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The Association of Business Executives
Diploma
1.14 QMBM
Quantitative Methods for
Business and Management
afternoon 2 June 2009
1 Time allowed: 3 hours.
2 Answer any FOUR questions.
3 All questions carry 25 marks. Marks for subdivisions of questions are shown in brackets.
4 No books, dictionaries, notes or any other written materials are allowed in this
examination.
5 Calculators, including scientic calculators, are allowed providing they are not
programmable and cannot store or recall information. Electronic dictionaries and
personal organisers are NOT allowed. All workings should be shown.
6 Candidates who break ABE regulations, or commit any misconduct, will be disqualied
from the examinations.
7 A Formulae sheet and tables for the Normal and Chi-Squared distributions are provided
on pages 9-13.
8 Question papers must not be removed from the Examination Hall.
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QMBM0609 ABE 2009 H/500/3699
QMBM0609 2
Answer any FOUR questions
Q1 (a) The variable Y is normally distributed with a mean and a standard deviation .
Explain this statement.
(5 marks)
(b) In the standard normal distribution, nd the proportion of values that lie:
(i) Above 2
(ii) Between 0 and -1
(5 marks)
(c) Suppose that the variable X is normally distributed with a mean of 200 and a standard
deviation of 25. Calculate the value above which 20% of X-values lie.
(5 marks)
(d) Bags of our are labelled as weighing 2 kg, but actual weights are normally distributed
with a mean of 2.02 kg and a standard deviation of 0.04 kg.
(i) What proportion of bags will weigh more than 2.1 kg?
(5 marks)
(ii) If you buy a bag of our, what is the probability that it will be underweight (i.e.
weigh less than 2 kg)?
(5 marks)
(Total 25 marks)
Q2 The following set of data represents the monthly prots (or losses) reported by 60
newsagents in a city.
Prot/Loss range
(000)
Newsagents
-20 but less than -10 1
-10 but less than 0 15
0 but less than 10 35
10 but less than 20 5
20 but less than 30 3
30 but less than 40 1
(a) Plot the cumulative frequency curve on the graph paper provided in the answer book
and estimate the median from your graph.
(5 marks)
(b) Use appropriate formulas to calculate the mean, median and mode of the distribution
and comment on your results. Workings must be shown.
(10 marks)
(c) Calculate the standard deviation of the distribution.
(5 marks)
(d) Calculate the coefcient of skewness and comment on the result.
(5 marks)
(Total 25 marks)
QMBM0609 3 [Turn over
Q3 In the following set of data, C represents a countrys consumer spending (in billions) and
INC represents the countrys national income (in billions) over a period of ten years.
C INC
90 98
91 99
95 110
94 112
102 115
106 120
105 120
106 121
105 121
100 121
(a) Find the mean and standard deviation of both C and INC.
(5 marks)
(b) Find the equation of the least-squares regression line, assuming that C is the
dependent variable (y) and that INC is the independent variable (x).
(5 marks)
(c) Calculate the correlation coefcient and comment on the strength of the relationship
between C and INC.
(5 marks)
(d) Use your results in (b) to predict consumer spending in years when:
(i) INC = 130 billion
(ii) INC = 140 billion
Give your answers correct to two decimal places.
(3 marks)
(e) What level of national income would be required to achieve a level of consumer
spending equal to 110 billion? Give your answer correct to two decimal places.
(2 marks)
(f) Comment on the likely accuracy of your predictions in (d) and (e).
(5 marks)
(Total 25 marks)
QMBM0609 4
Q4 (a) Explain the importance of the Central Limit Theorem in signicance testing.
(5 marks)
(b) A sample of 50 employees is randomly selected from a large workforce to estimate the
average amount spent each day in the companys canteens. The sample mean is 4.50
with a standard deviation of 1.20.
(i) Calculate a 99% condence interval for the mean.
(4 marks)
(ii) Calculate a 90% condence interval for the mean.
(4 marks)
(iii) What sample size would be required to estimate the mean to within 0.20 with a
90% condence interval?
(5 marks)
(iv) Test the claim, at the 5% level of signicance, that the average daily amount
spent in the companys canteens is 5. (State the null and alternative
hypotheses, identify the critical region, calculate a test statistic and draw an
appropriate conclusion.)
(7 marks)
(Total 25 marks)
QMBM0609 5 [Turn over
Q5 (a) Distinguish between seasonal and random variations in a time-series.
(5 marks)
(b) Quarterly statistics of agricultural income in billions (b) for a small economy are
shown below for three years:
Year Quarter Agricultural income
(b)
____________________________________________________
2006 1 8
2 10
3 22
4 10
2007 1 12
2 16
3 24
4 14
2008 1 18
2 22
3 26
4 14
____________________________________________________
(i) Calculate a centred four-point moving average trend.
(5 marks)
(ii) Using the additive model and the trend calculated in (i), estimate the seasonal
factors in each quarter (to three decimal places).
(5 marks)
(iii) Use your results from (i) and (ii) to forecast agricultural income in the rst quarter
of 2009.
(5 marks)
(iv) Compute a series of seasonally-adjusted quarterly agricultural income gures for
the three years 2006-2008.
(5 marks)
(Total 25 marks)
QMBM0609 6
Q6 (a) In a competitive market for dining tables, the supply function is given by the equation:
P = 50 + 0.2Q
S

