A unit of Realwaves (P) Ltd

MBA CLASSES
st
I SEMESTER
Business Mathematics
Statistics
Dear Student,
Welcome to the World of Knowledge

I have the pleasure of presenting this study material to you. It

contains exhaustive practical and Theory. It covers all the aspects
which will bring in to focus all important concepts that you need to
study in order to fortify yourself for your examination. The subject
will be taught by eminent professor who are highly experienced and
well versed with the job.
The Institute is very exhaustive and wholly concept based.
Also, the Institute is very systematic, well planned and absolutely
time- bound. For a change, say good bye to mechanical learning. I
am sure you will feel that the study is a pleasurable job and not a
painful exercise.

I wish you a very happy study time.

BEST OF LUCK!

PUNEET MORE
Director
 M-103
BUSINESS MATHEMATICS AND STATISTICS

Course/Paper : M-103 MBA Semester-I

No. of Lecture Hrs/week: 03 Internal Marks: 30
Total No of Lectures Hrs: 42 External Marks: 70
No. of Tutorial Hrs/week:01 Exam Time: 3 Hrs

Section A
Module I: Matrices and Determinants (6 Hours)
Definition of a matrix, types of matrices, algebra of matrices, Transpose, Adjoint, elementary and
Inverse of a matrix.

Module II: (4 Hours)

Solving linear equations by using matrices, Input-Output analysis. Application of matrices for solution
to simple business and economic problems.

Module III: Role of statistics (6 Hours)

Numerical descriptive measures of central tendency and dispersion and their implications, Mean,
Mode, Median, Variance and standard deviation.

Module IV: Correlation (4 Hours)

Coefficient of Variation. Covariance and coefficient of correlation. Visual explorations using software
like Microsoft Excel/MINITAB

Module V: Regression (6 Hours)

Types of Regression models, determination of simple linear regression equation using least square
method, coefficient of determination, Overview of Partial and Multiple regressions.

Module VI: Index Numbers (5 Hours)

Meaning, Types of index numbers, uses of index numbers, Construction of Price, Quantity and
Volume indices: Fixed base and Chain base methods. Fisher ideal index number. Proportion,
percentage, Interval, Ratio and Interest.

Module VII: Probability (5 Hours)

Basic probability concepts, conditional probability, marginal probability and its uses in business
decision- making; Bayes' theorem and its applications.

Module VIII: Probability Distributions (6 Hours)

Concept and application of Binomial, Poisson, Exponential and Normal distributions

Section B
At least one Case Study from each Module
Note: 50% of the questions will be Numerical /application oriented.
SR NO. NAME OF CHAPTER PAGE
NO.

1 MATRICES AND DETERMINANTS 1.1

2 INPUT-OUTPUT ANALYSIS 2.1

3 ROLE OF STATISTICS 3.1

4 CORRELATION 4.1

5 REGRESSION ANALYSIS 5.1

6 INDEX NUMBERS 6.1

7 PROBABILITY 7.1

8 PROBABILITY DISTRIBUTIONS 8.1

Time Table of MBA I and III Semester

SEMESTER I III

Commencement of
01.08.19 02.07.19
Classes

First Mid Term 30.09.19 19.08.19

Second Mid Term 14.11.19 04.11.19

Last Working Day 18.11.19 16.11.19

Commencement of
21.11.19 18.11.19
Practical Exams

Commencement of
05.12.19 04.12.19
Theory Exams

Winter Break 25.12.19 to 31.12.19

A unit of Realwaves (P) Ltd Matrix

CHAPTER 1 MATRIX AND DETERMINANTS

A set of mn numbers (real or imaginary) arranged in the form of a rectangular array
of m rows and n columns is called an m*n matrix (to be read as ‘m by n’ matrix).
Example
|a11 a12 a13 |
A = |a21 a22 a23 |
|a31 a32 a33 |
The number a11, a12…. etc are known as the element of the matrix A. the element
aij belongs to ith row and jth columns and is called the (i,j)th element of the matrix
A[aij]. Therefore i, number always denote the number of rows and j, number of
columns in which the element occurs.

Types of matrix

(i) Square matrix: A matrix in which the number of rows is equal to number of
columns, say n, is called a square matrix of order n.
| 2 1 –1|
Example the matrix | 3 2 -1 | is square matrix of order 3.
|1 –2 1 |

(ii) Diagonal matrix: A square matrix A= [aij] n*m is called a diagonal matrix if
all the element, except those in the leading diagonal, are zero.
|100|
Example |020|
|003|

(iii) Scalar matrix: A diagonal matrix in which all diagonal elements are equal is
called the scalar matrix.
|200|
Example |020|
|002|

(iv) Identity or unit matrix: a square matrix each of whose diagonal element is
unity and each of whose non-diagonal element is equal to zero is called an identity
or unit matrix.

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A unit of Realwaves (P) Ltd Matrix

|100|
Example |010|
|001|

(v) Null matrix: A matrix whose all elements are zero is called a null matrix or
zero matrixes.
|000|
Example |000|
|000|

(vi) Upper triangular matrix: in an upper triangle matrix, all elements below the
main diagonal are zero.
|123|
Example |028|
|002|

(vii) Lower triangular matrix: in a lower triangular matrix, all elements above
the main diagonal are zero.
|200|
Example |120|
|123|

Addition, subtraction and Scalar multiplication

Q1.
| 2 1 –1| | 3 –1 2 |
A= | 3 2 -1 | B= |1 5 4|
| 2 1 –1| | 2 4 –5 |

Find: A+B, A-B, 2A+3B

Q2. Find x, y, z, t if xz 1 -1 3 5
2 y t +3 0 2 =3 4 6

Ans: x = 3, z = 9, y = 6 and t = 6

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Matrix multiplication
Product of two matrix A & B i.e. A B is said to be define if the number of column
in A is equal to the number of rows in B.
if A is m*n matrix and B is n*p AB=m*p.

|21 3 | | 1 –2 |
Q1. A = | 3 –2 1 | and B = | 2 1 |
| -1 0 1 | | 4 –3 |

Ans 16 -12
3 -11
3 -1

1 -2 3 and B = 2 3 find AB
Q2. Let A= 3 2 -3 -1 2
4 -5

Ans 16 -16
-8 28

Q3. If A= 1 -2 and B= 1 2 3 find AB

2 3 2 3 1

Ans -3 –4 1
8 13 9

Q4. If A= 2 3 4 1 -3 5
3 4 5 B= 0 2 4 Find product.
4 5 6 3 0 5
Ans 14 0 42
18 –1 56
22 –2 70

Q5. Find the value of x such that

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1 3 2 1
[1 x 1] 2 5 1 2 =0
15 3 2 x

Ans: x = -2 or –14

1 0 1 0
Q6. If A= -1 7 and I= 0 1 then find K so that A2 =8A+KI

Ans: K = -7

3 1
Q7. If A= -1 2 show that A2 -5A+7I2 =0

1 2 2
Q8. If A= 2 1 2 show that A2 -4A-5I3 =0
2 2 1

TRANSPOSE OF A MATRIX

Let A = [aij] be an m*n matrix. Then the transpose of A, denoted by AT or A’, is an

n*m matrix such that (AT)ij=aij
AT is obtained from A by changing its rows into columns and its columns into
rows.
1 2 3 4 1 2 3
T
For example if A= 2 3 4 1 then A = 2 3 2
3 2 1 4 3 4 1
4 1 4

DETERMINANTS
Every square matrix can be associated to an expression or a number, which is
known as its determinant. If A=[aij] is a square matrix of order n, then the
determinant of A is denoted by determinant A or |A|.

Determinant of square matrix of order 2.

If A= a11 a12
a21 a22 the |A|=a11 a22- a12 a2

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Evaluate the determinant or |A|

Q1. 5 4 Q2. 2 -1 3
-2 3 4 1 2
1 -1 5
Ans: 23 Ans: 17

Q3. -1 6 -2 Q4. 2 3 -2
2 1 1 1 2 3
4 1 -3 -2 1 -3

Ans: 68 Ans: -37

MINOR AND CO FACTORS

(1) IF A= 4 -7 + -
-3 2 - +

M11=2, M12=-3, M21=-7, M22=4,C11=2, C12=3, C21=7, C22=4

(2) IF A= 1 2 3 + - +
-3 2 -1 - + -
2 -4 3 + - +

M11=2, M12=-7, M13=8, M21=18, M22=-3

C11=2, C12=7, C13=8, C21=-18, C22=-3, C23=8

Q1. Find Co-factor

5 20 1 -3 2 0 2 6
(i) A= 0 -1 (ii) A= 4 -1 2 (iii) A= 1 5 0
3 5 2 3 7 1

Ans:(1)[C11 =-1,C21 = -20] (2)[C11 = -12,C21 = 16,C31 = -4]

(3)[C11 = 5, C21= 20, C31 = -30]

Adjoint of a Square Matrix

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A unit of Realwaves (P) Ltd Matrix

T
IF A= a11 a12 a13 c11 c12 c13 c11 c21 c31
a21 a22 a23 then, Adj A= c12 c22 c23 = c12 c22 c32
a31 a32 a33 c31 c32 c33 c13 c23 c33

Q1 Find Adjoint of Matrix A= 1 1 1

2 1 -3
-1 2 3
9 -1 -4
Ans = Adj A= -3 4 5
5 -3 -1

Q2 Compute the Adjoint of Matrix A= 1 4 5

3 2 6
0 1 0
Ans: -6 5 14
0 0 9
3 -1 -10

Inverse of a matrix (A-1)

A-1= 1 adj A
|A|

Q3 Find the inverse of the matrix A = 1 4 5

3 2 6
0 1 0

LINEAR EQUATION

Q1 Solve the following system of equations, using matrix method:

X + 2y + z = 7
X + 0y + 3z = 11
2x - 3y + 0z = 1

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A unit of Realwaves (P) Ltd Matrix

1 2 1 x 7
A= 1 0 3 X= y and B= 11 [ AX=B]
2 -3 0 z 1 [ X=A-1B]

Ans: |A|=18, x =2, y=1, z=3

Q2 The sum of three numbers is 6. If we multiply the third number by 2 and add
the first number to the result, we get 7.By adding second and third numbers to
three times the first number, we get 12.Using matrix find the numbers.

Ans: x +y + z = 6 |A|=4
x + 2z = 7 x=3, y=1, z=2
3x + y + z = 12

GAUSS – JORDON METHOD

Q1 Solve the following set of linear equations by using Gauss- Jordon method:
x1 + 2x2 – x3 = 2
-2x1 + x2 + x3 = 3
3x1 – 3x2 + 2x3 = 3

Solution: The augmented matrix of this system is:

1 2 -1 2
-2 1 1 3
3 -3 2 3

Use R2 R2 + 2R1 to obtain: 1 2 -1 2

R3 R3 – 3R1 0 5 -1 7
0 -9 5 -3

Use R2 R2 1 to obtain: 1 2 -1 2
5 0 1 -1/5 7/5
0 -9 5 -3

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Use R3 R3 + 9R2 to obtain: 1 2 -1 2

0 1 -1/5 7/5
0 0 16/5 48/5

Use R3 R3 5 to obtain: 1 2 -1 2
16 0 1 -1/5 7/5
0 0 1 3

Thus, the reduced system of equations will be:

x1 + 2x2 – x3 = 2
x2 – 1x3 = 7
5 5
x3 = 3
on substituting value of x3 in (ii) we get

x2- 3 = 7 x2 =2
5 5
Substituting the values of x2 and x3 in (i) we have x1 + 4 – 3 = 2 x1 = 1
Thus we have x = 1, x2 = 2, x3 = 3

Q2 A mixture is to be made of three foods A, B, C. The three foods A, B, C

contain nutrients P, Q, R as shown below:
FOOD OUNCES PER POUND OF NUTRIENT
P Q R
A 1 2 5
B 3 1 1
C 4 2 1
How to form a mixture which will have 8 ounces of P, 5ounces of Q and 7 ounces
of R?
Solve linear equations by using Gauss – Jordon method:
x+3y+4z=8
2x+y+2z=5
5x+y+z=7
Ans: |A|=11, x=1, y=1 and z=1

CRAMER’S RULE

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A unit of Realwaves (P) Ltd Matrix

a1x+b1y+c1z=d1 x = x/
a2x+b2y+c2z=d2 y = y/
a3x+b3y+c3z=d3 z = z/

a1 b1 c1 d1 b1 c1
= a2 b2 c2 x = d2 b2 c2
a3 b3 c3 d3 b3 c3

a1 d1 c1 a1 b1 d1
Y= a2 d2 c2 z= a2 b2 d2
a3 d3 c3 a3 b3 d3

Q1 2x+y+z=7 Ans: = 25  z = 75
3x-y-z=-2 x=25 x=1, y=2, z=3
x+2y-3z=-4 y=50

PROVE THAT L.H.S. = R.H.S.

Q1 Show that 1 a b+c

1 b c+a = 0
1 c a+b

Q2 Show that b-c c-a a-b

c-a a-b b-c = 0
a-b b-c c-a

Q3 Show that 1 bc a(b+c)

1 ca b(c+a) = 0
1 ab c(a+b)

Q4 Prove that x+y y+z z+x

z x y =0
1 1 1

1 a a3
Q5 Prove that 1 b b3 = (a-b)(b-c)(c-a)(a+b+c)
1 c c3

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A unit of Realwaves (P) Ltd Matrix

Q6 Show that x y z
x2 y2 z2 = xyz(x-y)(y-z)(z-x)
x3 y3 z3


Q7 Prove that 


Hint :(1) C2 C2+C3 (2) C1 C1+C2+C3 (3) C3 C2+C3

(4) R1 R1+R2 (5) R2 R2-R1 &R3 R3-R1&R2 R2-R3
(6) C2 C2-C1&C3 C3-C1 (7) R3 R1+R3&C1 C2-C1&
C3 C3 –C1

WORD PROBLEM
Q1There are two families A and B. there are 4 men, 6women and 2children in
family A and 2 men, 2women and 4children in family B. then recommended daily
allowance for calories in: man: 2400, women: 1900, child: 1800 and proteins is:
man: 55, women: 45, child: 33. Represent the above information by matrices.
Using matrix multiplication
Calculate the total requirement of calories and portions for each of the two families
MWC
A 4 6 2 Y= M 2400 55
Sol. X= B 2 2 4 W 1900 45
C 1800 33
Ans: XY=A 24600 556
B 15800 332

Q2.Three shopkeeper A, B and C go to store to buy stationary A purchases 12

dozen notebook, 5 dozen pens and 6 dozen pencils. B purchases 10 dozen
notebook, 6 dozen pens and 7 dozen pencils. C purchases 11 dozen notebook, 13
dozen pens and 8 dozen pencils. A notebook cost 40 paise, a pen cost `1.25 and a
pencil cost 35 paise. Use matrix multiplication to calculate each individual’s bill.
Ans: ` 157.80, `167.40, ` 281.40

Last Year Questions

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Year2014
(a) Define Matrix and Transpose of a Matrix.
(b) Solve the following set of linear equations by using matrix method
x+4y+3z = 1
2x+5y+4z = 4
x-3y-2z = 5

Ans: Δ= 1, [x = 3, y= -2, z = 2]

Year 2013

(a) A factory employs 20 skilled and 30 unskilled workers. The daily wage of a
skilled worker is Rs300 where as the daily wage of an unskilled worker is Rs150.

Using matrix notation, compute the total daily payment made to the workers.
Ans: Let, the number of skilled workers(x1) = 20
Number of unskilled workers(x2) = 30
Daily wages of skilled workers (y1) = 300
Daily wages of unskilled workers (y2) = 150
We can show the total daily payment as matrix as follows:

x1 x2 y1 = 20 30 300
y2 150

= 20 x 300 + 30x150 = 6000 + 4500 = 10500

Year 2012

(a) In what way Difference between Matrix and Determinant

Ans: Difference between Matrix and Determinant

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A unit of Realwaves (P) Ltd Matrix

Matrix Determinant
In matrix the number of rows and In determinants the number of rows and
columns are not necessarily equal. columns are equal.
In matrix the elements are enclosed in In determinants the elements are shown
(), { }, or [ ]. between two vertical lines.
Matrix can't have a value. It is just an Determinant has a value.
arrangement.
In matrix if all elements are multiplied In determinant if each of any row or
by a constant the matrix is multiplied to column is multiplied by a constant, the
the constant. determinant is multiplied to the
constant.
(b) Find the adjoint and inverse of matrix A

1 2 1
A= 3 2 3
1 1 2

Ans 1 1 -3 4
-1
A = -4 -3 1 0
1 1 -4

Year 2011
A manufacturer is manufacturing two types of products X and Y. M1 and M2 are
two machines which are used to manufacture these products. The time taken both
by X and Y on machines is given below:
M1 M2
Product X 20 hours 10 hours
Product Y 10 hours 20 hours
If 600 hours is the time available on each machine, calculate the number of units of
each type manufactured using matrix only.
Ans 20, 20

Year 2009
(a) Compute the inverse of the matrix
1 3 0 and hence find the solution of the following system of equation:-
A= -2 3 3 x-2y+z=0
1 1 4 3x+3y+z=7
0x+3y+4z=7

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Ans: [x = 1, y = 1, z = 1]

Year 2008
(a) An automobile company uses three types of steel S1, S2 and S3 for producing
three different types of cars C1, C2 and C3. Steel requirements (in tons) for each
type of car and total available steel of all three types are summarized in following
table:

Type of steel Type of car Total steel

C1 C2 C3 available
S1 2 3 4 29
S2 1 1 2 13
S3 3 2 1 16
Using matrix algebra determines the number of cars of each type which can be
produced.
Ans:  = 5 [x = 2, y = 3, z = 4]

Year 2007
(a) Solve the set of linear equations using matrix inversion method:
3x + 4y - 6z = 17
9x – 4y + z = 0
6x + 2y + 5z = 5
Ans:  = -474 [x = 1, y = 2, z = -1]

Year 2006
Compute the inverse of the matrix.
1 2 -1 X1-2X2+3X3=4
A= -2 1 1 2X1+X2-3X3=5
3 -3 2 -X1+X2+2X3=3
&Hence find out the solution of the following system of linear equations
Ans:  = 16 [x = 4, y = 3, z = 2]

Year 2005
(a) Prove that the matrix A= 4 5 satisfies the relation A2-10A=I where I
5 6
is the unit matrix of order 2. Hence find the inverse of A.

(b) Compute the inverse of the matrix:

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1 3 0 and hence find the solution of the following system of equation:-

A= -2 3 3 x-2y+z=0
1 14 3x+3y+z=7
0x+3y+4z=7
Ans: [x = 1, y = 1, z = 1]

Year 2004
(a) Suppose that a contractor has accepted orders for 5 ranch style houses, 7 cape
cold houses and 12 colonial style houses. The numbers in matrix below give the
amount of each raw material required for each type of house:
Steel Wood Glass Paint Labour
R.S.H. 5 20 16 7 17
C.C.H. 7 18 12 9 21
C.S.H. 6 25 8 5 13
Compute by matrix multiplication method the amount of each raw material the
contractor should obtain to fulfill the contract.
Ans: Steel 146
Wood 526
Glass 260
Paint 158
Labour 388

(b) Solve the following set of simultaneous line or equations by using matrix
inversion method. x+4y+3z = 1
2x+5y+4z = 4
x -3y -2z = 5
Ans: [x = 3, y = -2, z = 2]

Year 2003
(a) A factory is asked to produce three types of products viz. P1, P2, P3.The
factory received a purchase order of 7 units of P1, 12 units of P2 and 5 units of P3.
To produce each of the products four kinds of raw materials m1, m2, m3, m4 are
used. The matrix given below gives the amount of material needed for each unit of
the respective products:
M1 M2 M3 M4
P1 2 3 1 12
P2 7 9 5 10
P3 8 12 6 15
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A unit of Realwaves (P) Ltd Matrix

Compute the amount of each type of raw material required to meet out the order.
Ans: M1 138
M2 189
M3 97
M4 279

(b) Solve the equations by matrix inverse method:

x +y +z=6
3x+2y-z=4
3x+y+2z=11
Ans: [x = 1, y = 2, z = 3]

Year 2002
Compute the inverse of the matrix:
3 2 1
A= 0 -4 3
8 12 –5
and hence find the solution of system of equations:

3x1-0x2+8x3=17
2x1-4x2+12x3=10
x1+3x2-5x3 = 4
Ans: [x = 3, y = 2, z = 1]

Year 2001
(a) The purchase pattern of two brands of toothpaste can be expressed as a Markov
process with the following transition probabilities:

Formula A Formula B
Formula A 0.90 0.10
Formula B 0.05 0.95
Determine the market shares of each of the formula under equilibrium position.

Solution: If the row matrix R = [r1, r2] represents the market share of the two
brands at steady state situation, then
[r1, r2] = [r1, r2] 0.90 0.10
0.05 0.95

or [r1, r2] = [0.90 r1 + 0.05r2 0.10 r1 + 0.95r2]

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or r1 = 0.90 r1 + 0.05 r2
r2 = 0.10 r1 + 0.95 r2
0.10 r1 = 0.05 r2
= r2 = 2r1
and r1+ r2 = 1
Substituting r2= 2r1 in (i) gives
r1= 1/3 and r3= 2/3
Hence, the market shares in an equilibrium condition for formula A will be 0.33
and for formula B will be 0.67.

Year 2000
Find the value of the determinant:
a + b + 2c a b
c b + c + 2a b
c a c + a + 2b
3
Ans: 2 (a + b + c)

ASSIGNMENT
By Cramer’s rule and inverse method

Q1. 3x-5z=-1 Q2 .x+y+z-7=0

2x+7y=6 x+2y+3z-16=0
x+y+z=5 x+3y+4z-22=0
Ans: (3, 0, 2) Ans: (-1, 3, 3)

Q3. x+2y+3z=6
2x+4y+z=7
3x+2y+9z=14
Ans: (1, 1, 1)

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CHAPTER 2 INPUT OUTPUT ANALYSIS

Introduction and Meaning

Input-Output analysis is a quantitative technique originated by the American
Professor Wassily W. Leontief, a noblerate, in the year 1951 to analyze the
production structure of an economy keeping in view the mutual dependence of the
various production sectors
The input-output analysis aims to forecast the total production per sector
given the quantity the consumers spend on production of each sector.
For example, cotton is used to manufacture cloth, so the cotton is an input
for cloth industry. Cloth is used to manufacture readymade garments; therefore,
cloth is input for readymade garments. Therefore, readymade garment industry
on cloth and cloth industry on cotton are inter-dependent. Similarly, the relation of
mutual dependence is also found in various sectors of an economy.
Thus, the input-output analysis may be defined as a quantitative technique of
computing the levels of output of each of the producing sectors of an economy
that have inter-dependence with each other to bring about an equilibrium for the
products is the economy as a whole.

Essential Elements of Input-Output Analysis

From the above introduction and meaning the essential elements of the input and
output analysis technique can be outlined as under:
1. The input and output analysis is a technique which is designed to compute the
production level of an economy (of a country, or a locality or a company etc.) on
the basis of the several production sectors in order that the industrial use of its
product gets fully satisfied.
2. It is a technique which is based on the assumption that there is a mutual
dependence of various production sectors of an economy, i.e., the input of a sector
is the output of another and vice versa.
3. It involves the working out of certain technical coefficients from a given input-
ouput table or a Transaction Table.
4. It is a mathematical technique which involves the application of matrix algebra.

Objectives of Input-Output Analysis

1. Study of Mutual dependence: The mutual dependence of various sectors of an
economy can be studied with the help of input-output analysis.

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2. Review of Internal Coordination of Programme: With the help of input-

output analysis the internal coordination of mutual dependence programme and
equilibrium between input-output can be reviewed.

