PB0003 Statistics for Management

(3 credits)
Assignment 1
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1.
Briefly explain the functions and limitations of Statistics in your own words.
Ans.

The Functions and limitations of Statistics are:

Important functions of Statistics are:

1.

It simplifies complexity of the data: Complex numerical data are simplified by the application of
statistical methods. For instance, complex data regarding varying costs and prices of commodities of
daily use can be reduced to the form of cost of living index number. This can be understood easily.

2.
understandable.

It reduces the bulk of the data: Voluminous data could be reduced to a few figures making them easily

3.

It adds precision to thinking: Statistics sharpens ones thinking.

4.

It helps in comparing different sets of figures: The imports and exports of a country may be compared
among themselves or they may be compared with those of another country.

5.

It guides in the formulation of policies and helps in planning: Planning and policy making by the
government is based on statistics of production, demand, etc

6.

It indicates trends and tendencies: Knowledge of trend and tendencies helps future planning.

7.

It helps in studying relationship between different factors: Statistical methods may be used for
studying the relation between production and price of commodities.
The Limitations of Statistics
Major limitations of Statistics are:

1.

Statistics does not deal with qualitative data. It deals only with quantitative data: Statistical methods
can be applied only to numerically expressed data. Qualitative characteristics can be studied only if
an alternative method of numerical measurement is introduced.

2.

Statistics does not deal with individual fact: Statistical methods can be applied only to aggregate of
facts. Single fact cannot be statistically studied.

3.

Statistical can be misused: Increasing misuse of Statistics has led to increasing distrust in Statistics.

4.
Statistical inferences are not exact: Statistical inferences are true only on an average. They are
probabilistic statements.
5.

Common men cannot handle Statistics properly: Only statisticians can handle statistics properly. An
illogical analysis of statistical data leads to statistical fallacies.
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2.

A Survey of 128 smokers revealed the following frequency distribution of daily expenditure on
smoking of these smokers. Find the mean daily expenditure.
Expenditure
(Rs.)
No. of
smokers

10-20

20-30

30-40

40-50

50-60

60-70

70-80

23

44

35

12

Mid-value (x)

fx

Solution:
Expenditure (Rs.)

Frequency (f)

10-20
20-30
30-40
40-50
50-60
60-70
70-80
Total

23
44
35
12
9
3
2
128

15
25
35
45
55
65
75
-

345
1100
1225
540
495
195
150
4050

The mean is
X=fx= 4050= Rs. 31.64
N
128
The mean daily expenditure is Rs. 31.64.
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3.

What do you mean by Marginal Probilities under statistical dependence?

Ans.

A marginal or unconditional probability is the simple of the occurrence of an event. In a fair coin toss,
P(H))=0.5, and P(T)=0.5; that is, the probability of heads equals 0.5 and the probability of tails equals
0.5. This is true for every toss, no matter how many tosses have been made or what their outcomes
have been. Every toss stands along and is in no way connected with any other loss. Thus, the
outcome of each toss of a fair coin is an event that is statistically independent of the outcomes of
every other toss of the coin.
Imagine that we have a biased or unfair coin that has been altered in such a way that heads occurs
0.90 of the time and tails 0.10 of the time. On each individual toss, P(H)=0.90, and P(T)=0.10. The
outcome of any particular toss is completely unrelated to the outcomes of the tosses that may
precede or follow it. The outcomes of several tosses of this coin are statistically independent events
too, even though the coin is biased.
Marginal probabilities under statistical dependence are computed by summing up the probabilities of
all the joint events in which the simple event occurs. In the example above, we can compute the
marginal probability of the event colored by summing the probabilities of the two joint events in which
colored occurred:
P(C) =P(CD) + P(CS) = 0.3+0.1= 0.4
Similarly, the marginal probability of the event gray can be computed by summing the probabilities of
the 2 joint events in which gray occurred:
P(G) = P(GD) + P(GS) = 0.2+.04 =0.6
In like manner, we can compute the marginal probability of the event dotted by summing the
probabilities of the two joints events in which dotted occurred:
P(D) = P(CD) + P(GD) = 0.3+0.2= 0.5
And, finally, the marginal probability of the event striped can be computed by summing the
probabilities of the 2 joint events in which gray occurred:
P (CS) = P(CS) + P(GS) = 0.1+ 0.4 =0.5

