QUANTITATIVE TECHNIQUES

IN MANAGEMENT
Assignment A
Question 1: How has
quantitative analysis changed

the current scenario in

the management world today?
Answer:
Quantitative analysis requires
the representation of the
problem using a
mathematical model.
Mathematical modeling is a

critical part of the

quantitative approach to
decision making. Quantitative
factors can be
measured in terms of money
or quantitative units.
Examples are
incremental revenue, added
cost, and initial outlay.

Qualitative factors
in decision making are the
factors relevant to a
decision that are difficult to
measure in terms of money.
Qualitative
factors may include: (1)
effect on employee morale,
schedule and other

internal elements; (2)

relationship with and
commitments to suppliers;
(3) effect on present and
future customers; and (4)
long-term future
effect on profitability. In
some decision-making
situations, qualitative

aspects are more important

than immediate financial
benefit from a
decision.
Different Statistical
Techniques
Measures of Central
Tendency:
For proper understanding of

quantitative data, they

should be classified and
converted into a
frequency distribution. This
type of condensation of data
reduces their

bulk and gives a clear picture

of their structure. If you want

to know any
specific characteristics, of the
given data or if frequency
distribution of
one set of data to be
compared with another, then
it is necessary that the
frequency distribution itself
must be summarized and

condensed in such a
manner that it must help us
to make useful inferences
about the data and
also provide yardstick for
comparing different sets of
data.
Measures of Dispersion:
Measures of dispersion would

tell you the

number of values, which are
substantially different from
the mean,
median or mode. The
commonly used measures of
dispersion are range,
mean deviation and standard
deviation.

Correlation:
Correlation coefficient
measures the degree to
which the
change in one variable (the
dependent variable) is
associated with change
in the other variable
(Independent one). For

example, as a marketing
manager, you would like to
know if there is any relation
between the
amounts of money you spend
on advertising and the sales
you achieve.
Here, sales are the
dependent variable and

advertising budget is the

independent variable.
Correlation coefficient, in this
case, would tell you
the extent of relationship
between these two variables,
whether the
relationship is directly
proportional (i.e. increase or

decrease in
advertising is associated with
increase or decrease in sales)
or it is an
inverse relationship (i.e.
increasing advertising is
associated with
decrease in sales and viceversa) or there is no

relationship between the

two variables.
Regression Analysis:
Regression analysis includes
any techniques for
modeling and analyzing
several variables, when the
focus is on the
relationship between a

dependent variable and one

or more independent
variables. Using this
technique you can predict the
dependent variables on
the basis of the independent
variables. In 1970, NCAER
(National Council
of Applied and Economic

Research) predicted the

annual stock of scooters
using a regression model in
which real personal
disposable income and
relative weighted price index
of scooters were used as
independent
variable.

Time Series Analysis:

With time series analysis,
you can isolate and
measure the separate effects
of these forces on the
variables. Examples
of these changes can be
seen, if you start measuring
increase in cost of

living, increase of population

over a period of time, growth
of agricultural
food production in India over
the last fifteen years,
seasonal requirement
of items, impact of floods,
strikes, and wars so on.
Index Numbers:

An index number is an
economic data figure
reflecting
price or quantity compared
with a standard or base
value. The base
usually equals 100 and the
index number is usually
expressed as 100

times the ratio to the base

value. For example, if a
commodity costs twice

as much in 1970 as it did in

1960, its index number
would be 200 relative
to 1960. Index numbers are
used especially to compare

business activity,
the cost of living, and
employment. They enable
economists to reduce
unwieldy business data into
easily understood terms.
Sampling and Statistical
Inference:
In many cases due to

shortage of
time, cost or non availability
of data, only limited part or
section of the
universe (or population) is
examined to (a) get
information about the
universe as clearly and
precisely as possible, and (b)

determine the
reliability of the estimates.
This small part or section
selected from the
universe is called the sample,
and the process of selections
such a section
(or past) is called sampling.
Example: Site selection

process (quantitative and

qualitative
factors)
While quantitative factors
have been and will continue
to be very
important in the site
selection process, qualitative
factors are also critical

in order to ensure that the

company makes the best
decision. What are
the most important
quantitative and qualitative
factors evaluated by site
selection advisors and
companies when making a
decision regarding the

location of a new or
expanded operation? The list
will vary depending on
type of facility (i.e.
manufacturing, logistics,
research & technology,
office), but most factors
apply to all forms of projects.
Below is a

summary of the most

important quantitative and
qualitative factors
considered by companies.
Quantitative Factors
1. Property Tax Rates
2. Corporate Income Tax
Rates
3. Sales Tax Rates

