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First Cow Economics: Diminishing Marginal Utility

Part 1 of a series analyzing the economics in Kelly Reichardt's latest film

In a year that is lacking in new film releases, Kelly Reichardt’s First Cow arrives on VOD platforms to provide a welcome escape to 19th century Oregon, blending the buddy film and Western genres in a charming tale of entrepreneurial friendship.

As I watched Otis “Cookie” Figowitz (John Magaro) and King-Lu (Orion Lee) start their “oily cake” business, I thought back to my college days (I double-majored in Film and Economics) when I split my time between dissecting mise en scène and analyzing supply and demand. First Cow provided the perfect subject matter to examine through the economist’s perspective.

In this first part of a 3-part series, I will use the oily cake market to explain basic economic concepts regarding supply, demand, and the law of diminishing marginal utility. Through this lens, we will see how these two friends capitalize on their golden opportunity.

Increasing the Supply

Orion Lee as King-Lu in Kelly Reichardt’s film “First Cow”
“Only so many we can make in a day, my friend” | Screen grab from “First Cow”

Soon after the King-Lu and Cookie start selling their delicious “oily cakes,” one villager suggests that they make more cakes since demand is so high. King-Lu tells him that they can only make a limited amount per day, which is true — they can only steal one cup of milk from Chief Factor’s (Toby Jones) cow per night.

“They wanna keep those prices up. They’re not dumb.” — Villager

Oblivious to their resource constraint, another villager demonstrates some economics knowledge by suggesting that they intentionally limit their supply to maintain steady prices. His statement refers to the concept that producing more of a product will lower its price. Price is, after all, a representation of scarcity. If the market gets flooded with a product, consumers will start paying less for it.

Let’s say it again in economics jargon: increasing the supply of a product drives down the market price for the product, ceteris paribus. This Latin phrase translates to “all else equal” — an assumption that economists make to better define causal relationships. Only by assuming that all other variables stay constant can one deduce the impact of only increasing supply on the price of a good.

The real world, however, complicates such analyses, and seldom do we see only one variable change at a time. What the villager does not consider is that demand can (and will) fluctuate as well.

Increasing the Demand

When demand exceeds supply, we can describe the market as having a shortage, and the film deftly highlights this imbalance as the camera pans through a long line of people waiting to buy an oily cake.

Villagers lined up in Kelly Reichardt’s film “First Cow”
Shortage: demand > supply | Screen grab from “First Cow”

Assuming ceteris paribus, increasing demand will increase prices. We can see this in action when a group of settlers bid up the price as they fight for the last oily cake.

Villager A: “I’ll give you 6 ingots for that last one!”
Villager B: “7 shells.”
Villager C: “7 shells, 1 ingot!”

With supply constant (there’s only one cake left) the increasing of demand drives up the prices from five ingots to eight. It becomes clear to the pair that maintaining high demand will ensure good profits.

The massive demand for oily cakes stems primarily from Cookie’s skilled baking, but King-Lu also deserves credit for his sales tactics. By strategically limiting purchases to one cake per person, he enhances word-of-mouth marketing: positive buzz spreads faster when ten people each try one cake than when one person eats ten cakes, and more prospective buyers will enter the market as a result.

Marketing stimulates demand, and increasing demand raises the market price for a good, all else equal. Deliciously seasoned and cleverly marketed, oily cakes remain in demand and prices remain high.

Diminishing Marginal Utility

Beyond stimulating demand, limiting purchases also helps with the issue of diminishing marginal utility. Marginal utility is the incremental satisfaction that one experiences from consuming an additional unit of the good. The law of diminishing marginal utility states that as you progressively consume more of a good, each additional unit consumed provides less marginal utility. In other words, the fifth cake doesn’t provide as much incremental satisfaction as the first.

Scott Shepherd in Kelly Reichardt’s film “First Cow”
“I’m sick to death of salmon already” | Screen grab from “First Cow”

The film alludes to this concept multiple times. When the captain comments that he’s “sick to death of salmon,” an economist would diagnose the issue as follows: eating too much salmon has diminished the marginal utility he can gain from eating one more unit of the overabundant fish. Speak for yourself, captain. I haven’t had salmon sashimi in months.

Ever the wary businessman, King-Lu also alludes to the concept when he describes their narrow window of opportunity:

“It won’t last long. They’ll get tired of it, and there will be more milk cows here soon. We got a window here, Cookie.”

With more milk cows and more oily cake vendors, customers will experience diminishing marginal utility from the influx of oily cakes. King-Lu limits purchases to one cake per person to ensure that their customers do not experience diminishing marginal utility as quickly. This way, they cannot overeat their enjoyment of the cakes away, which helps the cakes retain their coveted value.

A constant shortage of supply, an excess of customer demand, and a product with stable value—these three factors combine to form the foundation for the oily cake market.

Thanks for coming to my lecture, and stay tuned for the next installment in which I will dissect the monopolistic characteristics of King-Lu and Cookie’s business.