Brooklyn 99 — Boyle Can’t Quit

 

Boyle’s new food truck isn’t going well at all. He’s losing a lot of money and he can’t seem to change things around. Jake suggests Boyle does what he’s good at and just quits, suggesting that Boyle’s the average price Boyle charges for food is below even his average variable costs. Boyle took out a huge loan and he needs to help pay it back, which may mean that his prices are between the average fixed and average variable costs, in which case he should keep producing even though he’s losing money.

Argo — The Best Bad Idea

A CIA agent creates a fake Hollywood production in order to fool Iranian terrorists into releasing a group of U.S. diplomats based on the 1979 Tehran hostage crisis. In this scene, Tony (Ben Affleck) presents the concept of Argo. The CIA will eventually grant the proposal, but they want to know if there are any other bad ideas that could be better.

The concept of “the best bad idea” helps explain why some firms may operate in the short-run despite suffering a loss. While firms would love to earn a positive profit, there are a few loss situations available as well:

  1. (WORST) Firms can produce below AVC and lose both their fixed costs and some of their variable costs
  2. (BAD) Firms can shut down when prices are below AVC and lose their fixed costs
  3. (BEST OF THE BAD) Firms can produce as long as prices are above AVC and lose a little bit of money

Some students always want to divert to shutting down if firms face losses, but there’s a “better bad idea” as long as prices are above average variable costs.

Thanks to Darren Grant for the clip suggestion!

Darren also has a new book out entitled Methods of Economic Research!

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