After running out of their primary ingredient, Mike suggests that they go back to producing using pseudoephedrine. Walter quickly points on that their equipment isn’t designed for this and it will reduce their yield significantly. Mike argues that the alternative is not making anything at all and that making some product is better than making no product at all. This scene serves as a nice example of why firms may operate at a loss rather than shut down. As long as the price of the product is greater than average variable costs, firms will operate in the short run.
Walter stops by to see Jesse. Reminiscing about the start of their partnership, they cannot help but wonder about sticking with the old recreational vehicle (RV) even when there was enough to replace it. While the RV served them well in their first attempts to cook methamphetamine, the two did not upgrade until they started working for Gus Fring. The ownership/endowment effect underlines the scenario in which some people are unwilling to exchange something that they possess for the same amount of money that they would pay for it (if not owning it). Walter and Jesse loved the RV even though it had, and brought them, many problems. From a rationality standpoint, they may have been too concerned with the sunk costs that they have incurred.