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!

Los Angeles Clippers — Dynamic & Variable Pricing

The LA Clippers explain the difference between variable and dynamic ticket pricing, which are often confused by fans. Variable pricing refers to changes in ticket prices based on factors like opponent, day of the week, or time of the game. Dynamic ticket pricing takes things a step further and actually bases the ticket price off demand and supply for a particular game.

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