good day grade 12 welcome to lesson number 61 my name is Karden moker and this lesson comes from one of my textbooks the distinction bound student grade 12 we also have grade 11 and grade 10 all right in this lesson I'll start by revising the homework by the first uh question question was uh with reference to the number of buyers and sellers in a perfectly competitive market uh explain where the market power exists okay to answer this question I'll would say Market power does not exist because firms are price takers if Market power exists you become a price maker so Market power does not exist an individual firm is just a drop in the whole ocean so you cannot influence prices so you don't have Market Power number two is the JSP an example of a perfectly competitive market motivate your answer I'll would say that jse is definitely an example of um a perfectly competitive market here's the reason the reason is shares of a particular company are homogeneus they are all identical if a company has let's say 5 milon million or 5 billion shares outstanding those 5 billion Shares are identical and they are all being sold at the same price so homogeneous and the price is determined by forces of demand and Supply if more people feel optimistic about a stock they buy it and that makes the price to go up if many people feel pessimistic about a stock they sell it and the price goes down so because uh the price is determined by how people field that's demand and Supply when uh those curves move whether this one moves to the right or whatever it causes price to go up and down not one person having Market power so um this is a good example of a perfectly competitive market if anyone tells you otherwise ask them how come the product is homogeneous ask them how come there are many buyers and sellers ask them how come you don't have Market power how come the price is determined by forces of demand and supply all right then let's move on to the lesson of the day and the lesson of the day like I said is 61 and in this lesson we are going to distinguish an individual business from the entire industry all right the industry consists of all individual businesses and uh the individual firm is one of the many many firms in that particular industry for instance if I'm a farmer I'm an individual firm and if I am farming maze I form part of the maze industry that's simply what we say right now the difference then is the our demand curves are different I think the activity in this lesson will ask you on that and um I'm going to explain what we have here all right so you have quantity price okay sh um let's say we have quantity okay going to select a different pen okay we have quantity here we have price we have uh total revenue we have average revenue and we have marginal revenue and our quanti 0 1 2 3 4 I'll end at five right let me give you a market price if you are selling let's say it's apples at quantity zero you don't sell any apples how much are apples let's say they are two right because whether you sell or not the price is already there because you are not the price maker so whether you sell or not there is a price for Apple so two rent what if you were to sell one apple the price is still the same because you are a price taker the price is determined by remember demand and Supply right two so here you will see that it doesn't matter the quantity the price is two R the next one is total revenue so we need to know the formula so it's price time quantity so 2 * 0 there's nothing there 2 * 1 2 2 * 2 4 2 * 3 6 2 * 4 8 2 * 5 10 all right the next one is average revenue so average revenue is total revenue divided by quantity okay so there's nothing there okay our total revenue is 2 quantity 1 2 / 1 is 2 4 / 2 2 6 / 3 3 2 8 / 4 2 10 / 5 2 so you see average revenue is equal to price let's go to the next one the next one is marginal revenue now the formula is change in total revenue divided by change in quantity okay so quantity has changed from to 2 so it changed by 2 2 - 0 then quantity changed from 0 to one so it changed by one so we're saying 2 / 1 which is two changed from 2 to 4 so it changed by two change from one to two so it changed by one so 2 / 1 is Two Change by Two Change by One Two Change by Two Change by one you see two two so if we use this these numbers and we continue quantity 67 you'll see that yes this one increases by two all the time all the way and this one stays the same this one stays the same that one stays the same so that is what we have right here the price is too rent the quantity as it increases the price stays the same so we can conclude and say d our curve is equal to our average revenue a which is equal to our marginal revenue right M which is also our price you see that so our price two rent our AR two our marginal revenue two and that is equal to our demand curve that demand curve so D is equal to R which is equal to M which is the price all right so this is what I've shown you there so if you proceed with that and make some conclusions you can say yes the price stays constant at two r as quantity increases our total revenue there is our formula I gave you average revenue we divide marginal revenue changing TR ided by change in Q okay so this uh then therefore price is equal to AR which is equal to Mr okay so this is what we are explaining here but uh I see a couple of things that I'll have to explain so I'm going to do it on a different on a page while I explain it all right so with this one um we have our industry which has uh these uh these Market forces of demand and and Supply so this is our supply curve and this is our demand curve where these two meet we get our quantity and our price now having this in mind we also have the individual so this is our industry we also have the individual and so the individual is a price taker so he is taking the price from the market so you here let me give that price a number a figure actually two r i want to take the black one okay so here is our price two rents and so our demand curve as you have noticed is horizontal there so this is our D is equal to a r which is equal to m r okay and we have what we call Ain C curve and our marginal C curve has this type of a shape this is our marginal cost curve now where this thing meets our marginal revenue where these two meet we call it the profit maximizing point but uh you write it in full because if you say PMP no one knows what you're talking about so we call it the profit maximizing point it's a point where marginal revenue is equal to marginal cost so this is one of the most important rules you need to master this rule a firm should produce at a point where marginal revenue is equal to marginal cost okay because let me see what uh this topic is saying here the individual bus okay here we just giving that distinction it's fine right so they they meet here at this point so from that point we have our quantity so the firm must produce this quantity because that is where marginal cost is equal to marginal revenue so where these two points meet that's our profit maximizing point so this is exactly what I was explaining this is our market price this is the price taken from the industry so this is our industry this is our individual firm this is the output for the entire industry let's say 20 million shares traded and this is what one individual producer has sold maybe but let me not talk about shares let me talk about something practical something tangible cuz many of you will not understand let me just say maze so this is billions or millions of tons of maze produced in the country and this is uh a few tons produced by one individual farmer how much should that farm prod produce to answer that question he has to apply the profit maximizing rule which says he produces where MC is equal to M and in this case is that point e all right so this concludes the lesson and let me give you this homework how is the market price determined in a perfectly competitive market I've said this a thousand times why wouldn't a perfectly competitive firm charge more than the market price explain the difference between the demand curve for the industry all right I'll give you the answer in uh lesson number 52 and we'll see you in that lesson thank you so much