Demand, Marginal Revenue and Profit Maximization for a Perfect Competitor

This video explains how an individual firm in a perfectly competitive market should decide the best quantity to produce to maximize profits.
Want to learn more about economics, or just be ready for an upcoming quiz, test or end of year exam? Jason Welker is available for tutoring, IB internal assessment and extended essay support, and other services to support economics students and teachers. Learn more here! econclassroom.com/?page_id=5870

[@Jenny23495]

I think you just maximized my IB Economics grade. THANK YOU

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[@thenextmarlon]

My friend once asked me, "What if Johnny Knoxville were to be smart and teach price determination under perfect conditions?". I gave him a link to this video.

[@jenniferliu5988]

by far the best explanation of economics concepts on youtube. thank you!!

[@ryanwheeler77]

Thanks for this video. Clearly explained. Better than several others I have watched.

[@DuaneMoss]

good video, studying for a final, and this helped! Thank you for posting.

[@alisonhill9355]

Love your videos. They're so easy to understand. THANKS!!

[@MayankKhurana01]

Clear, concise and beautiful. Thank you!

[@TaylorLovelyTM]

Everything makes sense now and just thank you so much.

[@ModimonaleronaNtunga]

This was so helpful. Thank you, Mr. Welker.

[@miftahulfahmisembiring1067]

Excellent..!!! Even for beginner like me can follow and understand your explanation. Thanks a lot!

[@eyals3962]

Very instructive videos. Thanks a lot!

[@mohei95]

very nice thank you very much Mr Jason Welker

[@shlokagidwani2870]

Great video! Thanks so much.

[@Ps3KingOfCod]

This is so helpful thank you very much

[@IsraelNathanael]

I finally had my aha moment, **subscribed**

[@gauravshah3789]

Quite intuitive... Thanks

[@jillianchiu]

GREAT VIDEO, THANKS

[@wizasimuchimba839]

This is very helpful thank you

[@BustaReims]

Perfect. Thank-you.

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[@Kashmiribakiri]

I would totally buy your book!!!!

[@abdimajidogle9439]

thanks welker easy to get

[@pushpendrabansal5547]

Can you make a video on explaining how Supply Curve is drawn out of Marginal Cost Curve?

[@AMD190]

Excellent explanation !! What do you mean with "elastic" at 7:03 ? I didn't understand well what elasticity you are talking about with the demand curve.

[@ma.glydelsolmayor4498]

Can someone tell me on how to make a video presentation like this please? What software? Thank you. I needed it so badly.

[@anandprashad2699]

Grt tutorials ...nice presentation..Please upload tutorial on Growth Theories: Harrod Domar, Slow Swan, New Classical Model and Implication of New classical Model... thanks!!!

[@laurastamps]

Is the Marginal Cost Curve the same for every Perfect Competitor? How did you arrive at that? Is there another video I should have watched first (I'm trying to watch them in order).

[@quarantinelifegaming]

This is very helpful but I am just a bit confused. If the farmer sells 4000 units his TR = $20,000. His TC= 8,000. Profit= $12,000 (TR-TC) But if he sells 5000 units his TR = $25,000. His TC= $15,000. Profit= $10,000. How is this helpful for the firm? Wouldn't the firm prefer to produce less units and earn more profit? Thanks.

[@imaliazhar]

You are mistaking Marginal Cost for Total Cost. MC means cost incurred on producing one more unit. Let's call profit per additional unit produced Marginal Profit (MP). MP = MR - MC. As long as our MC stays less or equal to MR, we can get some profit on producing one more unit. This profit gained on producing one more unit keeps getting less and less unit it becomes zero and at that point MC = MR. I hope that clears it out.

[@777Charli77]

can you make a video for explaining supply curve

[@SIMZALO]

Hit on the nail's head!!! thank you.

[@kellymthethwa]

oh how i don't miss economics i'm glad i got through it.

[@SIMZALO]

Interesting though

[@kellymthethwa]

indeed.

[@awesomesuperman739]

Awesome.

[@alihm6939]

Whats the name of the song in the introduction ?

[@daev196]

If you haven't got your answer yet ;0 elasticity refers to the correlation between price and quantity demand. e.g. Fuel is inelastic, because if the price doubles then the quantity demanded would go down less that half. Big macs would be elastic because if price double, quantity demanded would decrease by more than half....

