Thursday, January 13, 2011

The tomato story

This is the story of the prices of tomatoes sold over three different days. Tomatoes in this particular city have been sold only thrice and they were on those three days.

On Day 1, the tomatoes were sold based on a market-determines-the-price method and so 100kg of tomatoes were sold for Rs.2 each. Various people bought these tomatoes without knowing how to use them, whether they would be tasty and how much they would be worth.

The next set of tomatoes (about 250kg) were to be sold on Day 2. By this time, the usage of tomatoes was well known and there was higher demand for the tomatoes. There were many more people ready to buy them now. This time though, the prices were not left to the market. The seller decided to use his own pricing methodology. For some reason, he decided that the selling price would be the same Rs.2 per kg. The tomatoes were hence sold on a First-come-first-served basis and fetched Rs.500. Some of the buyers immediately sold their new tomatoes for Rs.10 per kg and made a quick profit.

By the time the third lot was to be sold, there was already a shortage of tomatoes because of increased consumption. Moreover, the third lot was an improved bunch of tomatoes and hence had increased interest. A combination of the new features and increased demand implied that the prices would go higher this time. The seller decided that the prices of these tomatoes would be determined by the market. Buyers bid against each other and the 200kg of tomatoes were sold at an average price of Rs.40 per kg.

A quick recap:
Lot 1 - 100kg sold at Rs.2 each = Rs.200
Lot 2 - 250kg sold at Rs.2 each = Rs.500 (Some of these were resold immediately at Rs.10 each)
Lot 3 - 200kg sold at Rs.40 each = Rs.8000

Seeing the amount fetched by the sale on Day 3, #outrage ensued in some sections over the price fetched by Day 2. There were allegations of foul play on the underpriced sale on Day 2 and so a committee was set up to investigate this issue.

The committee's primary responsibility was to find out the loss incurred by the seller on Day 2 because of the sale. The committee came up with a two calculations:

Calculation 1: Lot 3 fetched Rs.40 each, so Lot 2 could also have fetched Rs.40 each. So the loss per kg = Rs.38 and the total loss is Rs.9500. What this method conveniently ignores is that the Rs.40 in Lot 3 is so high because of two reasons - A - they are an "improved" variety and B - the previous lot of tomatoes were inefficiently distributed (and thus increasing the demand for Lot 3). So, it would be wrong to conclude that the buyers would have paid Rs.40 for Lot 2.

Calculation 2: Some amount of Lot 2 was resold at Rs.10 per kg. Hence, the entire Lot 2 was worth Rs.10 per kg. So the loss = Rs.8/kg and a total loss of Rs.2000. This too is overstated since only a part of the Lot 2 was resold and hence cannot be the price of the entire lot.

Rubbishing these allegations, a Calculation 3 was offered as a counter-argument saying that there was no loss to the seller at all, since the price was Rs.2 per kg on Day 1 and it is a fair price on Day 2 too.

What do you think? How would you estimate the loss? What do you think the actual loss is?

My estimate is :
Calculation 1 >> Calculation 2 > Actual Loss >> Calculation 3

P.S. This is not really a story about tomatoes, it's about the 2G scam. Read the 9500 loss in Calculation 1 as Rs.1.76Lakh Crores. Calculation 2 is similar to one of the CAG member's assessment of 2645 Crores. The Calculation 3 is based on Mr.Kapil Sibal's claim.

Saturday, January 01, 2011

The obligatory new year post

There are four main things I look after in life - family, friends, career and adventure. It's been a pretty good 2010 in atleast three of those categories.

At the family front, my wife has finally started off her own business venture. After many months of planning, studying and "thinking about starting something on my own", she finally took the plunge. She gave up the IT job and started off Choc of the Town. The joy on her face on seeing her business grow, learning new things, getting appreciated, thinking of new ideas and implementing them makes me proud.

Friends: This year, I rebuilt a most-cherished friendship that had hit the rocks a few years ago. As a famous philosopher once said, "Inside jokes are the key to a great friendship". Also, this is the year I became active on Twitter and met so many people more intelligent than me. It's the place where I've met people from various walks of life and not just people who go to the same school, college or company as me. Learnt so many things from this platform and I continue to do so. (Note to self: Twitter is not a popularity contest. Stop counting.)

Career-wise, I have now successfully completed the transition to become like the non-cool anti-hero of most Tamil movies - the educated guy working in a "big position" in a multi national company. This was the year I became the youngest ever Vice President in my company. Whether this is a case of peaking too early and becoming untradeable (like in the NBA) only time will tell.

It's been a disappointment on the adventure front. With no additions to the Life album on my FB page this year, the skydiving and shark cage diving still remain WIP.

I tried hard to think of some negatives that happened this year to make this post a well-rounded good plus bad post, but I gave up.

What the hell, I'll say it out loud. I love my life and there's so much more to do. Party on!