Greetings. With this video, we're going to start to think about getting us closer to answering that fundamental question of where do prices come from. In some of our earlier videos, we constructed these supply curves and these demand curves, and we worked on things about how to solve problems with this. We worked like for example, we could use this simple to supply and demand to analyze what happens when there is an external shock. For example, we use the example of what would happen if this was the orange juice market and the Florida Orange Juice crop got wiped out by unexpected frost. Well, the supply curve would shift, the prices will go up, all things. What happens that we use this over and over again. But now, we need to get to a more solid understanding of what's underneath that supply curve. So the goal here is we're going to deconstruct the market supply curve. We want to think about what's going on inside these market supply curves. So we're going to start by thinking about recalling just so we remember, I can actually go back to this page. Remember, this cap Q equals market output, and that market output is a supply curve. The supply curve in the market is a supply curve that's a collection of all of the various firms in that industry. We are talking about competitive industries here. In perfect competition, there's lots and lots of people in the market. So what we want to do is we want to go back down and focus on an individual firm and think about how that firm optimizes. So what we want to do is we're going to say, here, just black pen out here, we're going to slow down and recall where we're going with this whole process. Our goal is to create a market supply curve, and that market supply curve, we're going to do it if we can think about what the individual firm's supply curve are. The market supply curve, that's S. I'm going to make sure that you understand this. Market supply is a collection of the optimization decisions by all the different players in the industry. So essentially, when we think about this process, recall in the short run, we've already established how people optimize. I'm going to draw another picture here. I'm going to put my axes system on here. Now notice, make sure you see in the lower corner here, it's lowercase q because this is an individual firm, and that firm observed a price from the marketplace, and that price for the marketplace gave it a marginal revenue, and that marginal revenue will allow it to maximize because the firm's optimization decision says, I want to max profit by going where marginal revenue equals marginal cost. Well, there's my marginal revenue and my marginal cost has some general shape like this. Again, how do I know it's there? I know the marginal cost curve is actually U-shaped. But we've already gone through all the hard work to realize that no firm will ever optimize on the downward sloping portion of the marginal cost curve, it's going to go on the upward sloping marginal cost curve for at least for competitive firms. We might find some market structures later in other videos where they might end up going on the downward sloping side, but not right here. Given that, the firm will optimize by choosing this amount, we'll call this q star sub 0. It's the optimal output because of the price P0. This is an optimization decision on the part of the firm. Now, there's lots of firms out there and we have to add up each one of their optimal outputs. What price are each of these facing? This price, we know these firms in this industry all price takers, they take the same price. They may have different positions of their marginal cost curve, but they're going to go out there where marginal revenue equals marginal cost and they're going to produce a certain amount. If I add all of those up, I would be able to on a curve like this say, G, we'll put it on a real price here, if the price happened to be P0, I know this amount would be the quantity supplied at P0. That would be the sum of all of those little lowercase Q of all the firms that are responding to that price. Now, of course this prices is an out of equilibrium price, so we would know that what is eventually adjusted to this equilibrium price, but we'll get there as we move forward. So again, what we want to do is realize that each firm is going to optimize, choose an output. There's lots of them out there, we have to add all those up. Okay, thanks.