4. Real Estate Costs

5. Utility Rates
6. Average Wage/Salary
Levels
7. Construction Costs
8. Workers Compensation
Rates
9. Unemployment
Compensation Rates

10. Personal Income Tax

Rates
11. Industry Sector Labor
Pool Size
12. Infrastructure
Development Costs
13. Education Achievement
Levels
14. Crime Statistics

15. Frequency of Natural

Disasters
16. Cost of Living Index
17. Number of Commercial
Flights to Key Markets
18. Proximity to Major Key
Geographic Markets
19. Unionization Rate/Right
to Work versus Non-Right to

Work State
20. Population of Geographic
Area

Qualitative Factors
1. Level of Collaboration with
Government, Educational and
Utility Officials
2. Sports, Recreational and

Cultural Amenities
3. Confidence in Ability of All
Parties to Meet Companys
Deadlines
4. Political Stability of
Location
5. Climate
6. Availability of Quality
Healthcare

7. Chemistry of Project Team

with Local and State Officials
8. Perception of Quality of
Professional Services Firms
to Meet the
Companys Needs
9. Predictability of Long-term
Operational Costs
10. Ability to Complete Real

Estate Due Diligence Process

Quickly
Another important part of the
site selection evaluation
process relates to
the weighting of the key
quantitative and qualitative
factors. Depending
on the type of project,

factors will be weighted

differently. As an example,
for a new manufacturing
facility project, issues such
as utility rates, real
estate costs, property tax
rates, collaboration with
governmental entities,
and average hourly wage

rates may be weighted more

heavily. By
contract, for a new office
facility factors such as real
estate costs, number
of commercial flights, crime
statistics, climate and
industry sector labor
pool size may be more

important.
Every project is unique and
must be evaluated based
upon its own
individual set of
circumstances.
Question 2: What are sampling
techniques? Briefly explain the

cluster
sampling technique.
Answer:
A sample is a group of units selected
from a larger group (the population).
By
studying the sample, one hopes to

draw valid conclusions about the

larger group.
Asample is generally selected for
study because the population is too
large
to study in its entirety. The sample
should be representative of the

general
population. This is often best
achieved by random sampling. Also,
before
collecting the sample, it is important
that one carefully and completely
defines the population, including a

description of the members to be

included.
Acommon problem in business
statistical decision-making arises
when we
need information about a collection
called a population but find that the

cost
of obtaining the information is
prohibitive. For instance, suppose we
need to
know the average shelf life of current
inventory. If the inventory is large,
thecost of checking records for each

item might be high enough to cancel

the benefit of having the information.
On the other hand, a hunch about the

average shelf life might not be good

enough for
decision-making

purposes.
This means we must arrive at a
compromise that involves selecting a
small
number of items and calculating an
average shelf life as an estimate of
the

average shelf life of all items in

inventory. This is a compromise,
since the
measurements for a sample from the
inventory will produce only an
estimate of the value
we want,

but at substantial savings. What we

would
like to know is how "good" the
estimate is and how much more will
it cost
tomake it "better". Information of
this type is intimately related to

sampling
techniques
.
Cluster sampling
can be used whenever the population
is homogeneous but
can be partitioned. In many

applications the partitioning is a

result of
physical distance. For instance, in the
insurance industry, there are small"
clusters" of employees in field
offices scattered about the country.
In such a

case, a random sampling of

employee work habits might not
required travel
to many of the" clusters" or field
offices in order to get the data.
Totally
sampling each one of a small number

of clusters chosen at random can

eliminate much of the cost associated
with the data requirements of
management.
Question 3: What is the
significance of Regression
Analysis? How does it

help a manager in the decision

making process?
Answer:
Regression analysis is a
powerful technique for
studying relationship
between
dependent variables (i.e.,

output, performance
measure) and independent
variables
(i.e., inputs, factors, decision
variables). Summarizing
relationships among the
variables by the most
appropriate equation (i.e.,
modeling) allows us to

predict or
identify the most influential
factors and study their
impacts on the output for any
changes in their current
values.
Unlike the deterministic
decision-making process,
such as linear optimization

by
solving systems of equations,
Parametric systems of
equations and in decision
making under pure
uncertainty, the variables are
often more numerous and
more
difficult to measure and

control. However, the steps

are the same. They are:
1. Simplification
2. Building a decision model
3. Testing the model
4. Using the model to find
the solution:

It is a simplified

representation of the actual

situation

It need not be complete or

exact in all respects

It concentrates on the most

essential relationships and
ignores the less

essential ones.

It is more easily understood

than the empirical (i.e.,
observed)
situation, and hence permits
the problem to be solved
more readily
with minimum time and

effort.

