Question 1

a)
i. 0.1×80+0.4×90+0.5×70 =79
0.1×90+0.4×70+0.5×100 = 87
0.1×70+0.4×100+0.5×70 = 82
0.1×100+0.4×70+0.5×90 = 83

ii. Mean forecast error =

= 83.5

m D 3MA Error Error Error2 % Coin

1 80 Mean
× 100%
2 90 Absolute
3 70 Deviation
4 100 80 20 20 400 20%
5 70 87 17 17 289 24.3%
6 90 80 10 10 100 11.1%
87 Total 47 ÷ 3 789 ÷ 3 55.4 ÷ 3
MAD= 15.7 MSE = 263 MADE = 18.5

iii. MSE = 263

iv. MAD = 15.7
v. MADE = 18.5

b)
i. Ft = Ft-1 + d(D t-1 - F t-1)
= 200 + 0.2(220-200)
=200 + 0.2(20)
= 204 unit

ii. Ft = Ft-1 + d(D t-1 - F t-1)

= 204 + 0.2 (210 -204)
= 204 + 0.2 (6)
= 205.2 unit
c)
i. Payoff table

ALTERNATIVES DEMAND
6 000 8 000 10 000 12 000
STOCK 6000 20 100 20 100 20 100 20 100
STOCK 8000 2 600 26 800 26 800 26 800
STOCK 10000 -14 900 9 300 33 500 33 500
STOCK 12000 -32 400 -8 200 16 000 40 200
PROBABILITY 0.10 0.50 0.30 0.10

ii. Decision tree

iii. Expected Monetary Value

E
M
V
6

0
.
1
0
(
2
0
100) + 0.5(20 100) + 0.3(20 100) +0.1(20 100)
= 20 100
EMV8 000 = 0.10(2 600) + 0.5(26 800) + 0.3(26 800) +0.1(26 800)
= 24 380
EMV10 000 = 0.10(-14 900) + 0.5(9 300) + 0.3(33 500) +0.1(33 500)
= 16 560
 EMV12 000 = 0.10(-32 400) + 0.5(-8 200) + 0.3(16 000) +0.1(40 200)
= 1 480
Decision is to choose EMV8000 which has the highest EMV

iv. Expected Opportunity Loss

ALTERNATIVES DEMAND
6 000 8 000 10 000 12 000
EOL
STOCK 6000 0 6 700 13 400 20 100 9 380
STOCK 8000 17 500 0 6 700 13 400 5 100
STOCK 10000 35 000 17 500 0 6 700 12 920
STOCK 12000 52 500 35 000 17 500 0 28 000
PROBABILITY 0.10 0.50 0.30 0.10

v. 8 000 loaves
therefore, because MIN EOL DECISION = MAX EMV DECISION

vi. Coefficient of Variation = × 100%

CoV 6 000 = = 0%

CoV 8 000 = = 26.3%

CoV 10 000 = = 47.7%

CoV 12 000 = = 52.5%

vii. RTRR =

RTRR 6 000 = = undefined

RTRR 8 000 = = 1.78

RTRR 10 000 = = 2.096

RTRR 12 000 = = 1.9

viii. Coefficient of variation because it shows the extent of variability of data in a

sample in relation to the mean of the population.
 QUESTION 2

a).i

E5

- K12,00,000
D2
E1 P = 0.4, Low yield

K87,00,000

Build pilot plant E2 Emv = K66,36,00

D1
Cost = K300,000

D3 Produce E4
commercially
K0

In order to analyze this tree, we start backwards from the end branches by finding expected
monetary value (Emvs) for varies nodes and choose the cause of action that yield the best payoff
for each of the decision.
 ii.

Decision Alternative Outcome Prob (1)

Conditional Expected
Point Value (k) Value
D2 Produce High Yield 0.75 120,00,000 90,00,000
Commercially Low Yield 0.25 -12,00,000 -3,00,000
∴ For chance node E3 , Net Emv = K87,000,000
D3 Produce High Yield 0.1 1,20,00,00 12,00,000
Commercially Low Yield 0.9 -12,00,000 -10,80,000
∴ For chance node E4 , Net Emv = K120,000
D1 Produce High Yield 0.6 12000000 72,00,000
Commercially Low Yield 0.4 -12,00,000 -14,30,000
∴ For decision branch D1 – E1 , Emv (Max) = K67,20,000
ii. Build High Yield 0.8 87,00,000 69,60,000
Pilot Plant Low Yield 0.2 1,20,000 24,000
69,36,000
Less cost - 300000
∴ For decision branch D1 – E2 , Net Emv 66,36,000

iii. Stop producing steel - - - - K0

Hence by maximum Emv criteria the company should follow the option produce commercially.

iii. F (V1 = 3, V2 = 6) =

= = 1.619 ; at 5% level, table value = 4.76

iv. F (V1 = 2, V2 = 6) =

= = 1.417 ; at 5% level, table value = 5.14

b).

