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This lecture discusses the performance analysis of Shannon-Fano algorithm, showing that it is close to the optimal performance. It introduces Huffman codes, which offer excellent compression rates and are optimal for lossless compression. The lecture explains the simple idea behind Huffman codes, where longer codes are assigned to less frequent letters. It also presents an example of Huffman coding, highlighting the construction process and the optimal nature of Huffman codes. The lecture concludes by emphasizing the importance of starting with the least frequent letters when constructing Huffman codes.