5. It can be used again and

again for similar problems or
can be modified.
Fortunately the probabilistic
and statistical methods for
analysis and decision making
under uncertainty are more

numerous and powerful

today than ever before. The
computer makes possible
many practical applications.
A few examples of business
applications are the
following:

An auditor can use random

sampling techniques to audit

the accounts
receivable for clients.

A plant manager can use

statistical quality control
techniques to assure the
quality of his production with
a minimum of testing or

inspection.

A financial analyst may use

regression and correlation to
help understand the
relationship of a financial
ratio to a set of other
variables in business.

A market researcher may use

test of significace to accept
or reject the
hypotheses about a group of
buyers to which the firm
wishes to sell a
particular product.

A sales manager may use

statistical techniques to
forecast sales for the
coming year.
Question 4 Explain the
following terms in detail (give
examples where
necessary): -

(a.) Arithmetic mean

(b.) Harmonic mean
(c.) Geometric mean
(d.) Median
(e.) Mode
Answer:
(a.) Arithmetic Mean:

The arithmetic mean (or the

average, simple mean) is
computed by summing
all numbers in an array of
numbers (x
i
) and then dividing by the
number of
observations (n) in the array.

Mean = = X
i
/n, the sum is over all i's.
The mean uses all of the
observations, and each
observation affects the
mean. Even though the mean
is sensitive to extreme
values; i.e., extremely

large or small data can cause

the mean to be pulled toward
the extreme
data; it is still the most
widely used measure of
location. This is due to the
fact that the mean has
valuable mathematical
properties that make it

convenient for use with

inferential statistical analysis.
For example, the sum
of the deviations of the
numbers in a set of data
from the mean is zero, and
the sum of the squared
deviations of the numbers in
a set of data from the

mean is the minimum value.

(b) Harmonic Mean:

The harmonic mean (H) is

another specialized average,
which is useful in
averaging variables
expressed as rate per unit of

time, such as mileage per

hour, number of units
produced per day. The
harmonic mean (H) of n nonzero numerical values x(i) is:
H = n/[ (1/x(i)].
An Application:
Suppose 4 machines in a
machine shop are used to

produce
the same part. However,
each of the four machines
takes 2.5, 2.0, 1.5, and
6.0 minutes to make one
part, respectively. What is
the average rate of
speed?
The harmonic means is: H =

4/[(1/2.5) + (1/2.0) + 1/
(1.5) + (1/6.0)] =
2.31 minutes.
If all machines working for
one hour, how many parts
will be produced?
Since four machines running
for one hour represent 240
minutes of operating

time, then: 240 / 2.31 = 104

parts will be produced.
(C.) The Geometric Mean:
Thegeometric mean (G) of n nonnegative numerical values is the n
th
rootof
the product of the n values.

Ifsome values are very large in

magnitude and others are small, then
the
geometric mean is a better
representative of the data than the
simple average. In
a "geometric series", the most

meaningful average is the geometric

mean (G).
The arithmetic mean is very biased
toward the larger numbers in the
series.
An Application:
Suppose sales of a certain item

increase to 110% in the first

year and to 150% of
that in
the second year. For simplicity,
assume you sold
100items initially. Then the number
sold in the first year is 110 and the

number
sold in the second is 150% x 110 =
165. The arithmetic average of 110%
and
150%is 130% so that we would
incorrectly estimate that the number
sold in the

firstyear is 130 and the number in the

second year is 169. The geometric
mean
of 110% and 150% is G = (1.65)
1/2
so that we would correctly estimate
that we

would sell 100 (G)

2
=165 items in the second year.
(D.) Median:
Median: The median is the
middle value in an ordered
array of observations.
If there is an even number of

observations in the array, the

median is the
average of the two middle
numbers. If there is an odd
number of data in the
array, the median is the
middle number.
The median is often used to
summarize the distribution of

an outcome. If the
distribution is skewed, the
median and the interquartile
range (IQR) may be

better than other measures

to indicate where the
observed data are
concentrated.

Generally, the median

provides a better measure of
location than the mean
when there are some
extremely large or small
observations; i.e., when the
data are skewed to the right
or to the left. For this reason,
median income is

used as the measure of

location for the U.S.
household income. Note that
if
the median is less than the
mean, the data set is skewed
to the right. If the
median is greater than the
mean, the data set is skewed

to the left. For

normal population, the
sample median is distributed
normally with m = the
mean, and standard error of
the median (p/2) times
standard error of the
mean.
The mean has two distinct

advantages over the median.

