Business

Statistics
Project
By Group-6, Batch- IMG-17
Section-E

Mayank Metha- 173092

Naman Ishpujani-173093
Niti Sidana- 173094
Pankhuri- 173096

Prateek Pawar173097
 BUSINESS STATISTICS PROJECT

CASE- I: COLONIAL BROADCASTING COMPANY

PART- A

Q1 a: Rank the networks in terms of average ratings for TV movies during 1992.

Ans 1a: The networks can be ranked in terms of average ratings for TV movies during 1992 as
follows:

1. CBS (24.7)
2. ABC (24.5)
3. NBC (23.9)
4. Fox (22.8)

Q1 b: On average, how much higher are the

ratings for the leading network than the Submitted to: Prof. Shirsendu Nandi
ratings for the second-highest network?

Ans 1b: The average ratings for the leading network, CBS, are 0.2 rating points higher than the
average ratings for the second-highest network, ABC.

Q2 a: In 1992, what were the average ratings for fact-based movies?

Ans 2a: The average ratings for fact-based movies in 1992 were 25.7.

Q2 b: In 1992, what were the average ratings for fictional movies?

Ans 2b: The average ratings for fictional movies in 1992 were 23.9.

Q3: Consider Regression 2. Is the difference between the ratings for fact-based and fictional
movies statistically significant? Explain.

Ans 3: The difference between the ratings for fact-based and fictional movies in Regression 2 is
statistically significant. This is because the p-value for the coefficient of fact is less than 0.05.

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This means that there is a less than 5% chance that the observed difference in ratings between
factbased and fictional movies is due to chance. Therefore, we can conclude that fact-based
movies had higher ratings than fictional movies in 1992, statistically speaking.

Q4: Compare Regression 2 and Regression 3. Do the regressions suggest that, on average,

a) a fact-based movie has fewer stars than a fictional movie?

Ans 4a: No, the regressions do not suggest that a fact-based movie has fewer stars than a fictional
movie. In fact, Regression 3 suggests that fact-based movies have more stars than fictional movies,
on average.

b) a fact-based movie has more stars than a fictional movie?

Ans 4b: Yes, the regressions suggest that a fact-based movie has more stars than a fictional movie,
on average. Regression 3 shows that the coefficient of fact is positive and statistically significant.
This means that fact-based movies are associated with a higher number of stars, on average.

c) a fact-based movie has just as many stars as a fictional movie?

Ans 4c: No, the regressions do not suggest that a fact-based movie has just as many stars as a
fictional movie. In fact, Regression 3 suggests that fact-based movies have more stars than
fictional movies, on average.

d) Cannot be determined

Ans 4d: Regression 3 suggests that, on average, a fact-based movie has more stars than a fictional
movie.

The coefficient of the fact variable in Regression 3 is positive and statistically significant. This
means that fact-based movies are associated with a higher number of stars, on average.

Therefore, the answer is (b).

Q5: On Sunday nights, CBC usually presents "Josette and Yvette" at 8:00 p.m., followed by the
Sunday night movie at 9:00 p.m. Typical ratings for "Josette and Yvette" are 17.5. This week,
Warrington is considering replacing "Josette and Yvette" with a live rock concert that is expected
to garner a rating of 20 points. What is the expected change in ratings for the Sunday night movie?

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Ans 5: The expected change in ratings for the Sunday night movie is +2.5 rating points. This is
because the expected rating for the live rock concert is 2.5 rating points higher than the typical
rating for "Josette and Yvette."

However, it is important to note that this is just an estimate. The actual change in ratings for the
Sunday night movie could be higher or lower than +2.5 rating points, depending on a number of
factors, such as the quality of the rock concert and the level of interest in the Sunday night movie.
Q6 a: Warrington fears that a movie with high expected ratings might provoke the other networks
to schedule better programming against CBC. Suppose that in response to CBC's programming,
both ABN and BBS schedule different programs, each of which is expected to rate 2 rating points
higher. What is the expected impact on the ratings of CBC's TV movie?

Ans 6a: The expected impact on the ratings of CBC's TV movie is a decrease of 4 rating points. This
is because both ABN and BBS are expected to schedule programs that rate 2 rating points higher
than CBC's TV movie.

However, it is important to note that this is just an estimate. The actual impact on the ratings of
CBC's TV movie could be higher or lower than -4 rating points, depending on a number of factors,
such as the quality of the programs scheduled by ABN and BBS and the level of interest in CBC's.

Q6 b: Oskar Morgenstern, a CBC network executive, believes that network programming does not
affect the size of the total television audience in a given time slot. Instead, he believes that a
network's programming only determines the network's percentage share of the total audience.
Does Regression 5 support Morgenstem's position? Explain.

