Transcript:
1 Is this a vase?
Or 2 man? Well, it’s both.
2 Some things can be seen in totally different ways.
3 Is this a supply curve?
4 Or a marginal cost curve?
5 It’s both.
6.
8 An individual marginal cost curve tells us
the extra cost a seller incurs
to produce 1 more unit of goods.
9 Let’s start with producing 1 unit of rice.
10 Well, look for the most fertile land.
11 Cool, got it. Cost? $0.10.
12 To produce the 2nd unit,
13 we’ll got to look at less fertile land.
14 So cost increases to $0.20.
15 As we produce more rice,
we use up more land.
Every additional land becomes less and less suitable for cultivating rice.
16 And the cost increases for every additional unit.
17 At the 100th unit of rice,
The cost is $10.
18 This is why the marginal cost curve slopes upwards.
What about the market marginal cost curve?
Simple.
19 Combine the individual marginal cost curves
20 to get the market marginal cost curve.
`21 Is this a demand curve?
22 Or a marginal benefit curve?
It’s both.
23 An individual marginal benefit curve tells us
24 the extra benefit a buyer enjoys
by consuming 1 more unit of goods.
25 Imagine you are super hungry.
26 And consume the first unit of rice.
27
28 BRRRRII...illiant!
29 What about the 2nd unit of rice?
30
31 Great!
32 3rd unit of rice?
To be honest, you are not that hungry now.
33
34 Okayyy…
As you consume more rice,
35 your marginal benefit drops.
36 Combine the individual marginal benefit curves,
37 you get the market marginal benefit curve.
38 Now, we’ve seen this before.
39 Supply = Marginal cost
40 Demand = Marginal benefit
41 This is the equilibrium…but why?
(The equilibrium price of rice is $0.50 per unit)
42 As a seller, if you’re producing 3 units,
should you increase production?
43 Yes, the 4th unit costs you $0.40,
44 the price is $0.50.
45 You can still make a profit.
46 Produce!
What about the 5th unit?
47 Cost is $0.50 and price is $0.50.
You break even.
48 Produce!
49 6th unit? Cost is $0.60 and
50 price is $0.50.
51 It’s a loss.
52 Stop production at the 5th unit.
53 As a consumer,
54 Part with your money.
55 As long as it makes you happy,
56 If you’ve consumed 3 units of rice,
should you consume more?
57 Yes, the 4th unit gives you $0.60 worth of happiness,
58 but you only got to pay $0.50.
59, 60 So consume.
61 At the 5th unit, the extra happiness you’ll get is $0.50.
Price remains at $0.50.
62 Ok, let’s consume.
At 6th unit?
63 The extra happiness you’ll get is $0.40.
64 Lower than the price of rice!
Keep the money. No more rice.
65 That’s why that’s the equilibrium.
66 Why do we always harp about oil running out?
67 Yet those engineers seem to always discover new sources of oil?
68 Well, if oil costs $20,
you’re are going to produce oil
as long as your cost is below $20.
69 By drilling the shallow oil fields only.
Is there more oil down there?
70 Yes, but it costs $30 to get it.
Don’t bother.
Because you will only be able to sell it for $20.
It’s a loss.
71 If price increases to $100, ha…
Drill for more oil.
72 All the way until your marginal cost equals to $100.
73 If price of oil increases to $200,
Wow! Try anything to produce oil!
74 Go to the moon!
75 Go to Mars!
76 Go anywhere to get oil!
Because as long as your marginal cost stays below $200,
You’ll make a profit.
77. 78.
79 If you like this video, please remember to like and subscribe.
80 Next up: Consumer Surplus and Producer Surplus
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Do you know supply is also marginal cost and demand is also marginal benefit?