It is more stable,
and one can compute the
mean based of two samples
by combining the two
means.
(D.) Mode:
The mode is the most
frequently occurring value in

a set of observations.
Why use the mode? The
classic example is the shirt/
shoe manufacturer who
wants to decide what sizes to
introduce. Data may have
two modes. In this
case, we say the data are
bimodal, and sets of

observations with more than

two modes are referred to as
multimodal. Note that the
mode is not a helpful
measure of location, because
there can be more than one
mode or even no
mode.
When the mean and the

median are known, it is

possible to estimate the
mode for the unimodal
distribution using the other
two averages as follows:
Mode 3(median) 2(mean)
This estimate is applicable to
both grouped and ungrouped

data sets.
Question 5: Explain the
classical approach to the
probability theory. Also
explain the limitation of
classical definition of
probability.

Answer:
The classical approach to
probability is to count the
number of favorable
outcomes, the number of
total outcomes (outcomes
are assumed to be
mutually exclusive and

equiprobable), and express

the probability as a ratio
of these two numbers. Here,
"favorable" refers not to any
subjective value
given to the outcomes, but is
rather the classical
terminology used to
indicate that an outcome

belongs to a given event of

interest. What is meant
by this will be made clear by
an example, and formalized
with the
introduction of axiomatic
probability theor

Classical definition of

probability
If the number of outcomes
belonging to an event
E
is
N
E
, and the total
number of outcomes is

N
, then the
probability
of event
E
is defined as.
pE=NE/N
Limitation of classical definition of

probability
There are basically four types
of probabilities, each with its
limitations. None of these
approaches to probability is
wrong, per se, but some are
more useful or more
general than others.
In everyday speech, we

express our beliefs about

likelihoods of events using
the
same terminology as in
probability theory. Often, this
has nothing to do with any
formal definition of
probability, rather it is an
intuitive idea guided by our

experience,
and in some cases statistics.
Probability can also be
expressed in vague terms.
For example, someone might
say it
will probably rain tomorrow.
This is subjective, but implies
that the speaker believes

the probability is greater

than 50%.
Subjective probabilities have
been extensively studied,
especially with regards to
gambling and securities
markets. While this type of
probability is important, it is
not

the subject of this book. A

good reference is "Degrees of
Belief" By Steven Vick
(2002).
There are two standard
approaches to conceptually
interpreting probabilities. The
first is known as the long run
(or the relative frequency

approach) and the subjective

belief (or confidence
approach). In the Frequency
Theory of Probability,
probability is
the limit of the relative
frequency with which an
event occurs in repeated
trials (note

that trials must be

independent).
Frequentists talk about
probabilities only when
dealing with experiments
that are
random and well-defined.
The probability of a random
event denotes the relative

frequency of occurrence of an
experiment's outcome, when
repeating the
experiment. Frequentists
consider probability to be the
relative frequency "in the
long run" of outcomes.
Physical probabilities, which
are also called objective or

frequency probabilities, are

associated with random
physical systems such as
roulette wheels, rolling dice
and
radioactive atoms. In such
systems, a given type of
event (such as the dice
yielding

a six) tends to occur at a

persistent rate, or 'relative
frequency', in a long run of
trials. Physical probabilities
either explain, or are invoked
to explain, these stable
frequencies. Thus talk about
physical probability makes
sense only when dealing with

well defined random

experiments. The two main
kinds of theory of physical
probability are frequentist
accounts (such as Venn) and
propensity accounts.
Relative frequencies are
always between 0% (the
event essentially never

happens)
and 100% (the event
essentially always happens),
so in this theory as well,
probabilities are between 0%
and 100%. According to the
Frequency Theory of
Probability, what it means to
say that "the probability that

A occurs is p%" is that if

you repeat the experiment

over and over again,
independently and under
essentially
identical conditions, the
percentage of the time that A
occurs will converge to p. For

example, under the

Frequency Theory, to say
that the chance that a coin
lands
heads is 50% means that if
you toss the coin over and
over again, independently,
the ratio of the number of
times the coin lands heads to

the total number of tosses

approaches a limiting value
of 50% as the number of
tosses grows. Because the
ratio
of heads to tosses is always
between 0% and 100%,
when the probability exists it
must be between 0% and

100%.
In the Subjective Theory of
Probability, probability
measures the speaker's
"degree
of belief" that the event will
occur, on a scale of 0%
(complete disbelief that the
event will happen) to 100%

(certainty that the event will

happen). According to the
Subjective Theory, what it
means for me to say that
"the probability that A occurs
is
2/3" is that I believe that A
will happen twice as strongly
as I believe that A will not

happen. The Subjective

Theory is particularly useful
in assigning meaning to the
probability of events that in
principle can occur only once.
For example, how might
one assign meaning to a
statement like "there is a
25% chance of an

earthquake on
the San Andreas fault with
magnitude 8 or larger before
2050?" (See Freedman and
Stark, 2003, for more
discussion of theories of
probability and their
application to
earthquakes.) It is very hard

to use either the Theory of

Equally Likely Outcomes or
the Frequency Theory to
make sense of the assertion.