3. Making Forecasts: The input-output analysis helps to forecast the quantum of

input in various sectors of economy to attain an specific object.

Assumption of Input-Output Analysis

Following are the assumptions of input-output analysis:

(1) Production in Uniform and Determined Proportion: The input-output

analysis assumes that every industry is engaged in the production of a specific or
uniform type of the product. In case more than one type of products are produced
then production is carried out in a determined proportion.

(2) Presence of Input Coefficients: It is assumed that the total output level of an
industry is equal to the total input requirements of all the industries including itself
and the outside agencies belonging to a particular economy. Thus the input
coefficients are found in a determined proportion.

(3) Presence of Constant Returns to Scale: The input-output analysis assumes

that the change in the level of production does not affect the cost per unit.

(4) Use of Input in Certain Areas: It is assumed that the inputs of an industry are
the outputs of itself and some other industries and vice versa, both the industries
being the producing units of a particular economy.

(5) It is assumed that each producing sector would find its output
uniquely distributed as a linear combination of multisector demand.

Steps of Input-Output Analysis

The operation of the input-output analysis involves the following
steps -

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Illustration: 1
Calculate the Technical Coefficients from the following table:
Output Final Total
P Q R
Input Demand Input

P 18 30 45 15 108
Q 27 30 60 3 120
R 54 40 60 26 180

Find total output of P, Q, R requires for forecast demand.

Solution:

Technical Coefficient Table

Output P Q R
Input
P .17 .25 .25
Q .25 .25 .33
R .50 .33 .33

Working Note:

Technical coefficients have been calculated as follows:

(i) For first column
18 = .17, 27 = .25, 54 = .5
108 108 108

(ii) For second column

30 = .25, 30 = .25, 40 = .33
120 120 120
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(iii) For third column

45 = .25, 60 = .33, 60 = .33
180 180 180

Illustration: 2 Year 2001

The matrix of technical coefficient of input in steel and iron industries is as
follows:

S I
S .2 .2
I .6 .2
If the final demand of steel is 240 Crores and that of iron is ` 80 Crores, calculate
the figures of production.

HINT: Formula= X=(I-A)-1D

X=Total output or total production

A=Technical coefficient matrix
D=Final demand
I= Identity matrix

Ans: | I-A |= (.52) 400

Figure of production= 400

Illustration: 3
Suppose the interrelationships between the productions of two sectors R & S in a
given year are given in the following table:

Consumer sector
Production sectors R S Consumer demand Total output
R 30 40 50 120
S 20 10 50 80
If forecast demand in two years is D = 100
50
What should be the total output X?
Ans: |I – A| = .573 figure of production 196.3
94.46

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Illustration: 4

Agr Ind
Agriculture .2 .2
Industry .6 .2
Find demands are 40 crores and 100 crores. Calculate the figure of production.
Ans: |I-A| = (.52) figure of production = 100
200

Illustration: 5 Year 2009

The matrix of technological coefficients of input output in coal and iron industries
is as follows:
Coal Iron
Coal 0.2 0.2
Iron 0.6 0.2
If the final demand of coal and iron are ` 2400 tonnes and ` 800 tonnes
respectively, calculate the total production of two industries.

Illustration: 6 Year 2008

Given the following input- output table, calculate the gross output so as to meet the
final demand of 200 units of agriculture and 800 units of industry:

Producer Consumer sector Final Total output

sector Agriculture Industry demand
Agriculture 300 600 100 1000
Industry 400 1200 400 2000
Ans: |I-A| = (.16) figure of production = 2000
4000

Illustration: 7 Year 2007

The matrix of technical coefficients of the input in coal and iron industries is as
follows:
0.3 0.3
0.4 0.6
If the final demand of the coal and iron are 200 & 800 crores, calculate the figures
of that production.
Ans: |I-A| = (.16) figure of production = 2000
4000

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Illustration: 8
The matrix of technical coefficients of input in Agriculture and Industry is as
follows: Agriculture Industry
Agriculture 0.3 0.4
Industry 0.5 0.2
If the final demand of Agriculture is Rs 150 crores and that of Industry is Rs 240
crores, Calculate the figures of production.
Ans: Production of Agriculture is Rs 600 crores
Production of Industry is Rs 675 crores

Illustration: 9 Year 2014

The Matrix of technological coefficients of input - output in Agriculture and
Industry is
0.25 0.50
0.167 0.125

If the market demand be of 100 units of Agriculture and 80 units of Industry. Find
the forecast demand.

Utility and Importance of Input-Output Analysis

Following are the uses of input-output analysis:
1. The input-output analysis is used as an instrument in the preparation of an
economic policy.
2. It can be used in forecasting and planning of an economic structure.
3. The input-output analysis is used in the field of business and commerce to
determine the impact of several exogenous factors occurring in an economy and
deciding thereby the production and distribution policies in the course of business
forecasting.
4. The input-output analysis is used in the analysis and interpretation of economic
growth of a nation.
5. It is used to estimate the total production of each of the sectors forming an
economy or an industry with a view to bring about an equilibrium between the
total supply and total demand.
6. The input-output analysis can also be used to analyze and measure statistically
the effects of the major economic disturbances and in mobilizing the economy in
abnormal times of difficulties.
7. It is also used to estimate production quantity of various sectors of an economy
when there occurs a change in the final demand for the products of one or more
sectors of the economy.
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Limitations of the Input-Output Analysis

Despite the various usefulness of input-output analysis, this technique suffers from
certain limitations the main ones among which are as follows:
1. This technique is based on the assumption that the use of inputs go in proportion
with the level of outputs but this assumption may not hold good in all the cases of
practical life situation because of the fact that a change in technology may change
the technical coefficients.
2. This technique contains a complicated procedure of computation of the required
unknown factors by the use of matrix algebra.
3.The input-output analysis technique involves a lengthy procedure of computation
that consists of preparing
(i) Input-output table
(ii) Coefficient table
(iii) Formulation of linear equations
(iv) Solution of the equations through the process of matrix algebra.
4. The input-output analysis fails to predict the final demand.
5. This technique does not include the utility factor.
6. The input-output analysis assumes a constant price level and does not consider
the price level changes.
7. This technique examines only the production side.

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CHAPTER 3 ROLE OF STATISTICS

Meaning and Definition of Central Tendency
The central tendency of a variable means a typical value around which other values
which can be measured tend to concentrate. Such concentration of the values in the
central part of distribution is referred to as Measure of Central Tendency also
known as Averages.
Dr. A. L. Bowley has said, "Statistics may rightly be called the science of
averages."

Objects and Functions

It is a precise and simple indicator of a group. It represents the whole group. Its
objects and functions are as under:

(1) To Present the Mass of Complex Data in Condensed Form: An average

reduces a mass of data into a single typical figure to enable one to draw a general
conclusion about the characteristics of the phenomenon under study. It is
impossible to remember various citizens of a country but average income can be
remembered.

(2) Comparative Study: An averages provides a common denominator for

comparing one set of data with others. For example, we cannot compare the
economic conditions of the students of two different classes simply by knowing
their annual incomes. But the average annual income figure of the students of two
sections will enable us to draw conclusion as the students of which sections are
economically better than the other.

(3) Representative of the Group: Averages also help to obtain a picture of a

complete group. For example, day to day sales of a businessman may be
inconsistent, but the average monthly sales figure is consistent to a great extent.

(4) Mathematical Relationship: When it is desired to trace the mathematical

relationship between different groups an average becomes essential. Simply saying
that expected life of an average Indian is less than that of an average

(5) Basis of Future Planning and Decision-making: In the process of research

and experimentation it is of vital importance to know about the average of a

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variable. For example, a railway office will need information regarding average
number of passengers carried by various trains.

Arithmetic Average or Mean

The arithmetic mean is the most widely used and the most generally
understandable of all the averages. This is clear from the fact that when the term
'mean' is used alone, it always refers to the arithmetic mean. In the words of H.
Secrist, “Arithmetic mean is the amount secured by dividing the sum of values of
the items in a series by their number.”

Kinds of Arithmetic Mean: The arithmetic mean is of two kinds:

(1) Simple Arithmetic Mean, (2) Weighted Arithmetic Mean.

1. Simple Arithmetic Mean: When all the values of a statistical series are given
equal importance, the total of the values is divided by number of items. It is called
Simple Arithmetic Mean.

2. Weighted Arithmetic Mean: Sometimes a statistical series comprises of

different values of unequal importance. As such it becomes essential to give
weightage to unequal values according to their relative importance which are
called Weights'. The different values are multiplied with their respective weights.
The total of the product so obtained is divided by the, sum of weights. The quotient
is called Weighted Arithmetic Mean.

DEFINITION OF AVERAGE
“Average is an attempt to find one single figure to describe whole of figures.”

“The average is sometimes described as a number which is typical of the whole

group.”

TYPES OF AVERAGES
The following are the important types of averages:
 Arithmetic Mean
 Median
 Mode
ARITHMETIC MEAN
Calculation of simple Arithmetic mean – Individual Observations.

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X = ∑X
N

Illustration: 1
The following table gives the monthly income of 10 employees in an office:
Income (`) 4780 5760 6690 7750 4840 4920 6100 7810 7050 6950.

Calculate the arithmetic mean of incomes.

Ans: X = 6265

Calculation of Arithmetic mean – Discrete series.

(i) Direct method or (ii) Short – out method.

Direct – Method
The formula for computing mean is

X = ∑ fX
N

Illustration: 2
From the following data of the marks obtained by 60 students of a class, calculate
the arithmetic mean.
Marks No. of Students
20 8
30 12
40 20
50 10
60 6
70 4
Ans: X = 41

Short – Cut Method

X = A + ∑ fd
N
Where A = Assumed mean.
D = (X –A); N = total number of observations
i.e ∑ f
N=∑f
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Illustration: 3
Calculate the arithmetic mean by the short cut method using frequency distribution
of illustration 2.
Ans: X = 41

Calculation of Arithmetic Mean- continuous series.

(i)Direct method. (ii) Short cut method.

Direct method.
When the direct method is used.

X = ∑ fM
N

Where, M= midpoint of various classes,

f = the frequency of each class.
N= the total frequency.

Midpoint = Lower limit + Upper limit

2

Illustration: 4
From the following data compute arithmetic mean by direct method.
Marks 0-10 10-20 20-30 30-40 40-50 50-60
No. of students 5 10 25 30 20 10
Ans: X = 33

Short cut method.

X = A + ∑ fd x i
N

Illustration: 5
Calculate the arithmetic mean by short cut method using frequency distribution of
illustration.4.
Ans: X = 33.

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Illustration: 6
Calculate arithmetic mean from the following data using direct method.
Marks 0-10 10-30 30-60 60-100
No. of students 5 12 25 8
Ans: X = 40.6.

Combined Mean
If mean of different components of a group is given separately and it is necessary
to calculate the combined mean of the whole group, it can be calculated with the
help of the following formula:
X1N1+ X2N2 + X3N3…..Xn . Nn
Combined Mean (X123 ... n) = N1+N2+ N3 + .....Nn
where,
X12 = combined mean
X1 and X2 = average of first and second group
N1 and N2 = No. of items in first and second groups so on

Illustration: 7
A distribution consists of 3 components with total frequencies of 100, 150 and 200
having mean 25, 15, 10 respectively. Find the combined mean for the whole
distribution.
Ans: Mean = 15

Illustration: 8
The mean age of a group of 100 children was 9.35 years. The mean age of 25 of
them was 8.75 years and that of another 65 was 10.51 years. What was the mean
age of the remaining?
Ans: The average age of 10 children was 3.31 years.

Illustration: 9
The mean age of a combined group of men and women is 30 years. If the mean age
of the group of men is 32, and that of the group of women is 27 years, find out the
percentage of men and women in the group.
Ans: Male percentage is 60 and female percentage 40.

To find out the missing value or the missing frequency

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If in a variable, the arithmetic mean is given but any one value (size) or the
frequency is missing. We should solve the question assuming the missing data as x,
applying direct method of X, form the equation and ascertain the missing value or
the frequency.

Illustration: 10
If mean value is 20.5, find out the missing frequency in the following data:
Value 5-10 10-15 15-20 20-25 25-30
Frequency 2 4 6 ? 8
Ans: missing frequency = 10

Illustration: 11
From the following information calculate the missing value if mean marks are
28.5:
Marks 10 15 20 X 35 50 Total
No. of Students 3 6 8 10 17 6 50
Ans: Missing value is 25 marks.

Merits of Arithmetic Mean

It is the most commonly used measure because of the following merits:

(1) Easy Calculation: Arithmetic mean is easy to calculate. Even a layman can
easily understand it.

(2) Based on All values: All the values of variable are considered in calculating
arithmetic mean. Thus it is the most representative measure of central tendency.

(3) Exact Figure: Arithmetic mean is an exact figure which is determined by a

rigid formula. Every one who computes mean of the same variable will get the
same answer.

(4) Stability: Of all the averages, arithmetic mean is affected least by fluctuations
of sampling.

(5) Algebric use possible: In the calculation of arithmetic mean none of the
mathematical principle is violated. As such it is used in the highest analytical study
of statistics.

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(6) Test of Accuracy: Test of accuracy of arithmetic mean is possible with the
help of Charlier's accuracy check which is not possible in any other measure of
central tendency.

(7) Arraying or Grouping not needed: The computation of arithmetic mean does
not require the arraying or grouping of items.

(8) Topical Value: It is the typical value of the variable and the centre of gravity
balancing the values on either side of it.

(9) Algebric Properties: It possess so many algebric properties which any other
measure of central tendency does not possess.

Demerits or Limitations of Arithmetic Mean

1. Affected by extreme items: It is disproportionately affected by the extreme
values of a variable. Thus the smallest and the largest values affect its calculation.
For example, the marks obtained by three students are 10, 50 and 120, the
arithmetic mean would be 60 marks.
It does not truely represent the group. The mean is largely affected by the
highest value, 120.

2. Cannot be estimated by construction of a variable: Just as Median and Mode

are estimated by looking at the construction of frequency distribution, arithmetic
mean cannot be estimated.

3. Fictitious figure: Sometimes arithmetic mean may not be an actual item in a

variable. Thus it is called a fictitious average. It may not represent even a single
item of the variable. Thus it may give a meaningless figure.

4. Absurd results: Sometimes it gives meaningless and absurd results. The 'Punch'
Journal once remarked, 'The figure of 1.6 children per adult female was felt to be
an absurd result'.

5. Graphical presentation not possible: It can neither be determined by

inspection nor can it be located by means, of a graph.

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6. All values required: It cannot be used in case of open end classes such as less
than 20 and more than 80 etc. since mid-values cannot be obtained for such classes
unless we estimate both the ends or total values for such classes if given.

7. Not suitable for Qualitative Phenomenon: It cannot be used when dealing

with qualitative characteristics such as honesty, beauty, intelligence etc.

Uses of Arithmetic Mean

This measure of central tendency is used in those variables where the distribution
of frequency is normal or moderately asymmetrical and equal weightage is given
to all the values of a variable. Average income, average price, average height,
average production, average weight, average imports etc. are the cases where this
measure is used. It cannot be used in qualitative phenomena.

MEDIAN
Median is a position average. It is the value of the middle item of a variable when
the items are arranged according to their values either in ascending or descending
order. Its value is so located in the frequency distribution that it divides in half,
with 50% of the items below it and 50% of items above it.
In the words of Dr. A. L. Bowley, "If the numbers of the groups are ranked in order
according to the measurement under consideration, then the measurement of the
number most nearly one-half is the median."

Median = Size of N +1th item.

2

Characteristics of Median
1. It is an average of position.
2. Median is not affected much by extreme items.
3. The sum of deviations about the median, signs ignored, will be less than the sum
of deviations from any other point.
4. Median can be computed even if the items are not expressed quantitatively.

Illustration: 12
From the following data of the wages of 7 workers, compute the median wage:
Wages (in `) 4100 4150 6080 7120 5200 6160 7400
Ans: Median = ` 6080

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Illustration: 13
Obtain the value of median from the following data of the monthly income of 10
employees of a company in `.
4391 5384 5591 5407 6672 6522 6777 6753 7850 7490
Ans: Median = ` 6597

Merits of Median
The following are the merits of median:

1. Simple and Easy: It is easy to calculate and readily understood specially in an

individual observation and discrete variable.

2. Determinable in All Circumstances: It can be determined in irregular class

intervals and open end classes of a variable (unlike arithmetic mean).

3. Not affected by Extreme Values: Median is not affected by the extreme items
of a variable.

4. Usually An Actual Value: Median is usually an actual figure of the series. In

case of individual observation with even numbers and discrete variable, it is always
an actual figure of the series.

5. Suitable for Qualitative Phenomenon: Median is an appropriate measure of

central tendency in qualitative phenomena like intelligence, beauty, honesty etc.

6. Location by Inspection Possible: Sometimes median is located even by

inspection.

7. Graphical Presentation Possible: Median can also be determined by graphical

method.

8. All Values not needed: The total data are not required for calculating median.
Number of items and median groups are sufficient to calculate median.
9. Rigidly Defined: Median is always rigid and clear. It can always be calculated.

10. Based on Assumption in some Cases: The sum of deviations of values about
median (ignoring minus) me the least.

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Demerits of median
1. Arraying is difficult: The computation of median requires arraying of the items
which is very cumbersome.

2. Algebric treatment not possible: Being an average of position, median is not a

mathematical concept suitable for further algebric treatment.

3. Total values cannot be obtained: If median and number of items of a

distribution are given, then total value cannot be known.

4. Unstable values: Median tends to be a rather unstable value, if the number of

items is small. If items are not spread in the middle of distribution, median will be
an unrealiable measure of central tendency.

5. Based on assumption in some cases: It is not possible to obtain the actual

median in case the group has an even number of observations and thus in such a
case it is an average of the two values (Assumption).

6. No weightage to extreme values: A very little importance is attached to the

items on the extremes and as such the median fails to register changes due to the
changes in the values of the items on the extremes.

7. Uncertain and Indefinite value: A little change in the series may change the
value of the median substantially. For example, if marks of 7 students are 5, 12, 17,
19, 48, 52 and 54, then median is 19. If marks of two more students 55 and 60 are
added in the series, then median will be 48. Thus, it is not a representative measure
of central tendency.

Uses of Median
The median is used in such cases where individual items are comparable separately
but they are to be included into the groups for comparison. Median is also used for
problems that are not expressed quantitatively. For example, intelligence, beauty,
health etc. cannot be quantified. In the study of business and economic problems
also, the median is used. For example, to obtain average wages, distribution of
assets etc. the median is used. It is also used in cases where extreme items are not
given any importance.

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Other Measures based on the Principle of Median: Just as median divides a

series duly arranged in ascending or descending order in two equal parts, similarly
a variable may be divided into four, five, eight, ten and hundred equal parts. These
fractiles are:

No. of equal parts No. of points needed Names of Fractiles

2 1 Median (M)
4 3 Quartiles (Q)
5 4 Quintiles (Qn)
8 7 Octiles (O)
10 9 Deciles (D)
100 99 Percentiles (P)

These measures are:

(1) Quartiles: If a distribution is divided into 4 equal parts then there will be three
quartiles Q1, Q2 and Q3. Q2 is the median itself. Q1 is also called lower quartile and
Q3 as upper quartile.

(2) Quintiles: If a variable is divided into 5 equal parts then there are four
quintiles, Qn1, Qn2, Qn3 and Qn4.

(3) Octiles: If a series is divided into 8 equal parts then there are 7 octiles, O1, O2,
O3.... O7 .Here O4 = median, O2 = Q1and O6 = Q3.

(4) Deciles: If a distribution is divided into 10 equal parts, then there will be 9
deciles, D1,D2, D3....D9. D5 = Median.

(5) Percentiles: If a distribution is divided into 100 equal parts, then there will be
99 percentiles. They are denoted as P1, P2....P67, P68....P69. P50= Median, P25 = Q1
and P75 = Q3.
These different measures are calculated just like median. Most of these
measures are used in dispersion and skewness. The formulae which are used in
their calculations are listed below:

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Individual Discrete Continuous

Measure
series series To find out item
Size of the Size of the Formulae used
Size of the item
item item
(N + l) (N+l) N
Q1 4 4 4 Q1 = l1 + i / f (q1 - c)
3(N + 1) 3(N + 1) 3(N)
Q3 4 4 4 Q3 = l3 + i / f (q3 - c)
(N + l) (N+l) N
Qn1 5 5 5 Qn1 = ln1 + i / f (qn1 - c)
2(n + 1) 2(N + 1) 2N
Qn2 5 5 5 Qn2 = ln2 + i / f (qn2 - c)

4(N + 1) 4(N + 1) 4N Qn4 = ln4 + i / f (qn4 - c)

Qn4 5 5 5
(N + l) (N+l) N
O1 8 8 8 O1 = l1 + i / f (o1 - c)

3(N + 1) 3(N + 1) 3N O3 = l3 + i / f (o3 - c)

O3 8 8 8
5(N + 1) 5(N + 1) 5N
O5 8 8 8 O5 = l5 + i / f (o5 - c)
7(n + 1) 7(n + 1) 7N
O7 8 8 8 O7 = l7 + i / f (o7 - c)
(N + 1) (N + l) N
D1 10 10 10 D1 = l1 + i / f (d1 - c)

3(N + 1) 3(N + 1) 3N D3 = l3 + i / f (d3 - c)

D3 10 10 10
4(N + 1) 4(N + l) 4N
D4 10 10 10 D4 = l4 + i / f (d4 - c)
7(N + 1) 7(n + 1) 7N
D7 10 10 1q D7 = l7 + i / f (d7 - c)
9(N + 1) 9(n + 1) 9N
D9 10 10 10 D9 = l9 + i / f (d9 - c)

30(N + 1) 30(N + 1) 30N P30 = l30+ i / f (p30 - c)

P30 100 100 100
76(N + 1) 76 (N + 1) 76N
P76 100 100 100 P76 = l76+ i / f (p76 - c)

99 (N + 1) 99(N + 1) 99N
P99 100 100 100 P99 = l99 + i / f (p99 - c)

Similarly other percentiles can be obtained. The notations used in the above table
mean:
Q1= First Quartile, Q3= Third Quartile, Qn1= First Quintile,
Qn2= Second Quintile, Qn4= Fourth Quintile, O1= First Octile,
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O3= Third Octile, O5= Fifth Octile, O7= Seventh Octile,

D1= First Decile, D3= Third Decile, D4= Fourth Decile,
D7= Seventh Decile, D9= Nineth Decile, P30= Percentile Thirty,
P76= Percentile Seventy sixth, P99= Percentile Ninety-nine
i = (l2 – l1) Class interval of the related class, f = Frequency of the related group in
which the relevant value lies, c = Cumulative frequency of the preceding class of
the related group.

Illustration: 14
In a class test, marks obtained by 20 students are given below, find out Median,
Lower Quartile and Upper Quartile:
Marks = 6, 9, 10, 12, 18, 19, 23, 23, 24, 28, 37, 48, 49, 53 and 60.
Ans: M= 23 Marks, Q1 = 12 Marks, Q3 = 48 Marks.

Illustration: 15
From the following monthly income of 15 families, calculate first & third quartiles,
3rd quintile, 5th octile, 7th decile and 30th percentile:
100, 120, 140, 160, 170, 175, 180, 184, 189, 194, 220, 230, 250, 280, 330.
Ans: Q1= Rs 160, Q3 = Rs 230, Qn3 = Rs 192, O5 = Rs 194, P30 = Rs 168,
and D7 = Rs 222.

