I do think I understand what you re trying to say. I believe there is only a difference in our terminology, but you seem to think there is more to it than that.
I would like to make one last attempt at clarification since I think you misunderstand me. After this, I will let the topic go, even if you would like to add a few comments. I think we will have said plenty for others to make up their own minds. (Note: this response ended up much longer than expected
.)
I took a few minutes on wikipedia to look up the economics definitions of cost and profit. They clear up some of our terms. The cost I refer to is called historical or accounting cost. The cost you refer to is called opportunity cost. Both are valid ways of looking at cost, they just give different information. But, for the way I was using cost in my original post (comparing two different ways to make money), I think that accounting cost is the appropriate method.
Accounting cost is simply how much you paid to make the item subtracted from how much you sold the item for.
Opportunity cost is "the value of the best alternative that was not chosen in order to pursue the current endeavor."
From these definitions, it seems to me that if you want to compare two different ways to make money, you must use accounting cost. This is because the opportunity cost is already a comparison against another possibility and cannot be further compared to a third possibility. In our example of steel, if we say that accounting cost is 20, opportunity cost is 70, and selling price is 130, then I would calculate a profit of 110, but you might calculate a profit of 60. If you are trying to compare the profitability of steel versus another product, you cannot fairly compare with a profit of 60. What if another product had an accounting cost of 10, an opportunity cost of 100 and a selling price of 130. Then I would calculate the profit as 120 and you might calculate a profit of 30. Which of these two products is more profitable? I think, using accounting costs to determine the profit, it is clear that (assuming the same production rates and building costs) the second product is more profitable while using opportunity costs makes it look less profitable.
Simply put, while I see the value in evaluating opportunity costs, I do not believe they can be appropriately used to compare two different products because opportunity cost is already a comparison of the profit between two different actions. I hope you see the difference in uses now.
In fact, I prefer not to use opportunity costs to calculate any kind of profit because I believe it can be misleading. Take my example of selling steel at 50, which is between the accounting costs and opportunity cost. While I do not believe it is the best choice to sell for less than the opportunity cost, I still define it as profitable. By this I mean that, if you can make steel for 20 and sell it for 50, then the value of your company will increase with time. How can you not call this profit? The fact that you could have sold the raw materials (or for that matter the steel itself) for more has nothing to do with the fact that you are still increasing your money (my definition of profit). Opportunity cost is just a way of saying you could have made more profit by another method. But as I point out above, and alluded to in an earlier post, it is dependant on what the other method is. You choose by default, the selling price of the raw materials on the market. But what if I could take the same raw materials and make another product with them that would result in an even higher net gain than if I had made and sold steel? My point is that, if you start making these kinds of comparisons, there is a nearly infinite number of possibilities that you can compare to. Selling raw materials on the market is merely the most obvious one.
So if a person asks me how much it costs to make steel assuming they have a factory in red, a mine in yellow, and a power plant in green, then my answer will be about 20 caps. I believe this is the correct answer to the question because the player will likely want to know how much money they can make from this endeavor. The answer to that they will calculate themselves as the current market price (130) minus the cost (20) to give a profit of 110 caps per steel. The fact that they could have sold the raw materials for the steel for 70 has no effect on their net profit of 110 caps per steel. The opportunity cost is only important when a person is trying to decide if it is worth it to make steel from their raw materials. Then they may want to look at a profit based on opportunity cost to determine how much more money they will be making by taking the time to make the steel from their raw materials.
I think the simplest way to is to compare accounting cost based profits for various products. If you want to compare selling steel to selling its raw materials then I would prefer to do it this way. Currently, the accounting costs for me to produce all the raw materials for 1 steel is 5.2. The accounting cost for me to make a unit of steel is thus 20.2. Considering current market values, I calculate the following: Steel profit = market price - accounting cost = 130 - 20.2 = 109.8. Raw materials profit = 94 - 5.2 = 88.8. Now that I have calculated the profit (based on accounting costs) for each endeavor, I can make a comparison between them (or any other endeavor for which I have calculated its profit based on accounting cost) to say that I make 109.8 - 88.8 = 21 more caps from producing steel than selling the raw materials. It would be helpful when considering that your factory could be making more of something else instead of steel since you already have the raw materials, but I believe this is a further, more advanced analysis that depends on what the other thing is you would do. I think this advanced analysis is what you are referring to when you say you don't even make profit selling at 71. I understand your point, I just think we are looking at different levels of the analysis. Neither is wrong, they are just different. I prefer to start with a simple calculation of profit that is not dependent on other endeavors before making comparisons between endeavors.
I hope this overly detailed explanation with examples is enough to clear up any confusion. I hope it has been helpful to anyone willing to read it all. For my part, I have enjoyed this discussion and hope I have also not caused any ill feelings.