QUANTITATIVE TECHNIQUES
IN MANAGEMENT
Assignment B

Question 1: Write a note on

decision making in
management. How one will
take decision under risk and
uncertainty.
Answer:
Decision-making is a crucial

part of good business. The

question then is how
is a good decision made?
One part of the answer is
good information, and
experience in interpreting
information. Consultation ie
seeking the views and
expertise of other people

also helps, as does the ability

to admit one was wrong and
change ones
mind. There are also aids to
decision-making, various
techniques which help
to make information clearer
and better analysed, and to
add numerical and

objective precision to
decision-making (where
appropriate) to reduce the
amount of subjectivity.
Managers can be trained to
make better decisions. They
also need a
supportive environment
where they wont be unfairly

criticised for making

wrong decisions (as we all do
sometimes) and will receive
proper support
from their colleague and
superiors. A climate of
criticism and fear stifles risktaking and creativity;
managers will respond by

playing it safe to minimise

the risk of criticism which
diminishes the business
effectiveness in
responding to market
changes. It may also mean
managers spend too much
time trying to pass the blame
around rather than getting

on with running the

business.
Decision-making increasingly
happens at all levels of a
business. The Board
of Directors may make the
grand strategic decisions
about investment and
direction of future growth,

and managers may make the

more tactical
decisions about how their
own department may
contribute most effectively to
the overall business
objectives. But quite ordinary
employees are
increasingly expected to

make decisions about the

conduct of their own
tasks, responses to
customers and improvements
to business practice. This
needs careful recruitment
and selection, good training,
and enlightened
management.

Types of Business
Decisions
1. Programmed Decisions
These are standard decisions
which always
follow the same routine. As
such, they can be written
down into a series of
fixed steps which anyone can

follow. They could even be

written as computer
program

2. Non-Programmed
Decisions.
These are non-standard and
non-routine.
Each decision is not quite the

same as any previous

decision.
3. Strategic Decisions.
These affect the long-term
direction of the business
eg whether to take over
Company A or Company B
4. Tactical Decisions.
These are medium-term

decisions about how to

implement strategy eg what
kind of marketing to have, or
how many extra
staff to recruit
5. Operational Decisions.
These are short-term
decisions (also called
administrative decisions)

about how to implement the

tactics eg which firm
to use to make deliveries.
Figure 1: Levels of
Decision-Making
Figure 2: The Decision-Making
Process

The model in Figure 2 above

is a
normative model
, because it illustrates
how a good decision
ought to be made
. Business Studies also uses
positive
models which simply aim to

illustrate how decisions are,

in fact, made in
businesses without
commenting on whether they
are good or bad.
Linear programming
models help to explore
maximising or minimising
constraints eg one can

program a computer with

information that establishes
parameters for minimising
costs subject to certain
situations and information
about those situations.
Spread-sheets are widely
used for what if
simulations.

A very large
spread-sheet can be used to
hold all the known
information about, say,
pricing and the effects of
pricing on profits. The
different pricing assumptions
can be fed into the spreadsheet modelling different

pricing strategies. This

is a lot quicker and an awful
lot cheaper than actually
changing prices to see
what happens. On the other
hand, a spread-sheet is only
as good as the
information put into it and no
spread-sheet can fully reflect

the real world.

But it is very useful
management information to
know what might happen to
profits what if a skimming
strategy, or a penetration
strategy were used for
pricing.
The computer does not take

decisions; managers do. But

it helps managers
to have quick and reliable
quantitative information
about the business as it is
and the business as it might
be in different sets of
circumstances. There is,
however, a lot of research

into expert systems which

aim to replicate the
way real people (doctors,
lawyers, managers, and the
like) take decisions.
The aim is that computers
can, one day, take decisions,
or at least
programmed decisions (see

above). For example, an

expedition could carry
an expert medical system on
a lap-top to deal with any
medical emergencies
even though the nearest
doctor is thousands of miles
away. Already it is
possible, in the US, to put a

credit card into a hole-inthe-wall machine and

get basic legal advice about
basic and standard legal
problems.
Constraints on DecisionMaking
Internal Constraints
These are constraints that

come from within the

business itself.
- Availability of finance.
Certain decisions will be
rejected because they
cost too much
Existing Business Policy.
It is not always practical to

re-write business
policy to accommodate one
decision
Peoples abilities and
feelings.
A decision cannot be taken if
it assumes
higher skills than employees

actually have, or if the

decision is so unpopular
no-one will work properly on
it.
External Constraints
These come from the
business environment outside
the business.
-

National & EU legislation

Competitors behaviour
, and their likely response to
decisions your
business makes
Lack of technology
-

Economic climate
Quality of DecisionMaking
Some managers and
businesses make better
decisions than others. Good
decision-making comes
from:1. Training of managers in

decision-making skills. See

Developing
Managers
2. Good information in the
first place.
3. Management skills in
analysing information and
handling its
shortcomings.

