carries the likely risk of a drop in the number of goods sold.
• They can lower the quality of their product by using less of the raw material. This carries the risk of upsetting customers and hurting sales long term.
• They can try to find a cheaper supplier for the raw material
• They can stop production of the good altogether.
• They can continue to make the good and accept the loss.

In real life, a business is likely to accept a loss for the short term. They will start evaluating the options available to them, and only make a change once they are certain the change will benefit them.

In Tycoon Online, the first three choices above are not available as options. So you are really left with the last two choices.

If you stop production, you still have a factory taking up zones. And you probably have employees who are going to continue to get paid whether you produce anything or not.

There are a couple of factors in Tycoon Online that you should consider when you encounter this situation:

• Every good you produce in a factory increases your company value by 1 iKr, regardless of price.
• Every good you produce in a factory is eligible for the market bonus, if you sell it on the market the next day.
• Switching to another line of production is expensive, because it takes a long time to build a new factory, and you will be losing most of the money you paid for the existing factory. During construction, you will not be producing anything.

This means that it is often best to continue producing a good, even if it is for a loss. You really need to analyze the specific situation you are in and determine the best course of action. If the pricing looks like it will correct itself soon, chances are it is best to wait it out and keep producing. But if there is no sign of the pricing situation improving, it might be best to move to another production strategy.

If you are buying your raw materials from the market, you may also be facing a cash flow problem that will override all of the decision criteria we just talked about. It this situation you really can’t just keep producing while your cash flow deteriorates. One option is to destroy your factory and build something else. Another option is to build a factory that produces the material you are currently buying. If you are producing the raw material yourself for use in your own factories, you don’t need to worry about what price it is selling for.

Producing goods at a loss is never a pleasant situation. Hopefully, this article has given you some good options for dealing with it. Every player probably finds themselves in this situation at least once. Of course, the best solution is prevention. Careful analysis of pricing trends will allow you to avoid this situation in the first place. I’ll cover that in more detail in a future article.