 When it comes to economics and the managerial decision making, we need to see that how there is a relationship with the other business, discipline typically this managerial economics. We talk about demand and price elasticity in case of managerial economics, which has also a link with the discipline of marketing. We talk about the capital budgeting, break-even analysis, opportunity cost, economic value divided that has a relevance with the finance. Then we talk about linear programming, regression analysis, forecasting that is part of the management science. So, even if this topic we cover in the managerial economics, it has also a link with the other business discipline like marketing, finance and the management science. Similarly, this has a relationship with the strategy that is type of competition, structure, conduct and performance analysis, it has a relationship with the managerial accounting that is relevant cost, break-even analysis, incremental cost analysis and opportunity cost. Now, what are the question, what is the general question the manager must answer or from here we can form what is the what kind of we can form an opinion that what kind of managerial decision problem is generally involved in the organization. Now, the question that manager must answer what are the economic condition in a particular market, what is the market structure, what kind of form of market it is being followed, what is the supply and demand condition, what is the technology being used, what kind of government regulation is there, what is the international dimension, interim of international trade and international finance, what is going to be the future condition for this firm and what are the macro economic factor that is change in the macro economic variable, change in the government policy or change in the economic environment of economy generally how it affects the firm. Then the question that manager must answer looking at all this factor whether it is technology, whether it is policy, whether it is relationship with the international or the world economy, the question that manager must answer is should our firm be in the business, if so what price and output level achieve our goals. So, if you look at these are the two basic managerial problem what the manager face that is should our firm to be in the business and if so what is the price and output level is required to achieve our goals. Here we need to specify whether the firm is having a profit maximization goal, whether the firm is having the revenue maximization goal. Then looking at this there are few more set of challenges that is for the managers, what the managers must answer that is how can we maintain competitive advantage over our competitor that is we will take typically through the product differentiation, whether it is a cost leader, whether it is a low cost firm, whether it is a high cost firm. Product differentiation should be in term of content, in term of quality, in term of the services, whether it is a niche market, whether the outsourcing alliance merger equation is going to the beneficial and again what is the international dimension that is in term of the merger, merger equation alliance and the outsourcing. So, here again the another challenge comes from the manager that what are the risks involved in that and what is risk, risk is the chance or possibility that actual future outcome will differ from those expected today. So, after taking all this decision whether it is related to price, whether related to output, the manager is also need to answer that what is the risk involved when the firm is taking a specific price strategy or specific output plan. So, that is again they had need to know the economic concept and economic principle to understand this. Now, what are the type of risk over here, there is a risk associated when there is a change in the demand and supply condition, there is a risk associated when there is a technological changes and the effect to competition, there is a risk associated when there is a change in the interest inflation rate, risk associated with the exchange rates for company engage in international trade and also risk associated with the political risk for the company with foreign operation. So, now we will take a small example to understand this how this generally from the day to day activities of the company, how this manageral decision problem involved. So, if you have some idea about this sub-drink manufacturer Coca Cola and Pepsi, there are two major sub-drink manufacturer in the world, they manufacture only concentrate and shift to the network of the bottler and who finally gives the bottled sub-drink. In 1919 Pepsi bottling group following Coca Cola bottling company and what they did, what they did, they denounced the increase in the price of concentrate and how they did that because in November 1999 Coca Cola also announced the increase in the price of concentrate by 7 percent. Before that also Pepsi followed the another decision of Coca Cola like Coca Cola separated its manufacturing with the bottling company and the same decision is followed by Pepsi. So, whether it is the separation of the bottling company or whether it is the increase in the price of Coca Cola, immediately both the decision get followed by the Pepsi group. Now, 7 percent increase in the price will lead to increase in the retail price from 1.99 dollar to 2.49 dollar. So, price increase is welcomed by the beverage digest editor with the justification of improving the overall profit and margin. So, when there is a 7 percent increase in the price of the product that leads to increase in the retail price from 1.99 to 2.49 dollar. However, the increase in the price is where welcomed by the beverage digest editor and the justification for approving this is that there is overall profitability and margin and that is why the price should increase. Now here how we can reframe this to a question of managerial economics or part of managerial economics or part of managerial business decision. If coke increase its price by 7 percent should Pepsi follow, this will typically address in the theory of market, typically address when you talk about the elasticity of demand. How would the price increase affect the consumer demand? It is again the price demand relationship and the elasticity of demand. How should advertisement expenditure to be related to pricing? Here we talk about the cost of production, how advertisement cost increase the average cost? This we will discuss in the case of cost analysis and the monopolistic competition. Was it correct for Pepsi to follow Coca-Cola in separating bottling business from manufacturing