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BIDWISER Prelims
The Setting
Its the Age of the Old Kingdoms, a long time back when food and survival used to be more
important than choosing between a Nexus 5 and a Samsung Galaxy S5 (or even S4 for that matter).
It is no surprise then that the King had to make many an important strategic decision with the help
of his ministers. One such decision used to be regarding optimizing the food production system of
the Kingdom amidst the race between different civilizations for the scarce resources.

You are the Chief Advisor the minister in charge ofone such well-developed Food Production
System of your kingdom, and your team is your council. One fine day, worried about the decreasing
trade surplus due to the rising inefficiency in the procurement of inputs and production& export of
the food output, the King summons you to express his concerns. You realize the gravity of the
situation and decide to analyze the mechanisms in detail in order to come up with a more
systematic way of approaching the input procurement and food production planning.

Here is a stylized version of the problem in front of the Chief Advisor.
Problem
The major inputs required for food production are land, labor and transportation.

Your aim is to maximize your Kingdoms profits from the export of the food produce. Since the
resources are scarce, you are required to compete with the other Kingdoms and obtain the
mandatory inputs through a bidding system. The mandatory inputs are Land and Labour.

A few non-mandatory inputs are also available at fixed prices: Manure andLabor-training Sessions.
These can be bought with the remaining capital in order to reduce the production cost. Also, the
Kingdom can also buy any number of carriages to transport their food produce to the market.
Revenue is realized only if the produceis transported to the market. In case the Kingdom exhausts
its capital on mandatory and non-mandatory inputs, it can take debt from one of its allies at a fixed
interest rate of 20% per annum.
Event Guidelines
A final demand function will be given based on which the Price at which you can sell your exports
will be calculated. The judging criterion is the profit generated at the end of 1
st
year.

Your task is divided into two stages as described from Page 3 onwards. A pictorial representation of
the same is shown below.






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L1 L2 L3 L4



LB1 LB2 LB3 LB4





























To the market

MANDATORY
INPUTS
BID FOR
MANDATORY
INPUTS

ALLOTED
INPUTS
Manure
+
Labour Training
Output
(Farm Produce)
S
T
A
G
E

1
S
T
A
G
E

2
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Stage 1: Procurement of Mandatory Inputs: Land and Labour

An initial capital of 80,000,000 is provided to all teams.
The council needs to bid for the mandatory factors of production Land and Labor.
There are four types of land (L1, L2, L3 and L4) and four types of labor (LB1, LB2, LB3, LB4)
out of which every team participating will get one type of Land and one type of Labor.
This would be a closed bidding process.Teams will be mentioning the bid amount of each
type of land and each type of labor and their preference order, for the land and the labor.
The top 25% bidders for each land type and each labor type will get that land and labor at a
price of the lowest winning bid in that 25% bracket.

For Example:
If 100 teams are participating, the top 25 bidders for a particular land type, say L1, will be allotted
L1 at a price = minimum bid amount in this bracket of 25 teams. A similar procedure will be
followed for allocating labor type also.

Note: In the above example, if more than 1 person occupies the 25
th
position, the ranking would be
given based on the time of bid placed, i.e. The teams that bid earlier would be given preference in
case of equal value of bids.

Land is valued by its soil fertilityand Labor by its efficiency. Better land/labor is expected to
reduce the average cost of production. Refer to the matrix in the data sheet for the
numbers which capture this information.
The results of the above closed bid process will be put up on the website and e-mails will be
sent to the teams by 22.08.2014
Note that your bids in Stage 1 are likely to be influenced by your strategic choices in Stage 2.


Base price for mandatory items
L1 10,000,000
L2 8,000,000
L3 6,500,000
L4 5,000,000

LB1 8,000,000
LB2 6,000,000
LB3 4,000,000
LB4 4,500,000


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Stage 2: Production Planning

The teams can now buy non-mandatory inputs such as carriages, manure upgrade, and
labor training sessions, to reduce their cost of production. The total maximum output of
yourLand per day, however, is constant.
With the remaining capital, the teams can produce an output of anywhere between 0 units
and the Maximum Capacity of the Land.

Example:
If a team gets L1, you can produce output q<=20,000 per day.

Each team has to run their firm for 365 days and produce the same output each day.
Revenues for 1 year will be considered and corresponding profit will be calculated for the
year. Teams with maximum profit will win.
Each Landgives constant output without the upgrades (refer data sheet). With the upgrades
the operational cost reduces. The operation cost can be calculated from the formula given
in payoff matrix.
Revenue is realized only after the output has been delivered to the market. Buying number
of carriages increases the reach of your output to the market. The roundtrip time for a
carriage is 2 days. A carriage can leave at the end of Day 1 with your output and will return
to your premises only at the end of Day 3 and so on. Output produced and not transported
will be stored in the inventory and will cost an amount equal to the inventory holding cost
of 1/- per kg per day. Teams are required to submit the first 2 day schedule for the carriage
mentioning the amount transported (less than or equal to the carriage carrying capacity) on
each day. This will be repeated for the entire year.

