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Subject code &
name
Book ID

Q
1

Fall 2014
MBAFLEX
1
MB0040 STATISTICS FOR MANAGEMENT
B1731

Statistics plays a vital role in almost every facet of human life. Describe the
functions
of Statistics. Explain the applications of statistics.
Meaning of statistics
Functions of statistics
Applications of statistics

An
s.

According to Seligman, Statistics is a science which deals with the method of

collecting , classifing , presenting , comparing, and interpretting the numerical
data to throw light on enquiry.
According to Horace Secrist, Statistics may be defined as an aggregate of
facts effected to a marked extent by multiplicity of causes, numerically
expressed, enumerated or estimated according to a reasonable standard of
accuracy, collected in a systematic manner for a predetermined purpose and
placed in relation to each other. This definition is both comprehensive and
exhaustive.
Prof. Boddington on the other hand defind stastics asthe science of estimates
and probabilities.
According to Croxton and cowden,statistics is the science of
collection,presentation,analysis and interpretation of numerical datafrom
logical anlysis.
Functions of statistics
Statistics is used for various purposes. It is used tosimplify mass data and to
make comparison easier. It is also used to bring out trends and tendencies in
the data, and the hidden relations between variables.All these help in easy
decision making. Let us look at each function of Statistics in detail.
1. Statistics simplifies mass data
The use of statistical concepts helps in simplification of complex data.
Using statistical concepts,
the managers can make decisions more
easily. The statistical methods help in reducing the complexity of the
data and in the understanding of any huge mass of data.
2. Statistics brings out trends and tendencies in the data
After data is collected, it is easy to analyse the trend and tendencies in
the data by using the various concepts of Statistics.

3. Statistics brings out the hidden relations between variables

Statistical anlysis helpin drawing inferences on the data. Statistical
analysis brings out the hidden relations between variables.
4. Decision making power becomes easier
With the proper application of statistics and statistical software
packages on the
collected data, Managers can take effective decisions, which can
increase the profits in a
5. Statistics make comparison easier
Without using statistical methods and concepts, collection of data and
comparison would be difficult. Statistics helps us to compare data
collected from various sources. Grand totals, measures of central
tendency and measures of dispersion, graphs and diagrams and
coefficient of correlation all provide ample scope for comparison.
Application of statistics
Statistical methods are applied to specific problems in various fields such as
Biology, Medicine Agriculture, Commerce, Business, E conomics, Industry,
Insurance, Sociology and Psychology.
In the field of medicine, statistical tools like t-tests are used to test the
efficiency of the new drug or medicine. In the field of economics, statistical
tools such as index numbers, estimation theory and time series analysis are
used in solving economic problems related to wages, price, production and
distribution of income. In the field of agriculture, an important concept
statistics such as analysis of variance (ANOVA) is used in experiments related
to agriculture, to test the significance between two sample means.
In Biology, Medicine and Agriculture, Statistical methods are applied in the
following:
Study of the growth of plants
Movement of fish population in the ocean
Migration pattern of birds
Analysis of the effect of newly invented medicines
Theories of heredity
Estimation of yield of crop
Study of the effect of fertilizers on yield
Birth rate
Death rate
Population growth
Growth of bacteria

Q
2

a) Explain the approaches to define probability.

b) State the addition and multiplication rules of probability giving an example
of each
case.
a) Explanation of the approaches to define probability
b) Addition and multiplication rules of probability giving an
example of each

An
s

There
1)
2)
3)
4)

are four approaches to define probability. They are as follows:

Classical/ Mathematical/ Priori approach
Statistical/ relative frequency/ empirical/ posteriori approach
Subjective approach
Axiomatic approach

1)Classical/ Mathematical/ Priori approach

Under this approach the probability of an event is known before conducting the
experiment, In this case, each of possible outcome is associated with equal
probability of occurrence and number of outcomes favourable to the
concerned event is known.
Let a random experiment have n equally likely, mutually exclusive and
exhaustive outcomes. Let m of these outcomes be favourable to an event A.
Then, probability of A isP(A)=Number of favourable outcomes Total number of
outcomes
P(A)=m/n
Where, m is the number of favourable outcomes, n is the total number of
outcomes of the experiments.
2)Statistical/ relative frequency/ empirical/ posteriori approach
Under this approach the probability of an event is arrived at after conducting
an experiment. If we want to know the probabililty that a particular household
in an area and then arrive at the probability. Greater the number of households
suveyed, greater will be the accuracy in the probability, arrived.
The probability of an event A in this case is defind as,
P(A)=Lim m/n
n
In real life it is not possible to conduct experiments because of high cost or of
destructive type experiments or of vast area to be covered.

