 So, welcome to the course on managerial economics. This course is specially designed for the MBA students and the motivation for this course comes from the fact that managers needs clear understanding about the economic principles because the understanding of economic concept and economic principle helps them in managing the day to day problem associated with the business decision. So, in this course specifically, we will see that what are the different domain of a business decision problem and how economic concept and economic principle generally get used to solve this business decision problem. So, to start with, we will talk about or we will define the economics. What is economics? Then we will talk about what is managerial economics? How this economics or which part of the economics considered to be the managerial economic? Then we will talk about specifically the economics and managerial decision making and we will just do a review of the economic terms. There are many concepts like opportunity cost, rationality, marginal and incremental analysis. In today's session, we will focus only on the economic rationality. So, to start with, there are numerous definitions of economics. Maybe one group of economics they call it is like science of wealth that is typically given by father of economy that is Adam Smith. This is called as science of wealth. Similarly, from another economics marshal, the definition comes as economics of wealthier. Similarly, from the other economics robins, it comes that economics of choice, scarcity of choices. So, we will pick up the third definition that comes from robins that economics is a study of the science of choices and the scarcity. From there, we will try to link that how this is related to the decision problems and how it is related to the day-to-day business activity of a typical organizer. So, the word economy derived from the Greek word okios which means household. When we talk about this household, if the word comes from Greek word okio, so basically this is the management related to the household. Now what is economics? So, reaching to this economics that how economics has become the scarcity and choices, we need to understand the fact that human wants are unlimited. So, whether you talk about an individual, whether you talk about the people, whether you talk about as a group of people, whether you talk about the economy, human wants are always unlimited. And why we call human wants are unlimited? Because of the fact that we always we have a wish list that may be in a specific time period, these are the things I have to get or these are the things I have to achieve. But wants are unlimited because everything never convert into the satisfying satisfaction, the want satisfaction because whatever the want and whatever we are doing there is a difference, there is a gap. So, wants are unlimited, individual or the group or the economy as a whole they never get satisfied that beyond this I do not want anything else. So, for it comes to individual when we are in the lower income group, we will aspire always to go to the middle income group, when we are in the middle income group, we always aspire to get into the high income group. Similarly, in a economy level when it comes to if the GDP growth is 5 percent, they always aspire to have a GDP growth of 7 percent. When GDP growth is 7 percent, they always aspire to GDP growth of 10 percent. So, any individual, any economy they always increase their want, they always feel that there are some wants which need to be fulfilled in the next time period. But the other side of this story is that human wants are unlimited, but the resources to satisfy those wants, those are basically scarce and unlimited. So, in the one hand human wants are unlimited, the people, the individual, the economy they go on, they go on demanding the whatever the wish list or whatever their wants. On the other hand resources are scarce, resources are not unlimited, rather they are limited to satisfy this want. Now, what people or what individual they try to do in this process? In this process they want to maximize their gain. How they want to maximize the gain? They want to maximize the gain whatever the limited resources, whatever the whatever the time available, whatever the resources available may be in term of the raw materials, in term of the time. They want to see that how much they can maximize or how much they can achieve whatever their want they have given. So, if you take in a very layman understanding that why these wants and resources, as an individual we have only 24 hours in a day. So, if you look at, we never get satisfied that this is 24 hours, maybe if the 24 hours could have been 30 hours, I could have done this. If the 24 hours would have been 24 hours, I would have done this. This is in term of the time. Similarly, when it comes to resources, if I have more money, I would have done that. If I have more money, I would have done the other. So, whether it is money, whether it is time or maybe if I would have been studied more, maybe I would have aspiring a job which comes in a higher qualification. So, whatever you typically look at these are all resources, whether it is time, whether it is money, whether it is qualification typically from the individual point of view. But there is a scarcity to it and that is why there is always a gap between whatever the human wants and whatever the resources available to satisfy those wants. And as an economic agent, typically in the individual as an economic agent, they always try to maximize the gain, looking at the fact that whatever the resources available, how best they can use the available resources to satisfy their want or to maximize the gain. So, economic problems come from here that human wants are unlimited. However, the resources to satisfy these wants or those are typically limited, those are not unlimited. So, here it comes that the economic agents and the society have some economic problem because of scarcity of resources. Because there is a gap between the want and the resources, available resources that leads to the fact that there is an economic problem. And this economic problem, generally economic agent in an individual level, economic agent in a society level, generally