Example:

Case 1:
If I produce 20,000 kg/day and have 4 carriages, and I decide to send 2 carriages daily carrying
10,000/- kg each then,

Day 1:
Production = 20,000 kgs
Transported = 20,000 kgs (2 carriages sent)
Remaining = 0 kgs
Inventory holding cost = 0

Day 2:
Production = 20,000 kgs
Transported = 20,000 kgs (2 remaining carriages sent)
Remaining = 0 kgs
Inventory holding cost = 0

Hence, I will be able to transport the entire produce of 20,000 kg to the market.




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Case 2:
If I produce 15,000 kg/day and have 3carriages, and I decide to send 1carriage on the first day and
2carriage on the second day then,

Day 1:
Production = 15,000 kg
Transported = 10,000 kg
Remaining = 5,000 kg
Inventory holding cost = 5,000/-

Day 2:
Production = 15,000 kg
Transported = 20,000 kg
Remaining = 0 kg
Inventory holding cost = 0/-
Hence for every 2 day cycle, 30,000 kgs will be transported and inventory holding cost of 5,000 is
charged. This is repeated for the entire year (182 cycles).
DATA SHEET
Base price for mandatory items
L1 10,000,000
L2 8,000,000
L3 6,500,000
L4 5,000,000

LB1 8,000,000
LB2 6,000,000
LB3 4,000,000
LB4 4,500,000

Maximum output of labor with no upgrades (in kgs per day)
LB1 20,000
LB2 18,000
LB3 15,000
LB4 12,000

*Note that theQuantity is stepped up only in multiples of 250

Fixed Costs of upgrades:
Manure (U1)1,500,000
Labor Training (U2) 400,000
Carriage (C) 1,000,000

*U1 is capped at 10 units, U2 at 8 units

Carriage carrying capacity: 10,000 kg
Inventory holding cost: 1/- per kg/day
Demand Function:Q(in thousands) = 24-P
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Average Operational Cost:



For different combinations of A and B, Land and Labour are given as follows:


L1 L2 L3 L4
LB1
A 12 14 13 15
B 16 15 60 60
LB2
A 14 16 14 12
B 15 60 2 15
LB3
A 13 11 15 14
B 60 5 8 20
LB4
A 12 15 16 13
B 25 30 30 30

Net profit can be calculated as follows:
Net Profit = Total revenue (p*q) - Cost of mandatory inputs (Land + Labour) - cost of add-ons if
purchased - cost of debt if taken inventory holding cost - operational cost

Please refer to a detailed example of the entire process given in the next page.

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Detailed Example:

Lets sayteam 1 bid for Land and Labour in the following preference order:

Land Type Preference Order Bid Amount
L3 3 21,000,000
L1 1 25,000,000
L2 2 17,000,000
L4 4 8,000,000

Labour Type Preference Order Bid Amount
LB1 1 12,500,000
LB2 2 11,000,000
LB3 3 9,000,000
LB4 4 3,000,000

After biding, say Team 1 lies in top 25% bidders for Land L3, so they will be allotted L3. If the
minimum bidding price for L3 in this bracket is 19,000,000, team 1 will get L3 for 19 million.
However, team 1 did not lie in top 25% bracket of LB1 or LB2, its first two preferences, but lies in
top 25% bracket for LB3, with minimum bid in that bracket as 9,000,000, so it will be allotted LB3
for 9 million.

So after bidding, Team 1 is left with L3 and LB3 and cash of 52,000,000 (= 80 19 9). LB3 can
produce maximum 15,000 units per day.

Now Team1 has to decide what amount of U1 and U2 to buy, how many carriages to buy and the
quantity of output to be produced.

Team 1 decides to buy 4 units of U1 and 4 units of U2 and 3carriages to transport its products to
market. So basically team 1 is spending 10,600,000 more on these inputs and is finally left with
41,400,000 (= 52 10.6).

The maximum possible production is 15000 units per day. Lets say Team 1 decides to produce
12000 units per day. Then, operating cost of Team 1 as per the cost function above is 12. Also, using
the inverse demand function we can see that the price of its product will be P = 24-12 = 12 per unit.

Therefore the daily cost of producing 12000 units is = 12000*12=144,000

On day 1, 12,000 units are produced, and 10,000 are transported out using one carriage. The
remaining 2,000 incur an inventory cost of 2000.
One day 2, another 12,000 units are produced, and the total manufacture (=12,000 + 2,000) is
transported out using two carriages, and no inventory cost is incurred.
Therefore, the annual cost of production is the inventory cost for half the number of days in the
year + cost of manufacture = 2000*182 + (144,000)*365 = 364000 +52,560,000
= 52,924,000

Since the amount left with Team 1 was41.4 million, it will have to take a debt of 11,524,000in order
to operate at this capacity.

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Hence the net profit for firm can be calculated as
= Total Revenue - Operational cost - Cost of Upgrades - Cost of bid inputs - Interest on Debt
= 12*12000*365 - 52,924,000- 10,600,000 - 28,000,000 - 0.2*(11,524,000)
= -10,964,000 - 28,000,000 - 0.2*(11,524,000)
= -41,268,800

So, with this production planning, Team 1 would end up with a loss of about 41.27 millionafter the
first year.