3)Subjective approach
Under this approach the investigator or researcher assigns probability to the
events either from his experience or from past records. It is more suitable
when a sample size is ten or less than ten. The investigator has full knowledge
above the characteristics of each and every individual. However there is a
chance of personal bias being introduced in such probability.
4) Axiomatic approach
Let S be a sample space consisiting of all events of a random experiment and
AS, then the probability of an event A is a set function satisfying following
axioms:
i)
Axioms of positivity, P(A)0
ii)
Axiom of cetainity, P(S)=1

iii)

n
i=1 Ai

P ( ) = P ( Ai )

where

A1 ,

A 2 ,... A n

are

i=1

sequence of disjoint events of the sample space.

The addition ruleof probability states that:
i) If A and B are any two events then the probability of the occurence of
either A or B is given by:
P(AB)=P(A)+P(B)-P(AB)
ii) If A and B are two mutually exclusive events then the probability of
occurance of either A or B is given by:
P(AB)=P(A)+P(B)
iii) If A, B and C are any three events then the probability of occurence of
either A or B or C is given by:
P(ABC)=P(A)+P(B)+P(C)-P(AB)-P(BC)-P(AC)+P(ABC)
In terms of Venn diagram, from the 5.3, we can calculate the probability of
occurence of either event A or event B, given that event A and event B
are dependent events. From the figure 5.4, we can calculate the probability of
occurence of either A or B, given that, events A and B are independent
events. From the figure 5.5, we can calculate the probability of occurence of
either A or B or C, given that, events A,B and C are dependent events.

Independent
Events A and B

Events A or B

Fig.5.5: ABC for Three Dependent

Events A,B and C
ABC
AC

BC

AB

iv) If A , A, A .............,

An

events then the probability of occurrence of at least one of them is given by :

P(A A ..............

Multiplication rule

If A and B are two independent events then the probability of occurrence of

A and B is given by:
P(AB)=P(A)P(B)

Q3

a) The procedure of testing hypothesis requires a researcher to adopt several

steps.
Describe in brief all such steps.
b) Explain the components of time series.
a) Hypothesis testing procedure
b) Components of time series

An
s

Hypothesis testing procedure

Having calculated appropriate z-statistic or t-statistic, to reject or accept the
null hyypothesis, it is necessary to identify the rejection regionwith reference
to the given level of sigfinance. If the calculated statistic is in the rejection
region, we accept the alternative hypothesis against the null hypothesis at
that level of significance. Otherwise, we accept null hypothesis at given level
of sigfinance. Table 9.4 depicts the rejection region, normally denoted by R.
Table 9.4: Kinds of Tests
Kind of test
Two tail test
Lower tail
test
Upper tail
test

z-statistic
R:|z|>|

t-statistic
R:|t|>|

R:z<

R:t<

R:z>

R:t>

z table |
z table
z table

t table |
t table
t table

Figure 9.4 depicts the hypothesis testing procedure.

Step 1-State null hypotesis (H) and alternate hypothesis (H)
Step2-State the level of significance. This gives you the tabulated normal tvalue
Step3-Select the appropriate test
Step4-Calculate the required values for the test
Step5-Conduct the test
Step6-Draw conclusion. If calculated value is < tabulated value, accept H. If
calculated value is > tabulated value, reject H.

