Gus · Supply and Demand

Almost Pure

Gale is asked to test the purity of Walt’s meth and finds that it’s 99% pure, while he can only produce a version that is 96% pure. From Fring’s standpoint, 96% is good enough, but Gale is impressed that another chemist can achieve a 99% purity level. It is apparent that Gus weighs the costs and benefits of producing 99%- or 96%- pure methamphetamine. After all, the equipment he just purchased is suited for producing both purities, which makes the two varieties substitutes in production. Nevertheless, Gus decides that a purity of 96% will suffice. From his perspective, the cost of working with Walter, who is regarded as unprofessional, outweighs the 3-percentage points increase in the purity of the drug. However, Gus’ methamphetamine, although 96% pure, is inferior to that of Walter and the logic of the Alchain-Allen theorem tells us that he might be losing out as long as it competes with the “blue” drug. In other words, the Alchian-Allen theorem states that, when the same transportation, distribution, tax, or sale-specific markup is added to the prices of two similar varieties of the same product, the relative consumption of the higher quality good will increase. Since from a legal perspective, the risks and costs of distributing methamphetamine are, more or less, the same, regardless of its purity, a relatively larger market share will be accounted by Walter’s “blue” methamphetamine. The scenes within the video clip are also useful for discussing product differentiation as a key characteristic of monopolistically competitive markets. The blue color of Walter’s methamphetamine represents a signal of quality as well as purity that bridges the seller- buyer information gap, a problem that plagues black markets such as those for drugs and other illicit goods or services.

This description comes from Duncan, Muchiri, and Paraschiv (Forthcoming)

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Costs & Production · Walter

Missing His Partner

Walter tries operating the facility by himself and he’s struggling to move a barrel with Jesse gone. Normally, the two would work together to specialize in particular tasks to reach their intended goal. Having only one worker means that they aren’t able to gain from specialization.

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Behavioral & Game Theory · Foundations

How Big Does it Have to Be?

Skyler takes Walter to a storage area she has rented and shows him the giant pile of money he has made from his meth business. She then asks him “How much is enough? How big does the pile have to be?” Walter appears to have the same determination to earning revenue, but Skyler recognizes that her utility has diminished. The first thousands that Walter brought in may have excited her, but at this point it has become a hassle and it doesn’t seem like another dollar will really change her happiness level.

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Foundations · Gus · Walter

Not Worth the Money

It’s time for Walter to quit so he stops by to visit Gus Fring. Gus wants to offer Walter 3 million dollars to keep making his blue meth for 3 more months, but even that amount isn’t worth it to Walt. Walter is trying to piece his life back together and believes that continuing to produce his blue meth isn’t worth the amount he’s giving up. Walter admits to Gus that he has more money than he knows what to do with. Even for the wealthy, there’s diminishing returns to acquiring more income.

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