[@k.rankovic]

thanks, this was helpful :)

[@mohei95]

Please where is the next lesson the optimal output in the perfect competition market /???? Please @Jason Welker help with the link to the next lesson

[@cx5442]

7:16 What's the problem if everyone wants to buy from a single farmer? Wouldn't that farmer will exactly want that?

[@yishiliu1381]

I don't get it. The profit when producing 4000 items is $3 per unit, the profit when producing 5000 is $2. $3 × 4000 ＞ $2 × 5000 (12000 ＞ 10000) So why should this person increase production from 4000 to 5000 and to Qpm?

[@AB-gv3mg]

Yishi Liu You have to add up the profits. At Qpm the farmer will be able to capture the profit he would have gotten if he produced at 4000 and 5000. The profits are different because of the law of diminishing marginal returns, regardless he will continue to earn a profit despite being lower up until he produces at Qpm.

[@waxk9]

+Yishi Liu i also dont understand that part.

[@andreasimeone1040]

+Raumil Patel sorry, do you mean that at the quantity of 5000 he will sell 4000 of them at price 2 earning a total of 12000 and the other 1000 of them at 3 earning 2000, so 12000 + 2000 is 14000 (so he is better off than when he was producing only 4000?). that's what you mean?

[@luckyim6504]

srly i dont understand this part. why did he have to produce till 6000? why not earn marginal revenue $3 at 4000?

[@telsa418]

thats not how much profit they make per unit sold. Its how much profit they made for the last unit that entered. By multiplying 3 and 4000 your essentially saying you make a 3 dollar profit on every single one of your 4000 units sold. That isn't the case for a short run firm because for every new entry, marginal revenue and costs change.

[@YeahNiceman0]

but total profits arent maximised. because at the first quantity (4000), you earn more profit than at the next quantity (5000) ? or was it just the numbers used.

[@GiangPham-zj3pv]

but the the 4000 and 5000 you talk about is marginal profit, not total. as long as there is marginal profit, any increase in ouput will increase total output

[@bluemoonmusic78]

This video would have been vastly improved if you actually explained WHY profits are maximised when MR=MC!

[@khairinamamadamonova6446]

+bluemoonmusic78 If you listen to it in the almost end he gives a Clear explanation why! Because its a method To Maximize the profit- the way firms do it - they make sure that their Marginal Revenue equals their Cost, if the Marginal Cost greater there is a loss of the profit, which firms try to avoid.

[@Childrensmathes]

Sir,I could not understand why the demand curve is parellel to x axis.you have used the word elastic which I did not understand.can you explain this please.p siva rao,India.

[@cx5442]

The demand curve is flat because the only way for a firm to work in a perfectly competitive market is to sell its produce at a price determined by the supply and demand, or at an equilibrium price. So, the price at which a firm has to sell the milk becomes fixed and constant. Elasticity means how demand of a commodity will change with a change in its price, or how responsive will be customers with the change in price of milk. So, if the firm set its selling price of milk lower than the market price, every customer will want to buy from that firm because it is cheaper. Similarly, if the firm set its selling price of milk higher than the market price, no customer will want to buy from that firm because it is expensive.

[@DomTheGreat88]

thanks dude

[@namphan5130]

Wait. I'm confusing here. So you say if the farmer increases the price, he will sale zero. But if he decreases the price, he'll sell alot. So basically he still has the choice to increase or decrease the price. Then why do you say he has no choice?

[@soumyasharma5743]

Since it is a purely theoretical concept. Which, does not allow you to lower price.

[@luciacampbell8823]

well in this case we assume the farmer is rational. he wants to get the maximum revenue. when he decreases or increases the price he will earn less money. that's why he has no chose but takes the market price.

[@LaxLerax]

Öz abim Arzu Hoca 1, sen 2sin

[@nikhilramabadran5691]

the only nebulous part was why would the farmer produce higher than 3 litres, which is the quantity at which he makes maximum marginal profit

[@rahuladhikari5358]

sorry but you have misunderstood him, we should analyse total profit and not marginal profit.. 3*3+ 1*2+ 1*0.5

[@LucisFerre1]

Everyone's selling identical widgets. 'Damned firms. ;-)

[@uroztas]

Another example is Chinese people selling products on eBay, their costs are the same and they sell at the same price on eBay

[@YeahNiceman0]

nevermind, understand. thanks.

[@munibeozan]

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[@antona5676]

chuevo