Components of Time series

The behaviour of a time series over periods of time is called the movement of
the time series. The time series is classified into the following 4 components:
i)Long term trend or secular trend
ii)Seasonal variations
iii)Cyclic variations
iv)Random variations
i)Long term trend or secular trend
This refers to the smooth or regular long term growth or decline of the series.
This movement can be characterised by a trend curve. If this curve is a

straight line, then it is called a trend line. If the variable increases over a long
period of time, then it is called an upwardtrend. If the variable decreases over
a long period of time, then it is called an downward trend. If the variable
moves upward or downward along a straight line the the trend is called a
linear trend, otherwise it is called a non-linear trend.
ii)Seasonal variations
Variations in a time series that are periodic in nature and occur regularly over
short periods of time during a year are called seasonal variations. These
variations are precise and can be forecasted.
The following are examples of seasonal variations in a time series.
i.The prices of vegetables dop down after rainy season or in winter months and
they go up during summer, every year.
ii. The prices of cokking oils reduce after the harvesting of oil seeds and go up
after some time.
iii)Cyclic variations
The long-term oscillations that represent consistent ris and decline in the
values of the vriable are called cyclic variations. Since these are long-term
oscillations in the time series, the period of oscillation is usually greater than
one year. The oscillations are either a trend curve or a trend line. The period of
one cycle is the time-distance between two successive peaks or two
successive troughs.
iv)Random variations
Random variations are called irregular movements. Movements that occur
usually in brief periods of time, without any pattern and which are
unpredictable in nature are called irregular movements.these movements do
not have any regular period or time of occurences. For example, the effect of
national strikes, floods, earthquakes, etc. it is very difficult to study the
behaviour of such a time series.

Q4

a) What is a Chi-square test? Point out its applications. Under what conditions
is this
test applicable?
b) Discuss the types of measurement scales with examples

An
s

Chi-square test
The Chi-square testvis one of the most commonly used non-parametric tests in
statistical work. The Greek Letter is used to denote ths test. describe the
magnitude of discrepancy between the observed and the expected
frequencies. The value of is calculated as:

OiE

O1E

where, O, O, O....

On

O2E

O3E

+.........+

OnE

En

are the corresponding expected or theoretical frequencies.

Conditions for applying the Chi-Square test
The following are the Conditions for using the Chi-Square test:
1.The frequencies used in Chi-square test must be absolute and not in relative
terms.
2.The total number of observations collected for this test must be large.
3.Each of the observations which make up th sample of this test must be
independent of each other.
4.As test is based wholly on sample data, no assumption is made
concerning the population distrbution. In other words, it s a non parametrictest.
5. test is wholly dependent on degrees of freedom. As the degrees of
freedom increase, the Chi-Square distribution curve becomes symmetrical.
6.The expected frequency of any item or cell must not be less than 5, the
frequencies of adjacent items or cells should be polledtogether in order to
make it more than 5.
7.The data should be expressed in original units for convenience of comparison
and the given distrbution should not be replaced by relative frequencies or
proportions.
8.This test is used only for drawing inferences through test of the hypothesis,
so it cannot be used for estimation of parameter value.
Types of measurement scales with examples
Q5

Business forecasting acquires an important place in every field of the economy.

Explain the objectives and theories of Business forecasting.

An
s

Business forecastingrefers to the analysis of past and present economic
conditions with the object of drawing inferences about probable future
businees conditions. The process of making definite estimates of future course
of events is referred to as forecasting and the figure or statements obtained

from the process is known as forecast; future course of events is rarely

known. In order to be assured of the coming course of events, an organised
system of forecasting helps.
Forecasting is a part of human nature. Businessmen also need to look to the
future. Success in business in depends on correct predictions. In fact when a
man enters business, he automatically takes with it the responsibility for
attempting to forecast the future.
To a very large extent, success or failure would dependupon the ability to
successfully forecast the future course of events. Without some element of
continuity between past, present and future, there would be little possibility of
successful prediction. But history is not likely to repeat itself and we would
hardly expect economic conditions next year or over the next ten years to
follow a clear cut prediction. Yet, past patterns prevail sufficiently to justify
using the past as a basis for predicting the future.
A businessman cannot afford to base his decisions on guesses. Forecasting
helps a businessman in reducing the areas of uncertainty that surround
management decision making with respect to costs, sales, production, profits,
capital investment, pricing, expansion of production, extension of credit
developments of markets, increase of inventories and curtailment of loans.
These decisions are to be based on present indications of future conditions.
However, we know that it is impossible to forecast the future precisely. There is
a possibility of occurence of some range of error in the forecast. Statistical
forecasts are the methods in which we can use the mathematical theory of
probability to measure the risks of errors in predictons.
There are a few theories that are followed while making business forecasts.
Some of them are:
1. Sequence or time-lag theory
2. Action and reaction theory
3. Economic rhythm theory
4. Specific historical analogy
5. Cross-cut analysis theory
1. Sequence or time-lag theory
This is the important theory of business forecasting. It is based on the
assumption that most of the business data have tha lag and lead relationships,
that is, changes in business are successive and not simultaneous. There is
time-lag between different movements.

