Teaching Resource: Monopsony Power

The following set of questions outline how Breaking Bad can be used to assess content knowledge based on AACSB. We have provided several multiple-choice questions and a written assignment, along with possible responses and an accompanying rubric. As per Bloom’s taxonomy, these assess reasoning skills such as knowledge, comprehension, application, and analysis.

Episode Title: Cooking Again
Season: 3
Episode: 5
Episode Title: “Mas”
Timeframe: 42:58 — 43:10)
Concepts: bargaining power, consumer surplus, contract enforcement, contracts, demand, dispute resolution, elasticity of supply, institutions, market power, monopsony, producer surplus, supply, transaction costs, willingness to pay, willingness to sell

Bloom’s: Analyze/AACSB: Analytic

In this clip, Walter and Saul negotiate over a money-laundering fee. Suppose Walter and Saul have a pre-standing agreement, according to which the money-laundering fee is 15%. Describe the outcome of their bargain by using the concepts of consumer and producer surplus. In formulating your answer, discuss who emerges as the winner of this negotiation and why? Who loses, how much, and why?

POSSIBLE RESPONSE:
As a result, of their negotiation, the money-laundering fee declines from 15% to 5%. On one hand, this outcome is great for Walter. His consumer surplus increases as the fee declines. On the other hand, the result of their negotiation is less favorable for Saul. As the fee declines, his producer surplus decreases as well. Specifically, he loses (15%-5%)*$3,000,000 or $300,000. Saul, therefore, loses because of the negotiation; most likely because his supply for money- laundering services is perfectly inelastic over the observed price range (i.e., 5% to 15%). Nevertheless, it is worth noting that even with a money-laundering fee of 5%, Saul may still receive a positive producer surplus.

Bloom’s:Analyze/AACSB: Analytic

Even with the much-reduced money-laundering fee of 5%, Saul’s producer surplus is positive:

1. True
2. False

Bloom’s: Remember/AACSB: Reflective Thinking

Based on how the negotiation proceeds, Saul’s supply for money-laundering services, over the 5% to 15% price range, is:

1. elastic
2. inelastic
3. unit-elastic
4. perfectly inelastic
5. perfectly elastic

Bloom’s: Understand/AACSB: Reflective Thinking

Based on how the negotiation proceeds, the market, in which Saul and Walter interact, is best described as:

1. a monopoly
2. perfectly competitive
3. a monopsony
4. an oligopoly

Bloom’s: Analyze/AACSB: Analytic

As Saul and Walter negotiate a money-laundering fee, which of the following represents an outcome of their negotiation?

1. Consumer surplus increases
2. Producer surplus increases
3. Money-laundering fee decreases
4. All of the above
5. A and C, only

Bloom’s: Apply/AACSB: Analytic

Saul and Walter negotiate a fee for money-laundering services. Because of their negotiation, Saul’s producer surplus declines by:

1. $300,000
2. $150,000
3. $450,000
4. $510,000