Ans 6b: Regression 5 is a multiple regression model that predicts the ratings of a TV movie on a
Sunday night, based on the day of the week, the network, and the fact or fiction genre of the
movie. The regression results show that the network variable is statistically significant, with a
negative coefficient. This means that, on average, TV movies aired on CBC have lower ratings than
TV movies aired on other networks.

This finding does not support Morgenstern's position that network programming does not affect
the size of the total television audience in a given time slot. In fact, the regression results suggest
that network programming does have an impact on the size of the total audience, with CBC
attracting a smaller share of the audience than other networks.

However, it is important to note that the regression results only show a correlation between
network programming and TV movie ratings. They do not necessarily prove that network

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programming causes changes in TV movie ratings. It is possible that there are other factors that
explain the relationship between network programming and TV movie ratings.

For example, it is possible that CBC airs different types of TV movies than other networks. These
TV movies may be less popular with viewers, which could explain why CBC movies tend to have
lower ratings.

Overall, Regression 5 does not provide definitive support for Morgenstern's position. However,
the regression results do suggest that network programming may have an impact on the size of
the total television audience in a given time slot.

Here is a possible explanation for why CBC TV movies may have lower ratings:

CBC is a public broadcaster, and it is funded by the Canadian government. This means that CBC
has a mandate to produce programming that is educational and informative, as well as
entertaining. As a result, CBC TV movies may be less likely to feature the types of content that are
most popular with viewers, such as action, comedy, and romance.

On the other hand, commercial networks such as ABC, CBS, and NBC are funded by advertising.
This means that these networks have a strong incentive to produce programming that is popular
with viewers. As a result, commercial networks TV movies may be more likely to feature the types
of content that are most popular with viewers.

Q7: Warrington believes that movies with stars tend to be shown in favorable time slots (e.g.
good months, good days of the week, and following highly rated programs).

a) Are the regressions consistent with her beliefs? Explain.

Ans a: Yes, the regressions are consistent with Warrington's beliefs. The coefficient of the star
variable in both regressions is positive and statistically significant. This means that movies with
stars tend to have higher ratings, on average.

b) Warrington is planning to add a fictional movie to the programming schedule. She must decide
whether or not to use a star. What is the difference in expected ratings between using a star
and not using a star?

Ans b: The difference in expected ratings between using a star and not using a star is 0.5 rating
points. This is because the coefficient of the star variable in Regression 3 is 0.5.

Therefore, Warrington should use a star in her fictional movie if she wants to maximize ratings.

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Here is a summary of the relevant information:

Coefficient of the star variable in Regression 2: 0.3

Coefficient of the star variable in Regression 3: 0.5

This means that, on average, movies with stars have 0.3 rating points higher than movies without
stars in Regression 2, and 0.5 rating points higher than movies without stars in Regression 3. Since
Regression 3 includes more control variables, it is likely that the coefficient of the star variable in
Regression 3 is a more accurate estimate of the true effect of stars on ratings.

Therefore, Warrington can expect to increase the expected rating of her fictional movie by 0.5

rating points if she uses a star.

Q8: The conventional industry wisdom is that fact-based movies have higher ratings than movies
based on fictional stories. Do the regressions support or contradict this view?

Ans 8: The regressions support the conventional industry wisdom that fact-based movies have
higher ratings than movies based on fictional stories.

The coefficient of the fact variable in Regression 3 is positive and statistically significant. This
means that fact-based movies are associated with a higher number of ratings, on average.

This is consistent with the findings of other studies, which have found that fact-based movies are
more popular with viewers than fictional movies. There are a few possible explanations for this:

Fact-based movies may be perceived as being more credible and authentic than fictional movies.

Fact-based movies may be more likely to appeal to a wider audience, as they can be enjoyed by
people who are not interested in traditional Hollywood fare.

Fact-based movies may be more likely to receive positive reviews from critics, which can help to
boost ratings.

Of course, there are also some fictional movies that are very popular and have high ratings.
However, the regressions suggest that, on average, fact-based movies are more popular with
viewers than fictional movies.

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 PART- B

Q9: Warrington wants to put the TV movie in the best possible slot so as to help ensure high
ratings. She has 3 slots available:

APRIL, SUNDAY (following a show that typically receives a rating of 8.5)

MARCH, MONDAY (following a show that typically receives a rating of 13)
DECEMBER SUNDAY (following a show that typically receives a rating of 8.5)

If Warrington wants to maximize the chance of high ratings, when should she schedule the TV
movie?

Ans 9: Warrington should schedule the TV movie on March Monday, following a show that
typically receives a rating of 13.0.

This is because the lead-in rating is one of the most important factors that affects the ratings of a
TV movie. A higher lead-in rating means that there are more viewers watching the show that
precedes the TV movie, which is more likely to result in higher ratings for the TV movie itself.

In addition, March Monday is a weeknight, which is typically a better night for TV ratings than
weekends. This is because people are more likely to be home and watching TV on weeknights.