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4.
The probabilities of three events A,B and C occurring are P(A)=0.35, P(B)= 0.45 and P(C) =0.2.
Assuming that A,B and C has occurred, the probabilities of another event X occurring are
P(X/A) =0.8, P(X/B) = 0.65 and P(X/C) = 0.3. Find P(A/X), P(B/X) and P(C/X).
Ans.
Event

P(Event)

P(X/Event)

P(X and Event)

A
B

0.35
0.45

0.8
0.65

0.2

0.3

=0.3*0.8= 0.2800
=0.45*0.65 =
0.2925
=0.2*0.3= 0.0600

P(Event/X)= P(Event &

X)/P(X)
0.2800/0.6325= 0.4427
0.2925/0.6325= 0.4625
0.0600/0.6325= 0.0949

P (X) = P(XA)+P(XB)+P(XC)
Therefore P(A/X) = 0.4427,

P(B/X) = 0.4625

0.6325
and

P(C/X)= 0.0949

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5.

Write short notes on Bernoulli distribution.

Ans. One widely used probability distribution of a discrete random variable is the binomial
distribution. It describes a variety of processes of interest to mangers. The describes a variety of
processes of interest to managers. The binomial distribution describes discrete, not continuous, data,
resulting from an experiment known as Bernoulli process, after the seventeenth-century Swiss
mathematician Jacob Bernoulli. The tossing of a fair coin a fixed number of times is a Bernoulli
process, and the outcomes of such tosses can be represented by the binomial probability distribution.
The success of failure of interviewees on a aptitude test may also be described by a Bernoulli
process. On the other hand, the frequency distribution of the lives of fluorescent lights in a factory
would be measured on a continuous scale of hours and would not qualify as binomial distribution.

Use of the Bernoulli Process

We can use the outcomes of a fixed number of tosses of a fair coin as an example of a Bernoulli
process. We can describe this process as follows:
1. Each trial (each toss, in this case) has only two possible outcomes; heads or tails, yes or no,
success or failure.
2. The probability of the outcome of any trial (toss) remains fixed overtime. With a fair coin, the
probability of heads remains 0.5 for each toss regardless of the number of times that coin is tossed.
3. The trials are statistically independent; that is, the outcome of one toss does not affect the outcome
of any other toss.
The probability of r successes in n trials is given as : nCr Pr Qn-r
=

n!__Pr Qn-r
r! (n-r)!

The mean of a Binomial distribution is given as =np and

The standard deviation of a binomial distribution as =npq.
Using of Bernoulli process
One of the requirements for using as Bernoulli process is that that probability of the outcome must be
fixed over time. This is a very difficult condition to meet in practice. Even a fully automatic machine
making parts will experience some wear as the number of parts increases and this will affect the
probability of producing acceptable parts. Still another condition for its uses that the trials
(manufacture of parts in our machine example) be independent. This too is a condition that is hard to
meet. If our machine produces a long series of bad parts, this could affect the position (or sharpness)
of the metal-cutting tool in the machine. Here, as in every other situation, going from the textbook to
the real world is often difficult, and smart managers use their experience and intuition to known when
a Bernoulli process is appropriate.
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6.

What do you mean by Stratified Sampling?

Ans.
In stratified sampling, we divide the population into relatively homogeneous groups, called
strata. Then we use one of two approaches. Either we select at random from each stratum a specified
number of elements corresponding to the proportion of that stratum in the population as a whole or
we draw an equal number of elements from each stratum and give weight to the results according,
stratified sampling guarantees that every element in the population has a chance of being selected.
Uses of Stratified Sampling
Stratified Sampling is appropriate when the population is already divided into groups of different sizes
and we wish to acknowledge this fact. Suppose that a Doctors patients are divided into four groups
say, according to age. The doctor wants to find out how many hours his patients sleep. To obtain an
estimate of this characteristic of the population, he could take a random sample from each of the four
age groups and give weight to the samples according to the percentage of patients in that group. This
would be an example of a stratified sample.
The advantage of stratified samples is that when they are properly designed, they more accurately
reflect characteristics of the population from which they were chosen than do other kinds of samples.
The advantage of stratified samples is that when they are properly designed, they more accurately
reflect characteristics of the population from which they were chosen than do other do other kinds of
samples.

