 Hi, Professor Gerald Friedman, University of Massachusetts at Amherst, Department of Economics. And we're here today to talk about marginal revenue. What on earth is that? You'll find out. Let's start with you running a business. How do you sell more stuff? Well, I don't think you can advertise or do all those things, but from one moment to the next, how can you get rid of this extra inventory you have? You brought a whole lot of hats to the fish concert. They're doing a revival tour. And you brought a lot of hats and a lot of t-shirts. And you're getting to the end of the day and you still have a bunch left over. How are you going to get rid of them? You don't want to bring them home. You want to sell them. Lower the price. Sell more by lowering your prices. Now that will be fine. You all attract some new customers. Monisha over there isn't a big fish fan, but if you cut the price of t-shirts enough, she'll say, well, I can always use where the t-shirt inside out. So she'll buy a t-shirt. And it's a hot, sunny day, so she'll buy a hat also, even though it has fish all over it. Yeah, she'll live with that if it's cheap enough. That's fine for selling to her, but once you post those lower prices, you have all these fish fans who are waiting around to buy t-shirts. And they say, hmm, I would have bought that t-shirt at $30. Now we're selling it at $20. What a steal. So you're not only moving down the marginal utility curve or down the demand curve to attract new customers, but when you lower prices, you're also selling more, selling to the people who were willing to pay a higher price, you're selling to them at the new lower price. You start with your demand curve, you move down your demand curve, selling more at lower prices. That's all fine. But you're also giving a discount to the people who are willing to pay the higher price in the first place. You start out selling one t-shirt at $25, fine. So the second t-shirt at $23, you're selling two t-shirts now, the $23 t-shirt to the $23 buyer and the $23 t-shirt to the $25 buyer. So when you calculate your marginal revenue, the extra money you get by selling one more shirt, you get the $23 of new revenue coming from selling to Manisha. And from that, you have to discount $2 that you're giving as a discount to the person who was willing to buy it at $25. So your marginal revenue is not the $23 that you get from selling to Manisha, but it's $21. You go from selling one t-shirt at $25 to selling two t-shirts at $23 each. You have $46 total revenue instead of $25, an increase of $21. You sell the third t-shirt at $20. Now Manisha gets a discount, plus the $25 person gets a discount. And before you know it, you have a marginal revenue curve that lies below your demand curve. Your marginal revenue is less than the price you're selling. Your marginal revenue curve lies below your demand curve and you are getting less in additional revenue than the price of the stuff. That's critical for monopolies. And we'll talk about that next time. So thank you very much. Have a nice day.