where P is the price of a table (in ) and Q
S
is the quantity supplied per month.
The demand function is given by the equation:
P = 500 - 0.05Q
D
where Q
D
is the quantity demanded per month.
(i) Calculate the equilibrium price and quantity.
(5 marks)
(ii) Suppose that, due to a change in consumer tastes, the demand for dining tables
rises by 1,000 per month at every price. Find the equation of the new demand
function and calculate the new equilibrium price and quantity.
(5 marks)
(b) A small rm that produces dining tables has xed costs of 2,000 per month and a
variable cost of 210 per table. It sells the tables at a price of 410 each, regardless of
the number sold.
(i) Find the break-even level of monthly output.
(5 marks)
(ii) At what monthly output level would the rm make a prot of 1,000 per month?

(5 marks)
(iii) If the selling price now rises to 450, and the rms xed and variable costs
remain unchanged, how much prot (or loss) would the rm make if it produced
and sold 15 tables per month?
(5 marks)
(Total 25 marks)
QMBM0609 7 [Turn over
Q7 (a) Dene the term expected monetary value and comment on its usefulness in business
decision-making.
(5 marks)
(b) A large manufacturing company is considering its strategy for the next ve years. It has
three possible courses of action, 1, 2 and 3, which are described below:
1. Expand the business by re-locating to a larger site. This is estimated to have a
70% chance of success, which will increase the companys prots by 40 million,
but there is a 30% chance of failure, which will decrease the companys prots by
60 million.
2. Take over a small rival company. The probability of successfully taking over the
rival company is estimated to be 0.5, and the rival companys nancial statements
suggest that there would then be a 60% chance of increasing prots by
50 million and a 40% chance of increasing prots by just 10 million. However, if
the takeover attempt fails (probability = 0.5), prots are estimated to fall by
15 million.
3. Make no new investments. In this case, it is estimated that there is a 50% chance
that prots will remain unchanged, a 20% chance that prots will increase by
10 million and a 30% chance that prots will fall by 1 million.
(i) Draw a decision tree to illustrate the manufacturing companys decision-making
problem.
(10 marks)
(ii) Calculate the expected monetary values (EMVs) of the companys three
alternative strategies and advise the company on the best strategy to follow.
(5 marks)
(iii) One of the companys directors argues that the company should adopt strategy
3. He points out that strategy 3 will at worst lead to a 1 million fall in prots,
while adopting strategy 1 could result in a 60 million fall in prots and adopting
strategy 2 could result in a 15 million fall in prots. Comment on the directors
choice of strategy.
(5 marks)
(Total 25 marks)
QMBM0609 8
Q8 (a) Distinguish between primary and secondary data, giving one example of each type of
data.
(5 marks)
(b) Distinguish between nominal scale and ordinal scale measurement, giving one
example of each scale.
(5 marks)
(c) A survey of 300 people was conducted within a suburb of a city to investigate a
possible link between their type of dwelling (house or apartment) and how often
they use the local grocery store (never, sometimes, or regularly). The results are
summarised below:
How often do you use the local grocery store?
Never Sometimes Regularly
House 40 30 30
Dwelling
Type
Apartment 20 30 150
(i) Find the row and column totals, and calculate the expected frequencies in each
cell of the table, on the assumption of independence.
(5 marks)
(ii) Calculate the
2
statistic to test the hypothesis that type of dwelling and use of
the grocery store are independent. Use a 5% level of signicance and state your
conclusions.
(10 marks)
(Total 25 marks)
End of Question Paper
QMBM0609 9 [Turn over
FORMULAE FOR QUANTITATIVE METHODS
Mean of ungrouped data:
Mean of grouped data:
Median of grouped data:
(where L is the lower boundary of the median class, F is the cumulative frequency
up to the median class, f is the frequency of the median class and i is the width of
the median class)
Mode of grouped data:
(where L is the lower boundary of the modal class, f
m
is the frequency of the modal
class, f
m1
is the frequency of the pre-modal class, f
m+1
is the frequency of the post-
modal class and i is the width of the modal class)
Standard deviation of ungrouped data:
Standard deviation of grouped data:
Coefficient of skewness:
x
x
n
=