Illustration: 16
From the data given in the following table calculate 1st and 3rd quartiles, 4th
decile, 5th octile and 70th percentile:
Size 0 2 4 6 8 10
Frequency 5 7 10 9 5 3
Ans: Q1 =2, Q3 = 6, D4 = 4, O5 = 6 and P70 = 6 units.

Illustration: 17
Calculate both the Quartiles, 2nd Quintile, 3rd Octile, 9th Decile and 45th
Percentile from the following data:
Marks Less than 10 20 30 40 50 60 70 80
No. of Students 4 16 40 76 96 112 120 125
Ans: Q1= 26.35 marks, Q3 = 48.88, Qn2 = 32.78, O3 = 31.98, P45 = 34.51,
and D9 = 60.63

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Determination of Missing Value or Frequency: When in a series Median is

given but a value or a frequency is missing, the missing x be calculated by
substituting the values in the formula to locate median and then simplifying it.

Illustration: 18
From the following data find out the missing frequency if median value is 50.
Class interval 10-20 20-30 30-40 40-50 50-60 60-70
Frequency 2 8 6 - 15 10
Ans: missing frequency = 9

Illustration: 19
Find out the missing frequencies from the following frequency distribution if
median value is Rs 50 and total no. of families 100:
Expenditure (Rs) 0-20 20-40 40-60 60-80 80-100 Total
No. of Families 14 ? 26 ? 16 100
Ans: Two missing frequencies are 23 and 21

Computation of median – Discrete series.

Median = size of N + 1
2
Illustration: 20
From the following data, find the value of median:
Income (`) 4000 4500 5800 5060 6600 5380
No.of persons 24 26 16 20 6 30
Ans: Median = ` 5060.

Calculation of median – continuous series.

Median = L + N/2 – c.f x i

f
L = lower limit f the median class.
c.f = cumulative frequency of the class preceding the median class.
f = simple frequency of the median class.
i = the class interval of the median class.

Illustration: 21
Calculate the median for the following frequency distribution:

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Marks No. of students

45 - 50 10
40 - 45 15
35 - 40 26
30 - 35 30
25 - 30 42
20 - 25 31
15 - 20 24
10 -15 15
5 - 10 7
Ans: Median = 27.74.

Illustration: 22
Calculate the median from the following data:
Weight (in gms) No. of Apples
410 - 419 14
420 - 429 20
430 - 439 42
440 - 449 54
450 - 459 45
460 - 469 18
470 - 479 7
Ans: Median = 443.94.

Illustration: 23
From the following data calculate median.
Marks No. of students
Less than 5 29
Less than 10 224
Less than 15 465
Less than 20 582
Less than 25 634
Less than 30 644
Less than 35 650
Less than 40 653
Less than 45 655
Ans: Median = 12.14

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MODE
Mode is the value of that observation which occur; with greatest frequency and
thus is the most fashionable value.
Zesek has defined it as, "Mode is the value occuring most frequently in a series of
items and around which the other items are distributed most densely."

Calculation of mode – Individual observations.

Illustration: 24
Calculate the mode from the following data of the marks obtained by 10 students.

Marks obtained 10 27 24 12 27 27 20 18 15 30

Ans: Mode = 27

Calculation of mode – Discrete series.

Illustration: 25
Calculate mode from the following data:
Size of garment No. of persons wearing
28 10
29 20
30 40
31 65
32 50
33 15
Ans: Mode = 31

Calculation of mode – continuous series.

M o = L + ∆1 x i
∆1 + ∆2

∆1 = f1 – fo
∆2 = f1 – f2

Illustration: 26
Calculate mode from the following data:

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Marks No. of students

Above 0 80
Above 10 77
Above 20 72
Above 30 65
Above 40 55
Above 50 43
Above 60 28
Above 70 16
Above 80 10
Above 90 8
Above 100 0
Ans: Mo = 55

Illustration: 27
Find the value of mode from the data given below:
Weight (kg) No. of students
93 - 97 2
98 - 102 5
103 - 107 12
108 - 112 17
113 - 117 14
118 - 122 6
123 - 127 3
128 - 132 1
Ans: Mo = 110.625 kg

Illustration: 28
Calculate mode in the following series.

Items 0-5 5-10 10-15 15-20 20-25 25-30 30-35

Frequency 1 2 10 4 10 9 2
Ans: Mo = 24.28

Illustration: 29
Calculate Arithmetic Average, Median and the Mode for the following series:
Central Size (years) 5 15 25 35 45 55 65 75
Frequency (f) 5 10 14 22 21 16 9 3

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Ans: Mean = 39.55 Years, Median = 39.55 years, Mode = 37.5

Illustration: 30
For the data given below calculate the Mode:
Class Intervals 55-60 50-55 45-50 40-45 35-40 30-35 25-30 20-25
Frequency 5 7 12 15 18 8 7 5
Ans: Mode = 40
To find out missing frequency: Apply the formula for locating mode and form an
equation to find out the missing item (x)

Illustration: 31
If the mode of the following variable is 240, find the frequency of the class 200 -
300:
Expenditure in Rs 0-100 100-200 200-300 300-400 400-500 500-600
No. of Persons 140 230 270 ? 150 140
Ans: Missing frequency (f2) = 210

Principal Characteristics of Mode

(1) Mode is an average of location.
(2) Mode is not affected by the extreme items of a variable.
(3) Mode is the point of maximum concentration as such the frequency distribution
of a series can be estimated easily.
(4) Approximate value of mode can be located easily.
(5) Mode is not suitable for further mathematical treatment.

Merits of Mode

1. Simple Calculation: Mode is easy to calculate and easy to understand. In some

cases it is located simply by inspection.

2. Calculation Possible: It can also be calculated in case of open end classes

which do not create any problem.

3. Least affected by extreme value: It is not affected by the extreme or abnormal

items of a variable. As such it is preferred to arithmetic mean while
dealing with extreme observations.

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4. Graphic Determination Possible: Mode can be calculated by means of a

graphic presentation method unlike arithmetic mean.

5. Not affected by scattered values: Like median, it is not affected by the

dispersion or scatteredness of the series.

6. Same result from different samples: It is the most probable value in the
distribution. It means if a random value is choosen from a frequency distribution,
the probability of modal value will be more than any other value.

7. Representative size: Mode is the most representative item of a variable since it

is the value of maximum concentration.

8. Most useful valued: In view of the aforementioned merits, mode is an average

having more practical use compared to mean or median. An average-man takes the
'average' in the sense of 'mode' in statistics.

Demerits of Mode
1. Indefinite and uncertain: Mode is sometimes uncertain and ill-defined
particularly when maximum frequencies are repeated or frequency distribution is
irregular.

2. Algebric treatment not possible: Mode is not suitable for further mathematical
treatment. It cannot be ascertained for the combined two or more groups if the
values of mode are given for separate groups.

3. Affected by sampling fluctuations: It is affected to a greater extent by the

fluctuations of sampling as compared to arithmetic mean.

4. Not based on all the values: Mode is the value of maximum corresponding
frequency, so it is not based on all the values of a variable.

5. Unsuitable for relative weightage: It is unsuitable in cases where relative

importance of items has to be considered.

6. Not based on all values: It does not give any weightage to the extreme items.
Thus this average is unsuitable where importance is to be given to extreme values
of a variable.

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Relationship between Mean, Median and Mode:

(i) In a symmetrical distribution, the value of Mean, Median and Mode will
coincide at one point, i.e., X = M =Z.
(ii) In moderately skewed or asymmetrical distribution, the average relationship
will be:
Z = X - 3 (X - M) or Z = 3M - 2X or M = 2(X - Z)
3
or M = X - 1(X - Z) or X = 1(3M - Z)
3 2

Illustration: 32
(i) If Mode and Mean in a moderately asymmetrical series are 16 cm and 15.6 cm,
what would be the probable value of Median?
(ii)If Median and Mean of a series are 14 and 15 respectively, estimate probable
value of Mode.
(iii)If Mode and Median of a series are respectively 14 and 13, what would be its
Mean?
Ans: (i) M = 15.73cm. (ii) Z = 12 (iii) X = 12.5

MEASURES OF DISPERSION
In two or more distributions the central value may be the same but still there can be
wide disparities in the formation of distribution. Measures of dispersion help us in
studying this important characteristics of a distribution.

DEFINITIIONS
“Dispersion is the measure of the variation of the items.”
“The degree to which numerical data tend to spread about an average value is
called the variation or dispersion of the data.”
The study of dispersion is of great significance in practice as could well be
appreciated from the following example.
Series A Series B Series C
100 100 1
100 105 489
100 102 2
100 103 3
100 90 5
Total 500 500 500
X 100 100 100

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METHODS OF STUDYING VARIATION

The following are the important methods of studying variation.

 The Range
 The Interquartile Range and the Quartile Deviation
 The Mean Deviation or Average deviation.
 The Standard Deviation.

(1) RANGE
It is the simplest of all the measures of dispersion. It is the difference between two
extreme observations of the distribution. In other words, range is the difference
between highest (maximum) and the lowest (minimum) values of a variable. Thus,
Range (R) = Largest Value (L) — Smallest Value (S)

Coefficient of Range: Range is an absolute measure of dispersion based on the

units of measurement which cannot be used for comparison between two or more
variables, particularly having different units of measurement. Thus to compare the
variability of two or more distribution given in different units of measurement, the
relative measure of range called Coefficient of Range is used. The formula for its
calculation is:
Range = L - S
L = Largest item, and
S = Smallest item.
Coefficient of range = L - S
L+S

Illustration: 33
The following are the prices of shares of AB Co. Ltd. from Monday to Saturday.
Day Price (`)
Monday 200
Tuesday 210
Wednesday 208
Thursday 160
Friday 220
Saturday 250
Ans: Coefficient of Range = 0.22

Illustration: 34

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Calculate coefficient of Range from the following data.

Marks No. of students
10 - 20 8
20 - 30 10
30 - 40 12
40 - 50 8
50- 60 4
Ans: Coefficient of Range = 0.714

Merits of Range
(1) Range is simple to calculate and easy to understand.
(2) It is rigidly defined.
(3) It gives a broad picture of the data and gives the limits within which all the
items fall.
(4) Its use is very common. It is used for quality control of the articles
produced, geographical studies and for the highest and the smallest values.
(5) Frequencies are not needed for its calculation. Only values are considered and
so it is not affected by the frequencies.

Demerits of Range
(1)Range is not based on complete set of data.
(2)It is not a reliable measure of variability since it is based on two extreme values.
(3) It cannot be calculated in case of open end classes.
(4)Range is affected very much by fluctuations of sampling. It varies widely from
sample to sample.
(5)It is not ligible for mathematical treatment.
(6)In the words of W. I. King, "Range is too indefinite to be used as a practical
measure of dispersion."

Uses of Range
Despite its limitations, Range is a useful measure in the following areas:

(1) Quality Control: It is applied for quality control measures. The control charts
are prepared on the basis of Range for controlling the quality of the products.

(2) Measurement of Fluctuations: It is a useful measure for studying variations in

data in our day-to-day life.

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(3) Used in Predictions: It is used in meteorological department for weather

forecast since the people are interested to know the limits of temperature.

(2) THE INTER QUARTILE RANGE OR QUARTILE DEVIATION

Inter-quartile range is a measure of partial range. It is calculated by deducting the
value of lower quartile from the value of upper quartile. This measure takes into
account only middle 50% of the items. The frequencies of class intervals are also
given weightage for its computation; The following process is adopted for its
Here Q.D. = Quartile deviation, Q3 = upper quartile, Q1 = lower quartile
Calculation:
(1) First of all compute the values of lower and upper quartiles (Q1 and Q3).
(2) Deduct the value of Q1 from the value of Q3 to obtain its value:
Inter-quartile Range (I.Q.R.) =Q3 – Q1

Interquartile range = Q3 – Q1

Q1 = N + 1
4

Q3 = 3 N + 1
4
Quartile Deviation or Semi Inter - Quartile Range
It is a measure of dispersion based on the values of upper and lower quartiles.
It is half of the Inter-Quartile Range. As such it is called semi-inter-quartile Range.
The formula for its calculation is:
Quartile Deviation or Q.D. = Q3 – Q1
2

Coefficient of Quartile Deviation: Quartile deviation is an absolute value not

suitable for doing comparative studies. For a comparative study between two or
more variables, its relative measure called coefficient of quartile deviation is
computed. The formula to be used is:

Coefficient of Q.D = Q3 – Q1
Q3 + Q1

Illustration: 35
Find out the value of Q.D and its coefficient from the following data:

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Marks: 20 28 40 12 30 15 50
Ans: Q1= 15, Q3= 40, Q.D = 12.5, Coefficient of Q.D = 0.455

Illustration: 36
Compute coefficient of quartile deviation from the following data:
Marks 10 20 30 40 50 60
No of students 4 7 15 8 7 2
Ans: Q1= 20, Q3= 40, Q.D = 10, Coefficient of Q.D = 0.333

Illustration: 37
Calculate quartile deviation and the coefficient of quartile deviation from the
following data.
Wages in Rupees per week No. of wage earners
Less then 34 14
Less then 35-37 62
Less then 38-40 99
Less then 41-43 18
Over 44 7
Ans: Q1= 36.24, Q3= 39.74, Q.D = 1.67, Coefficient of Q.D = 0.044

Merits of I.Q.R
(1)It is simple to calculate and easy to understand as compared to Range.
(2)It is not affected by the two extreme values of the variable.

Demerits of I.Q.R
(i) It cannot be considered as a representative measure since it is based only on
middle 50% items.
(ii) It is not based on all the observations of a variable.
(iii) This measure does not clarify the formation of the series.
(iv) It is not amendable to algebraic treatment. Thus it is not a satisfactory measure
of dispersion.

(3) THE MEAN DEVIATION

Mean deviation or the Average deviation is the measure of dispersion, which is
based upon all the items in a variable. It is the arithmetic mean of the deviation of
the values from a measure of central tendency. In the words of Clark and Schkade,
'Average deviation is the average amount of scatter of items in a distribution from
either mean or the median, ignoring signs of the deviations."

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Thus it is a measure obtained by calculating the absolute deviation of each

observation from the median or the mean, taking all deviations as positive, and
then averaging these deviations by taking their arithmetic mean. Mean deviation
from arithmetic mean is also called First Moment of Dispersion.
M.D = 1 ∑ | X – A |
n

Or

∑ | D|
N

Where, |D| = |X – A|
Coefficient of M.D = M.D
Median

Illustration: 38
Calculate the mean deviation and its coefficient of the income groups of members
given below:
(`) 4000 4200 4400 4600 4800
Ans: Median = 4400, M.D = 240, C.M.D = 0.054.

Merits of Mean Deviation

Mean deviation possesses following merits as a measure of dispersion:

(1) Easy to calculate: It is simple to calculate and easy to understand as compared

to other measures of dispersion.

(2) Possible from any Average: Mean deviation can be calculated from any
average, viz; Mean or Median or Mode. But the use of median and mean are very
popular.

(3) Based on all the items: Mean deviation takes into account all the items of a
series. Hence it is affected by every value in the distribution. Thus it is more
comprehensive measure of variation than any other.

(4) Less affected by extreme values: It is less affected by extreme values. It is a

good measure particularly in small samples which have extreme values.

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(5) Gives importance to distribution Mean deviation shows the significance of an

average in distribution.

(6) Relative weightage: It gives relative importance to all the values in a variable.

(7) Calculated Value: Mean deviation is rigidly defined and is a rigid and
calculated value.

Demerits of Mean Deviation

The principal demerits of mean deviation are:

(1)Signs are ignored: Since signs are ignored in its calculation, it has poor
combining properties as far as its use in advanced statistical techniques is
concerned. As such it has gained very limited acceptance in statistical application.

(2)Unreliable: In some situations it gives unsatisfactory results particularly when

the mode is uncertain in certain cases and it is calculated from the Mode.

(3)Lack of uniformity: Mean deviation can be calculated from mean or median or

mode. It gives different results in all the cases since sum of the deviations are
different in all these cases. Thus it is not well defined.

Uses: Mean Deviation, despite its demerits, is useful while using small samples. It
is generally used in statistical analysis of economic, business and social
phenomenon.

Calculation of Mean Deviation by Discrete series.

M. D = ∑ f |D|
N

Illustration: 39
Calculate mean deviation from the following series:
X 10 11 12 13 14
f 3 12 18 12 3.
Ans: Median = 12, M.D = 0.75.

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Illustration: 40
Calculate the mean deviation from the mean for the following data:
Size 2 4 6 8 10 12 14 16
Frequency 2 2 4 5 3 2 1 1
Ans: M.D = 2.8.

Calculation of mean deviation by continuous series.

Illustration: 41
Find the median and mean deviation of the following data:
Size frequency
0-10 7
10-20 12
20-30 18
30-40 25
40-50 16
50-60 14
60-70 8
Ans: Median = 35.2, M.D = 13.1

Illustration: 42
Calculate the mean deviation and its coefficient from the following data:
Class Frequency
0-10 5
10-20 8
20-30 12
30-40 15
40-50 20
50-60 14
60-70 12
70-80 6
Ans: Median = 43, M.D = 15.10, C.M. D = .351

(4) THE STANDARD DEVIATION

The concept of standard deviation was first introduced by Karl Pearson in 1893.
The standard deviation is the most important and popular measure of dispersion.
Unlike mean deviation which can be computed from any measure of central

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tendency standard deviation is always; computed from arithmetic mean. While

taking deviation of the values from mean, algebric signs are not ignored. These
deviations are squared up and then summated. The sum of the squares of
deviations is divided by number of items. The square root of the average of the
squared deviations from mean is taken to obtain the values of standard deviation.
The value obtained prior to taking square, root is called 'Variance'.
Thus, the standard deviation is the square root of the arithmetic mean of the
squares of all deviations, deviations being measured from the arithmetic mean of
the observations. It is represented by a Greek letter small sigma (σ).

Coefficient of Standard Deviation: Standard deviation is an absolute measure.

Where comparison of variability in two or more series is required to be done,
relative measure of standard deviation is computed. It is called coefficient of
Standard Deviation. It is calculated by dividing standard deviation (σ) by the mean
(X) of the distribution. Symbolically,

Coefficient of Standard Deviation = S.D or σ

Mean X

Distinction between Mean Deviation and Standard Deviation

S.N. Mean Deviation Standard Deviation

Standard Deviation
1. Deviation may be taken from mean, Deviation is taken only from
median or mode. arithmetic mean.
2. Algebric signs, plus or minus are Algebric signs are not ignored, but
ignored i.e. minus signs are also deviations are squared up to ignore
treated as plus. minus.

3. It is only an arithmetic mean of It is the square root of mean of

deviations. square of deviations.
4. It lacks further algebric treatment It possesses further algebric attribute
since it is based on absolute value of since algebric signs of deviation are
measures of central tendency. not ignored.
5. It is easy to calculate when the value The calculation of standard deviation
of mean, median or mode is in whole is not very easy since first deviations
number. Its shortcut method is are squared up and then square root
complicated and difficult to is taken of the average of squared
understand. deviations.
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Calculation of standard Deviation.

Individual Observations.
 By taking deviation of the items from the actual mean.
 By taking deviation of the items from an assumed mean.

Deviation taken from actual mean: When deviations are taken from actual mean.

σ = ∑ x2
N

x = (X – X)

When deviations are taken from assumed mean the following formula is applied.

σ = ∑ d2 - ∑ d 2

N N

d = (X – A)

Illustration: 43
Find standard deviation of (`) 7, 9, 16, 24, 26.
Ans: S.D = ` 7.66.

Illustration: 44
Blood serum cholesterol levels of 10 persons are as under.
240, 260, 290, 245, 255, 288, 272, 263, 277, 251.
Calculate S.D with the help of assumed mean.
Ans: S.D = 16.398.

Calculation of standard deviation – Discrete Series.

 Actual mean method

 Assumed mean method
 Deviation method.

(i) Actual mean method:

σ = ∑f x2
N

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Where, x = (X – X)

(ii) Assumed mean Method:

σ = ∑ fd2 - ∑ fd 2

N N

Where, d = (X – A)

Illustration: 45
Calculate S.D by assumed mean method from the data given below:
Size of item Frequency
3.5 3
4.5 7
5.5 22
6.5 60
7.5 85
8.5 32
9.5 8
Ans: S.D = 1.149.

(iii) Step deviation method:

σ = ∑ fd2 - ∑ fd 2
x i
N N

Where, d = (X – A) and i = class interval

i

Illustration: 46
The annual salaries of a group of employees are given in the following table:
Salaries (in ` 000) 45 50 55 60 65 70 75 80
No. of persons 3 5 8 7 9 7 4 7
Calculate the S.D by step deviation method.
Ans: S.D = 10.35.

Calculation of standard Deviation by continuous series.

σ = ∑ fd2 - ∑ fd 2
x i
N N

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Where, d = (m – A) and i = class interval

i

Illustration: 47
Calculate mean & S.D of following frequency distribution of marks:
Marks No. of students
0-10 5
10-20 12
20-30 30
30-40 45
40-50 50
50-60 37
60-70 21
Ans: Mean = 40.9, S.D = 14.839.

Illustration: 48

Find the S.D from the following data:

Age under No. of persons dying
10 15
20 30
30 53
40 75
50 100
60 110
70 115
80 125
Ans: S.D = 19.76.

COEFFICIENT OF VARIATION

Coefficient of variation or C.V = σ x 100

X

Year 2014
One hundred customers from a particular branch were asked to state the time they
generally take to withdraw cash from their accounts. The data is given below

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Minutes 0-10 10-20 20-30 30-40

No. of 20 50 20 10
Customers

Calculate Mean deviation and Standard deviation.

Ans: Mean deviation = 14, S.D = 9.4

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CHAPTER 4 CORRELATION
Correlation is the relationship between the two or more interrelated series of
variables.
 Family income and expenditure or luxury items.
 Yield of a crop and quantity of fertilizer applied.
 Sales revenue and expenses incurred on advertising.
 Frequency of smoking and lung damage.
 Supply position and price of the commodity.
Increase in the prices of a commodity, reduces its demand and vice-versa.
Similarly up to a certain age, increase in age is associated with the increase in
height of a baby. Thus we may say that sometimes two variables are inter-
dependent on each other. Price of a commodity and its demand, rainfall and
production, income and expenditure, etc. Two variables are said to be correlated if
the change in one variable results in a corresponding change in the other variable.

Definition

When the relationship is of a quantitative nature, the appropriate statistical tool for
studying and measuring the relationship and expressing it in a brief formula is
known as correlation.

Kinds of Correlation

Coefficient of Correlation is classified in different ways, the most important ways

of classifying it are:
(i) Positive and Negative Correlation.
(ii) Linear and Non-linear or Curvilinear Correlation.
(iii) Simple, Partial and Multiple Correlation.

1. Positive and negative correlation: If the changes in two variables are in the
same direction, i.e. increase in one variable is associated with the corresponding
increase in other variable, the correlation is said to be positive.
On the other hand, if variations or fluctuations in two variables are in opposite
direction or in other words an increase in one variable is associated with the
corresponding decrease in other or vice-versa, the correlation is said to be negative.

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Positive Correlation. Negative correlation.

Increase in two variables Increase in one and decrease in other

Price Supply Price Demand

(`) (units) (`) (Units)
10 1400 8 1760
11 2000 9 1680
12 2600 10 1490
13 3000 11 1300
14 3600 12 1190
15 4100 13 1000

The graphical presentation of positive and negative correlation may be as under:

y y

P1 P1
P P

Q Q1 x Q1 Q x

Positive correlation Negative correlation

2. Linear and non-linear (curvilinear) correlation: The distinction between

linear and non-linear correlation is based upon the consistency of the ratio of
change between two variables. If the amount of change in one variable tends to
bear constant ratio of change in the other variable, the correlation is said to be
linear.
Example:
x 110 210 310 410 510
y 400 600 800 1000 1200
On the other hand, correlation would be known as curvilinear (non-linear) if the
amount of change in one variable does not bear a constant ratio of change in other
variable.