MONTHS SALESMEN
A B C D
APRIL 36 36 21 35
MAY 28 29 31 32
JUNE 26 28 29 29
i. Solution

MONTHS A B C D MONTHS
TOTAL
APRIL +6 +6 -9 +5 +8
MAY -2 -1 +1 +2 0
JUNE -4 -2 -1 -1 -8
0 3 -9 6 T=0

Correction factor = = =0

Correction factor = = =0

Sum of square between Salesmen = + + + -

= 42 – 0 = 42

Here V= 4 – 1 = 3 (For each salesman A, B, C, D there are three observations)

Sum of squares between months → For April, May / June → Observation

+ + -

32 – 0 = 32

Here V = 3 – 1 = 2 for April/May/June observation

Total sum of squares → (+6)2 + (-2)2 + (-4)2 + (+6)2 + (-1)2 + (-2)2 + (-9)2 + (-1)2 + (-1)2 + (+5)2+
(+2)2 + (-1)2 -

= 36+4+16+36+1+4+81+1+1+25+4+1-0

= 120 – 0 = 120

V = 12 – 1 = 11

Residual or Error Sum

Source of variation Sum of square Df Mean square

Between column 42 3 14 (MSE)
salesmen
Between row months 32 2 16 (MSR)
Residual 136 6 22.67 (MSE)
Total 210 11

ii. Blocking variable are A,B,C,D and treatment is April, May, June in this experiment.
 Question 3
Energy Consumption 3.4 7.7 12.6 75 58 67 113 131
(x)
Gross National Product 55 240 390 1 1 1 1 1
(y) 100 390 330 400 900
i.
̅ = 58.3875 ̅ = 975.625

a = 975.625 – (12.86 × 58.3875 b=

= 225.512 – 751.10439 = 12.864
= 224.515
y = 224.52 +12.86

ii. Gross National Product = 224.515 + (12.86 × 100)

= 1510.5

iii. 3 500 = 224.515 + 12.864x | 12.864 = 3 500 – 224.515

=
= 254.6

iv. Determine at the 5% level of significance whether there is evidence to indicate a

linear relationship between energy consumption (x) and gross national product
(y)
= interval of (-0.9931, -0.0402)

v. Find a 95% confidence interval for β1

β1 =

= (0.0269, 0.9798)
= 12.86
 vi. r=
√
2
∑ = 43 622.85 ∑ = 467.1 ∑ = 666
045
2
∑ = 10 693 725 ∑ = 7 805

= 43 622.85 - = 10 693 725 -

= 43 622.85 – 27 272.80 = 10 693 725 – 7 614

753.125
= 16 350.048 = 3 078 971.875

= 666 045 - r=

√
= 666 045 – 455 714.43 =
√
= 210 330.56 =

= 0.9

vii. R2 = 0.92
= 0.81
= 81%
Coefficient of determination is high because of positive strong correlation

viii. Give the ANORA table for this problem

x y
Sample total 467.1 7 805
Sample mean 58.3875 975.625
Variance 2 043.76 1 333 306.52

= 517.00625
SSTo = (3.3-517)2 + (7.7-517)2 + (12.0-517)2 + (75-517)2 + (58-517)2 + (67-
517)2 +
(113-517)2 + (131-517)2 + (55-517)2 + (200-517)2 + (390-517)2 + (1
 100-517)2 +
(1 390-517)2 + (1 330-517)2 + (1 400-517)2 + (1 900-517)2
= 6 460 620.45
SSTr = 8(58.3875 - 517.00625)2 + 8 (975.625 - 517.00625)2
= 3 365 298.526

Source of variation df Sum of squares Mean Sum of F-test

(SS) Squares (MSS)
Treatment 2-1 3 365 298.526 3 365 298.526 15.22
Error 16-2 3 095 321.924 3 095 321.924 ÷ 14
= 221 094.4231
Total 16-1 6 460 620.45

SSE = SST0 - SSTr

= 6 460 620.45 - 3 365 298.526
= 3 095 321.924