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MB0040 Statistics for Management - 4 Credits

Q1. Statistics plays a vital role in almost every facet of human life. Describe the functions of

Statistics. Explain the applications of statistics.

Ans : - DEFINITION OF STATISTICS

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

presenting, comparing and interpreting the numerical data to throw light on enquiry. According to This

definition is both comprehensive and exhaustive. Prof. Boddington, on the other hand, defined

Statistics as The science of estimates and probabilities2. This definition is also not complete.

According to Croxton and Cowden, Statistics is the science of collection, presentation, analysis and

interpretation of numerical data from logical analysis

FUNCTIONS OF STATISTICS

Statistics is used for various purposes. It is used to simplify mass data and to make comparisons 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.

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.

APPLICATION OF STATISTICS

Statistical methods are applied to specific problems in various fields such as Biology, Medicine,

Agriculture, Commerce, Business, Economics, 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 of statistics such as analysis of variance

(ANOVA) is used in experiments related to agriculture, to test the significance between two sample

means.

Q2. a). Explain the various measures of Dispersion.

Ans:- a) DISPERSION

Definition: A measure of Dispersion may be defined as a statistics signifying the extent of the

scattering of items around a measure of central tendency.

The property of deviations of values from the average is called Dispersion or Variation. The degree of

variation is found by the measures of variation.

They are as follows:

1. Range (R)

2. Quartile Deviation (Q.D)

3. Mean Deviation (M.D)

4. Standard Deviation (S.D)

Range

Range represents the differences between the values of the extremes. The range of any sample is the

difference between the highest and the lowest values in the series.

Range = Largest value Smallest value = L S

Coefficient of Range =

Largest value+ Smallest value

LS

= L+ S

Quartile deviation

Quartiles divide the total frequency in to four equal parts. The lower quartile Q1 refers to the values of

variate corresponding to the cumulative

N

Frequency 4

Q2 corresponds to the value of variate with cumulative frequency equal to.

N

2

Upper quartile Q3

3N

Frequency

4

Hence, Quartile Deviation QD =

1

2

(Q3-Q1)

Q3Q

Q 3 +Q1

1

Mean deviation

Mean deviation is defined as the mean of absolute deviations of the values from the central value.

For individual series, Mean deviation from Mean is calculated as:

Standard Deviation

Standard deviation is the root of sum of the squares of deviations divided by their numbers. It is also

called mean square error deviation (or) root mean square deviation.

The standard deviation is root mean square (RMS) average of all the deviations from the mean. It is

denoted by sigma ().

Ans:- b) SOLUTION:

In increasing order: - 384, 391, 407, 522, 591, 672, 733, 777, 1490, 2488

Here n = 10

Q1 = (

10+ 1

4

) th value = (

= 391 + (407-391) x

Median or Q2 = 2(

= 591 +

672592

2

Q3 = 3 (

10+ 1

4

Q3 = 777 + (

3

4

3

4

) th value

3 x 16

4

= 391 +

10+ 1

4

) th value = (

80

2

= 591+

) th value =

1490777

4

2+

= 391 + 12 = 403

5+

1

2

)th value

= 631

33

4

) = 777 +

the value = (

8+

1

4

) th value

713

4

Therefore, Median = 631 and Quartiles are: - 403, 631, 955.25 Ans.

Q3. a). What is correlation? Distinguish between positive and negative correlation.

Ans:- b) SOLUTION:X

1

2

3

4

5

6

7

8

9

X =

45

Y

9

8

10

12

11

13

14

16

15

Y =1

08

X2

1

4

9

16

25

36

49

64

81

X 2 =28

5

r=

XY

X 2 . Y 2

Y2

81

64

100

144

121

169

196

256

225

Y 2 =135

6

XY

9

18

30

48

55

78

98

144

135

XY =

615

r=

615

285 1356

r=

615

386460

r=

615

621 . 659

Q4. Index number acts as a barometer for measuring the value of money. What are the

characteristics of an index number? State its utility.

Ans:- DEFINITION OF AN INDEX NUMBER

An index number is a number which is used to measure the level of a certain phenomenon as compared

to the level of the same phenomenon at some standard period. In other words, an index number is a

number which is used as a device for comparison between the price, quantity or value of a group of

articles in different situations for example, at a certain place or a period of time and that of another

place or period of time.

UTILITY

The primary purpose of index numbers is to measure relative temporal or cross-sectional changes in a

variable or a group of related variables which are not capable of being directly measured. The greatest

purpose of index numbers has been to measure and compare the changes in prices and purchasing

power of money which have received great attention from economists for many years. Today, index

number is not only used for measuring price changes alone. Factors like wages, employment,

production, trade, demand, supply, business condition, industrial activity, financial problems etc. are

also studied through this statistical device. Just as a barometer measures the pressure of atmosphere or

gases, the index numbers measure the pressure of economic behaviour. Thus, index numbers are called

economic barometers.

CHARACTERISTICS

1. EXPRESSED IN NUMBERS

Index numbers represent the relative changes such as increase in production; reduction in prices etc. in

the numbers.

2. EXPRESSED IN PERCENTAGE

Index numbers are expressed in terms of percentages so as to show the extent or relative change where

the value of base is assumed to be 100 but the sign of percentage (%) is not used.

3. RELATIVE MEASURE

Index numbers measure changes which are not capable of direct measurement.

4. SPECIFIED AVERAGES

Index number represents a special case of average, in general known as weighted average. It is a special

type of average, because in a simple average, the data is homogenous having the same unit of

measurement, whereas the average variables have different units of measurement.