4. Experience and natural

ability in decision-making.

5. Risk and attitudes to risk.

6. Human factors. People are
people. Emotional responses
come
before rational responses,
and it is very difficult to get

people to make
rational decisions about
things they feel very strongly
about. Rivalries
and vested interests also
come into it. People simply
take different
views on the same facts, and
people also simply make

mistakes.
Question 2:
The Mumbai Cricket Club, a
professional club for the
cricketers, has the player who
led the league in batting average
for many years. Over the past ten
years, Amod Kambali has
achieved a mean batting average

of 54.50 runs with a standard

deviation of 5.5 runs. This year
Amod played 25 matches and
achieved an average of 48.80
runs only. Amod is negotiating his
contract with the club for the next
year, and the salary he will be
able to obtain is highly
dependent upon his ability to
convince the teams owner that

his batting average this year was

not significantly worse than in the
previous years. The selection
committee of the club is willing to
use a 0.01 significance level.
You are
required
to find out whether Amods salary
will be cut next year.

Answer:
Null Hyopothesis -Ho:
Amods batting average this
year (48.80)
is not significantly different
from his all-time batting
average of
54.50

Alternative Hypothesis -Ha:

Amods batting average this
year
(48.80) is significantly lower
than his all-time batting
average of
54.50

= 0.01
t
=
48.80

54.50
=

5.1818
5.5/ 25
The critical value of t is
-2.492 at df = 24
Conclusion: Reject Ho and
accept Ha (Amods batting
average
this year is significantly lower

than his all-time batting

average.
Amods salary will most likely
be cut next year.

3 The salaries paid to the

managers of a company had a
mean of Rs. 20,000 with a
standard

deviation of Rs 3,000, What will

be the mean and standard
deviation if all the salaries are
increased by
1) 10%
2) 10% of existing mean
3) Which policy would you
recommend if the management
does not want to have increased
disparities of wages?

Answer
1) 10%
Both the mean and standard
deviation will simply increase
by 10% to
Rs 22,000 and Rs 3,300,
respectively.
2) 10% of existing mean

Only the mean will increase

by 10% to Rs 22,000 and the
standard
deviation will remain the
same at Rs 3,000.
3) Which policy would you
recommend if the
management does not
want to have increased

disparities of wages?
Increasing the salaries by
10% of existing mean does
not increase
disparities of wages,
therefore, is recommended

Case study
Please read the case study given
below and answer questions
given at the end.
Kushal Arora, a second year
MBA student, is doing a study of
companies going public for the
first
time. He is curious to see

whether or not there is a

significant relationship between
the sizes of
the offering (in crores of rupees)
and the price per share after the
issue. The data are given
below:
Size (in
crore of
rupees)

108 39 68.40 51 10.40 4.40

Price ( in
rupees)
12 13 19 12 6.50 4
Question
You are required to calculate the
coefficient of correlation for the
above data set and comment
what conclusion Kushal should

draw from the sample.

Answer:
N X Y XY X2 Y2
1 12 108 1296 144 11664
2 13 39 507 169 1521
3 19 68.4 1299.6 361 4678.56
4 12 51612 144 2601
5 6.5 10.4 67.6 42.25 108.16
6 4 4.4 17.6 16 19.36

TOTALS 66.5 281.2 3799.8

876.25 20592.08
r
=[6(3799.8)-(66.5)
(281.2)2]=[0.6726(876.25)-(66.5)
6(20592.08)-(281.2)]
Conclusion: There is a positive
correlation for the above set of
data

Assignment C
(Objective Questions)
Answer all questions.
Tick Mark () the most
appropriate answer.
1. Which of the following is
not correct

about construction of bar charts?

a. All bars should rise from the
same base line
b. Width of the bar should be
proportional to the data
represented
c. The bars should be arranged
from the left to right
d. Length of the bars should be

proportional to the data

represented
2. Which of the following is
not true
about mean absolute deviation :a. Mean deviation is obtained
by calculating the absolute
deviations of

each observation from mean

b. Mean deviation is a more
comprehensive measure
compared to range
c. It is conducive to further
algebraic treatment
d. It cannot be computed for
distributions with open end
classes.