x
fx
n
=

=

f x x
f
fx
f
x
( )

2 2
2
=

=
( )

x x
n
x
n
x
2 2
2
Sk
x x
s
x s =
3(

)

(where is the median and is the standard deviation)

Median L
n
F
f
i = +

2

Mode L
f f
f f f
i
m m
m m m
= +

1
1 1
2
QMBM0609 10
Regression:
Pearson correlation:
Spearmans rank correlation:
Binomial distribution:
Poisson distribution:
Standard normal distribution:
Confidence interval for a mean:
,

y a bx
b
n xy x y
n x x
a y bx
= +
=

( )
=
2 2
R
n xy x y
n x x n y y
R b
x
y
=

( )
( )
( )
( )
=

2 2 2
2

Laspeyres price index

p q
p q
price index Paasche
p q
p q
=

1 0
0 0
1 1
0 1
100
100
z
x
=

= x z
n
R
d
n n
=

( )
1
6
1
2
2

P x C p q
n x
x n x
( )

=
P x
e
x
x
( )
!

=


QMBM0609 11 [Turn over
Confidence interval for a proportion:
Test statistic for a single mean:
Test statistic for a difference between means:
Test statistic for a single proportion:
Test statistic for a difference between proportions:
Chi-squared test statistic:
= p z
pq
n
z
x
n
=

0
z
x x
n n
=
+
1 2
1
2
1
2
2
2

z
p
n
=

( )

0
0 0
1

2
2
=
( )

