SFA - 4053

MASTER OF BUSINESS ECONOMICS - MBE

SEMESTER IIIrd EXAMINATION 2012
QUANTITATIVE ECONOMICS II MBE -302
Time: Three hrs
70

Max Marks :

NOTE- Attempt Five questions in all. Question No. 1 is compulsory. Attempt one
question from each unit. Marks are indicated against each question.

Q1. Read the case given below, and answer the questions given in the end of the caseId trade in my Corvette convertible in a minute to buy this car. Exclaimed an excited observer
at an advance showing of the then Chrysler Motors Corporations (now DaimlerChrysler,
www.daimlerchrysler.com) design ideas for the 1990s. Since battling back from the brink of the
bankruptcy in the late 1970s, Chrysler continued to run a distant third to GM and Ford in the American
Mobile Market, and even that position was challenged by Toyota in 2004. Chrysler dramatically
rebounded in the early 1980s and gained almost two percentage points over the first five years of
1980s by adding more economical, middle-class cars to its line of luxury sedans. However, increased
competition from Japanese imports, poor product quality, and unimaginative design led to falling
market share in the latter half of the decade.
Chrysler did, however, succeed with its minivan. Because of their triumph with minivan,
Chrysler was even more determined to succeed in the car market, so engineers and managers tried to
design the automobile that fit the stylish, high-quality image Chrysler needed. Chrysler continued to
maintain its business strategy of focusing on the profit instead of market share, avoiding global
alliances, and thriving on a shortage of capital. In 1989, Chrysler held an advance showing of concept
cars for the 1990s that included a V-10 engine for both trucks and cars. Two stylish, yet pragmatic
concepts were released, including the Chrysler Millennium and the tiny Plymouth Speedster. Both cars
featured eye catching design but failed to deliver performance because underneath they based on
traditional Chrysler platform and power train. The reviewers, however, did take note of the rear-drive
two-seat sports car, made available in 1992, which incorporated the V-10 engine. Code named the
Dodge TBD (To Be Determined) and later the named the Dodge Viper, it looked like a Chevrolet
Corvette- but carried a price tag of $ 55,000. Since the introduction of the Viper, Chrysler raised the
starting price several times. At the beginning of 2002, Chrysler added a four figure price hike bringing
the price to a starting value of $75,000 for the RT/10 Roadster model and $76,000 for the GTS Coupe
model. The Viper was positioned to restore Chryslers reputation for designing exciting cars.
Even though some call the Dodge Viper the sexiest yet silliest car around, it appears that the
introduction of the Dodge Viper was a success. Recently Chrysler Corporation President John Lutz
stated that the company will keep Viper production lower than the numbers of Vipers demanded,
estimated as approximately 2000 cars per year. Chrysler also revealed that it would offer the Viper in
two new colours, emerald green and yellow. Previously, the first 250 cars were red, and the res were
painted black. Improvements are also planned for the interior of the Viper. Chrysler also introduced a
coupe version of the Viper, the Viper GTS, which featured a roof instead of a soft convertible top. In
April 2002, Dodge planned to end the production of the GTS coupe with a limited Final Edition
production run. The Final Edition GTS will be painted as eye-catching red and have white racing
stripes. It features other unique touches such as black leather steering wheel and shift knob
embellished with red stitching. Only 360 of the Final Edition GTS models will be produced. IN May

2002, Dodge planned to begin production on the 2003 Dodge Viper SRT-10, which will be available
exclusively in convertible form.
For continued success the Viper must attract the yuppie crowd-the highly educated, affluent baby
boomers- that tend to prefer imported vehicles. Because his group would be the prime target group for
such a high performance car, Chrysler needed to ensure that it could compete in a market traditionally
dominated by Corvette, Mazda Miata, Porsche Boxster, Porsche 911/96, and Mitsubishi 3000GT.
Primary concerns for Chrysler were overcoming its boxcar image with this group, determining if they
should offer incentives on the Dodge Viper, the importance of styling and prestige when promoting to
this market, and how to exploit its merger with Daimler-Benz to the advantage of the Viper.
To address these concerns, 10 statements were constructed to measure attitudes towards these
factors and to examine their relationship with intention to buy Viper. The respondents used a nine
point Likert scale (1=definitely disagree, 9=definitely agree). The respondents were obtained from
mailing lists of Car and Drivers, Business Week and Inc. magazines and they were telephoned at their
homes by an independent surveying company. The statements used in the survey of 400 respondents
are listed below:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

When I must choose between the two, I usually dress for fashion, not comfort.
I want to look little different from others.
Life is too short not to take some gambles.
Our family is not too heavily in debt today.
I like to pay cash for everything I buy.
I use credit cards because I can pay the bill off slowly.
Interest rates are low enough to allow me to buy what I want.
American made cars cant compare with foreign made cars.
The government should restrict imports of products from Japan.
I am usually among the first to try new products.