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Example:
x 28 29 30 40 50 58 59 60
y 80 130 170 150 230 560 460 600
Thus linear and non-linear correlation may also be positive or negative. It is clear
from the following chart:

Correlation

Linear Non-linear

Positive Negative Positive Negative

Thus, it is clear from the above discussion that:

(i) If changes in two series of variables are in the same direction and having a
constant ratio, the correlation is linear positive.
(ii) If changes in two groups of variables are in opposite direction in a constant
ratio, the correlation will be known as linear negative.
(iii) If changes in two groups of variables are in the same direction but not in a
constant ratio, the correlation is positive non-linear.
(iv) If changes in two groups of variables are in opposite direction and not in
constant ratio, the correlation is negative curvilinear or non-linear.

The following diagrams will illustrate different types of correlations:

y y

o x o x

Linear Positive Correlation Linear Negative Correlation

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y y

o x o x
Non-linear Positive Correlation Non-linear Negative Correlation

Degree of correlation

(1) Perfect correlation: If the variations in two variables are in a constant ratio,
the correlation is said to be perfect. If the variations in two variables are in constant
ratio in same direction, the correlation is perfect positive. On the other hand if
correlation coefficient in two variables are in constant ratio but in opposite
direction, the correlation is perfect negative.

The following diagram illustrates perfect positive and negative correlations:

y y

o x o x
Perfect negative correlation Perfect positive correlation

(2) Absence of correlation: If variations in two groups of variables are not

corresponding to each other, it is a case of absence of correlation. The correlation
may be zero in such a case. It is illustrated with the help of the following diagrams:

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y y

x x x
x x
x x x
x x
o x o x
No Correlation Correlation (r = 0)

(3) Limited degree of correlation: When there is neither perfect correlation nor
absence of correlation between the two series of variables, then the correlation is
said to be of limited degree. Generally in case of socio-economic studies, limited
degree of correlation exists. In such cases coefficient of correlation is more than
zero but less than one. Such correlation may be positive as well as negative.

Degree of correlation – an eye view

Degree Positive Negative
Perfect +1 -1
High +0.75 to +1 -0.75 to –1
Moderate +0.25 to + 0.75 -0.25 to –0.75
Low +0 to + 0.25 -0 to –0.25
Absence Zero (0) Zero (0)

Karl Pearson’s coefficient of correlation

Direct method:

r =  dxdy
N.x.y

Where dx = (X - X) and dy = (Y – Y)

dx dy = product of corresponding deviations of X and Y variables.

Steps for calculation:

(1) Find-out the mean of x and Y variables, i.e. X and Y
(2) Take deviations of X variable from its actual mean, i.e. dx = (X –X).
(3) Take deviations of Y variable from its actual mean, i.e. dy = (Y–Y).
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(4) Multiply the corresponding deviations of X and Y variables with each other and
get total or sum of them i.e. (dx dy).
(5) Calculate square of deviations of x and Y variables separately and total them
i.e. (d2x) and (d2y).
(6) Ascertain standard deviation of both the variables with the help of the
following formulae:
x = d2x and y = d2y
N N
(7) Now the coefficient of correlation is obtained by using the following formulae:
r = dx dy
Nxy

Simplification of direct formulae (direct method)

(1) r =dxdy ;putting the formulae of standard deviations in the formula of r.

N.x.y

(2) r = dx dy

d2x .d2y

Solve the following:

Q1 Calculate coefficient of correlation between age of husband and age of wife

from the following data:

Age of wife 17 20 22 27 21 29 26 30 28 30
Age of husband 22 27 28 28 29 30 31 34 25 36
Ans: r =0.71

Q2 Find out the correlation between the height of father and height of son from the
following data:

Height of father (inches) 65 66 67 65 68 69 71 73

Height of son (inches) 67 68 66 68 72 70 71 70
Ans: r = 0.62

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Q3 Given X series Y series

No of items 15 15
Mean 25 18
Sum of squares of deviation
From their respective means 136 138
Sum of products of deviation
of X and Y series from their
respective means 122
Ans: r = 0.89

Q4 From the following data relating to X, Y and Z series, determine which of the
two series are the most closely correlated?

Given X series Y series Z series

No. of items 20 20 20
Arithmetic mean 10 15 20
Sum of squares of deviation from
the arithmetic mean 320 500 720
X & Y series from their respective means 360
Sum of products of deviations of X and Z
series from their respective means 408
Sum of products of deviations of Y & Z
series from their respective means 564
Ans:
Coefficient of correlation between X and Y series:
r =0.90
Coefficient of correlation between X and Z series:
r =0.85
Coefficient of correlation between Y and Z series:
r =0.94

Short cut method

Formula:
(1) r = dxdy – N (X – Ax) (Y – Ay)  X = Ax + dx
N.x.y N

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Where x = d2x - dx 2

N N

y = d2y - dy 2

N N

(2) r = dxdy . N – (dx . dy)

d2x . N – (dx)2 d2y . N – (dy)2

dx = sum of deviations from assumed mean of X variable.

dy = sum of deviations from assumed mean of Y variable.

Solve the following:

Q1 Compute Karl Pearson’s coefficient of correlation between agricultural

production and industrial production from the following data of index numbers of
the two variables:
Index no. of 98 102 114 117 117 124 115 132 127 135
agricultural
production
Index no. of 112 113 117 129 139 151 153 157 175 194
industrial
production
Ans: r = 0.88

Q2 Calculate the coefficient of correlation between weight and income from the
following data. What are your conclusions?
Weight (kg) 120 130 140 150 160 170
Income (`) 100 200 300 400 500 600
Ans: r = 1

Q3 Calculate coefficient of correlation between X and Y series from the following

data:
HINT (First Formula)

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Given X series Y series

No. of pairs of items 100 100
Standard deviation 9 15
Arithmetic mean 30 40
Assumed mean 25 42
Summation of products of deviation of X and Y series from their respective
assumed means = 9260.
Ans: r = +0.76

Q4 Calculate Karl Pearson’s coefficient of correlation from the following data:

Month Jan Feb Mar Apr May June July Aug Sep Oct
Price of 35 36 40 38 37 39 41 40 36 38
A
Price of 65 72 78 77 76 77 80 79 76 75
B
Use 38 as assumed mean for A and 75 for B.
Ans: r = +0.827

Q5 The following table gives the value of export of raw cotton from India to U.S.A
and the value of the imports of manufactured cotton goods into India from U.S.A
(in crores of `):
Year Exports Imports
1997-98 42 56
1998-99 44 49
1999-00 58 53
2000-01 55 58
2001-02 89 65
2002-03 98 76
2003-04 66 58
Calculate the coefficient of correlation between the value of the exports of raw
cotton and the value of imports of cotton-manufactured goods.
Ans: r = +0.9042

Product Moment Method of Correlation

Formula:

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r = N.  XY – (X) (Y)

NX2 – (X)2 x NY2 – (Y)2

Q1 From the following data calculate coefficient of correlation between X and Y

series by square of values method:
X series 7 8 10 11 9 5 6 2 3 6
Y series 10 12 8 2 4 3 5 2 4 7

Ans: r = +0.2794

Coefficient of Correlation in Grouped Series/Data

Formula:
r= fdx dy . N – (fdx . fdy)

fd2x . N – (fdx)2 fd2y . N – (fdy)2

Q1 The following table given class frequency distribution of 45 clerks in a

business office according to age and pay. Find the correlation if any, between age
and pay.
Pay in `.
Age 60-70 70-80 80-90 90-100 100-110 Total
(years)
20-30 4 3 1 - - 8
30-40 2 5 2 1 - 10
40-50 1 2 3 2 1 9
50-60 - 1 3 5 2 11
60-70 - - 1 1 5 7
Total 7 11 10 9 8 45
Ans: 0.75

Q2 Calculate coefficient of correlation between ages of husbands and ages of

wife’s from the following data:
Ages of wife’s (X)
Ages of 10-20 20-30 30-40 40-50 50-60 Total.
husbands (Y)
15-25 6 3 - - - 9
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25-35 3 16 10 - - 29
35-45 - 10 15 7 - 32
45-55 - - 7 10 4 21
55-65 - - - 4 5 9
Total 9 29 32 21 9 100
Ans: +0.802

Q3 In a survey of 100 school teachers of a city following data were obtained

regarding their income and saving. Calculate correlation between income and
saving. Savings (in `)
Income (in `) 50 100 150 200 Total
400 8 4 - - 12
600 - 12 24 6 42
800 - 9 7 2 18
1000 - - 10 5 15
1200 - - 9 4 13
Total 8 25 50 17 100
Ans: r = .5237

Q4 Find out correlation coefficient between height and weight of children from the
following bivariate frequency distribution table:
Height (in inches)
Weight (in 40-44 44-48 48-52 52-56 56-60 60-64 Total
pounds)
35-55 4 40 60 - - - 104
55-75 - - 24 88 12 - 124
75-95 - - - 8 32 8 48
95-115 - - - - 4 8 12
115-135 - - - 4 - - 04
135-155 - - - - 4 4 08
Total 4 40 84 100 52 20 300
Ans: r = 0.7750

Spearman’s Rank Difference Method

r(R) = 1 – 6 D2
N3 - N

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Where rR = rank correlation coefficient

D2 = total of square of rank differences.
N = number of pairs of observation
In the formula we add the factor m3 – m to the value d2. Here m means the
12
number of times an item has repeated. The correlation factor is to be added for
each repeated value.
1 – 6 [ D2 +1/12 (m3 – m) + 1/12 (m3 – m) + 1/12 (m3 – m) ……..]
N3 - N

Q1 Calculate coefficient of correlation by ranking method, if (i) ranks are given

from the highest value, and (ii) ranks are given from the lowest value.
A series 70 60 50 30 40 55 63 79 80 72
B series 10.0 10.6 12.0 9.0 9.2 9.5 9.7 11.0 12.4 10.2
Ans: r(R) = +0.67

Q2 From the following data find out rank coefficient correlation:

X series 112 106 109 84 95 95 117 97 95 115
Y series 70 68 80 65 71 60 77 68 63 75
Ans: r(R) = +0.73

Q3 Calculate the coefficient of correlation from the following data by the method
of rank differences: Assignment.
X 75 88 95 70 60 80 81 50
Y 120 134 150 115 110 140 142 100
Ans: rr = 0.93

Q4 The competitors in a beauty contest are ranked by two judges in the following
order:
Assignment.
1st judge 1 6 5 10 3 2 4 9 7 8
2nd judge 2 8 4 1 6 9 5 3 7 10
Ans: rr = -0.12

Q5 Calculate the coefficient of rank correlation from the following data:

Assignment.

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X 48 33 40 9 16 16 65 24 16 57
Y 13 13 24 6 16 1 20 9 6 9
Ans: rr = 0.59

Last year question

Year 2014
Calculate the coefficient of correlation from the following data:

Fertilizer used 15 18 20 24 30 35 40 50
Yield (in tonnes) 85 93 95 105 120 130 150 160
Ans: r = .98

Year 2012
Calculate the coefficient of correlation between the corresponding value of x and y
in the following table:

X 2 4 5 6 8 11
Y 18 12 10 8 7 5
Ans: r = -.92

Year 2011
The competitors in a beauty contest are ranked by three judges in the following
order:

First judge 1 6 5 10 3 2 4 9 7 8
Second judge 3 5 8 4 7 10 2 1 6 9
Third judge 6 4 9 8 1 2 3 10 5 7
Use the rank correlation to discuss which pair of judges have the nearest approach.
Ans: 1 and 2 r = -.21, 2 and 3 r = -.29, 1 and 3 r = .64
Since coefficient is positive in judgment of 1 and 3 so they have nearest approach

Year 2009
From the following data calculate coefficient of correlation between X and Y
series by square of values method:

X 7 8 10 11 9 5 6 2 3 6
Y 10 12 8 2 4 3 5 2 4 7

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Ans: r = .2794

Year 2003
Calculate the coefficient of correlation from the following data:

X 100 200 300 400 500 600 700

Y 30 50 60 80 100 110 130

Ans: r = .9972

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CHAPTER 5 REGRESSION ANALYSIS

The statistical technique that helps to study an algebraic relationship between two
or more variables in the form of an equation to estimate the value of a random
variable, given the value of another variables, is called regression analysis. The
variable whose value is estimated using the algebraic equation is called dependent
(or response) variable and the variable whose values are used as the basis for the
estimate is called independent (or predictor) variable. The linear algebraic equation
used for expressing a dependent variable in terms of independent variable is called
linear regression equation.
The two variables x & y which are correlated can be expressed in terms of
each other in the form of straight line equations are called regression equations.
Such lines should be able to provide the best fit of sample data to the population
data. In general for a bivariate distribution there will be two regression lines. The
algebraic expression of regression lines is written as:
The regression equation of Y on X
Y = a + bX
Is used for estimating the value of Y for given values of X.
Regression equation of X on Y
X= c + dY
Is used for estimating the value of X for given values of Y.

Importance/Uses Functions of Regression Analysis

Regression analysis is highly useful in almost all sciences - natural and social.
Following are some of the important uses or functions of regression analysis:

1. Forecasting - Regression analysis gives an objective and scientific estimate of

values of the dependent variable based on the corresponding values of the
independent variable. It establishes a functional relationship between two or more
variables. Once the relationship is established and regression equations are
obtained, it can be used for various advanced analytical purposes.

2. Utility in Economics & Business Areas - Regression analysis is a highly useful

tool in economic and business researches since it is based on cause and effect
relationship.

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3. Indispensable for Good Planning - Regression analysis is an important tool for

estimating future production, sales, prices, investments, incomes, population etc.
which are indispensable for efficient planning of an economy and are of paramount
importance for trade and commerce.

4. Useful for Statistical Estimation - Regression analysis is useful in statistical

estimation of demand curve, supply curve; cost function, production function etc.

5. Study between more than two variables possible - Regression analysis is

useful not only for two variables but also for three or even more.
If the regression analysis is confined to the study of only two variables at a
time, it is simple regression, whereas if the variables are more than two, it is
multiple regression. But here only the simple regression will be discussed which is
based on two variables.

Difference between Correlation and Regression Analysis

1. Degree and Nature of Relationship: Coefficient of correlation measures the
degree of covariance between two variables whereas the regression analysis tells
about the 'nature of relationship' between the variables so that one is able to
estimate or predict the value of one variable on the basis of another.

2. Cause and Effect Relationship: Correlation merely ascertains the degree of

relationship between two variables and therefore one cannot say that one variable
is the cause and other is the effect. In regression analysis, one variable is taken as
dependent variable while the other variable is taken as independent variable. Thus
making it possible to study the cause and effect relationship.

3. The value of rxy in the calculation of coefficient of correlation measures the

direction and degree of relationship between two variables X and Y. The values of
rxy and ryx are symmetric (i.e. rxy=ryx), it shows that it is immaterial, which of X and
Y is dependent variable and which is independent. However in the regression
analysis the values of regression coefficients i.e. bxy and byx are not symmetric i.e.
bxy and byx and therefore it certainly makes a difference as to which variable is
dependent and which one is independent.

4. In case of correlation, there may be non-sense correlation between two variables

X and Y which is merely due to chance and may not have any practical relevance,
such as increase in income and increase in environmental temperature. However,
there cannot be a non-sense regression.
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5. The value of coefficient of correlation is independent of change of scale and

point of origin. However, regression coefficients are independent of change of
origin but not of scale.

6. While pointing out the difference between regression and correlation Werner Z.
Hirsch rightly stated that, "While correlation analysis tests the closeness with
which two (or more) phenomena co-vary, regression analysis measures the nature
and extent of the relation, that enabling us to make prediction."

Methods of regression
TWO METHODS for determining the equation of a regression line:
(i) Least square method
(ii) Mean based method

(i) Least square method: By using calculus it can be shown that by solving
following two simultaneous linear equations called normal equations, the values of
parameters a and b can be obtained, such that the least square requirement is
followed:

Y on X
Y = na + bX
XY = aX + bX2
These equations are called normal equations. By substituting values of Y, n, X,
XY & X2 (Obtained from the given data) in the above two equations & then
solving, the values of a & b can be obtained.

X on Y
X = nc + dY
XY = cY + dY2

Example: 1
Obtain the two regression lines with the help of the following data:
X 1 3 4 6 8 9 11 14
Y 1 2 4 4 5 7 8 9
Ans: Regression of Y on X is: Y = 0.548 + 0.636X
Regression of X on Y is: X = -0.5 + 1.5Y

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(ii) Method based on mean: Equations of the two regression lines based on mean
are as follows:
X on Y: (X – X) = bxy (Y – Y)
__ __
Y on X: (Y – Y) = byx (X – X)

(1) When deviations are taken from actual mean:

bxy = xy ; byx = xy

y2 x2

(2) When deviations are taken from assumed mean:

bxy = ndx dy – (dx dy)

nd2y – (dy)2

byx = n dx dy - dx dy

n d2x – (dx)2

(3) When standard deviation & coefficient of correlation are given:

r x
y

r y
x
__ __
Where x = X – X, y = Y – Y
x = S.D of X - series
y = S.D of Y - series

Illustration: 1
From the following data obtain the two regression equations:
X 6 2 10 4 8
Y 9 11 5 8 7
Ans: Regression of Y on X is: Y = 11.9 – 0.65X
Regression of X on Y is: X = 16.4 – 1.3Y

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Illustration: 2
From the following data obtain the two regression equations taking deviation of X
from 3 and deviation of Y from 6
X 1 2 3 4 5
Y 3 4 6 9 10
Ans: Regression of Y on X is: Y = 1.9X + .7
Regression of X on Y is: X = .51Y + .26

Regression equations when r, x, y are given:

X on Y = X – X = r x (Y – Y)
y
Y on X = Y – Y = r y (X – X)
x
If deviations in both series are taken from actual means, value of
r y is equal to xy &
x x2

that of r x is equal to xy

y y2

r =  bxy x byx

Illustration: 3
The following information about advertisement & sales are available:
Advertisement exp (X) Sales (Y) (` crores)
(` Crores)
Mean 20 120
S.D 5 25
Correlation coefficient = 0.8 Calculate the two regression equations:
Ans: Regression of X on Y is: X = .16Y + 0.8
Regression of Y on X is: Y = 4X + 40

Illustration: 4
Estimate the yield when rainfall is 9 inches from the following data:

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Mean S.D
Yield of wheat (kg per unit area) 10 8
Annual rainfall (inches) 8 2
Correlation coefficient r = .5
Ans: The yield of wheat is 12 kg when it rains 9 inches

Illustration: 5
The following data relates to the height (X) & weight (Y) of 100 business
executives.
Mean height = 68
S.D (height) = 2.5
Mean weight = 150 lbs
S.D (weight) = 20 lbs
r = 0.6
Estimate from the above data.
(a) The height of an executive whose weight is 200 lbs,
(b) The weight of an executive whose height is 60 ft.
Ans: Regression equation are: X = .075Y + 56.75 & Y = 4.8X – 176.4

Illustration: 6
For certain X & Y series which are correlated, the two lines of regression are as
given below:
5X – 6Y + 90 = 0……(i)
15X – 8Y – 130 = 0…….(ii)
Find which is regression of Y on X & which is X on Y. find the means of two
series & the correlation coefficient.

Ans: Calculation of mean: X = 30 & Y = 40, Calculation of coefficient of

correlation = r = 0.667

Illustration: 7
Find the value of ‘r’ if variance of X = 6.7, S.D of Y = 2.6 & regression equation
of X on Y is X = 0.95Y – 6.4
Ans: r = 0.95

Last year questions

Year 2014

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(a) What do you understand by Multiple Regression?

(b) An investigation of the demand for TV sets in 5 towns has resulted in the
following data
Population (x) 11 14 17 21 25
(in '000)
No. of Sets (Y) 15 27 34 38 46
Demanded

Find a linear regression of Y on X and estimate the demand of TV sets for a

population of 30,000.
Ans: X = 17.6, Y = 32, y = 2.05x-4.08 x = 30, y = 57.42

Year 2011
In order to study the productivity of workers in an industry, ten workers were
selected at random and their scores on aptitude test and the productivity indices
were complied:
Aptitude score (X) 60 62 65 70 72 48 53 73 65 82
Productivity index (Y) 68 60 62 80 85 40 52 62 60 81
From these details, estimate the productivity index for a worker whose test score is
75.
Ans: Y = 1.167x – 10.855, productive index Y = 1.167 x 75 – 10.855 = 76.67

Year 2008
Table below gives the data relating to purchases and sales. Obtain the two
regression equations and estimate the likely sales when the purchases equal to 65.
Purchases 57 58 59 59 60 61 62 64
Sales 77 78 75 78 82 82 79 81
Ans: Y = .66x + 39.4, x = .545y + 16.95, sales = 82.3

Year 2006, 2013

In partial destroyed laboratory record of an analysis of correlation data, the
following results only are legible: variance of X = 9, regression equations 8X –
10Y + 66 = 0 & 40X – 18Y = 214 what are (i) the mean value of x & Y (ii) the
correlation coefficient between X & Y (iii) the standard deviation of Y.
Ans: x = 13, y = 17, r = .6, σy = 4

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Year 2005
If the regression lines are given by 3x + 2y = 26 & 6x + y = 31, find (i) the mean
value of x & y; (ii) the coefficient of correlation between x & y; (iii) estimate the
value of y of x = 0 & value of x when y = 13
Ans: x = 4, y = 7, r = 1, y = 13, x = 3
2
Year 2004
For some bivariate data, the following results were obtained. The mean value of X
is 53.2 & mean value of Y is 27.9. The regression coefficient of Y on X = -1.5 &
the regression coefficient of X on Y is – 0.2. Find the most probable value of Y
when X = 60. Also find out the value of coefficient of correlation between X & Y.
Ans: r = .548, Y = -1.5x + 107.7, Y = 17.7

Year 2000
Calculate the trend values by the method of least squares from the data given
below & estimate the sales for the year 1991.
Year 1983 1984 1985 1986 1987
Sales of T.V 12 18 20 23 27
Sets (in ‘000’)
Ans: Sales for year 1991 = 41

*****

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CHAPTER 6 INDEX NUMBERS

Meaning and Definition of Index Number
The index numbers are the special type of averages which are presented in
percentages and computed on a certain base.

Characteristics of Index Number

Following are the characteristics of index number based on analysis of its various
definitions.
1. Expressed in Numbers: Index numbers can be expressed in numbers only.
Though the changes can also be expressed in words, like production is increasing,
prices are decreasing. But the index number expresses these changes in numbers.

2. Expressed on an Average: Index numbers presents the changes on an average

basis. These are generally used to express the changes in a group of variables and
not of a particular variable or commodity, e.g., if the prices of some commodities
are increasing, there may be a possibility of falling of the prices of other
commodity, some of them may be at constant level. But on an average the change
in prices of a group of items will be represented by index numbers.

3. Comparative Nature: The index numbers are comparative in nature because

they measure, relative changes and relative changes are computed on the basis of
some other data. So it can be said that index numbers are comparative.

4. Universal Utility: Generally index numbers are used to measure the change in
prices in the group of items but the change in the quantity of agricultural
production, industrial production, imports, exports can also be measured through
index numbers.

Kinds of Index Numbers

Index Numbers are of four types mostly:
1. Price Index: Generally index numbers are meant as price indexes. Price index
indicates the change in price between two periods say years or decade.
2. Quantity Index: For measuring the changes in the quantity of production,
consumption, sales, we compute quantity indexes.
3. Value Index: Value indexes indicate the total change in value as compared to
any base year. Here the value means quantity multiplied by price.