O E
E

z
p p
pq
n n
where p
n p n p
n n
and q p =
+

=
+
+
=
1 2
1 2
1 1 2 2
1 2
1 1
1

,
QMBM0609 12
Areas in the right-hand tail of the Normal distribution
z .00 .01 . 02 .03 . 04 .05 . 06 .07 . 08 .09
0. 0 . 5000 .4960 .4920 .4880 .4840 .4801 .4761 .4721 .4681 .4641
0. 1 . 4602 .4562 .4522 .4483 .4443 .4404 .4364 .4325 .4286 .4247
0. 2 . 4207 .4168 .4129 .4090 .4052 .4013 .3974 .3936 .3897 .3859
0. 3 . 3821 .3783 .3745 .3707 .3669 .3632 .3594 .3557 .3520 .3483
0. 4 . 3446 .3409 .3372 .3336 .3300 .3264 .3228 .3192 .3156 .3121
0. 5 . 3085 .3050 .3015 .2981 .2946 .2912 .2877 .2843 .2810 .2776
0. 6 . 2743 .2709 .2676 .2643 .2611 .2578 .2546 .2514 .2483 .2451
0. 7 . 2420 .2389 .2358 .2327 .2296 .2266 .2236 .2206 .2177 .2148
0. 8 . 2119 .2090 .2061 .2033 .2005 .1977 .1949 .1922 .1894 .1867
0. 9 . 1841 .1814 .1788 .1762 .1736 .1711 .1685 .1660 .1635 .1611
1. 0 . 1587 .1562 .1539 .1515 .1492 .1496 .1446 .1423 .1401 .1379
1. 1 . 1357 .1335 .1314 .1292 .1271 .1251 .1230 .1210 .1190 .1170
1. 2 . 1151 .1132 .1112 .1093 .1075 .1056 .1038 .1020 .1003 .0985
1. 3 . 0968 .0951 .0934 .0918 .0901 .0885 .0869 .0853 .0838 .0823
1. 4 . 0808 .0793 .0778 .0764 .0749 .0735 .0721 .0708 .0694 .0681
1. 5 . 0668 .0655 .0643 .0630 .0618 .0606 .0594 .0582 .0571 .0559
1. 6 . 0548 .0537 .0526 .0516 .0505 .0495 .0485 .0475 .0465 .0455
1. 7 . 0446 .0436 .0427 .0418 .0409 .0401 .0392 .0384 .0375 .0367
1. 8 . 0359 .0351 .0344 .0336 .0329 .0322 .0314 .0307 .0301 .0294
1. 9 . 0287 .0281 .0274 .0268 .0262 .0256 .0250 .0244 .0239 .0233
2.0 .02275 .02222 .02169 .02118 .02068 .02018 .01970 .01923 .01876 .01831
2.1 .01786 .01743 .01700 .01659 .01618 .01578 .01539 .01500 .01463 .01426
2.2 .01390 .01355 .01321 .01287 .01255 .01222 .01191 .01160 .01130 .01101
2.3 .01072 .01044 .01017 .00990 .00964 .00939 .00914 .00889 .00866 .00842
2.4 .00820 .00798 .00776 .00755 .00734 .00714 .00695 .00676 .00657 .00639
2.5 .00621 .00604 .00587 .00570 .00554 .00539 .00523 .00508 .00494 .00480
2.6 .00466 .00453 .00440 .00427 .00415 .00402 .00391 .00379 .00368 .00357
2.7 .00347 .00336 .00326 .00317 .00307 .00298 .00289 .00280 .00272 .00264
2.8 .00256 .00248 .00240 .00233 .00226 .00219 .00212 .00205 .00199 .00193
2.9 .00187 .00181 .00175 .00169 .00164 .00159 .00154 .00149 .00144 .00139
3.0 .00135
3.1 .00097
3.2 .00069
3.3 .00048
3.4 .00034
3.5 .00023
3.6 .00016
3.7 .00011
3.8 .00007
3.9 .00005
4.0 .00003
O Z
Area in the table
z
QMBM0609 13 [Turn over
Chi-Squared Critical Values
p value
df 0.25 0.20 0.15 0.10 0.05 0.025 0.02 0.01 0.005 0.0025 0.001 0.0005
1
1.32 1.64 2.07 2.71 3.84 5.02 5.41 6.63 7.88 9.14 10.83 12.12
2
2.77 3.22 3.79 4.61 5.99 7.38 7.82 9.21 10.60 11.98 13.82 15.20
3
4.11 4.64 5.32 6.25 7.81 9.35 9.84 11.34 12.84 14.32 16.27 17.73
4
5.39 5.59 6.74 7.78 9.49 11.14 11.67 13.23 14.86 16.42 18.47 20.00
5
6.63 7.29 8.12 9.24 11.07 12.83 13.33 15.09 16.75 18.39 20.51 22.11
6
7.84 8.56 9.45 10.64 12.53 14.45 15.03 16.81 13.55 20.25 22.46 24.10
7
9.04 9.80 10.75 12.02 14.07 16.01 16.62 18.48 20.28 22.04 24.32 26.02
8
10.22 11.03 12.03 13.36 15.51 17.53 18.17 20.09 21.95 23.77 26.12 27.87