concentrate? This we will analyze through our oligopoly market structure generally how the firms behave in a market when there is a they knows that there is a interdependence between both the firm in the typical market. Then here again the question related since the profitability of both the company also depends on the sensitivity of the consumer demand to price increase and the cost of sweeteners and other inputs, they need to check what is the sensitivity and the sensitivity can be analyzed through the elasticity of demand. What price should Coke and Pepsi pay for these outputs? Here again we will see that what is who is going to decides the price. So partly it will be address in the cost analysis and partly it will be address in the market structure. How are they affected by the shift in this market? So here again we will discuss this in the context of the demand analysis and the theory of market structure. So it is just a small example to understand the difference between the understand the relationship between two companies that is Coke and Pepsi. It is an event if you look at it is an event it is an economic activity and similarly for the other economic activity that what happens in the day to day business life that can be that solution can be found by using the economic concept and economic principle and this generally we address in the managerial economics. So the entire managerial economics course is planned in four module. Module 1 talks about introduction to managerial economics. Typically the economics term what generally being used and the basic economic analysis and the optimization technique. Then theory of demand will address the relationship between demand supply market equilibrium and also the demand forecasting, then theory of consumer behavior, then theory of production and cost basically deals with the short run long run production analysis, short run long run cost analysis, expansion path and economic region of economic region of production and also the economic of scale. Finally module 4 will talk about the different kind of market structure, the pricing practices and finally the sum up of the entire course. So to start this module 1 where we basically deals with the economic terms or the basic assumption generally will be using for the entire course or the entire what is the basic assumption generally used for all economic principle we are going to discuss this. So there are two assumptions mainly taken one is satiriparibus another is the rationality. What is satiriparibus? It is a Latin phrase that means all variables other than one being studied are assumed to be constant and here the literally the satiriparibus means that other things being equal. So if there are five variables the study variable are five when the relationship between two variables are being studied the other three variables has to be constant. So satiriparibus means all variable other than one being studied are assumed to be constant and the literal meaning of satiriparibus is other things being equal. So that is the assumption that is the basic assumption we follow for all all of our theory all of our principle. Then the second assumption comes as the economic rationality and here rationality implies basically acting objectively keeping in view the entrant means the objective and the constant. So if laymen understanding rationality is one where we are not biased for anything rather we are unbiased and keeping the objective in mind we take a decision or we take a activity. So it is implies acting objectively keeping in view of the end and means and the objective and the constant. It generally in economics we assume the rationality on the part of its subject like all the economic agent that is consumer, producer, seller, firm or the economy as a whole. So economic rationality means economic agent see feasible known and alternative course of action and rank them on the priority and choose the one which is highest in the ranking order. So rationality is one where if you look at the process if you define the process first the economic agent has to see what is the feasible course of action that is known to them what is the alternative course of action then they will rank them on the basis of the priority basis and they will choose that option which is highest in the ranking order and that is generally known as the economic rationality. Then we will talk about the resources there are when mainly four factors of production or the four resources that is used in economics that is one is land or any production process these are the factor of production and these are land, labour, capital and entrepreneurship. So land refers to everything on earth that is in its natural state or on the earths natural resources. Labour refers to all the people who work in the economy whether they are skilled whether they are on skilled and accordingly the remuneration for both of them changes. So for the skilled labour we will always say salary for on skilled labour we always say wages and land refers to everything on the earth that is in a natural state or earths natural resources. However the definition of land changes when the reclamation is being also done so that is also to be added in the in the list of the possible list of the land. Then capital it includes money needed to start and operate a business at a national level capital includes infrastructure such as roads, ports, sanitation facility and utility services and also in the industry level or farm level even machine can be considered as capital because that they are also one kind of infrastructure to produce the goods and services. Then the last factor of production is entrepreneurship it is referred to the skill of people who are willing to rest their time and money to run the business. So manpower uses of skill and their time and money to run the business that typical that is known as the entrepreneurship. So we know that there is a scarcity and what is scarcity? Scarecity is the condition in which resources are not available to satisfy all the needs and want of the specified group of people. And if you look at most of the underdeveloped nations have natural resources but do not have capital or the skilled labour to develop them and that is why there is a scarcity. And since there is a scarcity the allocation decision must to be made and what is the allocation decision? It comprises of three separate choices that is what how many goods and services should be produced? How should these goods and services be produced and for whom should these goods and services to be produced? So what to produce, how to produce and for whom to produce three basic allocation