Rushabh K.

Dhole
Sub- QM
Online Assignment 1
MBA- 1st Year
Guidance by - Prof. Pooja Dammani
Date- 26/03/2021

Q:1) What do you mean by term average? Bring out the

characteristics of an ideal average.
Ans: - The term ‘average’ refers to the ‘middle’ or ‘central’ point.
When used in mathematics, the term refers to a number that is a typical
representation of a group of numbers (or data set). Add the numbers
together and divide by the number of numbers. (The sum of values
divided by the number of values).

*Characteristics for a good or Ideal Average

1. Good Average should be based on all the observations: Only those

averages, where all the data are used give best result, whereas the
averages which use less data are not representative of the whole group.

2. Good Average should not be unduly affected by extreme value: No

term should affect the average too much. If one or two very small or very
large items unduly affect the average, then the average cannot be really
typical of the entire group. Thus extreme terms may distort the average
and reduce its usefulness. As if in example given, we are to find average
of 6, 8, 10, we get mean as 8, but if another item, having value 200 is
taken, the average comes out to be 56. Hence it can’t be called a good
average as with only one new item, it has increased from 8 to 56.

3. Good Average should be rigidly defined: There should be no

confusion about the meaning or description of an average. It must have a
rigid or to the point definition.
4. Good Average should be easy to calculate and simple to
understand: If the calculation of an average involves too much
mathematical processes, it will not be easily understood and its use will
be limited only to a limited number of persons. This average cannot be a
popular average. It should be easy to understand.

5. Good Average should be capable of further algebraic treatment:

Measures of central tendency are used in many other techniques of
statistical analysis like measures of Dispersion, Correlation etc.

6. Good Average should be found by graphic methods also: That

average is considered a good average which can be found by arithmetic as
well as by graphic method.

7. Good Average should not be affected by variations of sampling: A

good average will be least affected by sampling fluctuations. If a few
samples are taken from the same universe, the average should be such as
has the least variation in values derived in the individual samples. The
results obtained will be considered to be the true representative of the
universe in this case.

8. Good Average should not be affected by skewness: We will not call

an average good one if it is affected by skewness present in the
distribution.

9. Good Average should be popular: A popular average which is

known to common people will be more useful as a simple person will be
able to understand it. Otherwise its use will be limited to higher section of
people only.

10. Good average should have a Clear and Stable Definition: A good
average should have a clear and stable definition.

11. Good average should be Absolute Number: A good average should

be absolute in character.
12. Good average should be Possible to find central Tendency for
open end class intervals: In many distributions’ ends are open. So, a
good average is one which can be calculated even in open end class
intervals.
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Q:2) What is meant by measures of central tendency? List out the
properties of a good average with suitable illustrations.

Ans: - Central tendency is a descriptive summary of a dataset through a

single value that reflects the center of the data distribution. Along with
the variability (dispersion) of a dataset, central tendency is a branch of
descriptive statistics.

Measures of central tendency:-

Generally, the central tendency of a data set can be described using the
following measures:

 Mean (Average): Represents the sum of all values in a data set

divided by the total number of the values.
 Median: The middle value in a dataset that is arranged in
ascending order (from the smallest value to the largest value). If a
dataset contains an even number of values, the median of the
dataset is the mean of the two middle values.
 Mode: Defines the most frequently occurring value in a dataset. In
some cases, a dataset may contain multiple modes while some
datasets may not have any mode at all.

The central tendency is one of the most quintessential concepts

in statistics. Although it does not provide information regarding the
individual values in the dataset, it delivers a comprehensive summary of
the whole dataset.

Properties of a Good Average

The following are the important properties which a good average should
satisfy:
1. It should be easy to understand.
2. It should be simple to compute.
3. It should be based on all the items.
4. It should not be affected by extreme values.
5. It should be rigidly defined.
6. It should be capable of further algebraic treatment.
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Q:3) Explain briefly the merits and demerits of the various statistical
averages.
Ans:-

Merits of Mean:
1) Arithmetic mean rigidly defined by Algebraic Formula.
2) It is easy to calculate and simple to understand.
3) It is based on all observations of the given data.
4) It is capable of being treated mathematically hence it is widely used
in statistical analysis.
5) Arithmetic mean can be computed even if the derailed distribution is
not known but some of the observation and number of the observation
are known.
6) It is least affected by the fluctuation of sampling.
7) For every kind of data mean can be calculated.

Demerits of Arithmetic mean:

1) It can neither be determined by inspection or by graphical location.
2) Arithmetic mean cannot be computed for qualitative data like data on
intelligence honesty and smoking habit etc.
3) It is too much affected by extreme observations and hence it is not
adequately represent data consisting of some extreme point.
4) Arithmetic mean cannot be computed when class intervals have open
ends.
5) If any one of the data is missing then mean cannot be calculated.
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Q:4) What is harmonic mean? Explain its specialized use with
illustrations.
Ans: - Harmonic mean is a type of average that is calculated by
dividing the number of values in a data series by the sum of the
reciprocals (1/x_i) of each value in the data series. A harmonic mean is
one of the three Pythagorean means (the other two are arithmetic mean
and geometric mean). The harmonic mean always shows the lowest value
among the Pythagorean means.

The harmonic mean is often used to calculate the average of the ratios or
rates. It is the most appropriate measure for ratios and rates because it
equalizes the weights of each data point. For instance, the arithmetic
mean places a high weight on large data points, while the geometric mean
gives a lower weight to the smaller data points.

In finance, the harmonic mean is used to determine the average for

financial multiples such as the price-to-earnings (P/E) ratio. The financial
multiples should not be averaged using the arithmetic mean because it is
biased toward larger values. One of the most common problems in
finance that uses the harmonic mean is the calculation of the ratio of a
portfolio that consists of several securities.

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