2. Action and reaction theory

This theory based on the following two assumptions.
a.Every action has a reaction
b.Magnitude of the original action influences the reaction
When the price of rice goes above a certain level of business activity is normal
or abnormal; conditions cannot remain so for ever. Thus, we find out four
phases of a business cycle. They are:
1.Prosperity
2.Decline
3.Depression
4.Improvement
3. Economic rhythm theory
The basic assumption of this theory is that history repeats itself and hence
assumes that all economic and business events behave in a rhythmic order.
According to this theory, the speed and time of all business cycles are more or
less the same and by using statistical and mathematical methods, a trend is
obtained which will represent a long term tendency of growth or decline. It is
done on the basis of the assumption that the trend line denotes the normal
growth or decline of business events.
4. Specific historical analogy
History repeats itself is the main foundation of this theory. If conditions are the
same, whatever happened in the past under a set of circumstances is likely to
happen in future also. A time series relating to the data in question is
throughly scrutinised such a period is selected in which conditions were similar
to those prevailing at the time of making the forecast. However , this theory
depends largely on past data.
5. Cross-cut analysis theory
This theory proceeds on the analysis of interplay of current economic forces. In
this method, the combined effects of various factors are not studied. The effect
of each factor is studied independently. Under this theory, forecasting is made
on the basis of analysis and interpretation of present conditions because the
past events have no relevance with present conditions.

Q6

a) What is analysis of variance? What are the assumptions of this technique?

b) Three samples below have been obtained from normal populations with
equal
variances. Test the hypothesis at 5% level that the population means are
equal.

An
s

Analysis of Variance (ANOVA)

Analysis of variance (ANOVA) is useful in such situations as comparing the
mileage archieved by five different brands of gasoline, testing which of four
different training methods produce the fastest learning record, or comparing
the first year earnings of the graduates of half a dozen different business
schools. In each of these cases, we would compare the means of more than
two samples. Hence , in most of the fields, such as agriculture, medical,
finance, banking, insurance, education, etc., the concept of ANOVA is used. In
statistical terms, the difference between two statistical data is known as
variance. When two data are compared for any practical purpose, their
difference is studied through the techniques of ANOVA. With the analysis of
variance technique, we can test the null hypothesis and the alternative
hypothesis.
Null hypothesis, H: All sample means are equal.
Alternate Hypothesis, H: All sample means are not equal or at least one of
the samples means differ.
Assumptions of this technique
i)Each of samples is a simple random samples
ii)Population from which the samples are selected are normally distributed
iii) Each of samples is independent of the other samples
iv)Each of the population has the same variation and identical means
v)The effect of various components are additive

Test the hypothesis at 5% level that the population means are equal.
Let H: There is no significant difference in the meansof three samples

X

8
10
7
14
11

7
5
10
9
9

12
9
13
12
14

X = 50

X = 40

X =
60

T=Sum of all observations=150

Correction factor =

T
150
N = 15 = 1500

T
N

(8+ 7 + 12 + 10 +.......+14) -1500 = 1600 1500 = 100

Sum of the Squares of Error between the columns (samples):

( X )
SSC = [
n
( Xn)
nn

50
= 5

( X )
n

( X )
n

( X )
n

+ ,,,,,,,, +

T
N ]
+

40
5

60
5

Sum of the Squares of Error within the columns (samples):

SSE = SST SSC = 100 40 = 60
Variance within the samples:

MSE =

SSE
(n k)

60
(15 3)

=5

The degree of freedom = (k 1, n k) = (2, 12)

[k is the number of columns and n is the total number of observations]