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PB0003 Statistics for Management
(3 credits)
Assignment 2
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1.

A bank calculates that its individual savings accounts are normally distributed with a mean of
Rs. 2,000 and a standard deviation of Rs. 600. If the bank takes a random sample of 100
accounts, what is the probability that the sample mean will lie between Rs. 1,900 and Rs.
2,050.

Ans

Standard error of the mean = 600

=
100

60.

By using the Normal Table we can find the probability of the sample mean lying between
Rs. 1900 and Rs. 2050.
Two z values because: please note that the mean of the population is given as 2000 and the
probability to be found are between the values 1900 and 2050 which is either side of the population
mean.
Z=x- 1900-2000
x
60

60

-100=

2050-2000=
60

0.83

50
60

-1.67 and similarly

Normal distribution table for a value of z=1.67 gives an area of 0.4525 and of a z value of 0.83 the
area as 0.2967 hence adding these two values we get 0.7492 as the total probability that the mean of
the sample will lie between Rs. 1900 and Rs, 2050.

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2.
Ans.

Briefly explain in your own words The Central Limit Theorem

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3.
What is the criteria of a good estimator?
Ans.
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4.
From a population of 540, a sample of 60 individuals is taken. From this sample the mean is
found to be 6.2 and the standard deviation SD to be 1.368

a)
b)

Find the estimated standard error of the mean.

Construct a 96% confidence interval of the mean.

Ans.

A)

Given: = 1.368

N= 540 n=60 x= 6.2

Therefore Se=x=
n

=x=
60

1.368

540-60= 0.167
540-1

B)

x2.05 Se= 6.2 2.05 (0.167) =

N-n
N-1

as n > 0.05
N

5.86 and 6.54 and LCL and UCL respectively.

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5.
In 120 throws of a single die, the following distribution of faces was obtained
Faces
f

1
30

2
25

3
18

4
10

5
22

6
15

Total
120

Do these results constitute an example of the equal probability?

Ans.

Assuming a unbiased dice is used, we all know for such a die the probability for getting any number is
1/6 and the theoretical frequencies for each is will be 120/6= 20. Hence 20 is the expected of
frequency of Fe
Therefore using the formula x= (f0-fe)
Fe
X= (30-20)
20

+ (25-20) + (18-20) + (10-20)

20
20
20

+ (22-20) + (15-20)
20
s20

=1[100+25+4+100+4+25]
20
=258= 129
20
10

12.9

Now degrees of freedom df is 6-1=5. At 5% level of significance, the critical value of x from the tables given at
the end of this units is 11.070. Since the calculated value is far greater that the critical value, the null hypothesis
of equal probability is rejected. Consequently, the die is blased.
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6.

Calculate Karl Pearsons coefficient of correlation from the following data

Year
Index of
Production
NuPBer of
unemployed

Ans.

1985
100

1986
102

1987
104

1988
107

1989
105

1990
112

1991
103

1992
99

15

12

13

11

12

12

19

26

Calculation of Karl Pearsons Correlation Coefficients

Year
1985
1986
1987

Index of
Production
X
100
102
104

X-X=x

No. of
unemployed

Y-Y=y

xy

-4
-2
0

16
4
0

15
12
13

0
-3
-2

0
9
4

0
+6
0

1988
1989
1990
1991
1992

107
105
112
103
99
X=832

+3
+1
+8
-1
-5
x=0

9
1
64
J
25
x=120

11
12
12
19
26
Y=120

-4
-3
-3
+4
+11
y=0

16
9
9
16
121
y=184

-12
-3
-24
-A
-55
xy=-92

X=X/N = 832/8=104
Y=Y/N= 120/8=15
r=

xy
x y

r=
-92
120*184

=-0.619

Therefore a Correlation between production and unemployed is negative.

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