In addition, the criterion variable, attitude towards Dodge Viper, was measured by asking each
person to respond to the statement, I would consider buying the Dodge Viper made by Daimler
Chrysler on a seven point Likert scale (1=definitely no, 7=definitely yes).Further information
regarding various demographic characteristics of the respondents was also noted down.
The director of marketing for Chrysler is interested in knowing the psychological-demographic
characteristics of the respondents to configure the Dodge Viper program. You have been presented
with the responses from the survey outlined above.
Answer the following questions:
(a). What are the management problems/ issues confronting Director of Marketing for Chrysler vis-vis Dodge Viper program?
(5 marks)
(b). The data obtained from the survey has been analyzed, using the software package SPSS and the
output is presented in Exhibit-I. Interpret the results from the survey and make appropriate
recommendations to the director (marketing). The analysis should attempt to answer the following
questions:
(i) Can the intention to buy Dodge Viper (purchase decision) be explained in terms of consumers
attitudinal response expressed in terms of 10 statements (considered variables)? Comment upon the
findings.
(15 marks)
(ii) Does the gender of a buyer have an impact on the purchase decision for Dodge Viper? Comment
upon the findings.
(5 marks)
(iii) Based on the analysis, prepare a report for the management explaining the types of customers and
offering recommendations on the design-modifications suggested. Your recommendations should aid
DaimlerChrysler in achieving a new attractive image and greater market appeal.
(5 marks)

EXHIBIT- I
Regression
Model Summary
Model
1

R Square
Adjusted R Square
Std. Error of the Estimate
Durbin-Watson
.751
.564
.529
1.989
2.041
a. Predictors: (Constant), Try New Products, Look Different, Like to Pay Cash, Restrict Imports From Japan, Take Some
Gambles, Interest Rates are Low, Have Stylish Clothes, Use Credit Cards, Foreign Cars are Better, Not Heavily in Debt
b. Dependent Variable: Consider Buying Dodge Viper

ANOVA
Model
1

Regression

Sum of Squares
1132.568

df
10

Mean Square
113.257

Residual

1538.230

389

3.954

Total

2670.797

399

Sig.
28.641

.000

Coefficients
Unstandardized
Coefficients
B
Std. Error
-3.290
.709

(Constant)
Have Stylish Clothes
Look Different
Take Some Gambles
Not Heavily in Debt
Like to Pay Cash
Use Credit Cards

.199
.191
.818

.075
.092
.065

Standardize
d Coeff
Beta

.123
.097
.507

Sig.

Collinearity Statistics
Tolerance
VIF

-4.638

.000

2.652
2.081
12.675

.008
.038
.000

.687
.687
.925

1.456
1.456
1.081

.183

.176

.123

1.040

.299

.105

9.495

-.193

.179

-.129

-1.082

.280

.104

9.643

.072

.117

.045

.614

.539

.279

3.578

Interest Rates are Low

-.001

.089

-.001

-.013

.990

.564

1.775

Foreign Cars are Better

.062

.163

.039

.377

.706

.142

7.059

Restrict Imports From Japan

.105

.155

.069

.677

.499

.142

7.051

Try New Products

.319

.072

.174

4.436

.000

.961

1.041

Collinearity Diagnostics
Model
1

Dimension
1
2
3
4
5
6
7
8
9
10

Eigen value
10.729
.065
.039
.033
.028
.025
.021
.019
.016
.011

Condition Index
1.000
12.881
16.583
17.933
19.551
20.524
22.564
23.613
25.750
31.529

