Tag: Market Structures

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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Wendy’s — Choice is Good

This Wendy’s commercial picks fun at Soviet economics that were notorious for limiting options available to consumers in the name of efficiency, but monopolistic competition in a capital market thrives on product differentiation and the ability to cater to people’s preferences.

Thanks to Rob Szarka for the find!

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Superior Donuts — Food Truck Competition

A new food truck sets up shop outside the donut store. The clip starts with the new owner coming by and asking how long the shop has been in business and what kind of customers stop by. She quickly realizes that she can setup shop and steal some of the existing customers. This clip does a really good job showing how monopolistically competitive markets function and that even though an imperfect substitute enters the market, the demand for one business decreases.

 

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Extremely Decent — First Honest Cable Company

When a firm has monopoly power, they have the ability to charge higher prices for a reduce quantity (and sometimes quality) service. If consumers don’t have alternatives then they are forced to deal with poor customer service and unreliability. This comedy piece highlights a fictions cable company that actually admits they aren’t very good.

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Narcos — We Have Miami

The group originally agreed to have sole control over Miami and New York and share Los Angeles among the two separate gangs, but it appears that independent members have been poaching areas from one another. The strength of a cartel is in their ability to self-regulate and to not over produce. Cartels have the ability to operate like a monopoly, but only if they’re stable.

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You’ve Got Mail — Monopolistic Competition

 

Struggling children’s bookstore owner Kathleen Kelly (Meg Ryan) tries to remain positive as a big retail chain bookstore, Fox Books, opens around the corner. She outlines the differences between their products and services and notes how this could be a good thing for her business. When business try to differentiate their products, they are often operating in a monopolistically competitive environment. The one issue with the entrance of a new competitor in these markets is that it decreases demand for the other firms even if they are a little different. The accountant notes that their revenues are down compared to the same week last year.

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Going Places (1948)

 

From YouTube:

Cold War cartoon defending the profit motive against anti-capitalist critics. The second of seven smart-looking animated shorts in the “fun and facts about American business” series. Its subject is “the profit motive,” and it stars “Freddie Fudsie,” a lazy soap maker who just wants to go fishing. He invents bar soap, makes some money, and is about to retire in peace and quiet when a sexy lady (the Profit Motive) walks by and Freddie — who suddenly needs more money to win her affection — never sees a fishing hole again. But that’s okay, because “the profit motive has been the driving force behind the growth of American industry” and “will make a better life for the children of tomorrow.”

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Pixar — One Man Band

This clip is a great introduction to monopolistic competition. Each performer provides a similar service, but they are not perfect substitutes for one another. When a new competitor enters a market, the demand for the original firms decreases and profits should fall as well.

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