PowerPoint CH 03a

Fundamentals
of Business
Statistics
6E
Slides by
John
Sweeney Loucks
Williams St. Edward’s
University
Anderson
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
Slide
1
or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 3, Part A
Descriptive Statistics: Numerical Measures
 Measures of Location
 Measures of Variability
Slide
2
Measures of Location
 Mean
If the measures are computed
 Median
for data from a sample,
 Mode they are called sample statistics.
 Percentiles
 Quartiles If the measures are computed
for data from a population,
they are called population parameters.
A sample statistic is referred to

as the point estimator of the
corresponding population parameter.
Slide
3
Mean
 Perhaps the most important measure of location is

the mean.
 The mean provides a measure of central location.
 The mean of a data set is the average of all the data
values.
 The sample mean x is the point estimator of the
population mean m.
Slide
4
Sample Mean x
Sum of the values

of the n observations
x i
x
n
Number of
observations
in the sample
Slide
5
Population Mean m
Sum of the values

of the N observations
x i

N
Number of
observations in
the population
Slide
6
Sample Mean
 Example: Apartment Rents

Seventy efficiency apartments were randomly
sampled in a small college town. The monthly rent
prices for these apartments are listed below.
445 615 430 590 435 600 460 600 440 615
440 440 440 525 425 445 575 445 450 450
465 450 525 450 450 460 435 460 465 480
450 470 490 472 475 475 500 480 570 465
600 485 580 470 490 500 549 500 500 480
570 515 450 445 525 535 475 550 480 510
510 575 490 435 600 435 445 435 430 440
Slide
7
Sample Mean
x
 x
i34,356
 490.80
n 70
445 615 430 590 435 600 460 600 440 615
440 440 440 525 425 445 575 445 450 450
465 450 525 450 450 460 435 460 465 480
450 470 490 472 475 475 500 480 570 465
600 485 580 470 490 500 549 500 500 480
570 515 450 445 525 535 475 550 480 510
510 575 490 435 600 435 445 435 430 440
Slide
8
Median
 The median of a data set is the value in the middle

when the data items are arranged in ascending order.
 Whenever a data set has extreme values, the median
is the preferred measure of central location.
 The median is the measure of location most often
reported for annual income and property value data.
 A few extremely large incomes or property values
can inflate the mean.
Slide
9
Median
 For an odd number of observations:
26 18 27 12 14 27 19 7 observations
12 14 18 19 26 27 27 in ascending order
the median is the middle value.
Median = 19
Slide
10
Median
 For an even number of observations:
26 18 27 12 14 27 30 19 8 observations
12 14 18 19 26 27 27 30 in ascending order
the median is the average of the middle two values.
Median = (19 + 26)/2 = 22.5
Slide
11
Median

Averaging the 35th and 36th data values:
Median = (475 + 475)/2 = 475
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615
Note: Data is in ascending order.
Slide
12
Trimmed Mean
 Another measure, sometimes used when extreme

values are present, is the trimmed mean.
 It is obtained by deleting a percentage of the
smallest and largest values from a data set and then
computing the mean of the remaining values.
 For example, the 5% trimmed mean is obtained by
removing the smallest 5% and the largest 5% of the
data values and then computing the mean of the
remaining values.
Slide
13
Mode
 The mode of a data set is the value that occurs with

greatest frequency.
 The greatest frequency can occur at two or more
different values.
 If the data have exactly two modes, the data are
bimodal.
 If the data have more than two modes, the data are
multimodal.
 Caution: If the data are bimodal or multimodal,
Excel’s MODE function will incorrectly identify a
single mode.
Slide
14
Mode

450 occurred most frequently (7 times)
Mode = 450
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615
Slide
15
Percentiles
 A percentile provides information about how the

data are spread over the interval from the smallest
value to the largest value.
 Admission test scores for colleges and universities
are frequently reported in terms of percentiles.
 The pth percentile of a data set is a value such that at
least p percent of the items take on this value or less
and at least (100 - p) percent of the items take on this
value or more.
Slide
16
Percentiles
Arrange the data in ascending order.
Compute index i, the position of the pth percentile.

i = (p/100)n
If i is not an integer, round up. The p th percentile

is the value in the i th position.
If i is an integer, the p th percentile is the average

of the values in positions i and i +1.
Slide
17
80th Percentile

i = (p/100)n = (80/100)70 = 56
Averaging the 56th and 57th data values:
80th Percentile = (535 + 549)/2 = 542
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615

Slide
18
80th Percentile

“At least 80% of the “At least 20% of the
items take on a items take on a
value of 542 or less.” value of 542 or more.”
56/70 = .8 or 80% 14/70 = .2 or 20%
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615
Slide
19
Quartiles
 Quartiles are specific percentiles.