T-Test

Group Statistics
Gender
Male

Consider Buying Dodge Viper

Female

Mean

Std. Deviation

Std. Error Mean

226

4.4694

1.32001

.28143

174

3.7825

1.26803

.28354

Independent Samples Test

Consider Buying Dodge Viper

Equal variances assumed

Equal variances not assumed

Levene's Test for

Equality of Variances
F
Sig.
3.069
.012

t-test for Equality of

Means
t
df
Sig
1.732
398
.052
2.974 396.84
.033

UNIT-I
Q.2. . In the increasingly competitive diaper market, Procter & Gambles marketing department
wanted to formulate new approaches to the construction and marketing of its diapers. They surveyed
300 mothers of infants. Each was given a randomly selected brand of diaper and asked to rate that
diaper on nine attributes and to give her overall preference for the brand. Preferences were obtained as
Preferred or Not Preferred. Diaper ratings on nine attributes were obtained on 7-point scale (1= Very
Unfavorable; 7= Very Favorable). The goal of the study was to learn which attributes of diapers were
most important in influencing purchase preference (Y) i.e. in discriminating between Preferred/NotPreferred.
The data obtained from the survey has been analyzed, using the software package SPSS and the
output are presented in Exhibit-II. Interpret the results from the survey and make appropriate
recommendations to the Procter & Gambles marketing department.

EXHIBIT- II
Logistic Regression
Case Processing Summary
Unweighted Cases(a)
Selected Cases
Included in Analysis
Missing Cases
Total
Unselected Cases
Total
Dependent Variable Encoding
Original Value Internal Value
Not Preferred
0
Preferred
1
Omnibus Tests of Model Coefficients
Chi-square
Df
Step 1 Step
233.491
Block
233.491
Model
233.491

N
300
0
300
0
300

9
9
9

Percent
100.0
.0
100.0
.0
100.0

Sig.
.000
.000
.000

Model Summary
-2 Log
Cox & Snell Nagelkerke R
Step
likelihood
R Square
Square
1
175.316(a)
.541
.727
a Estimation terminated at iteration number 7 because parameter estimates changed by less than .001.
Hosmer and Lemeshow Test
Step
Chi-square
df
1
4.413

Sig.
.818

Classification Table(a)
Predicted
Brand Preference Group
Step 1

Observed
Brand Preference

Not Preferred

Not Preferred
108

Preferred
19

Percentage
Correct
Not Preferred
85.0

Group
Overall Percentage
a The cut value is .500

Preferred

20

153

df

Sig.

88.4
87.0

Variables in the Equation

B
Step
1(a)

count

S.E.

1.023

Wald

.415

6.070

Exp(B)

.014

2.782

price
.053
.421
.016
1
.901
1.054
value
.318
.240
1.754
1
.185
1.374
unisex
1.414
.328
18.618
1
.000
4.112
style
-.430
.326
1.745
1
.187
.650
absorbency
1.078
.548
3.867
1
.049
2.938
leakage
.053
.525
.010
1
.919
1.055
comfort
.279
.270
1.061
1
.303
1.321
taping
-.159
.216
.538
1
.463
.853
Constant
-14.914
1.921
60.255
1
.000
.000
a . Variable(s) entered on step 1: count, price, value, unisex, style, absorbency, leakage, comfort, taping.

(10
marks)
3. How Regression Analysis is important in Economic decision making. What do you mean by
Classical Linear Regression Model (CLRM)? Mention and discuss the assumptions underlying the
Method of Least Squares used for estimating CLRM and the impact of their violation.
(10 marks)

UNIT-II
Q4. What do you mean by the term multicollinearity? What are its sources? What are the practical
consequences of the presence of multicollinearity? What remedial steps should be taken if
multicollinearity is present in the data?
To assess the feasibility of guaranteed annual wage, the Rand Corporation conducted a study to assess
the response of labor supply (average hours of work) on the basis of certain predictors. Comment on
the presence of multicollinearity in the following analysis (Exhibit III).
(10 marks)
EXHIBIT-III
Model Summary
Model
R
1
.891(a)

R Square
.794

Adjusted R Square
.703

Std. Error of the Estimate

1.432

Coefficients

(Constant)
Average hourly wage
Average yearly earnings of
spouse
Average yearly earnings of
other family members
Average yearly non-earned

Unstandardized
Coefficients
B
Std. Error
2.017
.251
.105
.037

Standardized
Coefficients
Beta

Sig.

