The price system motivates Gus to purchase the equipment for the chemistry lab, hire the resources needed and take the risk to produce and distribute the methamphetamine. Gale is shocked by the investment, but profit motives are often used as the incentive for investments. Firms only invest in resources if they believe they can lower the cost of production (given a fixed output) or to increase production either of which would increase profits.
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.
After a failed first attempt to gain full control over a key production input and get the blue methamphetamine off the market, Declan, a Phoenix-based dealer, meets with Jesse, Mike, and Walter. Right from the start, Walter tries and appears to succeed in convincing Declan that collaboration is the best path forward. This way, Walter’s superior blue methamphetamine remains in production and the methylamine, the key input, is used in the most efficient and profitable way. Further, Declan and his crew would serve as their distributor. This way the parties specialize according to their comparative advantage while all parties economize and gain from trade.
See more: barriers to entry, black markets, collusion, comparative advantage, efficiency, elasticity of demand, elasticity of supply, inputs, mergers, monopolistic competition, monopoly, oligopoly, quality, substitutes
After joining forces with Gus Fring, Walter learns about his new lab. The production facility is state of the art and includes some of the best equipment available on the market. This new equipment will allow Walt to produce even more of his blue meth than he could have previously imagined. Economies of scale are important in the production process. As facilities grow, their organization can begin producing large quantities, which lowers the average cost of production.
In a flashback to the pilot episode, Jesse and Walter are discussing the purchase of an RV to start cooking meth. The purchase of the famous RV would represent a fixed cost of production for their new business venture
Family meals are a great chance to see all the different complements and substitutes in a market. While milk and cereal are often consumed together (complements) there are other options people can decide upon to fulfill their breakfast need. Walter Jr opts for eggs and bacon (substitutes). The decision process involves weighing costs and benefits of alternatives.
There’s a lot of different complements and substitutes that go into a meal. Fries and ketchup are complements, while sushi and burgers are substitutes. The collective decisions we make are influenced by a variety of different products and aren’t isolated to a single market.
Walter is shopping for primer for home renovations, but stumbles across a young man who is clearly purchasing the necessary inputs to start making meth. Because of his familiarity, Walter suggests that the young man change the type of matches he uses if he wants to make meth. These inputs are so specific to making crystal meth that Walter is able to recognize it immediately and even tells the young man that others will notice the combination of items he’s purchasing.
In order to start producing large quantities of meth, Walter comes up with a new chemical approach to producing a substitute for pseudoephedrine. This “old school biker” meth is a lost art, but it narrows down the number of people who understand how the chemistry works. When resources are in short supply, prices typically rise. The responsiveness of firms to their inputs often deals on how easily other resources can be acquired.
After promising their new distributor they could produce 4 pounds of meth, Jesse starts freaking out. When the original deal was 2 pounds, Jesse was concerned about being able to buy enough pseudoephedrine to produce that. After showing up at their earlier meeting with only half of a pound, it seems impossible that the two of them can make 4 pounds weekly. It turns out that Walter can chemically create the same effect, but he needs Jesse to pick up some supplies. The elasticity of supply often dictates that the responsiveness of a good depends on how easily other substitutes can be acquired.
Jesse and Walter debate on the best way to start the business. At first, Walter is surprised that Jesse doesn’t want to cook in the garage, but Walter is just as reluctant to cook at his house. The two consider renting a storage unit, but eventually settle on purchasing a recreational vehicle. When starting a business, companies must decide whether to start by renting property, which may have lower costs initially or building and owning their own property.
There are tradeoffs to the two, and this situation is explored often in the decision for young adults to continue renting or purchasing their own home. The clip also serves as a good introduction to risk and uncertainty. Although it would be cheaper to begin production in their own homes, it is also VERY risky. Safe options often mean spending more money upfront.