3. The value index number

measures the-a. Changes in prices of a basket
of commodities from one period
to another
b. Changes in quantities
consumed of a basket of
commodities over a period of time
c. Change in the total monetary

value of a basket of
commodities over a
period of time
d. Change in the retail prices of
various commodities
4. A market researcher wants to
find out the buying behavior of
the typical household during the
weekends. He divides the city

into various localities such that

each locality represents the city
population in terms of age group,
gender and social status. Then
he randomly selects five
localities and surveys each
household. Which of the following
sampling techniques best
describes the method used by the
researcher:-

a. Cluster sampling
b. Systematic sampling
c. Stratified sampling
d. Convenience sampling.
5. If every item in the data set is
increased by the same quantity
then the standard deviation of
the data set-(a) Remains the same

(b) Increases by the same

quantity by which every data item
is increased
(c) Decreases by the same
quantity by which every data item
is increased
(d) Increases by the square root
of the same quantity by which
every data item is
increased

6. Which of the following is

true
with regard to a linear equation Y
a bX = 0, where X is the
independent variable and Y is the
dependent variable:(a) The slope of the straight line
is a
(b) The Y-intercept of the straight

line is 0
(c) The Y-intercept of the straight
line is b
(d) The slope and the Yintercept remain constant for
all combinations of X
and Y values which satisfy the
equation

7. Which of the following

quantitative method is not used
by managers to take decision:(a) Linear programming

b) Time series
c) Regression analysis

d) Hypothesis testing
8. In the graphical method of
solving linear programming
problems the feasible region is
the set of
all points-a) Which does not satisfy any of
the constraints?
b) Which satisfy exactly one of
the constraints?

c) Which satisfy all the

constraints?
d) At which the objective function
has the same value?
9. Which of the following is false
in regard to histogram :a) The class intervals are
represented by the base of the
rectangles

b) The frequencies are

represented by the heights of the
rectangle
c) If the class intervals are of
equal width then the bases of the
rectangles will be equal in
length
d) The tallest rectangle in a
histogram represents the class

interval with the

lowest frequency
10. Which of the following
measures in not affected by the
presence of extreme values in a
dataset :a) Range
b) Arithmetic mean
c) Standard deviation

d) Median
11. 1\2x + 1/3y 1/3z = -1
1/3x 1/2y -1/6z = 4
1/6x 5/6y + 1/2z = 3
The values of x in the above
simultaneous equations would
be-a) 3
b) 6

c) 9
d) 12
12. The following details are
available with regard to a data
set: Sx = 33, Sx
2
= 199,
n = 6. If each observation in the
data set is multiplied by 2 then
the standard deviation of the

resulting values will be equal to:

a) (35/3)1/2
b) 35/3
c) 3
d) 25
13. The following data pertains to
three commodities:Commodity Price in 2004 (Rs. /
kg) Price in 1994 (Rs. /kg)

Rice
Wheat
Pulses
11.50
13.50
26
9.50
8.50
20

The base year is 1994. The

unweighted aggregates price

index for the year 2004 is

approximately-14. If the regression equation is
the perfect estimator of the
dependent variable then which of
the
following is false?
a) The standard error of estimate
is zero

b) The coefficient of correlation

is zero
c) The coefficient of
determination is 1.00
d) All the data points fall on the
regression line
15. If the regression equation is a
perfect estimator of the
dependent variable then which of

the
following is false :a) The standard error of estimate
is zero
b) The coefficient of correlation
is zero
c) The coefficient of
determination is 1.00
d) All the data points fall on the

regression line
16. Which of the following
represents the proportion of
variation in the dependent
variable that is
explained by the regression line :a) Coefficient of determination
b) Coefficient of correlation
c) Coefficient of variation

d) Standard error of estimate

17. If the coefficient of correlation
between the two variables lies
between -1 and 0, then the
covariance between them is-a) Positive
b) Negative
c) Zero
d) Equal in magnitude to the

variances of both the variables

18. If b
YX
is the slope of coefficient of
regression line of Y on X, and b
XY
is the slope coefficient of
regression line of X on Y then
which of the following is true :a) b
YX

is positive implies that b

XY
is positive
b) bYX is positive implies that
bXY is negative
c) b
YX
and b
XY
are reciprocals

d) The product of b
YX
and b
XY
is zero
19. A graphical method of
representing states of nature and
courses of action involved in
decision
making is referred to as--

a) Decision tree
b) Histogram
c) Scatter diagram
d) Frequency distribution
20. If the probability of
occurrence of one event is not
affected by the occurrence of
another event
and vice versa then the two