they face this problem. And why this economic problem comes because there is a gap between whatever the human want and whatever the limited resources available to them. Now, what is the challenge for the economic agent? May be at the individual, may be at a group, may be at a country level. The challenge comes here that they need to choose the scarce resources among alternatives based on the choice and valuation of the alternatives. So, the challenge comes here that they have to choose the scarce resources, resources are limited. They have to choose the scarce resources among alternative based on choice and valuation of alternatives. Now, what are the alternatives over here? So, typically talking about one individual agent, what are the wants? May be the wants may be one, may be the wants may be two, the wants may be three, the wants may be four, may be this is less than 10 items in the want. May be we will take an example that resources are available only to satisfy the wants that come may be four wants in the list of 10, two wants in the list of 10 or three wants in the list of 10. Now, so if you look at here we have wants that is human wants, here we have the resources. So, may be to put it in a number, so we suppose there are 10 items in the wants there is 10 wish list from the 10 wish list of the economic agent and the resources are just satisfy to four item. Now, in this case what will be the alternatives? Alternatives that the human the economic agent has to be has to choose four items from this 10 items where the resources can, what the resources can satisfy. Now, this four items will be chosen from 10 items. So, what are the alternatives available to the human beings or whatever the alternative available to the economic agent? They have to choose among this 10 four. So, there are 10 alternatives and among this 10 alternatives the economic agent has to choose four items or four alternatives. So, they need to choose the scarce resources among the alternatives based on the choice and valuation of the alternative. Whatever the choice, whatever the valuation on the basis of that if there are 10 items they have they need to find out what is there in the priority list, what they require most and on that basis they will choose that four items typically in this case where the resources can satisfy to fulfill those four items. So, since resources are scarce where human ones are unlimited the economic agent has to choose the alternative choose among the alternative which the resources can satisfy. Now, from here the definition or the meaning of economics comes that economics is the study of how economic agents or society choose to use scarce productive resources that have alternative uses to satisfy ones which are unlimited and varying degree of importance. So, looking at this definition the first part of this definition if you look at this is a study of how economic agent and society use the scarce resources scarce productive resources. So, the first one is that the about the choice part of it choice part of the economic agent that how they choose the resources that is productive resources what is available to them and then the second part is that this resources have alternative uses. So, if the resources are not getting used to fulfill may be the first one that this can also be used to satisfy the other kind of one. So, this resources they have alternative use if the economic agent they are not choosing this resources may be the other economic agent will choose that resources and they will try to satisfy their want by using that particular resources. So, the first part is about the study of choice of the scarce resources by the economic agent. Second part the resources have alternative use and what is the alternative use? Alternative use to satisfy the ones and the third part of the definition comes from the third part of definition comes that human ones are unlimited and this alternative uses is there is they have varying degree of importance depends upon that what is the want of the economic agent. So, the entire definition we can break into three part first part is talk about the study of choice because the economic agent has to choose the scarce resources for the alternative use. Second part is that the resources have alternative use if it is not getting fulfilled one one that is also getting used to fulfill the other one and also this resources they have the varying degree of importance. So, taking this we can may be simply we can say that this is the economic is the study of scarcity and choice because the scarcity comes there is a gap between the human want and the resources available to them there is a resource scarcity and since there is a resource scarcity the next challenge comes from the for the economic agent to choose the scarce resource for the alternative uses for their wants. So, from economics from the definition of economics now will come specifically what is microeconomics. So, microeconomics is the study of economic phenomena at the micro level typically individual and the firm level. So, this is the microeconomics when we do the individual level study whether it is about the individual consumer, individual producer, individual firm, individual organization that is the microeconomics and it is the study of how individual firms or consumer do or should make economic decision taking the constant into the account. So, microeconomics is essentially deals with the fact that how individual firm, individual producer, individual consumer they should make their economic decision taking whatever the constant into account. So, in this case what is the basic constant in case of the economic theory the basic constant is there is all the theory all the principle comes from the fact that there is a resource scarcity and there is unlimited human wants. So, basically managerial economics is the microeconomics applied to the decision made by the business manager, but there are some topics from the macroeconomics which also essentially comes between the comes in the purview of managerial economics, but here typically in this course will focus more on the microeconomics concept and which is generally applied by the manager to take the business decision problem. So, managerial economics is the