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4. Special Purpose Index: When index numbers are computed to measure changes
in some specific area (besides price, quantity or value), e.g. employment, profit
yields etc., they are termed as special purpose index.

Importance and Utility of Index Numbers

While analysing the economic and social problems, the index numbers play an
important role and they are used as indispensable tools in economic and social
analysis. Their importance can also be appreciated as follows:

1. To make complicated facts easy: With the help of index number complicated
and difficult facts can be represented in simple and comparative form. So when
complex figures are presented in percentages they become easier to understand.

2. To provide basis for comparison: Index numbers provide basis for comparison
as they are expressed in abstract unit and not in the unit of an individual item.
Hence comparison between two facts is possible. Using weights, while computing
index number make them comparatively more reliable.

3. To analyse the price changes: With the help of index number we can measure
the changes in general price level and cost of living. For determining the wages
and measuring the change in real wages price indexes are used.

4. Index numbers are economic barometers: Index numbers are useful not only
in analysing the past and present economic condition but they are also important in
forecasting the future economic activity.

5. Knowledge of national and international changes: With the help of index

number the changes at national and international level can be measured. They can
also be used for comparative study.

6. Index number help in management and control: Index numbers are widely
used in various functions of management like - planning, organisation and control.
Because the index number present the information before management in simplest
form.

7. Helpful in policy determination: Through the analysis of the effect of

Inflation, price level changes the national income statistics, on the basis of which
the Government estimate economic trends, then only the Government takes
decisions about different policies. As such, it is helpful for policy for nation
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8. Assists in determination of salaries and dearness allowance: On the basis of

price level changes and the changes in cost of living of various groups in the
society, the dearness allowances and salaries of the government and semi-
government employees are determined.

9. Estimation of National Income changes possible: The estimation and the\

measurement of changes in national income is possible with the help of index
numbers.

10. Useful for public in general: Index numbers are also useful for general public
e.g. the insurance companies decide the amount of premium with the help of index
numbers, speculator's forecast on the basis of index numbers.

Selection of Base Year

While constructing index number a reference to some base period is made. The
base period of index number is that period by which comparison is done. There are
two methods for deciding the base year:

(1) Fixed Base Method

In fixed base method either one year price may be taken as the base or average of
some year may be taken as base.
(a) One Year Base: In this method the price of any normal year is taken as base
and on the basis its comparison is done with other years. From the given period
beginning, ending or middle year may be taken as base.
(b) Average Period Base: When any year is not considered as normal year that
can be used as base year, in that situation the average price of all years can be
considered as base. It is not necessary to consider the prices of all years for

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averaging them. Only selected prices of normal years may be averaged for the
purpose.

(a) Taking the Price of Any One Year as Base:

Illustration: 1
For the following data prepare index number of prices taking 2003 as base in series
A, 2007 as base in series B and 2012 as base in series C.
Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Series A 400 500 700 728 800 880 864 900 960 1000
Series B 15 18 14 19 20 22 25 27 30 35
Series C 21.7 25.0 26.2 29.0 30.6 40.7 40.9 45.7 48.7 50
Solution: Calculation of Price Index

Year Series A Index Nos. Series B Index Nos. Series C Index Nos.
Prices 2003 = 100 Prices 2007 = 100 Prices 2010 = 100
2003 400 100 15 75 21.7 43.4
2004 500 125 18 90 25.0 50.0
2005 700 175 14 70 26.2 52.4
2006 728 182 19 95 29.0 58.0
2007 800 200 20 100 30.6 61.2
2008 880 220 22 110 40.7 81.4
2009 864 216 25 125 40.9 81.8
2010 900 225 27 135 45.7 91.4
2011 960 240 30 150 48.7 97.4
2012 1000 250 35 175 50.0 100.0

(b) Taking Average Price as Base:

In this method P0 means average price of some years, rest will be the same.
Illustration: 2
For the data given below, calculate index numbers taking (i) the average price of
first five years as base, and (ii) the average price of ten years as base.
Year Prices Year Prices
2003 40 2008 68
2004 42 2009 62
2005 48 2010 65
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2006 58 2011 75
2007 62 2012 80
Solution:
First of all average price of first five years and average price of ten years is to be
calculated.
(i) Average Price for the Period 2003 to 2007.
= Rs 40 + 42 + 48 + 58 + 62 = 250/5 = Rs 50 (Po)
(ii) Average Price for the Period 2003 to 2012.
= Rs 40 + 42 + 48 + 58 + 62 + 68 + 62 + 65 + 75 + 80
= 600+10 = Rs 60 (Po)
Calculation of Index Nos.
Year Price Price Index taking Price Index taking
Rs average price of first average price of 10 years
5 years as base, i.e. as base, i.e.
Rs 50 = 100 Rs 60 =100
2003 40 40 X 100/50 = 80 40 x 100/60 = 66.67
2004 42 42 X 100/50 = 84 42 x 100/60 = 70.00
2005 48 48 x 100/50 = 96 48 x 100/60 = 80.00
2006 58 58 x 100/50 = 116 58 x 100/60 = 96.67
2007 62 62 x 100/50 = 124 62 x 100/60 = 103.33
2008 68 68 x 100/50 = 136 68 x 100/60 = 113.33
2009 62 62 x 100/50 = 124 62 x 100/60 = 103.33
2010 65 65 X 100/50 = 130 65 x 100/60 = 108.33
2011 75 75 X 100/50 = 150 75 x 100/60 = 125.00
2012 80 80 x 100/50 = 160 80 x 100/60 = 133.33

(2) Chain Base Method:

When prices are to be compared with only the previous year, this method is used.
In this method neither the price of one fixed year nor an average price is taken as
base but for every year price of just the previous year is taken as base. Formula:
Link Relatives = Current years Price x 100
Previous years Price

Computation of Chain Base Index by Fixed Base Index:

Link relatives compare only the price of just previous year, but sometimes current
year's price is necessary to be compared with price of other year's or with base year
also. For this purpose the following formula is used:

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Chain Index No = (Current year's Link Relatives) x (Previous year's Chain Index)
100

Illustration: 3
Calculate Link Relatives and chain them to 2003 as base:
Year Prices Year Prices
2003 10 2008 40
2004 12 2009 50
2005 15 2010 60
2006 20 2011 72
2007 30 2012 90
Solution:

Calculation of Chain Base Index Numbers

Year Prices Rs Link Relatives Chain Index Numbers(chained to 2003)
(1) (2) (3) (4)
2003 10 100 100
2004 12 120 (120 x 100) /100 = 120
2005 15 125 (125 x 120) / 100 = 150
2006 20 133.3 (133.3 X 150) / 100 = 200
2007 30 150 (150 x 200) / 100 = 300
2008 40 133.3 (133.3 X 300) / 100 = 400
2009 50 125 (125 x 400) /100 = 500
2010 60 120 (120 X 500) / 100 = 600
2011 72 120 (120 X 600) /100 = 720
2012 90 125 (125 x 720) / 100 = 900
Index Number for More Than One Commodity:
There are two methods of constructing simple or unweighted index number of
more than one commodity:
(i)Simple Aggregative Method:
(ii)Simple Average of Price Relative Method.

(i) Simple Aggregative Method: This is simplest method for constructing

simple index number. In this method total of current year's prices of different
commodities is divided by total of base year's prices of different commodities.

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Po1 = ΣP1 x 100

ΣPo

Here ΣP1 = Total of current year's prices

ΣP0 = Total of base year's prices
P0 = Current year's price index on the basis of base year's price

Illustration: 4
Compute price indexes for 2009, 2010, 2011 and 2012 taking 2008 as base year by
Simple Aggregative Method.
Price per Kg.
Commodity
2008 2009 2010 2011 2012
A 2 3 5 5 6
B 8 10 12 12 10
C 10 17 16 18 24
Solution: Calculation of Index Nos. (Simple Aggregative Method)
(Fixed Base 2005 =100)
Commodity 2008 (P0) 2009 (P1) 2010 (P2) 2011 (P3) 2012 (P4)
A 2 3 5 5 6
B 8 10 12 12 10
C 10 17 16 18 24
Total 20 30 33 35 40
2009 = ΣP1 x 100 = 30 x 100 = 150
ΣPo 20
2010 = ΣP2 x 100 = 33 x 100 = 165
ΣPo 20
2011 = ΣP3 x 100 = 35 x 100 = 175
ΣPo 20
2009 = ΣP4 x 100 = 40 x 100 = 200
ΣPo 20

(ii) Simple Average of Price Relatives Method: Price relatives are computed at
first for constructing index number by this method:
One year Base
P1 (Current Year's Price) x 100
Price Relative (R) = P0 (Base Year's Price)

Multi year Base

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P1(Current year's price) x 100

Price Relative (R) = P0 (Average price)

Illustration: 5
Construct Index-Number (taking 2008 = 100) of the data given in illustration 4 by
simple average of price relatives method.
Solution:
Calculation of Index Nos. (2008 = 100)
Commo- 2008 2009 2010 2011 2012
dity Price R Price R1 Price R2 Price R3 Price R4
A 2 100 3 150 5 250 5 250 6 300
B 8 100 10 125 12 150 12 150 10 125
C 10 100 17 170 16 160 18 180 24 240
Total of Price 300 445 560 580 665
Relatives
Mean of Price 100 148.3 186.7 193.3 221.7
Relatives

Illustration: 6
Construct Chain Base Index Numbers chained with 2009 of the following data:
Prices (in Rupees)
Commodity
2009 2010 2011 2012
A 2 3 4 5
B 8 10 12 15
C 4 5 8 10
Solution: Construction of Chain Base Index Numbers

Commodity 2009 2010 2011 2012

s Price L.R. Price L.R. Price L.R. Price L.R
Rs Rs Rs Rs
A 2 100 3 150 4 133.3 5 125
B 8 100 10 125 12 120.0 15 125
C 4 100 5 125 8 160.0 10 125
Total of L.R. 300 400 413.3 375

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Avr. of L.R. 100 133.3 137.8 125

Chain Indi- 133.3 x 100 137.8 x 133.3 125 x 183.7
ces chained 100 100 100
with 2009 100 = 1333 = 183.7 = 229.6

(i) Conversion from Fixed Base to Chain Base:

First year's chain index is taken as 100 and for rest of the years the following
formula is used :
Current year's Chain Index Number = Current year's Fixed Base Index x 100
Previous year's Fixed Base Index

(ii) Conversion from Chain Base to Fixed Base:

First year's fixed base index will be the same as chain base index number, but if
first year is considered as base year then fixed base index of first year will be 100,
for rest years the following formula will be used :
Current Year's Fixed Base Index Number
= Current year's Chain Index Number x Previous year's Fixed Base Index
100

Illustration: 7
Calculate Chain Base Index No. for the following Fixed Base Index Nos.
Year 2006 2007 2008 2009 2010 2011 2012
Fixed Base 120 180 225 180 135 162 243
Index No.
Solution:
Conversion from Fixed Base Index Nos. to Chain Base Index No.
(with 2006 =100)
Fixed Base
Year Index Numbers Chain Base Index Numbers
2006 120 = 100.00
2007 180 (180/120) x 100 = 150.00
2008 225 (225/180) x 100 = 125.00
2009 180 (180/225) X 100 = 80.00
2010 135 (135/180) x 100 = 75.00
2011 162 (162/135) x 100 = 120.00
2012 243 (243/162) X 100 = 150.00

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Illustration: 8
From the following Chain Base Indices, calculate fixed base index numbers:
Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
C.B.I. Nos. 120 125 150 140 110 90 80 125 150 160
Solution:
Year Chain Base Index Nos. Fixed Base Index Nos.
(Given) (chained with 2003)
2003 120 = 120.00
2004 125 (125 x 120) /100 = 150.00
2005 150 (150 x 150) /100 = 225.00
2006 140 (140 x 225) / 100 = 315.00
2007 110 (110 x 315) /100 = 346.50
2008 90 (90 x 346.50) / 100 = 311.85
2009 80 (80 x 311.85) / 100 = 249.48
2010 125 (125 x 249.48) / 100 = 311.85
2011 150 (150 X 311.85) /100 = 467.78
2012 160 (160 X 467.78) /100 = 748.44
Construction of Weighted Index Numbers:
There are two methods of constructing weighted index numbers:
(i) Weighted Aggregative Expenditure Method
(ii) Weighted Average of Price Relatives Method

Weighted Aggregative Method, Laspeyers formula, aggregative expenditure

method.
In this method, number of units produced or used or sold in the base year (q0) are
treated as weights and thus following formula is used:

Po1 = ΣP1q0 x 100

ΣPoq0
Here P01 = Current years weighted index.
ΣP1q0 = Sum of the product of current year's price and base year's quantity.
ΣP0q0 = Sum of the product of base year's price and base year's quantity.

Weighted Average of Relatives Method, family budget method

In this method, price relatives (R or I) of commodities are computed and they are
multiplied by respective weights (W); again the sum of these products are found.
They are denoted by ΣRW or ΣIW.
Formula:
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Po1 = ΣRW or ΣIW

ΣW or ΣW
This method is also known as Family Budget Method.

Illustration: 9
Calculate weighted index number for 2012 of the following data by (i) Weighted
Aggregative Method, and (ii) Weighted Average of Relatives Method:
Base Year 2012
Commodities. Price Qty (kg) Price Qty (kg.)
A 5.00 10 7.50 9
B 2.00 20 2.40 17
C 4.00 5 6.00 4
D 10.00 7 11.00 7

Solution: Calculation of Index Number for 2012

(by Weighted aggregative and weighted relatives methods)
Base Year 2012 Weighted Aggregative Relatives
Commo- Price Qty. Price
dities (Po) (%) (P1) P1qo Poqo R RW
Rs kg- Rs or W
A 5 10 7.50 75.00 50.00 150 7500
B 2 20 2.40 48.00 40.00 120 4800
C 4 5 6.00 30.00 20.00 150 3000
D 10 7 11.00 77.00 70.00 110 7700
Total 230.00 180.00 23,000
I. Weighted Aggregative Method:
Po1 = ΣP1q0 x 100 or 230 x 100 = 127.78
ΣPoq0 180

II. Weighted Average of Relatives Method

Po1 = ΣRW or 23000 = 127.78
ΣW or 180

Methods of Weighting: The following are the formulae of weighted index

prescribed by various statistician :

(1) Laspeyer's Formula: Laspeyer uses base years quantity as weights, the
Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.
Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .11
A unit of Realwaves (P) Ltd Index Number

formula is :
Po1 = ΣP1q0 x 100
ΣPoq0
In Weighted Aggregative Method, the same formula is used.

(2) Paasche's Formula: Paasche uses current years quantity as weights, the
formula is:
Po1 = ΣP1q1 x 100
ΣPoq1

(3) Dorbish and Bowley's Formula: Dorbish and Bowley suggest the formula
like arithmetic average of Laspeyer's and Paasche's index number.

ΣP1q0 + ΣP1q1
Po1 = ΣPoq0 ΣPoq1 x 100
2
This formula can also be presented as:
Po1 = L+P
2
Here L means Laspeyer's index and
P means Paasche's index.

(4) Fisher's Ideal Index Number: Fisher takes the geometric mean of Laspeyer's
index and Paasche's index. Formula is given below:

Po1 = ΣP1q0 x ΣP1q1 x 100 or Po1 = L x P

ΣPoq0 ΣPoq1

Illustration: 10
For the following data calculate Index Number by using formulae (1) to (4)
discussed above:
Base Year Current Year
Commodities Price Quantity Price Quantity
(Rs) (kg.) (Rs) (kg.)
A 10 15 12 12
B 3 10 4 10
C 5 100 4 120
D 7 70 8 50

Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.

Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .12
A unit of Realwaves (P) Ltd Index Number

Solution:
Computation of Index Number by Different Formulae
Base Year Current Year
Commo- Price Qty. Price Qty. P1qo P0q0 P1q1 P0q1
dities Po q0 P1 q1
A 10 15 12 12 180 150 144 120
B 3 10 4 10 40 30 40 30
C 5 100 4 120 400 500 480 600
D 7 70 8 50 560 490 400 350
Total 1,180 1,170 1,064 1,100
(i) Laspeyer's Formula:
Po1 = ΣP1q0 x 100 or 1180 x 100 = 100.86
ΣPoq0 1170

(ii) Paasche's Formula:

Po1 = ΣP1q1 x 100 or 1064 x 100 = 96.73
ΣPoq1 1100

(iii) Dorbish and Bowleys formula:

Po1 = L+P or 100.86 +096.73 = 98.795
2 2

(iv) Fisher's formula:

Po1 = ΣP1q0 x ΣP1q1 x 100 = 1180 x 1064 x 100 = 98.77

ΣPoq0 ΣPoq1 1170 1100

Consumer Price Index Number:

General Price Index Numbers fail to give an exact idea of the effect of the change
in the general price level on the cost of living in different classes of society. A big
difference is found as regards customs, fashions, and consumable things in
different classes of people. So the changes in price levels affect the people in
different manner. The index number constructed for determining the effect of rise
and fall in prices of different classes of consumers living in different area are
called "Consumer Price Index Numbers" or "Cost of Living Index Numbers".

Methods of Constructing Consumer Price Index Number:

1. Aggregate Expenditure Method or Weighted Aggregative Method.
Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.
Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .13
A unit of Realwaves (P) Ltd Index Number

2. Relative Methods or Family Budget Method.

1. Aggregative Expenditure Method: In this method base year's quantity is used

as weight. It is assumed in this method that if the consumer uses the same quantity
as he used in the base year, how much expenditure he will have to incurr.
Formula is:
Po1 = ΣP1q0 x 100
ΣPoq0
This is the same formula which has already been explained in Weighted
Aggregative Method.

Illustration: 11
Calculate Index Number by Aggregate Expenditure Method for 2007 taking 2012
as base from the following data:
Commodity Unit Qty. Consume Price (Rs) Price (Rs)
2007 2007 2012
Wheat per quintal 2 quintals 250 500
Rice per quintal 1 quintal 400 550
Arhar per kg. 20 kg. 6 14
Sugar per kg. 0.5 quintal 10 15
Salt per quintal 10 kg. 100 150
Oil per kg. 10 kg. 20 40
Clothing per metre 20 metre 15 25
Fuel per quintal 4 quintal 60 75
Rent per house — 250 375
Solution: Construction of Cost of Living Index (Aggregate Expenditure Method)

Commo- Qty. used Price Price Aggregate

dity- 2007 q0 Unit 2007 Po 2012 P1 2007 2012
P0q0 P1q0
Wheat 2 qntl. per qntl. 250 500 500 1000
Rice 1 qntl. per qntl. 400 550 400 550
Arhar 20 kg. per kg. 6 14 120 280
Sugar 0.5 kg. per kg. 10 15 500 750
Salt 10 qntl. per qntl. 100 150 10 15
Oil 10 kg. per kg. 20 40 200 400
Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.
Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .14
A unit of Realwaves (P) Ltd Index Number

Clothing 20 metre per mt. 15 25 300 500

Fuel 4 qntl. per qntl. 60 75 240 300
Rent One house per house 250 375 250 375
Total - - - - 2,520 4,170
Σpoqo Σp1qo
Po1 = ΣP1q0 x 100 = 4170 x 100 = 165.5
ΣPoq0 2520

It is evident from above that prices have increased by 65.5% in 2012 as

compared to 2007.

2. Family Budget Method: This method has already been discussed earlier under
the Weighted Average of Relatives Method.
Formula:
Po1 = ΣRW
ΣW
R = Price Relatives
W = Weights
Σ = Total

Illustration: 12
From the data given below calculate the cost of living index number for prices for
the year 2012 with 2011 as base by family budget method:

Quantity Price Price

Group consumed 2011 Unit 2011 2012
1. Foodgrains 3 quintals per quintal 12.00 18.00
2. Clothing 12 mts. per mt. 1.00 0.90
3. Fuel 40 kg. per kg. 0.20 0.25
4. House Rent 3 rooms per room 25.00 23.00
5. Miscellaneous 30 units per unit 0.40 0.50
Solution:
Cost of Living Index Number
(Family Budget Method)
Group Qo 2011 Unit Po P1 R P0q0 (W) RW
1. Foodgrains 3 qnt. per qnt. 12.00 18.00 150 (W)
36 5400
2. Clothing 12 mts. per mt. 1.00 0.90 90 12 1080
Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.
Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .15
A unit of Realwaves (P) Ltd Index Number

3. Fuel 40 kg. per kg. 0.20 0.25 125 8 1000

4. House Rent 3 rooms per room 25.00 23.00 92 75 6900
5. Miscellaneous 30 units per unit 0.40 0.50 125 12 1500
Total - - - - - 143(ΣW) 15880
(ΣRW)
Cost of Living Index Number for 2012 (P01)
Po1 = ΣRW = 15880 = 111.05
ΣW 143

Illustration: 13
Construct the Consumer Price Index for the year 2012 on the basis of 2011 from
the following data using (i) Aggregate Expenditure Method, and (ii) Family
Budget Method.
Items Quantity consumed Unit Prices in Prices in
in 2011 2011 (Rs) 2012 (Rs)
Wheat 150 kg. per quintal 200.00 300.00
Rice 50 kg. per quintal 600.00 700.00
Pulses 50 kg. per quintal 500.00 600.00
Eggs 9 pieces per dozen 12.00 9.00
Fish 5 kg. per kg. 10.00 15.00
Chicken 10 pieces per piece 20.00 30.00
Cheese 200 gramms per kg. 25.00 30.00
Butter 20 packets per packet 3.00 3.00
Milk 200 kg. per kg. 4.00 4.10
Salt 10 kg. per tonne 1000.00 1000.00
Clothing 100 metres per metre 10.00 15.00
Entertain-
ment 30 units per unit 10.00 10.00
House 4 units per unit 200.00 250.00
Suppose the importance of various items in the family budget are given as below,
will there be any difference in the result?
Items: Wheat Rice Pulses Eggs Fish Chicken
Weights: 30 30 25 1 .5 2
Items: Cheese Butter Milk Salt Clothing Entertainment House
Weights: 1 1 8 1 50 30 26
(One tonne = 1000 kg., One Quintal = 100 kg.)

Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.

Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .16
A unit of Realwaves (P) Ltd Index Number

Solution:
Calculation of Consumer Index
Price
Quantity Prices Prices Value Price
Relatives x
consumed in in Weights Relatives
Commodities Unit Value
in 2011 2011 2012 or W 2011 =100
Weights
(q0) (po) (p1) (P0q0) (R)
(P1q0) (RW)
Wheat 150 kg. per Quintal 200 300.00 450.00 300 150.00 45,000
Rice 50 kg. per Quintal 600 700.00 350.00 300 116.67 35,001
Pulses 50 kg. per Quintal 500 600.00 300.00 250 120.00 30,000
Eggs 9 pieces per Dozen 12 9.00 6.75 9 75.00 675
Fish 5 kg per kg. 10 15.00 75.00 50 150.00 7,500
Chicken 10 pieces per piece 20 30.00 300.00 200 150.00 30,000
Cheese 200 gramms per kg. 25 30.00 6.00 5 120.00 600
Butter 20 packets per packet 3 3.00 60.00 60 100.00 6,000
Milk 200 kg. per kg. 4 4.10 820.00 800 102.00 82,000
Salt 10 kg. per Tonne 1000 1000.00 10.00 10 100.00 1,000
Clothing 100 metres per Metre 10 15.00 1500.00 1000 150.00 1,50,000
Entertainment 30 units per unit 10 10.00 300.00 300 100.00 30,000
House 4 units per unit 200 250.00 1000.00 800 125.00 1,00,000
5177.75 4084 1558.67 5,17,776
(Σp1q0) (Σpoqo) (ΣR) (ΣRW)
or ΣW
(i) By aggregative expenditure method:
Po1 = ΣP1q0 x 100 = 5177.75 x 100 = 126.78
ΣPoq0 4084.00

(ii) By family budget method:

Po1 = ΣRW = 517776 = 126.78
ΣW 4084

Factor Reversal Test: This test has also been formulated by Fisher. In the words
of Fisher, "Just as each formula should permit interchange of two items without
giving inconsistent result so it ought to be present in changing the price and
quantities without giving inconsistent result, i.e. the two results multiplied together
should give the true value, ratio”.
Simply, the product of price index and the quantity index should be equal
to corresponding value index. Formula:
P01 x Q01 = ΣP1q1
ΣPoq0

Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.

Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .17
A unit of Realwaves (P) Ltd Index Number

Factor reversal test is satisfied only by Fisher's formula, that's why his formula is
called ideal index number.
Though Fisher's formula satisfies all mathematical characteristics but it does not
clearly indicate what it measures. The result of this formula shows the effect of
change in prices as well as- in quantities, whereas we generally keep the one
distinct from the other.
Theoretically, Fisher's formula is suitable but for practical use, it is not much
useful.

Illustration: 14
Calculate Fisher's Ideal Index for the following data and show that it satisfies time
reversal and factor reversal tests.
Base year Current year
Articles Price (Rs) Quantity (Kg) Price (Rs) Quantity (Kg)
A 6 50 9 55
B 2 100 3 125
C 4 60 6 65
D 10 30 14 25

Solution: Calculation of Fisher's Ideal Index Number

Base Year Current Year
Articles Price Qty. Price Qty P0q0 P1q0 P0q1 P1q1
(P0) (q0) (P1) (q1)
A 6 50 9 55 300 450 330 495
B 2 100 3 125 200 300 250 375
C 4 60 6 65 240 360 260 390
D 10 30 14 25 300 420 250 350
Total 1,040 1,530 1,090 1,610
Fisher's Ideal Index No =
P01 = ΣP1q0 x ΣP1q1 x 100
ΣP0q0 ΣP0q1

Or = 1530 x 1610 x 100 or 24633 x 11366 x 100 = 147.41

1040 1090
= 1.2393 x 100 or 123.93 Time increase of 23.93% is recorded.

Time Reversal Test = P01 x P10 = 1

Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.
Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .18
A unit of Realwaves (P) Ltd Index Number

P01 = ΣP1q0 x ΣP1q1

ΣPoq0 ΣPoq1

= 1530 x 1610
1040 1090

P10 = ΣP0q0 x ΣP0q1

ΣP1q0 ΣP1q1

= 1090 x 1040
1010 1530

Or = P01 x P10 = 1/1 or 1

So, Time Reversal Test is satisfied.
Factor Reversal Test = P01 x Q01 = ΣP1q1
ΣP0q0
P01 = ΣP1q0 x ΣP1q1
ΣPoq0 ΣPoq1

= 1530 x 1610
1040 1090

Q01= ΣP0q1 x ΣP1q1

ΣP0q0 ΣP1q0

= 1090 x 1610
1040 1530

P01 x Q01 = 1530 x 1610 x1090 x 1610

1040 1090 1040 1530

= 1610 x 1040
1610 x 1040

= 1610 or ΣP1q1 = 1610

1040 ΣPoq0 1040

So, Factor Reversal Test is also satisfied.

Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.
Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .19
A unit of Realwaves (P) Ltd Index Number

Quantity Index Number

Price index numbers measure the change in the prices of commodities over a
period of years, on the other hand quantity index number measure the changes in
the volume of production, construction or employment over a period of years.
Formula for simple or unweighted quantity index:

Q01 = q1 x 100
q0

Here q1 = Quantity of current year

q0 = Quantity of base year
Q01 = Current year's quantity index based on base year's quantity.

Base Shifting: Base shifting is generally required due to following two reasons:
(i) The base year is too old to compare with the current year.
(ii) If different series of index numbers are based on different base years and they
are to be compared with each other.

There are two methods for this purpose:

1. Reconstruction Method: In-this method base year's price is taken as 100 and
price relatives are computed for each year accordingly. This method requires more
exercise hence is generally not used.

2. Short-cut Method: In this method new base year's index is taken as 100 and for
old index number the following formula is used:

New Index Number based on new base = Old Index No. of current year x 100
Old Index No. of new base year

Illustration: 15
Shift the base of the following indices from 2003 to 2008:

Year : 2003 2004 2005 2006 2007

Index No. 80 100 120 160 180
:Year : 2008 2009 2010 2011 2012
Index No. 200 250 300 400 420
:
Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.
Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .20
A unit of Realwaves (P) Ltd Index Number

Solution:
For shifting the base year index number of 2008 will be taken as 100 and for rest,
the following formula will be used:

New Index Number based on new base = Old Index No. of current year x 100
Old Index No. of new base year

Year Old Indices New Indices (based on 2008 from 2003)

2003 80 (80/200) x100 = 40
2004 100 (100/200) x 100 = 50
2005 120 (120/200) x 100 = 60
2006 160 (160/200) x 100 = 80
2007 180 (180/200) x 100 = 90
2008 200 (200/200) x 100 = 100
2009 250 (250/200) x 100 = 125
2010 300 (300/200) x 100 = 150
2011 400 (400/200) x 100 = 200
2012 420 ( 420/200) x 100 = 210
Deflation of Index Number
Computation of real wages from money income with taking the effect of price
level changes is known as deflating of index number.
Sometimes it is found that the salary/wages of an employee increases but on
the other hand if prices are increased comparatively, workers' purchasing power
will reduce. Hence it is important to calculate the real salary and wages from the
money income to judge whether there is any increase in the purchasing power of
an employee or not.
Formulae:
(i) Real income or Real wages = Money income or wages x 100
Price index

(ii) Index No. of Real Income = Real Income of current year x 100
Or deflated Index number Real Income of base year

(iii) If index number of money income is given in the question and index number
of real wages are to be computed, then:

Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.

Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .21
A unit of Realwaves (P) Ltd Index Number

Index No. of Real Wages = Index No. of wages for the year x 100
Price Index for the year

Illustration: 16
The following table gives the average monthly salary of a teacher and the general
index of price during the last 8 years:
Year: 2004 2005 2006 2007 2008 2009 2010 2011 2010
Income (in Rs) 360 420 500 550 600 660 720 780 820
Price Index 100 104 115 160 250 300 360 400 425
Find the real average monthly income and its index nos. taking 2004 as base.

Solution:
Construction of Real Income Index Nos.

Year Income (Rs) Price I. No Real Income Index No. of

Real Income
2004 360 100 (360/100) x 100 = 360 100.0
2005 420 104 (420/104) x 100 = 404 112.2
2006 500 115 (500/115) x 100 = 435 120.8
2007 550 160 (550/160) x 100 = 344 95.6
2008 600 250 (600/250) x 100 = 240 66.7
2009 660 300 (660/300) x 100 = 220 61.1
2010 720 360 (720 /360) x 100 = 200 55.6
2011 780 400 (780/400) x 100 = 195 54.2
2012 820 425 (820/425) x 100 = 193 53.6

Note: (1) Real Income have been computed by using the formula:
Money Income x 100
Price index

(2) Index No. of Real Income have been computed by using the formula
Real Salary of Current Year x 100
Real salary of base year

Splicing
Sometimes series of index number based on a certain year is discontinued and a
new series of index number is prepared by taking another year as base. Thus two
series of index number would result. In this situation index number of these two
series are not comparable because both are based on different years. If these are to
Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.
Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .22
A unit of Realwaves (P) Ltd Index Number

be compared then new series will be converted on the basis of old series or vice-
versa, this conversion/shifting is called splicing. Splicing may be taken as another
form of base shifting.

Formula for splicing

(a) Splicing of new series in old series (Forward splicing):
Spliced Index number = Index number of x Old index number of
current year base year
100

(b) Splicing of old series in new series (Backward splicing):

Index Number of Old series Index Number of old series
Spliced Index Number = of the year current year x of the New Base Year
Index Number of old series of the new base Year

Illustration: 17
Two series of Index Nos. are given below, old is based on 2003 and new is based
on 2007:
Year : 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Index Nos.
(2003 =100)
100 120 140 180 200
I. Nos.
(2007 =100)
100 140 160 240 290 320
Splice the new series (2005 = 100) with the old series (2001 = 100) and vice-versa
Solution:
Spliced Index Numbers
Year Old Series New Series New spliced Old spliced
with old with new
2003 100 - 100 50
2004 120 - 120 60
2005 140 - 140 70
2006 180 - 180 90
2007 200 100 200 100
2008 - 140 280 140
2009 - 160 320 160
2010 - 240 480 240
2011 - 290 580 290
2012 - 320 640 320
Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.
Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .23
A unit of Realwaves (P) Ltd Index Number

Note:
(i) Splicing of new series with old series has been done as follows:
(2007): 100 = 200; (2008): 140 x 200 = 280; (2009): 160 x 200 = 320
100 100
(2010): 240 x 200 = 480 (2011): 290 x 200 = 580; (2012): 320 x 200 = 640
100 100 100

(ii) Splicing of old series with old series has been done as follows:
(2003): 100 x 100 = 50; (2004): 100 x 120 = 60; (2005): 100 x 140 = 70
200 200 200
(2006): 100 x 180 = 90 (2007): 100 x 200 = 100; (2008): and onward
200 100 (given)

Illustration: 18
The prices of articles A and B for the years 2009 and 2010 are given below:
Years Prices Per Unit is Rs
A B
2011 10 3
2012 5 6
Using simple average construct Index Number of prices of 2012 taking 2011 as
base. Then construct index number of prices in 2011 taking 2012 as base.
Comment on the contradictory results.
Solution:
Index No. for 2012 taking 2011 as Base
Sr.no Article Price 2011 Price 2012 R = P1 x 100 Total
P0 P1 P0
1 A 10 5 5 x 100 = 50 250
10
2 B 3 6 6 x 100 = 200 I.No. = 250 = 125
3 2
Index No. for 2009 taking 2010 as Base
Sr.no Article Price 2011 Price 2012 R = P1 x 100 Total
P0 P1 P0
1 A 10 5 10 x 100 = 200 250
5
2 B 3 6 3 x 100 = 50 I.No. = 250 = 125
6 2

Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.

Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .24
A unit of Realwaves (P) Ltd Index Number

Comment: It reveals that the results of both the years is the same, which is not
correct by any means. It is the defect of simple mean which does not possess the
reversibility.

Illustration: 19
The average of wholesale prices was higher in 2012 than in 2011 by 15.1 per cent,
the index number for two years being 108.7 and 94.4 respectively (2005=100). The
increase followed rise of 6.1, 1.0 and 2.8 per cent, each year being compared with
the preceding year. In 2008 prices were the same as in 2007, but 2.5 per cent below
2006. Prices in 2006 were 12.2 per cent below 2005. From these data, compute the
index numbers for each year from 2005 to 2012.
Solution:

The information given in the question is related to Link Relatives. So at first link
relatives will be put in column 2. The base of comparison is preceding year.
Thereafter these have been chained to 2005.

Year Link Relatives Chained with 2000 = 100

2005 - = 100.0 - 100
2006 (100 - 12.2) = 87.8 (87.8 X 100) /100 = 87.8
2007 (100 - 2.5) = 97.5 (97.5 x 87.8)/ 100 = 85.6
2008 (same price) = 100.0 (100.0 x 85.6) /100 = 85.6
2009 (100 + 2.8) = 102.8 (102.8 x 85.6) /100 = 88.0
2010 (100 + 1.0) = 101.0 (101.0 x 88.0) /100 = 88.9
2011 (100 + 6.1) = 106.1 (106.1 x 88.9) /100 = 94.4
2012 (100 + 15.1) = 115.1 (115.1 x 94.4) /100 = 108.7
Note: Chained index for 2006 and 2007 have been given in the question hence
they have been put as it is.

Illustration: 20
Given the production of wool in crores of kgs. in Australia and the whole world for
five years from 2008. Construct index numbers of the share of Australia in world
supply taking average output from 2008 to 2012 as base:
Years 2008 2009 2010 2011 2012
Australia: 80 88 92 89 87
Whole World: 272 281 279 276 267
Solution:
Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.
Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .25
A unit of Realwaves (P) Ltd Index Number

For construction of index number percentage of the production of Australia out of

world production shall be ascertained. Thereafter the index numbers shall be
computed by taking average price as base.
Construction of Index Numbers
Year Production in crore kgs. Index Nos. of output
World Australia Percentage taking 31.7 = 100
2008 272 80 29.4 92.74
2009 281 88 31.3 98.74
2010 279 92 33.0 104.11
2011 276 89 32.2 101.58
2012 267 87 32.6 102.84
Total 1,375 436 158.5 -
Average of % Production (X) 158.5 + 5 = 31.7

Illustration: 21
An enquiry into the budgets of middle class families of Jodhpur gave the following
information:
Standard
Expenses on Price 201l Price 2012 Price (Rs)
Food 35% 150 145 100
Rent 15% 30 30 25
Clothing 20% 75 65 50
Fuel 10% 25 25 20
Miscellaneous 20% 40 45 40
What changes in the cost of living figures of 2011 and 2012 are seen as compared
to standard price? Also find out the percentage increase in prices in 2012 as
compared to 2011?
Solution:

This question is of Family Budget Method. Hence, first, price relative (R1& R2)
will be computed on the basis of standard prices by using following formula:
R1 = P1 x 100, R2 = P2 x 100
P0 P0

Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.

Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 6 .26
A unit of Realwaves (P) Ltd Index Number

Construction of Cost of Living Index Nos.

Groups Std. Price Price R1 R2 W R1W R2W
Price 2011 2012 (%)
P0 P1 P2
Food 100 150 145 150 145 35 5250 5075
Rent 25 30 30 120 120 15 1800 1800
Cloth 50 75 65 150 130 20 3000 2600
Fuel 20 25 25 125 125 10 1250 1250
Misc 40 40 45 100 112.5 20 2000 2250
Total P0 P1 P2 - - 100 13300 12975
(ΣW) (ΣR1W) (ΣR2W)
Cost of Living Index for 2009 = ΣR1W or 13300 = 133.00
ΣW 100
Cost of Living Index for 2010 = ΣR2W or 12975 = 129.75
ΣW 100
Prices in 2012 have fallen (133-129.75) = 3.25

Percentage decline = 3.25 x 100 = 2.44%

133

Illustration: 22
An association of drinkers consists 50 members using standard drinks. Calculate
weighted consumer price index for 2012 based on 2011 prices:
Name of the Drink Whisky Rum Gin Brandy Wine Tharra
Price per bottle
2011 60 55 40 30 10 10
2012 75 60.50 50 45 12 08
Out of 50 members 10 members prefer Whisky, 5 members Gin, 8 members
Brandy, 7 members Rum, 12 members Wine and the rest prefer Tharra.
Solution:

Calculation of Index Numbers (Weighted Relatives Method)

Price Products of R
drinks Price per bottle Preferences (W) relative (R) with W (RW)
2009 P0 2010 P1 (RW)
Wisky 60 75.00 10 125 1,250
Rum 55 60.50 7 110 770
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Gin 40 50.00 5 125 625

Brandy 30 45.00 8 150 1,200
Wine 10 12.00 12 120 1,440
Tharra 10 8.00 8 80 640
Total ΣW = 50 ΣRW = 5,925
P01 = ΣRW or 5925 = 118.50
ΣW 50
Hence the prices of drinks have increased to the extent of 18.5% in 2012 as
compared to 2011.

Illustration: 23
Construct Fisher's ideal index no. for the following table:

Articles Base Year Current Year

Price Quantity Price Quantity
Food 16 50 24 45
Clothing 18 30 24 25
Rent 20 5 15 8
Fuel 10 6 12 6
Misc. 10 10 14 12
Solution:

Base Year Current Year

Articles Price P0 Qty.q0 Price P1 Qty.Q1 P1qo Poq0 P1q1 P0q1

Food 16 50 24 45 1200 800 1080 720
Clothing 18 30 24 25 720 540 600 450
Rent 20 5 15 8 75 100 120 160
Fuel 10 6 12 6 72 60 72 60
Misc. 10 10 14 12 140 100 168 120
Total 2,207 1,600 2,040 1,510
Fisher's Ideal Index No.

= ΣP1q0 x ΣP1q1 x 100

ΣP0q0 ΣP0q1
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= 2207 x 2040 x 100 or 1.379 x 1.351 x 100 = 136.5

1600 1510

Illustration: 24
Calculate the Fisher's ideal index no. from the following table:
Articles 2011 2012
Expenses Price Expenses Price
(in Rs) (in Rs) (in Rs) (in Rs)
X 300 10 150 10
Y 400 8 250 25
Z 420 7 200 40
Solution:
In this problem price and expenditure is given but quantity is not given. We will
find out qty. by dividing expenditure with price.
Construction of Fisher's Ideal Index Number
Base Year Current Year

Articles Price P0 Qty.q0 Price P1 Qty.Q1 P1qo Poq0 P1q1 P0q1

X 10 30 10 15 300 300 150 150
Y 8 50 25 10 1250 400 250 80
Z 7 60 40 5 2400 420 200 35

Total 3950 1,120 600 265

Fisher's Ideal Index No. =
= ΣP1q0 x ΣP1q1 x 100
ΣP0q0 ΣP0q1

= 3950 x 600 x 100 or 3.527 x 2.264 x 100 = 282.6

1120 265

Year 2014
Define Index Number. What are the main ways of constructing Index Number?

*****
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CHAPTER 7 PROBABILITY
The word ‘probability’ is related with chance of happening or not happening of an
event. In our daily life we come across with some events of estimating i.e.,
probability e.g. ‘the probability that it will rain today’, ‘probability of getting a
particular number up when dice is thrown’, probability of getting a head or tail by
tossing a coin etc.

PERMUTATIONS (Arrangement)
Permutation refers to the different arrangements of objects in a set where all
elements are different and distinguishable.
Permutations of n different objects taken r at a time: Suppose we have n different
objects and r space to be filled. For filling the first space we can choose any object
from n object hence to fill first space from r spaces the are or n objects.
The first space can be filled in n different ways. The second space can be
filled in (n -1) ways. There are (n - 2) ways for the third space and so on. The final
space is filled in n - (r -1) = n – r + 1 ways after the first space have been filled up.
n
Pr = n
(n-r)
In this way for getting permutations of n different objects taken r at a time there
are two formulae.

Q1 How many different words can be formed using the letters J, A, I, P, U, R,

taken (a) all at a time; and (b) three at a time.
Ans: (a) 720 words (b) 120 words

Combinations (selection)
Forming of different groups out of different items is known as combination. It is to
be noted that from combination point of view AB or BA are the same but from
permutation point of view they are different. One has to note that in combination
the placement of item in any order is not important while in case of permutation
the order of placement is important.
n
Cr = n
(n-r) r

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Q1 In how many ways a team of 11 players can be formed out of 15 players?

Ans: 1365 ways

Probability Theory
In the general language one use the term probability in the sense of happening or
not happening of an event.

Probability = Number of cases favorable to events

Number of all possible cases

Q1 Three Coins are tossed simultaneously. What is the probability that they will
fall 2 head and 1 tail.
Ans: P = 3/8

Q2 A library received 20 books including 8 Hindi novels. If 2 of these books are

selected at random, what is the probability that no one of them is a Hindi novel?
Ans: P = 0.347

Types of events

(i) Equally likely events: Such an event which has equal chance of happening for
example getting head or tail on tossing a coin, in the same way getting one or six in
a throw of dice.

(ii) Independent events: These are such events the happenings of which do not
prevent the happening of other events. For example-getting head in the first chance
of tossing a coin do not prevent getting tail in second throw of coin.

(iii) Dependent events: If the happening of an event effects the other event then it
is known as dependent event. For example drawing a jack from a pack of cards
will have a probability of 4/52 or 1/13 but after drawing the jack and not replacing
it in the pack of cards the probability of drawing jack in the second chance will be
3/51, as such the second event is affected by the first event and such events are
called dependent events.

(iv) Overlapping events: if a part of an event can occur together with another part
of second event then these two or more events which occurred together are known
as overlapping events. In general, these events are partially overlapping. For

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example, drawing a red diamond card or drawing an ace card is an overlapping

event since both these events are present in a red diamond ace card i.e, it is both a
red diamond card and an ace also. In the above situation the probability of drawing
a red diamond card or an ace card will be determined as follows:
Probability of drawing a red diamond card
P (A) = 13
52
Probability of drawing an ace
P (B) = 4
52
Probability of drawing a red diamond ace card (overlapping event)
P (AB) = 1
52
Hence, the probability of drawing a red diamond card or an ace
= 13 + 4 – 1 = 16 = 4
52 52 52 52 13

Probability Theorems
There are two important theorems of probability, namely:
1. Addition theorem 2. Multiplication theorem.

