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!

Spongebob — More Drive Thrus

 

After accidentally creating a large hole in the wall of the Krusty Krab, a customer mistakes the hole for a drive thru window and places and order. Mr. Krabs, being a the savvy businesscrab that he is, quickly adds a menu and microphone system to facilitate the drive thru. It becomes so popular people are waiting in line and causing a huge traffic jam (could use this to talk about a negative externality too!) in Bikini Bottom. The police visit and threaten to issue Mr. Krabs with a ticket and then the mayor comes in to complain as well, but Mr. Krabs has a solution. Adding a second drive thru to reduce the line, but that doesn’t work out too well. Watch what happens as diminishing marginal returns sets in.

Thanks to Erin Yetter (Twitter) for both the clip and the description!

Horrible Bosses 2 — Child Labor

 

Nick, Kurt, and Dale start up production on their new product, the Shower Buddy. After hiring some workers, they decide to hold a day where employees can bring their kids to work. It turns out that the kids actually started working on the factory floor and are enjoying it. At first blush, it seems like this shouldn’t be happening, but when Nick finds out how productive they have been, he walks away to change the sign instead.

Construction Site in Thailand

 

A few years back there was a popular video of a human powered ferris wheel in India. I use that clip to talk about labor abundance in the Heckscher–Ohlin model of trade since India is so labor-abundant. Earlier we came across this fantastic video of a construction site in Thailand (another labor rich country). For small construction jobs, the workers will use manpower (literally) instead of machines to drive piles into the ground.  This clip could also be used in a labor economics setting if you’re talking about substitutes in production. Either way, this is a fun-video for class with a pretty nice beat from the tambourine-wielding foreman.

Up ↑