Collinearity Statistics
Tolerance
VIF

.095

8.037
2.874

.000
.004

.915

1.093

.018

.041

.016

.452

.651

.0817

10.223

.075

.042

.061

1.767

.078

.836

1.197

.079

.040

.072

1.991

.047

.0735

10.360

income
Average family asset holdings
Average age of respondent
Average number of dependents
Average highest grade of
school completed

.006
.025
-.035

.036
.043
.037

.005
.021
-.033

.154
.571
-.937

.878
.568
.349

.0833
.0711
.0803

10.200
10.406
10.246

-.045

.042

-.041

-1.057

.031

0.666

10.501

Collinearity Diagnostics
Model Dimension
Eigen value
1
1
10.729
2
.033
3
.028
4
.025
5
.021
6
.019
7
.016
8
.014
9
.011

Condition Index
1.000
17.933
19.551
20.524
22.564
23.613
29.642
33.789
42.529

5 (a) What do you mean by the problem of autocorrelation in the classical regression model?
Differentiate between spatial autocorrelation, serial correlation and autocorrelation. What are the
practical consequences of the presence of autocorrelation? What are the different methods for
detecting presence of autocorrelation in the data?
Comment on the presence of autocorrelation according to the following analysis (Exhibit IV).
(5 marks)
EXHIBIT-IV
Model Summary
Model
R
1
.803(a)

R Square
.645

Adjusted R Square
.618

Std. Error of the Estimate

1.548

Durbin-Watson
2.173

Runs Test
Test Value(a)
Total Cases
Number of Runs
Z
Asymp. Sig. (2-tailed)

Unstandardized Residual
3.4113
834
498
1.441
.109

(b) Explain Production Function and Investment Function.

marks)

(5

UNIT-III
Q6. (a) What do you mean by Simultaneous Equation Model? Explain Keynesian Model of
Income Determination and derive its reduced form.
(5 marks)
(b) Explain heteroscedasticity. Comment on its consequences and how to detect it.
marks)

(5

7. I. Sager, in his research Shattering the Myths of High-Tech Success, Business Week, June 26,
2007; has shown that in the new fast-paced world of computers, the key factor that separates the
winners from the losers is actually how slow a firm is in making economic and business decisions:
The most successful firms take longer to arrive at strategic decisions on economics of product
development, adopting new technologies, developing new products, or reaction towards change in the

outward economic conditions. The following values are the number of months to arrive at a decision
for firms ranked High (High performing firms), Good (Good performing firms), Medium
(Medium performing firms) and low (Low performing firms) in terms of performance.
Analyze the results from Exhibit-V and comment on the research of I.Sager. Also give appropriate
recommendations.
(10 marks)
EXHIBIT-V
Descriptives
Numbers of months to arrive at a strategic decision
N
Mean
Std. Deviation
High
44
7.075
.811
Good
45
8.064
.677
Medium
33
10.274
.450
Low
37
13.380
.342
Test of Homogeneity of Variances
Levene Statistic
2.801

df1
3

df2
155

Sig.
.138

ANOVA
Numbers of months to arrive at a strategic decision X
Sum of Squares
df
Between Groups
118.769
3
Within Groups
570.260
155
Total
689.029
158

Mean Square
39.589
3.679

Multiple Comparisons
Dependent Variable: Numbers of months to arrive at a strategic decision
Performance of
Performance of the
Mean Difference (Ithe firm (I)
firm (J)
J)
Tukey HSD
High
Good
-.888
Medium
.-989
Low
-1.683
Good
High
.888
Medium
-1.011
Low
-.795
Medium
High
.989
Good
1.01
Low
-.693
Low
High
1.683
Good
.795
Medium
.693
Tamhane
High
Good
-.888
Medium
-.9897
Low
-1.683
Good
High
.888
Medium
.101
Low
-.795
Medium
High
.989
Good
1.011
Low
-.693
Low
High
1.683
Good
.795
Medium
.693

UNIT-IV

F
10.761

Sig.
.000

Std. Error
.227
.222
.327
.227
.185
.303
.222
.185
.299
.327
.303
.299
.287
.262
.288
.287
.178
.215
.262
.178
.179
.288
.215
.179