1. Addition theorem

Case I: When events are mutually exclusive

The addition theorem states that if two events A and B are mutually exclusive
the probability of the occurrence of either A or B is the sum of the individual
probability of A and B. symbolically
P (AB) = P (A) + P (B)
In other words
P (A or B) = P (A) + P (B)
This theorem can be extended to three or more mutually exclusive events. Thus
P (A or B or C) = P (A) + P (B) + P (C)

Q1 A bag contains 5 red, 2 black, 3 yellow and 4 green balls. What is the
probability of getting a red or green ball at random in a single draw of one?
Ans: 9
14

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Q2 A card is drawn at random from a pack of 52 playing cards. Find the

probability that a card drawn is either a king or the ace of diamonds.
Ans: 5
52

Case II: When events are not mutually exclusive

When events are not mutually exclusive i.e. it is possible for both events to occur
together, the addition theorem must be modified. For example select an ace or a
card for diamond. Here one card is an ace of diamond, which is included
(common) in both the events. We must reduce from the probability of drawing an
ace or a diamond, the chance that we can draw both of them together. Hence for
finding the probability of one or more of two events that are not mutually exclusive
we use the modified form of the addition theorem, which is as follows
P (A or B) = P (A) +P (B) – P (A and B)
In other words
P (A  B) = P (A) +P (B) – P (A  B)
In the case of three events,
P (A or B or C) = P (A) + P (B) + P (C) – P (AB) – P (AC) - P (BC) + P (ABC)

Q1 In a group of 200 drycleaners, 70 have washing machines, 50 have cloth driers

and 30 have both. Find the probability that a given dry cleaner has a washer or a
drier.
Ans: 90
200

Q2 A group of 200 dry cleaners has the following distribution of washers, driers,
and dishwashers.
Washers 110 washers and driers 40
Driers 50 dishwashers and driers 25
Dishwashers 60 washers and dishwashers 35
All three 20
Find the probability that a dry cleaner has a washer or drier or dishwasher.
Ans: 140
200

Q3 In a city three daily newspaper X, Y, Z is published. 40% of the people of the

city read X, 50% read Y, 30% read Z, 20% read both X and Y, 15% read X and Z,

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10% read Y and Z and 24% read all the three papers. Calculate the percentage of
people who do not read any of the three papers.
Ans: 1%

Q4 (i) What is the probability of drawing a spade or a king from a pack of cards.
(ii) Twenty balls are serially numbered and placed in a bag. Find the chance that
the first ball drawn in a multiple of 3 or 5.
(iii) A number is chosen at random from numbers ranging from 1 to 50. What is
the probability that the number chosen is either a multiple of 2 or 10?
Ans: (i) 16 (ii) 9 (iii) 1
52 20 2

Q5 If a pair of dice is thrown, and what is the probability that the sum of the digit
is neither 7 nor 11.
Ans: P = 7
9

Q6 What is the probability of getting a total of at least 9 in a single throw of two

dice?
Ans: 10
36

Q7 A bag contains 20 balls marked 1 to 20. One ball is drawn at random. What is
the probability that it is marked with a number multiple of 5 or 7?
Ans: 6
20

2. Multiplication Theorem or Multiplicative law of probability

Case I: When events are independent:

The multiplication theorem states that if two events A and B are independent,
the probability that they both will occur is equal to the product of their individual
probabilities, i.e.
p(A and B) = p(A) x p(B)
The theorem can be extended to three or more independent events.
Thus,
p(A,B and C) = p(A) x p(B) x p(C)

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Q1 A bag contains 5 red, 6 black and 4 green balls. What is the probability of
getting a red ball followed by a green ball in two successive draws of one ball
each, assuming that a ball once drawn is replaced before a second one is drawn?
Ans: 20
225

Q2 An ordinary coin and a six face dice were tossed simultaneously. Find out the
probability of the coin to fall with tail upward and the dice to fall with number 2
upward.
Ans: 1
12

Q3 A university has to appoint examiners to evaluate papers in statistics. Out of a

panel of 40 examiners. 10 are women; 30 out of them know Hindi and 5 of them
are Ph.D. find the probability of selecting a Hindi knowing Ph.D. women teacher
to evaluate the papers.
Ans: 3
128

Q4 Five men in a company of 15 are smokers. Three men are chosen, find the
probability that –
(i) All the 3 are smokers.
(ii) None of the three is smokers.
(iii) At least one is smoker.
Ans: (i) 2 (ii) 24 (iii) 67
91 91 91

Q5 Three cards are drawn from a pack of cards, find the probability that –
(i) They are a king, a queen and an ace.
(ii) 2 kings and an ace.
(iii) All spade cards.
(iv) All are red cards.
(v) Two red and 1 black card.
Ans: (i) 16 (ii) 6 (iii) 11 (iv) 2 (v) 13
5525 5525 850 17 34

Q6 A bag contains 4 white and 6 red balls. Two draws of 3 balls are made. Find
the probability that the first draw will give all the three white balls and the second
all the three red balls are replaced before the draw?
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Ans: 1
180

Case II: When events are dependent

Conditional Probability
Q1 From the packs of cards, three cards were drawn one by one, find the
probability that all the three cards are of black colour.
(i) If the card is not replaced back before the next draw.
(ii) If the card is replaced before the next draw.
Ans: (i) 2/17 (ii) 1/8

Q2 A bag contains 5 white and 3 black balls. Two balls are drawn at random one
after the other without replacement. Find the probability that both balls drawn are
black.
Ans: 3/28

Q3 Find the probability of number of kings drawn if 2 cards are drawn without
replacement from a pack of cards.
Ans: 1/221

Q4 The probability that a contractor will get a contract for road construction is 4/9
and the probability that he will get contract for the construction of a water tank is
5/7. What is the probability of getting at least one contract?
Ans: 53/63

Q5 A salesman is known to sell a product in 3 out of 5 attempts while another

salesman is 2 out of 5 attempts. Find the probability that (i) no sale will be affected
when they both try to sell the product and (ii) either of them will succeed in selling
the product.
Ans: (i) 6/25 (ii) 19/25

Q6 There are 5 white and 8 red balls in a bag. Two draws of 3 balls (in each draw)
are made such that
(a) The balls are replaced before the second draw
(b) The balls are not replaced before the second draw. Find the probability of
getting 3 red balls in the first draw and 3 white balls in the second draw.
Ans: 7/429

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Q7 Find the chance of drawing a king, a queen and a jack in that order from a pack
of cards in three consecutive draws, the cards drawn not being replaced.
Ans: 8/16575

Last year questions

Year 2014
(a) What is Baye's Theorem and explain the meaning of mutually exclusive events?

(b) A bag contains 6 red and 4 white balls. Another bag contains 3 red and 5 white
balls. A fair dice is tossed for the selection of bag. If dice shows 1 or 2 the first bag
is selected otherwise the second bag is selected. A ball is drawn from the selected
bag and found to be red. What is the probability that this ball comes from the first
bag?
Ans: 2/6 x 6/10 = 4/9
2/6 x 6/10 +4/6 x 3/8

Year 2012
(a) Answer the following:
(i) Probability of throwing exactly 7 with two dice? Ans: 6/36 or 1/6
(ii) The probability of drawing a 5 or a club? Ans: 16/52
(iii) The probability that the difference between the numbers showing when two
dice are rolled is 2? Ans: 8/36 or 2/9

(b) Two students A and B are given the same problem to solve. The odds in favour
of A solving the problems are 4 to 6 while against B solving the problem are 6 to 5.
Both the students try to solve the problem. Find the probability of the problem
being solved.
Ans: 4 x 5 = 2
10 11 11

Year 2007
From the pack of cards, 3 cards were taken out one by one, find the probability.
That the 3 cards of black colour
(i) If the card is not replaced back
(ii) If the card is replaced back.
That the card is black or king.
Ans: (i) 2/17 (ii) 1/8
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Year 2005
Show that in a single throw with two dice, the chance of throwing more than 7 is
equal to that of throwing less than 7, each being equal to 5/12.

Year 2004
(a) A bag contains 5 white and 4 black balls. Two balls are drawn at random one
after the other without replacement. Find the probability that both balls are white.
Ans: 5/9 x 4/8 = 5/18

Year 2002
(a) The probability that a man will be alive for next 30 years is 2/3. Find the
probability that at least one of them will be alive 30 years hence.
Ans: 2/3

Year 2001
(a) Suppose it is 9 to 7 against a person A who is now 35 years of age living till he
is 65 and 3 to 2 against a person B now 45 years living till he is 75. Find the
chance that at least one of these persons will be alive 30 years hence.
Ans: 1- (9/16 x 3/5) = 53/80

Year 2000
The probability that a contractor will get a plumbing contract is 2/3 and the
probability that he will not get an electric contract is 5/9. If the probability of
getting at least one contract is 4/5, what is the probability that he will get both the
contracts?
Ans: P(A) +P(B) – P(AB)
2/3 + 4/9 – 4/5 = 14/45

*****

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CHAPTER 8 PROBABILITY DISTRIBUTION

Theoretical distribution
Distributions, which are not obtained by actual observations but are deduced
mathematically under certain definite hypothesis or assumptions, are called
theoretical distributions.

Types of theoretical frequency distribution

There are three types of theoretical frequency distribution:
1. Binomial distribution
2. Poisson distribution
3. Normal distribution
From the above three distribution first two are discrete distribution and the last one
is continuous distribution

Binomial distribution
The binomial distribution describes discrete data resulting from an experiment
known as Bernoulli process. The tossing of a coin a fixed number of times is a
Bernoulli process.

Bernoulli process
The trials are absolutely independent. The probability of r success in n trials where
p is the probability of success and 1-p = q is the probability of failure in case of
Bernoulli process is given by
P(r) = nCr pr q n-r

Q1 Suppose a machine produces on an average 80% good pieces; find the

probability that out of 5 pieces produced by these machine 3 pieces will be good.
Ans: .2048

Q2 There are 5 workers in K- Pharma. The owner has studied the situation over a
period of time and has determined that there is 0.4 chance of any one employee
being late and that they arrive independently of one another. Find the probability
that:
(i) No employee is late.
(ii) At least one employee is late.

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(iii) 4 or more employees are late

Ans: (i) (0.6)5 (ii) 1- (.6)5 (iii) 0.0768 +0.01024 or 0.08704

Q3 Six coins are thrown simultaneously. Find the chance of obtaining (i) no head
(ii) at least one head (iii) exactly two heads (iv) not more than two heads (v) more
than 3 heads.

Ans: (i) 1 (ii) 63 (iii) 15 (iv) 11 (v) 11

64 64 64 32 32

Q4 Ten coins are tossed simultaneously. Find the probability of at least seven
heads.
Ans: 176/1024

Q5 A and B play a game in which A’s chance of winning is 2/3. In a series of 8

games what is the probability that A will win 6 or more games?
Ans: 46.8%

Q6 In a multiple-choice quiz each question has 5 alternatives out of them only one
answer is correct. What is the probability of 6 correct answers out of 10 questions?
Ans: 0.0055

Q7 (a) The incidence of occupational disease in an industry is such that the

workman has 20 % chance of suffering from it. What is the probability that out of
6 workmen 4 or more will contact with disease? (Year 2009)

(b) A and B play a game. The probability of winning the game by A is 3/5. Find
the probability of winning at least 4 games by A in a set of 6 games.
Ans: (a) .01696 (b) 1701 or 0.54
3125
Q8 Eight coins are thrown simultaneously, find the probability of getting at least
six heads.
Ans: 37
256

POISSON DISTRIBUTION

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In binomial distribution if the value of n is very large (n = ) and the value of p is

too small (p  0) and np is finite number, in this situation the binomial distribution
is not suitable to be used. In other words, the Poisson distribution is applicable
where the successful events in the total events are few.
P ( r ) = e-mmr
r
Situation where Poisson distribution is applicable:
1. Number of defective blades out of total blades produced in a factory.
2. Number of mistakes found in the pages of a book published by a repute
press.
3. No. Of accidents met by a taxi driver in a year.

Poisson distribution as a limiting form of binomial distribution

(i) When number of trials (n) are unlimited, means n  ;
(ii) When the probability of success, ‘p’ 0; and
(iii) When np = m is finite.

Q1 The average number of customers, who appear at a counter of a certain bank

per minute, is two. Find the probability that during a given minute:
(i) No customer appears
(ii) Three or more customers appear.
Given e –2 = 0.1353
Ans: (i) 0.1353 (ii) 0.3235

Q2 Year 2014
A manufacturer of pins knows that 5% of his product is defective. If he sells pins
in boxes of 100 and guarantees that not more than 4 pins will be defective. What is
the probability that a box will fail to meet the guaranteed quality. (e –5 = 0.0067)
Ans: 0.5621

Q3 Suppose that a manufactured product has 2 defects per unit of product

inspected. Using Poisson distribution, calculate the probabilities of finding a
product without any defect, 3 defects and 4 defects. (Given e –2 = 0.135)
Ans: 0.135, 0.18, and 0.09

Normal distribution (a continuous distribution)

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Q1 In a training programme designed to upgrade the supervisory skills of

production line supervisors the mean length of time spent on the programme is 500
hours with a standard deviation of 100 hours. Find the probability that:
(i) A participant selected at random will require more than 500 hrs to complete the
programme.
(ii) A participant selected at random will take between 500 and 650 hrs to complete
the programme?
(iii) A participant selected at random will take more than 700 hrs to complete the
programme?
(iv) A participant selected at random will require between 550 and 650 hrs to
complete the programme?
(v) A participant selected at random will require less than 400 hrs to complete the
programme?
(vi) A participant selected at random will require between 350 and 450 hrs to
complete the programme?
(vii) A participant selected at random will require between 420 and 570 hrs to
complete the programme?
(viii) A participant selected at random will take less than 600 hrs to complete the
programme?
Ans: (i) 0.5 (ii) 0.4332 (iii) 0.0228 (iv) 0.2417 (v) 0.1587 (vi) 0.2417 (vii) 0.5461
(viii) 0.8413

Q2 The Mumbai Municipal Corporation installs 2000 electric bulbs in the streets
of the city. These bulbs have an average life of 1000 hours with a standard
deviation of 200 hrs. if the life of the bulbs is assumed to be normally distributed,
what number of bulbs may be expected to fuse within first 700 hours?
X- 1 1.25 1.50

Ans: 134 bulbs

Last year questions

Year 2014
(a) What do you understand by Normal distribution? Give the importance of
Normal distribution.

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(b) Assuming that 50% of the population of a town smokes and assuming that out
of 256 investigators each takes 10 individuals to find out if they smoke, how many
investigators would you expect to report that 3 people or less smoke?

Year 2013
(a) Six dice are thrown 729 times. How many times do you expect atleast three
dice to show e five or six?
Ans: Given N = 729, n = 6
The probability of getting either 5 or 6 = p = 1 + 1 + = 2 = 1
6 6 6 3
The probability of not getting 5 or 6 = q = 1 – 1 = 2
3 3
Thus p = 1, q = 2
3 3
P (atleast 3 dice to show 5 or 6) = P(3) + P(4) + P(5) + P(6)
= 233
729
Hence, out of 729, the number of times we expect atleast 3 dice to
show five or six
= 729 x 233 = 233
729

(b) In a city, ten accidents took place in a span of 50 days. Assuming that the
number of accidents per day follow the Poisson Distribution, find the probability
that there will be three or more accidents in a day. (Given: e-0.2 = 0.8187).
Ans = 1 - 0.999 = 0.001

(c) State the importance of normal distribution.

Ans: Importance of Normal Distribution

1) Study of Natural Phenomenon: All natural phenomenon possesses the

characteristics of normal distribution such as length of leaves of a tree, heights of
adults, birth rates and death rates, etc. the normal distribution is widely used in the
study of natural phenomenon.

2) Basis of Sampling Theory: The normal distribution is also of great importance

in the sampling theory. With the help of normal distribution one can test whether
the samples drawn from the universe is satisfactory or not.

Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.

Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 8 .5
A unit of Realwaves (P) Ltd Probability Distribution

3) Statistical Quality Control: Normal distribution helps in determining the

tolerance or specification limits within which the quality of the product lies. The
variations in the quality of a product are acceptable within these tolerance limits.

4) Useful for Large Sample Tests: The normal distribution is also widely used in
case of large samples. Large sample tests are based on the properties of normal
distribution.

5) Approximation to Binomial and Poisson distribution: The normal

distribution serves as a good approximation to many theoretical distributions such
as Binomial, Poisson, etc. When np > 5 and n (l — p) > 5, the normal distribution
provides a good approximation of the binomial distribution.

Year 2012
(a) The average test marks in a particular class is 79. The standard deviation is 5. if
the marks are distributed normally, how many students, in a class of 200 did not
receive marks between 75 and 82?
Given:
Pr (0 ≤ Z ≤ 0.7) = 0.2580
Pr (0 ≤ Z ≤ 0.8) = 0.288
Pr (0 ≤ Z ≤ 0.6) = 0.2257
When Z is a standard normal variable.

Ans: Given, µ= 79, σ = 5

We know that z = x - µ
σ
When x = 75 then value of z = 75 – 79 = -4 = -0.8
5 5

When x = 82 then value of z = 82 – 79 = 3 = 0.6

5 5
So, Area between z = 0 and 75 = 0.2881
Area between z = 0 and 82 = 0.2257
Total area between 75 and 82 = 0.2281 + 0.2257 = 0.5138

Total number of students who receive marks between 75 and 82= 200 x 0.5138=
102.76
So, (200 – 102.76) = 97.24 ≈ 97 students did not receive marks between 75 and 82

Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.

Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 8 .6
A unit of Realwaves (P) Ltd Probability Distribution

(b) Differentiate between Binomial and Normal distribution.

Binomial Distribution Normal Distribution
1) Binomial distribution is a discrete Normal distribution is a continuous one.
probability distribution.
2) Binomial distribution is approximated with Normal distribution is not approximated with
normal distribution under certain condition. binomial distribution under certain condition.

Year 2011
(a) When does a binomial distribution tend to become a normal and poisson
distribution?
Ans: According to Binomial distribution If an event E has probability p of
occurring in each of n independent trials and that of failure in any trial is q (=1 - p)
then the probability that it will occur exactly r times in n trails is given by:
f(r) = nCrprqn-r
 When n is very large, p and q are not small, then binomial distribution tends
to normal distribution.
 When n is very large and p is very small, then binomial distribution tends to
poisson distribution.

(b) A leading razor blade manufacturing factory turns out razor blades with a small
chance of one out of 1000 blades to be defective. Blades are supplied in packets of
10. Using poisson approximation, calculate the approximate number of packets
without any defective blades and with one defective in a consignment of 1000
packets. e -.01= .99
Ans: P(defective) = p = 1 ,n = 10
1000
Mean = m = 10 = 0.01
1000
Probability of zero defective = P(0) = e-m mr = e-.01 x .010= 0.99
r! 0!
Therefore, in a consignment of 1000 packets, 990 packets will have no defective
blades.
Probability of one defective = P(l) = e-m mr = e-.01 x .011= 0.99 x 0.01 = 0.0099
r! 1!
Therefore, in 1000 packets, approximately 10 packets will have a single blade
defective

Year 2010

Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.

Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 8 .7
A unit of Realwaves (P) Ltd Probability Distribution

It has been noticed in the World cup twenty-20 that the score posted by Indian
cricket team in a day is a normal variate N (150,225):
a) What is the probability they will score not more than 170 on a given day?
Ans:.5319
b) What is the probability they will score atleast 140 on a given day? Ans: .5160
c) What is the score they will post with probability equal to 0.97?
Ans: p(z) = 0.97 = 0.5 + 0.47 z = 1.89
1.89= x -150
225
x = 575.25

Year 2009
Three Coins are tossed simultaneously. Find the probability of (i) all heads (ii) one
head (iii) at least one head (iv) all tails.

Year 2006
Ten coins are thrown simultaneously. Find the probability of getting at least 7
heads.
Ans: 176/1024

Year 2004
(a) Raju and Ramu play a game. The probability of winning the game by Ramu is
2/5. Find the probability of winning at least 4 games by Ramu in a series of 5
games.

Year 2003
On an average five birds hit the Washington monument and are killed every week.
The government will allocate the fund for equipment to score birds away from the
monument if the probability of more than three birds being killed in any week
exceeds 0.7 will the funds be allocated?
Given e –5 = .00674
Ans: .351

Year 2002
(a) A and B play a game. The probability of winning the game by A is 3/5. Find
the probability of winning at least 4 games by A in a series of 6 games.

(b) Write importance of normal distribution.

Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.

Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 8 .8
A unit of Realwaves (P) Ltd Probability Distribution

Ans: (a) P(4) = 4860 P(5) = 2916 P(6) = 729

15625 15625 15625
= P(4) + P(5) + P(6) = 1701 = .54
3125

Year 2001

(a) What is Poisson distribution? Explain with an example and state the conditions
under which this distribution is used.

(b) 5000 students were appeared in an examination. The mean of marks was 39.5%
with a standard deviation of 12.5% marks. Assuming distribution of marks to be
normal, find the number of students who have secured more than 60% marks.
Some areas of standard normal curve are given below:
Z: 1.6 1.62 1.64 1.68
Areas: 0.4452 0.4474 0.4515 0.4535

*****

Vidhyadhar Nagar: F – 45, Balaji Tower – I, Behind Vishal Mega Mart.

Mansarovar: 69/318, VT Road, Mansarovar
Contact: 9829959536,7737733360,9928001210 8 .9
a

TotalNoofPages: tr
IM6I I3
M.B.A I Sem. (Main & Back) Exam. Jan. Z0l4
M-103 A Business Mathematics & Statistics

Time: 3 Hours Maximum Marks: 70

Min. Passing Marks: 28
Instructions to Candidates : -
1) The question paper is divided in two sections.
2) There are sections A & B. Section A contains 6 questions
out of which the
candidate is required to attempt any 4 questions. Section
B contains short
case studyiapplication basel question *Hrt is compulsory.
3) All questions are carrying equal marks.
l.

SECTION -A

Q,1 (a) Define Matrix and Trarnpose of a Matrix.

isl
(b) The Matrix of technological coefficients of input
- output in Agriculture and
Industry is

.rt .so I
| .167
| .l2s l
If the market demand be of 100 units of Agriculture and 80 units of Industry.
Find the
fore cast demand.
tel

[1M6113] Page 1 of4 [3c401

Q.2 (a) Define Index Number. What are the main ways of construbting Index Number?
;t

t6l

(b) One hundred customers from a particuiar branch were asked to state the time
they generally take to withdraw cash from their accounts. The data is given
below

Minutes 0-10 10-20 20 -30 r30 - 40

No. of Customers 2A 50 20 10

Calculate Mean deviation and Standard deviation. t8l

Q.3 Calculate the Coefficient of correlation from the following data

Fertilizer used 15 18 20 24 30 3s 40 50

Yield (in tonnes) 85 93 95 105 t20 130 150 160

lt4l

[1M6113] Pa.geZ cf 4 [3040]

Q.4 (a) What do,you rmderstand'by Multiple Regression?
t4l

(b) An investigation of the demand for TV sets in5 towns has resulted in the
following data _

Population (x) 11 t4 l7 2t 25
(in'000)

No" of Sets (Y) 15 27 34 38 46

Demanded

Find a linear regression of Y on X and estimate the demand of rv sets fbr a

population of 30,000"
[10]

Q.5 (a) What is Baye's Theorem and explain the meaning of mutually exclusive events?

[s]

(b) A bag contains 6 red and 4 white balls. Another bag contains 3 red and 5 white
balls. A fair dice is tossed for the selection of bag. If dice shows I or 2 the first

. bag is selected otherwise the second bag is selected. A balt is drawu from the
selected bag and found to be red. What is the probability that this ball comes
from the first bag?
tel

[1M6113] Page 3 of4 [3040]

 ,..

Q.6 (a) What do you understand by Normal distribution? Give the importance of Normal
distribution. t6l

(b) A manufacturer of pins knows.that 5Yo of his products are defective. If he sells
pins in bo*L, of 100 and guarantees that not more than 4 pins wilt be defective,
what is the probability that a box will fail to meet the guaranteed Quality?
(.'= o.oorz) t8l

SBCTION -B

Q.7 (a) Solve the following seJof linear equations by using mahix method

xt ** 3xs: l
4xz
2xf 5x2 * 4xs:'4
' x1 -.jx2 - 2xj.: 5 t8l

(b) Assuming that 50%o of the population oia town smokes and assuming that out of
256 inveitigators each takes l0 individuals to find out if they smoke, how many
investigators would you expect to report that 3 people or less smoke? ,[6]

[1M6113I Page 4 of 4 [3o4o]

 ?a
\=-{
\o
Roll No.

re
M.B.A. I Semester (Main/Back) Examination - 2015
M-103 ABusiness Mathematics & Statistics
[Total No. of Pages { 2

t-{

Time : 3 Hours Maximum Marks : 70

Min. Passing Marks : 28

Instructions to Candidates:
I) ' The question paper is divided in two sections.
2) There are sections A & B. Section A contains 6 questions out of which the
candidates is required to attempt any 4 questions. Section B contains short
case studylapplication base 7 question which is compulsory.
3) All questions ore carrying equal marla.

