Kumu / Micro/Macro Econ / Imperfect Competition / Stage 2
Stage 2 — Analysis, Memo, Prompt Log
Objective
Optional · ungraded · self-paced
This case is an optional extension. Nothing here is submitted and nothing is due — self-paced, for students who want to run the argument out to its end.
Explain the gap in economics, using your own model's numbers. Put a dollar figure on what the pricing power costs society. Then write the recommendation to somebody who has to act on it.
Your model shows the same company earning $106.0M in one market and $8.785B in the other, from the same crop and the same fixed costs. That is the fact. The analysis is the reason.
Learn — the four things the analysis has to establish
Why marginal revenue sits below price
One more bag sold lowers the price on every bag, so the revenue the firm actually keeps from that sale is the price minus the discount it just gave every other buyer. For linear demand that works out to exactly twice the slope. The price taker's extra bag changes nothing at all, so its marginal revenue simply is the price: MR = P = $120.
Why the price comes off demand
MR = MC picks the quantity — 34,025,974 bags. Demand tells you the price buyers will pay for that quantity — $297.03. The test of your explanation is whether it would fix a classmate who just priced at $69.05. If it only restates the definitions, it would not.
What markup and Lerner measure
Price at 4.30 times marginal cost; roughly 77% of the price is margin over cost. The non-GMO row is 1.0× and zero. These are gauges of market power, not of efficiency or quality — and the patent is what keeps the demand curve downward-sloping in the first place.
What the deadweight loss means
About $2.99 billion a year, and it is not a transfer. Profit is a transfer: buyers pay it, the firm receives it, somebody still has it. Deadweight loss is the surplus from trades that never happen — farmers who would have paid more than marginal cost but less than $297. The monopoly withholds roughly 26M bags to hold the price up.
The result most students walk past
If the patent vanished and price fell to marginal cost, GMO seed would sell about 60.23M bags at roughly $121.46 — almost exactly the $120 that commodity non-GMO seed sells for. Strip the patent and GMO seed is just seed. That near-coincidence is the case's sharpest result, and an analysis that reports the deadweight-loss number without noticing it has done the arithmetic without reading the answer.
Do — write the analysis
Create analysis/imperfect-competition-analysis.md. Open by reproducing your Stage 1
hypothesis unedited, followed by an honest verdict: where it landed against the
model, and what you misjudged. A prediction that missed by ten times with a sharp account of why
beats a lucky guess with no account.
Then the four questions above, from your own workbook's numbers, plus a setup paragraph in your
own words on why the firm is a price taker in one market and a price maker in the other, and what
the patent has to do with it. Export at least two figures into analysis/figures/ — the
D/MR/MC chart is the obvious first — and reference each in the text.
Cite the case's own figures rather than inventing statistics, and do not bring in outside numbers without a source.
Do — take a position on the patent
One paragraph, a position, defended. The material to argue with:
- Complement lock-in — the herbicide sells the seed and the seed sells the herbicide.
- Patent enforcement against replanting saved seed, which is precisely what keeps demand downward-sloping. Without it, last year's harvest is this year's competing supply.
- Glyphosate-resistant weeds — a negative externality the private optimum does not price.
- The 2018 acquisition, where the price of regulatory approval was the largest negotiated merger divestiture in U.S. history.
Either side is defensible. "There are arguments on both sides" is the one answer that earns nothing — the paragraph exists to make you weigh roughly $3 billion a year of vanished surplus against the incentive that produced the trait at all.
Do — write the memo and update the log
The memo goes in docs/decisions/imperfect-competition-memo.md — half a page to
somebody who has to act, whether that is a regulator weighing the patent or an executive deciding
what the pricing power is worth defending. Recommendation, the reasoning that drives it, the
judgment call where the evidence ran out, and what would change your answer. The
memo template has the structure.
Then update prompt-log.md at the repository root with a dated section covering both
stages — the generation session and the formula debugging from Stage 1 belong here too — and close
with a reflection of 300 words or fewer that names one AI error you caught and how
you verified it. "The AI was great and made no mistakes" reads as not having looked.
Finally, update capabilities/pricing-power/README.md so its "exercised in:" line points at
the analysis and the memo as well as the brief.
AI boundary for this stage: paste your draft and ask the model to attack the argument. Do not paste the questions and ask for prose — a model that has not seen your workbook writes about the textbook instead of your numbers, and it shows.
Deliverable
| What | Where it goes |
|---|---|
| The evidence, with figures | analysis/imperfect-competition-analysis.md · analysis/figures/ |
| The recommendation | docs/decisions/imperfect-competition-memo.md |
| Sessions and reflection | prompt-log.md at the repo root |
- Hypothesis reproduced unedited at the top, with an honest verdict against the model
- Setup paragraph in your own words: price taker in one market, price maker in the other, and what the patent has to do with it
- The twice-as-steep rule explained mechanically, not asserted
- P*-off-demand explained well enough to fix someone who priced at $69.05
- Markup 4.30× and Lerner 0.768 interpreted as market power, not recited
- Deadweight loss framed as vanished surplus, with the ~$121.46 benchmark against the $120 non-GMO price
- The patent paragraph takes and defends a position using the discussion spine
- At least two figures in
analysis/figures/, each referenced in the text - Figures render on the GitHub page, not just in your editor
- Memo written: recommendation, reasoning, the judgment call, what would change your answer
prompt-log.mdupdated across both stages, with a reflection of ≤300 words- The reflection names a concrete AI error caught, or the checks that cleared it
capabilities/pricing-power/README.md"exercised in:" line updated- At least two descriptive commits for this stage