microeconomics applied to the decision made by the business manager and now we will see that how we generally link this economics into the managerial decision problem and from there this managerial economics comes into picture. So, there are two stakeholders here one is the manager, manager is the person who directs resources to achieve the stated goal and so what is the role of manager? Role of manager is they have the resources and generally their role is to see that how the resources can be used to meet the objective of the firm or the meet of meet the goal of the firm. If the goal of the firm is profit maximization if the goal of the firm is the revenue maximization, how this resources can be used to meet that objective of the profit maximization or objective of the objective of the revenue maximization. So, manager is the person who directs resources to achieve the stated goal. The second stakeholder here is the study of economics. Economics is what the science of making decision in the presence of scarce resources. So, we had a discussion on that why how resources are scarce and human wants are unlimited and the challenge for the economic agent is to use the scarce resources into the productive use choosing among their alternatives. So, in the taking that cube we can define economics here is the science of making decision in the presence of scarce resources. So, manager is one who direct the resources to achieve the stated goal of the firm and economics is one which talks about or which is the study or the science of the making decision in the presence of the scarce resources. So, taking together both the stakeholder manager and economics manager is the person and the study what is getting used in solving managerial decision problem is economics and from there we get the managerial economics and managerial economics is the study of how to direct scarce resources in the way that most efficiently achieve a managerial goal. So, what is managerial economics? Managerial economics is the study of how to direct scarce resources in the way that most efficiently achieve the managerial goal. So, basically when a manager uses this economics for solving the managerial decision problem that content is the part of the managerial economics and from this two stakeholder manager and economics we can define managerial economics is the study of how to direct scarce resources in a way that most efficiently achieve the stated goal. So, since the definition of the managerial economics is to science of directing scarce resources to manage more effectively here we get resources. Now, what are the resources over here? The resources may be the financial resources, the resources may be the human resources the resources may be the physical resources. So, here in managerial economics it is a study of directing the scarce resources that is directing the financial resources directing the human resources and directing the physical resources. Then it comes since it is the directing the human resources here it comes to the management of customers that management of supplier management of competitor and management of the internal organization and the organization can be business the organization can be non-profit organization the organization can be household. But here the difference comes if the organization is business the goal of the organization is different and accordingly the resources has to be directed or the resources has to be planned to satisfy this one. If the because business organization is one which has the motto of profit making and as compared to that we have the non-profit organization and non-profit organization is not about making profit and in this case again the again the business decision or the challenge for the manager will be different because here it is not about achieving the profit rather here it is a non-profit organization. So, non-profit organization they have to look what is the goal of this typically this typical non-profit organization and accordingly the manager has to direct the scarce resources into the to the end productive use. Then we have household so household is again if you look at it is not profit making rather it is about how to generate more income so that they can use that for their consumption or the saving or maybe for the future consumption and in this case again the since the goal of the household is different here again the scarce resources has to be used in a different fashion to meet the end objective. Now, since we say that economics is one which generally use in the managerial decision problems the economic concept and the economic principle is generally used in the managerial decision problem. We will see that what comes from the economic theory what comes from the decision sciences for this managerial economics. So, typically there is a managerial decision problem and how this managerial decision problem gets solved they use the concept of microeconomics, macroeconomics which is part of economic theory and then they use the concept of decision science typically the mathematical economics and econometrics where we use different mathematical tool, statistical tool and econometrics tool to solve the problem. And from this from the economic theory from the decision sciences we get into the managerial economics and this managerial economics is basically the application of economic theory and decision science tools to solve the managerial decision problem. So, we have economic theory from there we get the economic concept and principle we have decision sciences from decision sciences we get the basically the mathematical tool and the econometrics tool application of economic theory and decision science tools to solve the managerial decision problem basically leads to the optimal solution to the managerial decision problem. So, if there is a managerial decision problem it can be solved through the through using the concept and the principle from economic theory and to that using the tools from the decision sciences that may be statistical tool, mathematical tool or the econometrics tool and taking this economic theory using the decision tool generally the manager try to give the optimal solution and from there the optimal solution immerse for the managerial decision problems.