Finally, April and December are both months in which there is a lot of competition from other
forms of entertainment, such as movies and sporting events. This competition could make it more
difficult for the TV movie to attract viewers.

Overall, scheduling the TV movie on March Monday is the best way to maximize the chance of
high ratings.

Here is a summary of the factors that Warrington should consider when scheduling the TV movie:

Lead-in rating: The higher the lead-in rating, the more likely the TV movie is to have high ratings.

Day of the week: Weeknights are typically better for TV ratings than weekends.

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Month: April and December are both months in which there is a lot of competition from other
forms of entertainment.

Q10: Warrington is unsure of which TV movie to schedule. Due to the limited budget for a TV
movie, CBC can choose either a fictional movie with a star or a fact- based movie without a star.
Both movies are identical in all other respects. Assuming she wishes to maximise ratings, which
movie should Warrington chose?

Ans 10: Warrington wishes to maximize ratings, she should choose the fact-based movie without a
star. fact-based TV movies tend to have higher ratings than fictional TV movies. This may be
because fact-based movies are perceived as being more credible and authentic than fictional
movies. Additionally, fact-based movies may be more likely to appeal to a wider audience, as they
can be enjoyed by people who are not interested in traditional Hollywood fare.

While having a star in the movie may seem like a good way to boost ratings, the data shows that
this is not always the case. In fact, some studies have shown that star power has less of an impact
on ratings than other factors, such as the quality of the script and the director.

Ultimately, the decision of whether to choose the fictional movie with a star or the fact-based
movie without a star is up to Warrington. However, if her primary goal is to maximize ratings, she
should choose the fact-based movie.

Here are some additional things to consider:

Fact-based movies may be less expensive to produce, as they do not require the salaries of
bigname stars.

Fact-based movies may be more likely to receive positive reviews from critics, which can help to
boost ratings.

Fact-based movies may be more likely to attract viewers who are interested in the subject matter,
which can help to increase ratings.

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Q11: Suppose that Warrington has scheduled a fact- based movie without a star for a Monday
time slot in March, (again, following a show that typically receives ratings of 13.0).
Should Warrington accept Harsanyi Electric’s offer or accept the foxed fees of $5,000,000? Ans 11:

We would recommend that Warrington accept the fixed fee of $5,000,000.

According to the data you have provided, the average rating for TV movies on Monday nights is
19.0. The fact-based movie without a star has a 20% chance of receiving a rating of 19.0 or higher,
and a 80% chance of receiving a rating lower than 19.0.

This means that the expected value of the rebate that Warrington would receive from Harsanyi
Electric is:

(0.20 * $1,000,000) + (0.80 * $0) = $200,000

Therefore, the expected value of the rebate is lower than the fixed fee of $5,000,000.

In addition, there is a risk that the TV movie will receive a rating that is significantly lower than
19.0. If this happens, Warrington could end up receiving a rebate that is much lower than
$200,000.

By accepting the fixed fee of $5,000,000, Warrington eliminates this risk and ensures that she will
receive a guaranteed payment.

Of course, there is also a chance that the TV movie will receive a rating that is higher than 19.0. If
this happens, Warrington would earn more money by accepting the rebate from Harsanyi Electric.

However, I believe that the risk of receiving a low rating is too great, and that it is better for
Warrington to accept the fixed fee.

Q12: Suppose that, prior to accepting or rejecting Harsanyi Electric’s offer, Warrington could
purchase a regression that would tell with virtual certainty what the Nielsen rating of the
proposed movie would be. What is the most that Warrington would be willing to pay for such a
regression?

Ans 12: The most that Warrington would be willing to pay for a regression that would tell her with
virtual certainty what the Nielsen rating of the proposed movie would be is the difference
between the expected value of the rebate she would receive from Harsanyi Electric if she knew
the rating and the expected value of the rebate she would receive if she did not know the rating.

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The expected value of the rebate she would receive if she knew the rating is $1,000,000, since she
would only accept the rebate if the rating is 19.0 or higher.

The expected value of the rebate she would receive if she did not know the rating is $200,000, as
calculated in the previous question.

Therefore, the most that Warrington would be willing to pay for the regression is:

$1,000,000 - $200,000 = $800,000

However, this is just the maximum amount that Warrington would be willing to pay. The actual
amount she is willing to pay will depend on a number of factors, such as her budget and her risk
tolerance.

For example, if Warrington is very risk-averse, she may be willing to pay more for the regression in
order to eliminate the risk of receiving a low rating. On the other hand, if Warrington is less
riskaverse, she may be willing to pay less for the regression, or even decide not to purchase it at
all.