Sig.
.153
.000
.000
.153
.037
.014
.000
.037
.066
.000
.014
.066
.038
.014
.000
.038
.994
.016
.014
.994
.033
.000
.016
.033

Q8. The Happy-Holidays Company Ltd wants to determine salient characteristics of the families that
have visited the foreign during the last year, so that it may identify the target customers and finally
concentrate its advertising campaign. Data were obtained from a sample of 42 households. The
households that visited a resort during the last two years are coded as 1; those that did not, as 2
(visited). Data were also obtained on annual family income (Income), attitude towards travel (attitude,
measured on a nine-point scale), importance attached to family vacations (family vacation, measured
on a nine-point scale), house hold size (size), and age of the household head (age) and amount spent
on family vacations (amount).
The data was analyzed by software package SPSS and output is presented in Exhibit-III.
Analyze the results from Exhibit-VI and comment on the findings and give appropriate suggestions to
the owner of the RXN.
(10 marks)
EXHIBIT-VI
Discriminant Analysis
Tests of Equality of Group Means
Annual family income (in $000)
Attitude towards Travel
Importance attached towards family vacations
House hold size
Age of the head of household
Amount spent on family vacations

Wilks' Lambda
.471
.913
.787
.784
.915
.510

F
44.877
3.822
10.849
11.010
3.733
38.400

df1
1
1
1
1
1
1

Box's Test of Equality of Covariance Matrices: Test Results

Box's M
36.420
F
Approx.
1.452
df1
21
df2
5884.797
Sig.
.083
Tests null hypothesis of equal population covariance matrices.
Summary of Canonical Discriminant Functions
Eigenvalues
Function
Eigenvalue % of Variance Cumulative %
1
1.925(a)
100.0
100.0
Wilks' Lambda
Test of Function(s)
1

Wilks' Lambda
.342

Chi-square
39.714

Canonical Correlation
.811

df

Sig.
6

.000

Standardized Canonical Discriminant Function Coefficients

Function
Annual family income (in $000)
Attitude towards Travel
Importance attached towards family vacations
House hold size
Age of the head of household
Amount spent on family vacations

.422
-.011
.380
.354
.287
.482

Structure Matrix
Function
Annual family income (in $000)
Amount spent on family vacations
House hold size
Importance attached towards family vacations

.763
.706
.378
.375

df2
40
40
40
40
40
40

Sig.
.000
.058
.002
.002
.060
.000

Attitude towards Travel

Age of the head of household

.223
.220

Canonical Discriminant Function Coefficients

Function
Annual family income (in $000)
Attitude towards Travel
Importance attached towards family vacations
House hold size
Age of the head of household
Amount spent on family vacations
(Constant)
Unstandardized coefficients

.050
-.006
.214
.293
.036
.806
-8.073

Classification Results
Visit to the resort in last 2 years

Predicted Group Membership

visited resort not visited resort
Original Count visited resort
18
3
not visited resort
0
21
%
visited resort
85.7
14.3
not visited resort
.0
100.0
a 92.9% of original grouped cases correctly classified.

Total
21
21
100.0
100.0

9. To develop an in depth insight into the complaining behavior displayed by customers (vis--vis
banking services), and categorize customers into homogenous groups, on the basis of similar
complaining attitudes, Cluster analysis has been performed and results are presented in Exhibit-VII.
This segmentation of customers into homogenous groups will help us to better understand the
complaining attitudes of customers and formulate effective and more customized service recovery
strategies.
(10 marks)

EXHIBIT-VII
Cluster: Quick Cluster
Initial Cluster Centers

My bank has efficient Complaint Handling Mechanism

Complain promptly if not satisfied
Usually get quick & Satisfactory response to complaints
Switch to another bank after non-response
Banks must have efficient Complaint Handling Mechanism
Many times dont know where to complain
Shouldnt complain unnecessarily
Banks can make mistakes & will ratify (remedial measures)
Nothing comes off the feedback forms
Complaint responsive bank has greater credibility
Generally satisfied with my bank
Can claim damages for poor service delivery
Tend to judge service-quality of bank by its complaint handling

