After Life — Ordering a Kid’s Meal

In this clip, the main character, played by Ricky Garvais, is taking his nephew out to lunch. They decide to both order the fish sticks meal from the kids’ menu. When Ricky attempts to order this meal, the waitress informs him it is only for children. Although the café is practicing a common form of price discrimination, Ricky’s character is confused and argues he should be able to order the meal and pay a smaller price for a smaller portion. The server argues this is not true, and that the meal is made cheaper for children. The character claims his nephew is hungry and wants to eat two meals… much to the waitress’s chagrin.

This clip is an excellent display of price discrimination, the necessary condition of being able to segment the consumer base (by age- with visual confirmation), and a conversation/confusion around if different prices truly reflect different marginal costs of production.

Thanks to Sheena Murray for the clip submission and summary!

Hot Ones — Gordon Ramsey

 

On Hot Ones, celebrity guests are interviewed while eating progressively spicier wings. In Season 8, Episode 1, Gordon Ramsey discusses the makings of a $25 hamburger as well as the costs that are often “hidden” from the customer. This is a fun, and relevant way, to introduce concepts like labor and rent to students who are unfamiliar with the costs of running a business. Toward the end, Ramsey discusses the notion of excess capacity, whereby firms are not necessarily producing at minimum average total cost. If firms can fill the excess capacity (perhaps through price discrimination), they may become efficient.

A big thank you to my student, Abdullah Al Otaibi, for sending me this clip!

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!

Seinfeld — Bottle Arbitrage

 

Newman gets the bright idea to take bottles from New York (where the deposit refund is 5 cents) and return them in Michigan for 10 cents. Kramer stops him quickly and let’s him know that this isn’t a good idea because he’s not thinking about the costs of transporting them. Newman quickly realizes he can get a truck at no cost from the post office, which makes the arbitrage scheme profitable.

The full clip comes from Economics of Seinfeld.

CBS Early Show — Same Price, Smaller Product

One way that companies can reduce supply without customers realizing it is by changing the size of the packaging. This actually makes the per unit price higher, which matches with the theory of decreasing supply. This decrease in supply could come from changes in input prices or perhaps shifts in agricultural markets, like freezes in Florida and oranges.

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