 First Quartile = 25th Percentile
 Second Quartile = 50th Percentile = Median
 Third Quartile = 75th Percentile
Slide
20
Third Quartile

Third quartile = 75th percentile
i = (p/100)n = (75/100)70 = 52.5 = 53
Third quartile = 525
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615

Slide
21
Measures of Variability
 It is often desirable to consider measures of variability

(dispersion), as well as measures of location.
 For example, in choosing supplier A or supplier B we
might consider not only the average delivery time for
each, but also the variability in delivery time for each.
Slide
22
Measures of Variability
 Range
 Interquartile Range
 Variance
 Standard Deviation
 Coefficient of Variation
Slide
23
Range
 The range of a data set is the difference between the

largest and smallest data values.
 It is the simplest measure of variability.
 It is very sensitive to the smallest and largest data
values.
Slide
24
Range

Range = largest value - smallest value
Range = 615 - 425 = 190
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615
Slide
25
Interquartile Range
 The interquartile range of a data set is the difference

between the third quartile and the first quartile.
 It is the range for the middle 50% of the data.
 It overcomes the sensitivity to extreme data values.
Slide
26
Interquartile Range

3rd Quartile (Q3) = 525
1st Quartile (Q1) = 445
Interquartile Range = Q3 - Q1 = 525 - 445 = 80
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615

Slide
27
Variance
The variance is a measure of variability that utilizes

all the data.
It is based on the difference between the value of

each observation (xi) and the mean ( x for a sample,
m for a population).
The variance is useful in comparing the variability

of two or more variables.
Slide
28
Variance
The variance is the average of the squared

differences between each data value and the mean.
The variance is computed as follows:

2
2  ( xi  x ) 2 ( xi  )2
s   
n 1 N
for a for a
sample population
Slide
29
Standard Deviation
The standard deviation of a data set is the positive

square root of the variance.
It is measured in the same units as the data, making

it more easily interpreted than the variance.
Slide
30
Standard Deviation
The standard deviation is computed as follows:
s s2  2
for a for a
sample population
Slide
31
Coefficient of Variation
The coefficient of variation indicates how large the

standard deviation is in relation to the mean.
The coefficient of variation is computed as follows:

s   
  100  %   100  %
x   
for a for a
sample population
Slide
32
Sample Variance, Standard Deviation,
And Coefficient of Variation
• Variance  i
( x  x ) 2
s2   2, 996.16
n1
• Standard Deviation the standard

s  s 2  2996.16  54.74 deviation is
about 11%
of the mean
• Coefficient of Variation
 s   54.74 
  100  %    100 %  11.15%
x   490.80 
Slide
33
End of Chapter 3, Part A
Slide
34

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Fundamentals

A sample statistic is referred to

 Perhaps the most important measure of location is

Sum of the values

Sum of the values

 Example: Apartment Rents

 Example: Apartment Rents

 The median of a data set is the value in the middle

 For an odd number of observations:

the median is the middle value.

 For an even number of observations:

the median is the average of the middle two values.

Median = (19 + 26)/2 = 22.5

 Example: Apartment Rents

Note: Data is in ascending order.

 Another measure, sometimes used when extreme

 The mode of a data set is the value that occurs with

 Example: Apartment Rents

Note: Data is in ascending order.

 A percentile provides information about how the

Arrange the data in ascending order.

Compute index i, the position of the pth percentile.

If i is not an integer, round up. The p th percentile

If i is an integer, the p th percentile is the average

 Example: Apartment Rents

Note: Data is in ascending order.

 Example: Apartment Rents

 Quartiles are specific percentiles.

 Example: Apartment Rents

Note: Data is in ascending order.

 It is often desirable to consider measures of variability

 The range of a data set is the difference between the

 Example: Apartment Rents

Note: Data is in ascending order.

 The interquartile range of a data set is the difference

 Example: Apartment Rents

Note: Data is in ascending order.

The variance is a measure of variability that utilizes

It is based on the difference between the value of

The variance is useful in comparing the variability

The variance is the average of the squared

The variance is computed as follows:

The standard deviation of a data set is the positive

It is measured in the same units as the data, making

The standard deviation is computed as follows:

The coefficient of variation indicates how large the

The coefficient of variation is computed as follows:

• Standard Deviation the standard

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