problem or the three basic question that is generally known as the three basic economic problem that is one what to produce, second is how to produce and third one is for whom to produce. On this basis on these three basic question the economic decision for the firm is dependent typically when it comes to what it is about the product decision of the firm whether to begin the production whether to stop providing goods and services. Now the hiring staffing procurement and capital budgeting decision and for whom the market segmentation decision targeting the customer most likely to purchase. So what consider to the product decision of the firm, how is basically the hiring staffing procurement capital budgeting decision and for whom also the market segmented decision that is targeting the for the customer who are the end users to purchase these goods. Now from here there are three processes to answer this what, how and for whom. One is the market process here generally the use of supply demand forces material incentive to answer this what, how and for whom. In the command process there is a use of government or the central authority usually indirect process and traditional process when there is a use of custom and tradition to decide what, how and for whom. On the basis of three processes generally we can define the different types of economy and what is the economy and economy is the economic system or is the way the nation make economic choices about how the nation will use the resources to produce and distribute goods and services. So from here the first kind of economy come that is market and capitalist economy and in a pure market economy there is no government involvement in the economic decision the government lets the market to answer the following three basic question that is what to produce, how to produce and for whom to produce. So in a market economy there is no government involvement this is also known as the capitalist economy. Generally the free hand principle or the invisible hand principle works here the market forces correct imbalance itself whenever it is required. So the second in the market capitalist economics how the what is decided the consumer decide what should be produced in a market economy through the purchase the makes. So the consumer decide what to produce because ultimately they are the end user. How to produce the production is left entirely up to business, businesses must be competitive in such an economy and produce quality product at a lower price than their competitors and for whom typically in a market economy the people who have more money are able to buy more goods and services. And typically the market and capitalist economy based on the Adam Smith invisible hand principle and typical example of market and capitalist economy is USA and the European countries. Then the second kind of question second kind of economy is command and capitalist economy and in the command economy the government answers the three basic economic question that is what a dictator of the central planning committee decide what products are needed. How since the government owns all means of production in a command economy decides how goods and services will be produced and for whom the government decides who will get what is produced in the command economy. And typical example of command and socialist economy is China, Mexico and former USSR. What is the essential difference between the market or capitalist economy and command and socialist economy? In market and capitalist economy there is absence of government intervention, the market forces is free, the invisible hand principle works, the market forces decides or the consumer producers decides what to produce, how to produce and for whom to produce. Whereas in case of socialist economy or the socialist economy or the command economy generally the authority or the government means all the productive resources and generally they directs how the resources has to be used, what to produce and finally who is going to consume or who is going to purchase those product. The typical example is the China. Then in between these two these are two extreme one is capitalist economy entirely free, command economy that is or the socialist economy that is entirely restricted through the authority or through the government. So in between these two we get the mixed economy and mixed economy is the particularly here it is a mix of the capitalist economy and the socialist economy. Here the private sector is allowed to use free market within the broader political and economic policy framework, public sector reserves certain trade industry services or activity. So here some of the sector is guided by the government, restricted by the government, some of the sector is given to the private sector and they have to add or whatever the policy framework they have to add or what are the rules and regulation. So part of the sector goes to the private, part of the sector goes restricted by the government. The typical example is India, India is generally known for the kind of economic structure they follow that is mixed economy. So to summarize whatever we discussed today if we discuss that how generally the managerial economics emerge in the because the basis is the managerial decision problem and managerial decision problem can be solved with the help of the concept from economic theory that is from microeconomics, macroeconomics and using the decision tools that is statistical tool, mathematical tool and econometric tool and that generally used to solve the managerial decision problem and that way they get the optimal solution. Then we talked about what are the challenges the manager faces and from there if you look at the three basic problems that is what to produce, how to produce, whom to produce that is dealt with the three different kind of economy, three different kind of processes and also we talked about two basic assumption that is economic rationality and the setterie paribas and along with it that also the whatever the simple understanding of factor of production or the inputs what gets used in the production. So we will continue our discussion on reviewing the basic economic terms in the next session also. So next session we will talk about the opportunity cost, the importance of profit or the concept of profit that is economic profit, accounting profit and also the marginal and incremental analysis and finally, we will see the model on an economy, how there is a interrelationship between the sector, how the resources flow from one sector to another flow and how the income flow from the another from one sector of the economy to the another sector.