events are said to be-a) Collectively exhaustive

b) Independent
c) Dependent
d) Mutually exclusive

21. Bayes theorem helps the

statistician to calculate--a) Dispersion

b) Subjective probability
c) Posterior probability
d) Classical probability
22. In a binomial distribution the
probability of getting zero or more
numbers of successes is
equal to-a) 0
b) 1

c) The probability of getting zero

success
d) The probability of getting
successes in all trials
23. Which of the following
measures represent the scatter of
the values in a data set :a) Arithmetic mean
b) Geometric mean

c) Standard deviation
d) Median
24. As the sample size
increases-a) The variation of the sample
mean from the population mean
becomes larger
b) The variation of the sample
mean from the population

mean becomes
smaller
c) The variance of the sample
becomes less than the variance
of the population
d) The standard deviation of the
sample becomes more than the
standard deviation of
the population.

25. In the graphical method of

solving linear programming
problems if there is a unique
optimal
solution, then the optimal
solution-a) Is always found at the center of
the feasible region
b) Is always at the origin
c) Lies outside the feasible region

d) Is located at one of the

corner points of the feasible
region
26. A multiple regression
equation has-a) Multiple dependent variables
b) One independent variable
c) One dependent variable

d) A standard error of estimate

equal to zero
27. Which of the following
conditions indicate the existence
of multiple optimal solutions when
a
linear programming problem is
solved by the graphical method :a) One of the constraints is
parallel to the horizontal axis

b) The objective function is

parallel to the vertical axis
c) The objective function is
parallel to one of the edges of
the feasible
region which is in the direction
of optimal movement of the
objective

function
d) If two or more constraints are
parallel to each other
28. Three persons enter into a
railway carriage and there are 8
seats available. In how many
ways they can seat themselves?
a) 24
b) 336

c) 40
d) 56

29. In which of the following the

simple harmonics mean is
appropriate:
a) A set of ratios using the
numerators of the ratio data as
weights
b) A set of ratios using the

denominators of the ratio data as

weights
c) Aset of ratios which have
been calculated with the same
numerators
d) A set of ratios which have
been calculated with the same
denominators
30. Which of the following

statements is not true about

standard deviation?
a) Combined standard deviation
of two or more groups can be
calculated
b) The sum of the squares of
the deviations of items of any
series from a

value other than the arithmetic

mean would always be smaller
c) Standard deviation is
independent of any change of
origin
d) Standard deviation is
dependent on the change of
scale
31. Which of the following is/are

true with respect to geometric

mean :(a) Geometric mean cannot be
calculated if any of the value in
the set is zero.
(b) Geometric mean is
appropriate for averaging the
ratios of change, for average of
proportions, etc.
(c) Geometric mean is considered

most suitable average for index

numbers.
Only (I) above
(i)
Only (II) above
(ii)
All (I), (II) and (III) above
(iii)
Only (II) above

32. The probability of getting two

heads from three tosses of a fair
coin is-a) 1/8
b) 1/4
c) 3/8
d) 1/2
33. If A and B are two mutually
exclusive events and P(A) = 2/3,

then the probability of events A

and B happening together is-a) 0
b) 1/3
c) 2/3
d) 1/2
34. Which of the following can be
directly used as the test statistic
in hypothesis tests on the

basis of non standardized scale :(a) The sample mean, when the
test involves the population
mean.
(b) The difference between two
sample means, when the tests
involve the difference
between two population means.
(c) The sample proportion when
the test is about the population

proportion
(i)
Only (a) above
(ii)
Only (b) above
(iii)
Only (c) above
(iv)
All (a), (b), (c) above

35. A box contains 60 ball point

pens out of which 10 pens are
defective. 8 pens are randomly
picked up from the box. The
probability distribution of the
number of pens which are
randomly
picked, will be-a) A discrete uniform distribution

b) Abinomial distribution
c) A hyper geometric distribution
d) A Chi- square distribution
36. If we consider the process of
selecting a simple random
sample as an experiment then
which
of the following can be treated as

random variable(s)?
(a) Sample mean
(b) Sample standard deviation
(c) Sample range
(d) Sample median
(i) Only (a) above
(ii) Only (b) above
(iii) All (a), (b), (c), (d) above
(iv) Only (d) above

37. The covariance of random

variable with itself is always-a) Apositive quantity
b) A negative quantity
c) 0
d) Less than its expected value
38. A man has 6 friends. In how
many ways he can invite one or
more of them to a party?

a) 63
b) 64
c) 119
d) 120
39. Find x; if logx/log2 = log36/
log4
a) 0
b) 2
c) 4

d) 6
40. The empirical relationship
between range (R) and mean
deviation (M.D) is-a) 2R=15M.D
b) 3R=17M.D
c) R=17M.D
d) 3R=M.D