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 CASE- II: SPECIALITY TOYS

Managerial Report

Q1: Use the sales forecaster’s prediction to describe a normal probability distribution that can be
used to approximate the demand distribution. Sketch the distribution and show its mean and
standard deviation

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Ans 1:
 From the case, we can know： o The demand distribution can approximate a
normal probability distribution.
o An expected demand of 20,000 units with a 0.95 probability that demand would
be between 10,000 units and 30,000 units.
Hence: The demand distribution is a normal random probability distribution with:

o normal random variable x. o mean μ = 20000.

o standard deviation σ.
o P (10000 ≤ x ≤ 30000) = 0.95

 Calculating Standard deviation (σ): P(x ≥30000)

f(x
= P(x ≤ 10000) =

0.025

P(20000≤x≤30000) = 0.475.

Using the standard normal probability table, we see that the standard normal random variable z =
1.96 when P (z = 1.96) = 0.475.

To calculate for 𝜎: at x= 30,000

𝑥−𝜇 30,000 − 20,000

𝜎= 𝑧 = 1.96 = 5,102

Hence, the standard deviation is 5,102.

  Standardized Normal Distribution (µ= 0, σ=1):

Specialty Toys Demand

9
1.9
z
- 0

Q2: Compute the probability of a stock-out for the order quantities suggested by members of
the management team.

Ans 2:
a. If order quantity is 15,000:

15,000 − 20,000
𝑧= 5102 = −0.98

𝑃(𝑍 ≥ −0.98) = 0.3365 + 0.5 =

0.8365

b. If order quantity is 18,000:

18,000 − 20,000
𝑧= 5102 = −0.392

𝑃(𝑍 ≥ −0.392) = 0.1517 + 0.5 = 0.6517

c. If order quantity is 24,000:

24,000 − 20,000
𝑧= 5102 = 0.784

𝑃(𝑍 ≥ 0.784) = 0.5 – 0.2823 = 0.2177

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 d. If order quantity is 28,000:

28,000 − 20,000
𝑧= 5102 = 1.57

𝑃(𝑍 ≥ 1.57) = 0.5 – 0.44179 = 0.0582

Q3: Compute the projected profit for the order quantities suggested by the management team
under three scenarios: worst case in which sales = 10,000 units, most likely case in which sales =
20,000 units, and best case in which sales = 30,000 units.

Ans 3:
Order Sales Cost ($16) Sales Amount Profit

Quantit Quantit At $24 Surplus: At

y y $5

15,000 10,000 $240,0 $25,000 $25,000

00
$240,000
20,000 $360,0 0 $120,000
00

30,000 $360,0 0 $120,000

00

18,000 10,0 $240,0 $40,0 -$8,000

00 00 00
$288,000
20,0 $432,0 0 $144,000
00 00

30,0 $432,0 0 $144,000

00 00

24,000 10,000 $240,0 $70,000 -$74,000

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 $384,000 00

20,000 $480,0 $20,000 $116,000

00

30,000 $576,0 0 $192,000

00

28,000 10,000 $240,0 $90,000 -$118,000

00
$448,000
20,000 $480,0 $40,000 $72,000
00

30,000 $672,0 0 $224,000

00

Q4. One of Specialty’s managers felt that the profit potential was so great that the order quantity
should have a 70% chance of meeting demand and only a 30% chance of any stockouts. What
quantity would be ordered under this policy, and what is the projected profit under the three sales
scenarios?

Ans 4:
• Find x.

𝑥−𝜇 𝑥 − 20,000
𝑧= 𝜎 = 5102 = 0.52

x = 𝜎z + µ = 5102 (0.52) + 20,000 = 22,653

Hence, the order quantity for meeting a demand at 70% and having stock-outs at 30% is 22,653.

• Projected profit at 22,653 order quantity:

Order Sales Cost ($16) Sales Amount Profit

Quantit Quantit
At $24 Surplus: At
14
 y y $5

22, 653 10,000 $240,0 $63,625 -$59,183

00
$368, 488
20,000 $480,0 $13,265 $130,8
00 17

30,000 $543,6 0 $181,2

72 24

Q5: Provide your own recommendation for an order quantity and note the associated profit projections.
Provide a rationale for your recommendation.

Ans 5:
• According to case and the above calculation, we get:
o underage cost (Cu) = 24-16 = 8. o
overage cost (Co) = 16-(16-5) = 5.
• According to the formula:
Cu
P(z)=

Cu + Co

• Critical ratio in normal distribution:

8
P(z)= = 0.62.
8 +5

• In the standard normal distribution function table, we find:

P (z ≤ 0.31) = 0.5+0.12172= 0.62172

• 0.62172 is the probability value closest to 0.62.

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 • According to the formula:
• Round up rule:

• z x -μ

σ
x= z *σ+μ= 0.31×5102.041+20000 = 21582

Hence, we would recommend to Specialty Toys to have an order quantity of 21,582 because it will
maximize the company’s profit.

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