Cluster
1
5.00
5.00
5.00
1.00
5.00
1.00
1.00
5.00
1.00
5.00
5.00
5.00
5.00

2
1.00
5.00
1.00
5.00
1.00
1.00
1.00
1.00
1.00
1.00
5.00
1.00
1.00

3
2.00
5.00
1.00
5.00
1.00
5.00
1.00
1.00
5.00
5.00
1.00
5.00
5.00

4
5.00
2.00
2.00
5.00
5.00
5.00
5.00
5.00
3.00
5.00
4.00
1.00
1.00

Iteration History (a)

Change in Cluster Centers
Iteration 1
2
3
4
1
4.957
5.333
5.280
5.063
2
.289
1.619
.612
.439
3
.203
.763
.344
.380
4
.109
.334
.136
.141
5
.068
.195
.075
.118
6
.064
.198
.071
.088
7
.082
.193
.055
.114
8
.104
.103
.075
.082
9
.115
.076
.049
.078
10
.134
.095
.094
.089
11
.160
.031
.029
.108
12
.192
.093
.043
.101
13
.131
.053
.054
.068
14
.108
.067
.038
.034
15
.055
.045
.021
.024
16
.023
.042
.027
.020
17
.009
.015
.013
.010
18
.000
.000
.000
.000
a Convergence achieved due to no or small change in cluster centers. The maximum absolute coordinate change
for any center is .000. The current iteration is 18. The minimum distance between initial centers is 9.849.
Final Cluster Centers

My bank has efficient Complaint Handling Mechanism

Complain promptly if not satisfied
Usually get quick & Satisfactory response to complaints
Switch to another bank after non-response
Banks must have efficient Complaint Handling Mechanism
Many times dont know where to complain
Shouldnt complain unnecessarily
Banks can make mistakes & will ratify (remedial measures)
Nothing comes off the feedback forms
Complaint responsive bank has greater credibility
Generally satisfied with my bank
Can claim damages for poor service delivery
Tend to judge service-quality of bank by its complaint handling
Distances between Final Cluster Centers
Cluster
1
1
2
3.082
3
3.514
4
2.584
ANOVA

2
3.082
2.917
3.785

Cluster
1
3.74
1.31
3.92

2
1.49
4.09
1.12

3
2.03
4.70
3.42

4
4.55
3.32
4.42

2.68

4.37

4.15

1.25

1.63
4.75
4.39
4.59
2.48
2.34
4.05
2.30
1.76

2.57
3.98
2.04
3.19
4.55
3.08
1.37
3.63
3.80

4.14
2.14
1.12
1.04
3.83
3.69
2.41
4.65
4.35

4.64
3.67
3.95
4.05
1.44
4.43
4.51
2.76
3.03

3
3.514
2.917
3.074

4
2.584
3.785
3.074

Cluster
Error
Mean
Mean
Square df Square df
F
Sig.
My bank has efficient Complaint Handling Mechanism
140.29
3 1.010
1096 138.867 .000
2
Complain promptly if not satisfied
73.906 3 .806
1096 91.675
.000
Usually get quick & Satisfactory response to complaints
172.83
3 .997
1096 173.413 .000
4
Switch to another bank after non-response
393.81
3 .700
1096 562.941 .000
2
Banks must have efficient Complaint Handling Mechanism
51.693 3 .687
1096 75.219
.000
Many times dont know where to complain
21.193 3 .953
1096 22.237
.000
Shouldnt complain unnecessarily
238.46
3 1.212
1096 196.760 .000
3
Banks can make mistakes & will ratify (remedial measures)
47.320 3 1.047
1096 45.215
.000
Nothing comes off the feedback forms
12.755 3 1.066
1096 11.966
.000
Complaint responsive bank has greater credibility
39.194 3 .719
1096 54.531
.000
Generally satisfied with my bank
70.622 3 .725
1096 97.389
.000
Can claim damages for poor service delivery
30.490 3 1.281
1096 23.807
.000
Tend to judge service-quality of bank by its complaint handling 43.148 3 .862
1096 50.052
.000
The F tests should be used only for descriptive purposes because the clusters have been chosen to maximize the
differences among cases in different clusters. The observed significance levels are not corrected for this and thus
cannot be interpreted as tests of the hypothesis that the cluster means are equal.
Number of Cases in each Cluster
Cluster
1
668.000
2
74.000
3
178.000
4
180.000
Valid
1100.000
Missing
.000

60.73 %
6.73 %
16.18 %
16.36 %
100.00 %