Section - A
1. a) Veri$r the transpose of the product of two matrices equals the product of the
transposes taken in reverse order; that is

(AB)' = Br Ar
[El
. n=1, (7)
I ona B =Lz,-l;lf
L-r j

b) Find l-' A =l:.,

27
rl (7)
'f L-r
2. a) . Calculate l,nl where

It z r 3l
j-,r34
A:l r o z 3l (7)
[-rr1t)

1M 5113 /zors (r) [C*ae*C".."

 b) ' Solve following system of linear, algebraic equation by Cramer's Rule
xr*xz*xt:4,
xr-xr-xr:2,
xy2xr:O (7)
3. The weights ofthe first 48 Miss India contest winners are given in the following
table in pounds.
128 119 t25 12lJ. 118 tzt 110 t25
135. 116 115 124 t24 115 118 116
120 114 130 120 [16 tU t32 118
143 119 105 140 130 t23 135 tzs
130 118 t20 t2{} 126 128 t20 11.4
120 112 l1s 118 138 137 140 108
a) Compute mean ,, variance ,z and standard deviation s for above data
b) . Use 10 equal length classes to construct a frequency table and to draw a
histograrn for the data. (7x2=14)
4 " The initial ix,eight (x) and the amount of weight lost from using a diet for one month
(y) (both in pounds) for 12 people are
y 31 9 22 30 27 t7 t4 2t 31 28 27 15
x 214 168 176 159 173 163 157 182 209 196 170 176
Assuming a simple linear regression model with normality does it appear a person's
initial weight affects the amount ofweight lost when using this diet? (14)
5. Count the number of different 4-Letter sequences that can be made using the
letters in Mi ssi ssi ppi (14)
6. The height of a university high - Jumper will clear each time he Jumps is a
normal random variable with mean 2 meters and standard deviation l0 Centimeters.
a) What is the greatest height he will Jumfiwitbprobability 0.95?
hi \tr4rat is the height he will clear only 10 percent of the time? ('lx2:14)
Section - B
1 a) ' Suppose that Medical science has a cancer - diagnostic test that is 95% accurate
on both those u,ho do and those who do not have cancer. if 0.005 of the
. populatian actuatrly does have cancer, cornpute the probability that a particular
individua"l itas cancer girren that the test says he has cancer. (7')
b) Assurnc a printed page in a book contains 40 lines and each line contains 75
.'ositions ( H,acti of which may be left blank or filled with same symbol ) Thus
i::1.'.:h page has 30CI0 positions to be set. Assume a particular type'setter makes

i.!i..i effor psr 5(10il positions on the average"

ii What is thc distribution fbr X, the number of errors per page?
ij) Cornpute the probability that a page contains no errors.
ii1) l.Vhat is tli* probability that a 16 page ehapter contains no errors? (7j

lM 6i13
 Total No of Pages: pl
(Y)
t< LM6113
F{ M. B. A. I Sem. (MainlBack) Exam., Jan. 2016
\0 M-103A Business Mathematics and Statistics
t{
=

Time: 3 Hours Maximum Marks: 70

Min. Passing Marks: 2E
Instructions to Candidates :
' (i) The question paper is divided in two sections.
(ii) There are sections A & B. Section A contains 6 questions out of
which the candidate is required to attempt any 4 questions.
Section B contains short case study / apptication based question
which is compulsory.
(iii) All questions carry equal marks. PLJI'IIiJT MCIftfi
1. NIL 2.

SECTION.A

\yr(il Forrhetwomatric"' , ,=[], ''o],'"n, (as), =Br.Ar.

"=[] I

,{o "=l):il show that e.2-4A-5I=0 Hence or otherwise, Find

A-r 171

20
'o/^,*ll
'..,_/ r
2x
02
= 6 find the value of x.
|

[1M6113] Page 1 of3 [36401

,

J.<6 Solve the following system of linear equations by matrix inversion method:
2x +y +42= 2, 2 + 4y +22= 3, 2x+ 3y + z = - 6 t7t
Q.3 (a) The profits and losses of a business concern for the years 20ll-2015 are given
below:. 141
i"g t* flij
Year Profit (in Rs.) Loss (in Rs.) LL"JiTI
ft-^h.#
2011 3000 *5 -{
'::,
20t2 4000
"* .,'. fl
Ul v'
! .* ,;,
"t:,.
r
2013 2500 'rif
lJj"l
/ t1J
1'.i
2014 2000 -. ]W:^,.
rrl

2015 .l- (.); t+l

6000

Represent the above data by a Bar graph

(b) Calculate the arithmetic mean and the median of the frequency distribution given
below. Hence calculate the mode using the empirical relation between the
three. ll0I

Class- 130-134 135-139 r40-1M 145-149 150-154 155-159 160-t6/

Limits
Freq. 5 t5 8 24 l7 t0 I

,/
a"4r_(g>/ Six dice are thrown 729 times. How many times do you expect at least three dice
/o show a 5 or 6? Ul
.(b/
\./' Find the standard deviation and coefficient of variation from the following table
giving the marks of 150 students: UI

Marks Number of Students Marks Number of Students

1-10 5 51-60 22
tt-20 T2 6t-70 l5
2t-30 20 71-80 6
31-40 25 81-90 4
41-50 40 91-100 1

[1M6113] Page 2 of3 [36401

^ )d't/-
.'Lt-
L x.-' '"+* t
/r{-
s (
\a \.
\ i,; t^
'Q lc
Q.5 (a) What is meant by an Index number? Explain briefly any two methods of
construction of Index numbers. t71
(b) The following table gives the change in the price and consumption of three
commodities. Compute Fisher's ideal price index number. 171

2005 2015
Commodity Price (Rs.) Quantity (Rs.) Price (Rs.) Quantity (Rs.)
Wheat 100 l0 ll0 6
Rice 150 t5 170 l8
Cloth 5 50 4 30

Q.6 Calculate the coefficient of correlation from the following data:

X: I 2 3 4 5 6 7 8 9
Y: 9 8 10 t2 1l t3 t4 l6 15
Also,obtain the equations of line of regression and obtain an estimate of Y which

should correspond on the average to X - 6.2. t14l

SECTION.B
Q.7 (a) Suppose a manufacturing firm produces steel pipes in three plants with daily
production volume of 500, 10fi) and 2000 units respectively. According to past
experience it is known that the fractions of defective output produced by the

three plants are respectively 0.005, 0.008 and 0.010. If a pipe is selected from a

day's total production and found to be defective. Find out what is the probability
that it came from the first plant. t71

(b) Assume a certain factory turning out razor blades, there is a small chance 1/500
for any blade to be defective. The blades are supplied in packets of 10. Use the
Poisson distribution to calculate the approximate number of packets containing
no defective, one defective and two defective blades respectively in a

consignment of 10000 packets given that e-0'o2 = 0.9802 171

MORE EDI-ICATICIN Puneer More -71J77i5568

MBA Coaching Classes

[1M61131 . Eusiness Mathematics [36401

r Aecounting for Management
o Managerial Economies

I-ive & Recorded Batch in Raiasthan

 l'.trTX btal No. of Pages
?a
-
M.B.A. I sem. (Main&Back) Examination f)ec.-2016
\o
-
M-103A Business Mathematics and Statistics
F{
=
I
t
Time : 3 Hours Maximum Marks z 70
Min. Passing Marks z 28
Instructions to Candidates:'
i) The question paper is divided in two sitctions.
iil There ore sections A & B. Section A contoins 6 questionts out of which the
candidate is required to attempt any 4 questions. Section B contains short
ccise study/application base I question which is compulsory.

iii) All question ore carrying equal marlcs.

Section - A
1. a) Find A2 -3A + gI, if

tt -z 3l [r or olol
A-lz 3 -rl,*nerer-lo (7)
L-3 t 2) [o o r]

-r ol lz r :l
l-r
b) ' Ir 3l-| ,=l-,
ff A=12 '=l-'
o I,l
0
rl'
l, L, o ,l
I

Find D Ar ii) Br iii) (A+B)r r) (2A)' (7)

Compute the inverse of the matrix

Ir z -rl
rl 4i
u=l-, ,'l
z)
(7)
L3
b) Solve the following system of equations by using determinants (Cramers rule)
x-4y-z=71
2x-5y+22 =39 U,)
-3x+2y+z=l

1M6113 lzarc (1) [Contd....

 3. a) Find the mode and the median for the following'Distribution. (7)
Variable 0-5 5- l0 l0- l5 t5-20 20-25 25-30 30-35 35-4C
Frequency 2 5 7 13 2t T6 8
Frl

b) The following table shows the number of workers in a factory whose weekly
earnings are given against them. Determine the mean valves ofweekly earnings
and standard deviation. (7)
Burrge of weelly rngs rn mbdr. of workers ,in
(9
.-r,G
{ -(b
74
6-8 T - ft'
L
"376
8- l0 1 /
?04
t0-12 t) -L J10
t2-14
l4-16 @
lf
0

1'"-
18

0
16-18
l)_ \
9
t8-20
/l A
9
20-22
\ v 0

4. a)
tryq)
order.
@s inthe following

First judge 1 6 5 t0 a
J 2 4 9 7 8
Second judge J -t
5 8 4 7 10 2 I 6 9
Thirdjudge 6 4 9 8 1 2
a
J 10 5 7
Use the rank of correlation to discuss which pair ofjudges havi the nearest
approach to common tastes in beauty. (7)
b) The equations of two regression lines obtained in a correlation analysis of 60
observations are 5x:6y+24 and 1000 y :76gx - 37Og

D- What is the correlation coefficient and what is its propable error?

ii) Showthat the ratio ofthe coefficient ofvariability ofx to that of y is 5.24
iii) what is the ratio of variances of x andy? (7)
-
3. a) From a pack of cards, a carjis drawn what is the probability of drawing red
card or a king? 0)

1M6113 (2)
 b) In a' bolt factory machines A, B and C manufacture 25,35 and 40 percent of
the total of their output 5,4 and 2 percent are defective. A bolt is drawn at
random and is found to be defective, What are the probabilities that it was
manufactured by the machinesA, B and C? (7)
6. a) From the chain base index numbers given below, prepare fixed base index
numbers. (7)
1945 1946 1947 t948 t949 I 950

92 t02 104 98 103 101

b) l0o/o of screws produced by a machine are defective. Find the probability of

the following when they are checked at random by examining samples of 5 :
r) None is defective
ii) One is defective
iii) Atmost one is defective (7)

Section - B
7. a) A driven has two taxies, which he hires out day by day. The number of
demands for a taxi on each day is distributed as a poisson variate with mean
1.5. Calculate the porportion of days on which

D Neither the car is used

ii) Some demand is refused (7)
b) "Construct with the help of datagiven below Fishers Ideal Index and show it
satisfies the factor Reversal Test.
Estimated totalproduce Harnest price per marnd in
in thousand tons in saran district
saran district
t93t-32 1932-33 t93L-32 r932-33
Rs. As. Rs. As.
WinterRrce 71 26 ,, 3
zl
J

Barley rc7 2 0 2 0

Maule 62 48 2 9 e (7)

.f,
?:

1M6113 (3)
 VIDEO AVAILABLE FOR
WWW.MOREEDUCATION.IN ALL PRACTICAL & THEORY SUBJECT RTU MBA CLASSES SINCE 2005

Roll No. Total No of Pages, p

lcnl
lv-t 1M6L1 3
l-.tl
lro
I

M. B. A. I Sem. (MainlBack) Exam., f)ec. 2017

t=t I

Y-103A
Business Mathematics and Statistics

L.]
Time: 3 Hours Maximum Marks: 70
Min. Passing Marks: 28
Instnrctions to Candidates :
(i) The Etestiott poper is divided in two sections.
(ii) A & B. Section A contains 6 questions out of whiclt
There are sectiorts
the candidate is required to attempt any 4 questions. Section B
contains short case study / application based 7 question, which is
compulsory
(iii) All questions carry equal ntarl<s.

SECTION,A *
Q.1 (a) MORE EDUCATION
Company produces 9829959536
three products every day, Their total production on a certain

day is 45 tons. It is found that the production of third product exceeds the

production of flrst product by 8 tons, while the total:d,lbduction of the first and

third product is twice the production of sebond :product.. Determine the

'
lramer's'illej ' i
t10l

(b) Calculate the Inverse of a Matrix- t4l

[; ;]

[1M51]"3J Page 1 of 3 [ 40601

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 VIDEO AVAILABLE FOR
WWW.MOREEDUCATION.IN ALL PRACTICAL & THEORY SUBJECT RTU MBA CLASSES SINCE 2005

what do you mean by multiple regressions? Explain- t4l

Q.2 (a)
calories intake (x)
(b) Child specialist observed 10 school students for their average

and body weight (y) in kg. The data analyst offered'following summation

quantitiesbasedonthebasicdataonthetwovariablQs.'

!x= 166,Zy = 5tl7 ,Ixy = 9840, Z*'= 2892 andZy' = 33927 '
per unit of calode
Using these quantities. find (a) absolute increase in weight
most likely weight against a
inrake, (b) The minimum weight y intercept, (c) The
t10l
calorie intak e of 25 and (d) The standard error of estimate.

Draw different types of scattered diagrams for different degree

of correlation
Q.37u)
between two co related variables.
t6l

The following is the record of goals scored by team

A in the football session' [8]

No. of goals scored 0 t

9
2

T
3

J
4

3 {v
I $d
No of Matehes 1
\'

MORE EDUCATION
goals9829959536
scored per match was 2-5 with
For tearn B the avetage number of
standard deviation of 1 ,25 goals' Find which team may be more consistent?

a exactlY half chance

A, B and C bidding; for a contract. It is believed that A has
gain the contract. What is the
that B has; B, in tufir,,has 4t5n as Hkely as C has to

,* tel
probability for each,!9 win the contract?

(b) A bag contains white, 4 blue and 10 green balls. Two balls are drawn at
*
ffi. ;;;*. o.**ilitv that dpv will both be sreel': t 'D( t5l

Define the Index numbers. What are the main ways

of constructing lndex
a5 fu
1/ Number?
t6l ,
Page 2 of3 [ 4060l
[1M6113]

JAIPUR-VIDHYADHAR NAGAR 418 MANSAROVAR PLAZA PRATAP NAGAR

 VIDEO AVAILABLE FOR
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Calculate index number of prices for 1995 on the basis of 1990 from the data
given below:- t8l
Commodity Wei._eht Price per unit Price per unit 1995( < )
1ee0({)
A 40 L6 20

B 25 40 50

C
D
20
15
L2

2
15

3
4 o[ 8
If the weights of commodities A.B,C and D are increased in the tatio l:2:3;4,
what will be the increase in index number?

a) What do you mean by Normal distribution? Give the importance of normal

distribution' t6l

A manufacture of dolls knows that 5Vo of his products are defective, if he sells
dolls in boxes of 100 and guarantees that not more than 4 dolls will be defective,
/
what is the probability that a box will fail to meet the guaranteed quality.
(.-'= 0.0067) t8l

SECTIOI\[-B
, |Lb?
C?Se Studv

e.7 A financeMORE
company hasEDUCATION
offices located in every 9829959536
division, every district and every
taluka in a certain state in India. Assunle that there are five divisions, 30 districts and
200 taluka in the state. Each office has 1 Head Clerk, 1 Cashier, 1 Clerk and 1 Peon. A
divisional office has in addition, One Office Superintendent,.2 Clerks, 1 Typist and'1
Peon. A district office has in addition, 1 Clerk and 1 Peon.
The basic daily salaries are as follows: Office Superintendent Rs. 500, Head Clerk
Rs. 200, Cashier Rs. 175, Clerks and Typist Rs. 150 and Peon Rs. 100. Using Matrix
notation. Find.
(a) The total number of posts of each kind in all the offices taken together. tsl
(b)Thetotalbasicdailysalarybi11ofeachkindofofficeandt4z( tsl
(c) The total basic daily bill of all the offic0s taken together. t4)

[1M6113] Page 3 of 3 [ 40601

JAIPUR-VIDHYADHAR NAGAR 418 MANSAROVAR PLAZA PRATAP NAGAR

 Roll No. [Total No. of Pages : | 4
m
F{
F{
\o MBA I Sem.(Main Back) Examination l)ec. - 2018
M-103, Business Mathematics & Statistics
F{
18 YlPff,.(r 6'n
Time : 3 Hours Maximum Marks z 70
Min. Passing Marks :28
Instructions to Candidates:

I) The question paper is divided in two sections.

2) Thtere are sectionsA & B. Section A contqins 6 questions out of which the
candidate is required to attempt any 4 questions. Section B contains short
case study/application bqse I question which is compulsory.
3) All questions are carrying equol marks.

Section - A

1, Ix-y 2x+21 [-r 5lr_.

1. F) lr.- y 3z +*J = | , lTind x,
r3J Y, z And w' (6)

p) Solve the following set of equations by matrix m ethod

2x +3y + 4z =29,x + y +22 =13,3x +2y * z: I 6 . '^ ,\r,5,'1 ) (8)

2. ,6) Explain various measures of dispersion and its sign ificance. (6)

f) The following data relate to age of employees and the number of days they
were reported sick in a month.

Employees: I 2 : 4 5 6 7 8 l0

Age (X) : 30 32 3s N 48 s0 52 55 57 6t
tu
SickDays(Y): I 0 Z 5 Z 4 G 5

Calculate Karl Pearson's coefficient of correlation between employee's age

and sick days & interpret the result.0 b+1 (8)

1M6113 t2018 (I) [Contd....

 i

3. a) The following data give the experience of machine operators and their
performance ratings as given by the number of good parts turned out per
100 pieces.

Operator 12345678
Experience (X) 16 12 18 4 . 3 l0 5 12

Performance (Y) . 87 88 89 68 78 80 75 83
Ratings l$++tt
',_l.}
\y
Calculate the regression lines of performance ratings on experience and
estimate the portable performance if an operator has 7 years experience. (8)

If the regression lines are given by 3x * 2y :26. and6x + y : 31, find

$l
D the mean value of x and y.

ii) the coefficient of correlation between x and y ,Y q g

iii) estimate thc value of y for x:0 kd uulu, of x when y: 13. ' 4S1Ll

4.? What do you mean by index number? What is the significance and need of
index numbers. I-Iow do we construct index numbers? (6)

yY Calculate fisher's ideal index from the given data. Does it satisff the time
reversal and fuctor reversal tests (8)

Commodity Price 0g)

Quantif Price auantity (pg)
(year20l2) (year20l2) (year20l3) (year20l3)
A 50 10 56
+:

B 100 2 r20

C m 6 60

D l0 30 T2 24

E 8 40 12 36

\F,S>

1M6113 (2\
\ vq
'>z
I 5. a) The p;obability that a boy will not pass MBA examination
,2
rst and the

3
I

probability that a girl will not pass the MBA examination is Find the
5'
I

probability that only one ofthem will pass the examination. (6)
I

b) Explain the following terms with appropriate example. (8)

D Mutually exclusive events

i

ii) Conditionalprobability.

iii) Independent & dependent events

rD Baye's theorem.

6. a) The shareholders Research centre of India has conducted recently a research

study on price behaviour of three leading industrial shares, A, B and C for the
period 20ll to 2017, the results of which are published as follows in its
quarterlyjournal.

Share Average price (Rs.) Standard Deviation Cunent selling price (Rs.)

A 18.0 5,4 36.0

B 22.5 4,5 34.75

C 24.0 6.0 39.00

1) which share, in your opinion appear to be more stable in value?

ii) If you are the holder of all three shares, which one would you like to
dispose of at present, and why? (g)

b) What do you mean by central tendency? What are the different measures of
central tendency? Explain appropriate situations to use different measures of
central tendency. (6)

1M6113 (3)
 Section - B (CompulsorY)

7. a) The average monthly ,d., # 5000 firms are norrnally distributed. Its mean
and standard deviation are Rs. 36000 and Rs. 10000 respectively. Find

i) the number of firms the sales of which are over Rs. 40,000.

ii) the percentage of firms the sales of which will be between Rs. 38,500
and Rs.,41,000.

iii) the number of firms the sales of which will be between Rs. 30,000 and
Rs.40,000. The relevantextract atthe areatable (underthe normal curve)
is given below.

qt -\\\6 ,a
z 0.25 0.40 0.5 0.6 € ba)rl t gasr
Area 0.0987 0.1 554 0.19 t 5 0.2257
,o1 fr< (s) "qf
b) A manufacturing firm produces steel pipes in three plants with daily production
volumes of 500, 1000 and 2000 units respectively. According to past
experience, it is known that the fraction of a defective outputs produced by
the three plants are respectively .005, .008 and .010. If a pipe is selected from
a day's total production and found to be defective. What is the probability
that it came from the first Plant. (6)

1M6113 (4) [Contd....

 A unit of Realwaves (P) Ltd

Z test (Normal Probability Distribution)

Z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
0.0 0.0000 0.0040 0.0080 0.0120 0.0160 0.0199 0.0239 0.0279 0.0319 0.0359
0.1 0.0398 0.0438 0.0478 0.0517 0.0557 0.0596 0.0636 0.0675 0.0714 0.0753
0.2 0.0793 0.0832 0.0871 0.0910 0.0948 0.0987 0.1026 0.1064 0.1103 0.1141
0.3 0.1179 0.1217 0.1255 0.1293 0.1331 0.1368 0.1406 0.1443 0.1480 0.1517
0.4 0.1554 0.1591 0.1628 0.1664 0.1700 0.1736 0.1772 0.1808 0.1844 0.1879

0.5 0.1915 0.1950 0.1985 0.2019 0.2054 0.2088 0.2123 0.2157 0.2190 0.2224
0.6 0.2257 0.2291 0.2324 0.2357 0.2389 0.2422 0.2454 0.2486 0.2517 0.2549
0.7 0.2580 0.2611 0.2642 0.2673 0.2703 0.2734 0.2764 0.2794 0.2823 0.2852
0.8 0.2881 0.2910 0.2939 0.2967 0.2995 0.3023 0.3051 0.3078 0.3106 0.3133
0.9 0.3159 0.3186 0.3212 0.3238 0.3264 0.3289 0.3315 0.3340 0.3365 0.3389

1.0 0.3413 0.3438 0.3461 0.3485 0.3508 0.3531 0.3554 0.3577 0.3599 0.3621
1.1 0.3643 0.3665 0.3686 0.3780 0.3729 0.3749 0.3770 0.3790 0.3810 0.3830
1.2 0.3849 0.3869 0.3888 0.3907 0.3925 0.3944 0.3962 0.3980 0.3997 0.4015
1.3 0.4032 0.4049 0.4066 0.4082 0.4099 0.4115 0.4131 0.4147 0.4162 0.4177
1.4 0.4192 0.4207 0.4222 0.4236 0.4251 0.4265 0.4279 0.4292 0.4306 0.4319

1.5 0.4332 0.4345 0.4357 0.4370 0.4382 0.4394 0.4406 0.4418 0.4429 0.4441
1.6 0.4452 0.4463 0.4474 0.4484 0.4495 0.4505 0.4515 0.4525 0.4535 0.4545
1.7 0.4554 0.4564 0.4573 0.4582 0.4591 0.4599 0.4608 0.4616 0.4625 0.4633
1.8 0.4641 0.4649 0.4656 0.4664 0.4671 0.4678 0.4686 0.4693 0.4699 0.4706
1.9 0.4713 0.4719 0.4726 0.4732 0.4738 0.4744 0.4750 0.4756 0.4761 0.4767

2.0 0.4772 0.4778 0.4783 0.4788 0.4793 0.4798 0.4803 0.4808 0.4812 0.4817
2.1 0.4821 0.4826 0.4830 0.4884 0.4838 0.4842 0.4846 0.4850 0.4854 0.4857
2.2 0.4861 0.4864 0.4868 0.4871 0.4875 0.4878 0.4881 0.4884 0.4887 0.4890
2.3 0.4893 0.4896 0.4898 0.4901 0.4904 0.4906 0.4909 0.4911 0.4913 0.4916
2.4 0.4918 0.4920 0.4922 0.4925 0.4927 0.4929 0.4931 0.4932 0.4934 0.4936

2.5 0.4938 0.4940 0.4941 0.4943 0.4945 0.4946 0.4948 0.4949 0.4951 0.4952
2.6 0.4953 0.4955 0.4956 0.4957 0.4959 0.4960 0.4961 0.4962 0.4963 0.4964
2.7 0.4965 0.4966 0.4967 0.4968 0.4969 0.4970 0.4971 0.4972 0.4973 0.4974
2.8 0.4974 0.4975 0.4976 0.4977 0.4977 0.4978 0.4979 0.4979 0.4980 0.4981
2.9 0.4981 0.4982 0.4982 0.4983 0.4984 0.4984 0.4985 0.4985 0.4986 0.4986
3.0 0.4987 0.4987 0.4987 0.4988 0.4988 0.498 0.4989 0.4989 0.4990 0.4990

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