5. BASIS OF COMPARISON

Index numbers by their very nature are comparative. They compare changes over time or between

places or similar categories.

Q5. Business forecasting acquires an important place in every field of the economy. Explain the

objectives and theories of Business forecasting.

Ans:- BUSINESS FORECASTING

Business forecasting refers to the analysis of past and present economic conditions with the object of

drawing inferences about probable future business 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. The following are two aspects of

scientific business forecasting:

1. ANALYSIS OF PAST ECONOMIC CONDITIONS

For this purpose, the components of time series are to be studied. The secular trend shows how the

series has been moving in the past and what its future course is likely to be over a long period of time.

The cyclic fluctuations would reveal whether the business activity is subjected to a boom or depression.

The seasonal fluctuations would indicate the seasonal changes in the business activity.

2. ANALYSIS OF PRESENT ECONOMIC CONDITIONS

The object of analysing present economic conditions is to study those factors which affect the

sequential changes expected on the basis of the past conditions. Such factors are new inventions,

changes in fashion, changes in economic and political spheres, economic and monetary policies of the

government, war, etc. These factors may affect and alter the duration of trade cycle. Therefore, it is

essential to keep in mind the present economic conditions since they have an important bearing on the

probable future tendency.

OBJECTIVES OF FORECASTING IN BUSINESS

Forecasting is a part of human nature. Businessmen also need to look to the future. Success in business

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

depend upon 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 10 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,

development 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 occurrence of some range of error in the forecast.

Statistical forecasts are the methods in which we can use the mathematical

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

SEQUENCE OR TIME-LAG THEORY

This is the most important theory of business forecasting. It is based on the assumption that most of the

business data have the lag and lead relationships, that is, changes in business are successive and not

simultaneous. There is time-lag between different movements.

Merits and Demerits of Sequence or Time-lag Theory

Merit

This method is largely used for business

forecasting.

Though this theory is based on statistical

techniques, yet it is easy to understand.

Time-interval between two events can be

ascertained.

Government can use this technique for the

purpose of economic stability of the economy by

exercising control over possible losses.

Demerit

This method studies only the action and not the

reaction.

This method cannot be regarded as accurate

because by using statistical techniques the results

can be up to the truth but not an accurate one.

This theory is based on the following two assumptions.

1. Every action has a reaction

2. Magnitude of the original action influences the reaction

When the price of rice goes above a certain level in a certain period, there is likelihood that after some

time it will go down below the normal level. Thus, according to this theory a certain level of business

activity is normal or abnormal; conditions cannot remain so for ever. Thus, we find four phases of a

business cycle. They are:

1.

2.

3.

4.

Prosperity

Decline

Depression

Improvement

Merits and Demerits of Action and Reaction Theory

Merit

Demerit

By this theory more reliable results can be

obtained because this theory gives attention to

action and reaction of an event.

It is not necessary that reaction is equal to the

action.

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 trendis

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.

Merits and Demerits of Economic Rhythm Theory

Merit

Forecasting is made on the basis of past

conditions, hence they are more reliable.

This method is helpful in long-term forecasting.

Demerit

The business events are not strictly periodic and

prediction of business cycle on the basis of

statistical method is not satisfactory.

Past conditions are given more weight age than the

present conditions.

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 thoroughly 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.

Depicts the merits and demerits of specific historical analogy.

Merits and Demerits of Specific Historical Analogy

Merit

It is an easy method.

As the future is forecasted on the basis of past

business conditions, the forecasting is more

reliable.

Demerit

In this theory, forecasting is based on guess work,

not on a scientific method because the past and

present conditions are rarely found to be similar.

It is very difficult to select the past period with the

same business conditions like present.

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.

Merits and Demerits of Cross-cut Analysis Theory

Merit

Present conditions are preferred than past.

The effect of each factor is studied

Independently.

Forecast is nearer to the accuracy as it is based

on present conditions.

Demerit

Independent analysis of individual facts is very

difficult.

Past facts are equally important for the purpose of

forecasting, but in this method no importance is

given to past facts.

The forecasting made on the basis of this

technique cannot be regarded as reliable.

Q6. The weekly wages of 1000 workers are normally distributed around a mean of Rs. 70 and a

standard deviation of Rs. 5. Estimate the number of workers whose weekly wages will be:

(a). Between 70 and 72 (b). Between 69 and 72 (c). More than 75 (d). Less than 63

Ans: - Let X is a normal variable with parameters

M= Rs. 70 and

Than 2 =

XM

6

= Rs. 5 N= 1000

=

a) P ( 70 X 72 )

=P

X70 2

5

5

X70

5

=P

7070 X 70 7270

5

5

5

= P [ 0 5 x350 10 ]

= P [ 0 5 x 360 ]

= P [ 0 X 72 ]

= P (x = 0.4772)

Number of workers whose weekly wage will be between 70 and 72

= 1000 x 0.4772 = 477 Ans.

b) = P [ 69 X 72 ]

=P

0.2

=P

X 70

0.4

5

5

5

5

= P [ X=0.073+ X=0.554 ]

= P [ X=.2247 ]

Required number workers = 1000 0.2247 = 225 Ans.

c) P ( X 75 ) = P

X 70

3

+

5

5

= P [ X=0.2258 ]

Required number of workers = 226 Ans.

d) P ( X 63 ) = P

X 70 7263

5

5

= P [ X 1.8 ]

= P [ X=0.4641 ]

Required numbers of workers = 464 Ans.

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