9
11.39 12.24 13.29 14.68 16.92 19.02 19.63 21.67 23.59 25.46 27.83 29.67
10
12.55 13.44 14.53 15.99 18.31 20.48 21.16 23.21 25.19 27.11 29.59 31.42
11
13.70 14.63 15.77 17.29 19.68 21.92 22.62 24.72 26.76 28.73 31.26 33.14
12
14.85 15.81 16.99 18.55 21.03 23.34 24.05 26.22 28.30 30.32 32.91 34.82
13
15.93 16.98 18.90 19.81 22.36 24.74 25.47 27.69 29.82 31.88 34.53 36.48
14
17.12 18.15 19.40 21.06 23.68 26.12 26.87 29.14 31.32 33.43 36.12 38.11
15
18.25 19.31 20.60 22.31 25.00 27.49 28.26 30.58 32.80 34.95 37.70 39.72
16
19.37 20.47 21.79 23.54 26.30 28.85 29.63 32.00 34.27 36.46 39.25 41.31
17
20.49 21.61 22.98 24.77 27.59 30.19 31.00 33.41 35.72 37.95 40.79 42.88
18
21.60 22.76 24.16 25.99 28.87 31.53 32.35 34.81 37.16 39.42 42.31 44.43
19
22.72 23.90 25.33 27.20 30.14 32.85 33.69 36.19 38.58 40.88 43.82 45.97
20
23.83 25.04 26.50 28.41 31.41 34.17 35.02 37.57 40.00 42.34 45.31 47.50
21
24.93 26.17 27.66 29.62 32.67 35.48 36.34 38.93 41.40 43.78 46.80 49.01
22
26.04 27.30 28.82 30.81 33.92 36.78 37.66 40.29 42.80 45.20 48.27 50.51
23
27.14 28.43 29.98 32.01 35.17 38.08 38.97 41.64 44.18 46.62 49.73 52.00
24
28.24 29.55 31.13 33.20 36.42 39.36 40.27 42.98 45.56 48.03 51.18 53.48
25
29.34 30.68 32.28 34.38 37.65 40.65 41.57 44.31 46.93 49.44 52.62 54.95
26
30.43 31.79 33.43 35.56 38.89 41.92 42.86 45.64 48.29 50.83 54.05 56.41
27
31.53 32.91 34.57 36.74 40.11 43.19 44.14 46.96 49.64 52.22 55.48 57.86
28
32.62 34.03 35.71 37.92 41.34 44.46 45.42 48.28 50.99 53.59 56.89 59.30
29
33.71 35.14 36.85 39.09 42.56 45.72 46.69 49.59 52.34 54.97 58.30 60.73
30
34.80 36.25 37.99 40.26 43.77 46.98 47.96 50.89 53.67 56.33 59.70 62.16
40
45.62 47.27 49.24 51.81 55.76 59.34 60.44 63.69 66.77 69.70 73.40 76.09
50
56.33 53.16 60.35 63.17 67.50 71.42 72.61 76.15 79.49 82.66 86.66 89.56
60
66.98 68.97 71.34 74.40 79.08 83.30 84.58 88.38 91.95 95.34 99.61 102.7
80
88.13 90.41 93.11 96.58 101.9 106.6 108.1 112.3 116.3 120.1 124.8 128.3
100
109.1 111.7 114.7 118.5 124.3 129.6 131.1 135.8 140.2 144.3 149.4 153.2
QMBM0609 14
Diploma
Quantitative Methods for Business and Management
Examiners Suggested Answers
Q1 (a) The statement means that Y has a symmetrical and bell-shaped distribution,
centred at the mean value, , with a degree of spread measured by the standard
deviation, , such that more than 99% of Y-values lie within the range 3.
(b) (i) From the standard normal table, the proportion above 2 is 0.02275.
(ii) From the standard normal table, the proportion above 1 (which is equal to the
proportion below -1) is 0.1587. Therefore the proportion between 0 and -1 is
0.5 - 0.1587 = 0.3413.
(c) 0.2 of X-values lie above z = 0.842 approx.
(X - 200)/25 = 0.842 X = 221 approx.
(d) (i) z = (2.1 - 2.02)/0.04 = 2
Proportion above 2.1kg = 0.02275
(ii) z = (2 - 2.02)/0.04 = -0.5
Proportion below 2kg = 0.3085
Q2 (a)


From the graph, where Cum f = 30, the median is found to be approximately 4,000.
QMBM0609 15 [Turn over
(b) Mean = = = (i.e. )
fx
n
270
60
4 5 . 44,,550000

Median = + x 10 = 4 (i.e. 0
14
35

44,,000000)

Mode = +
+
x 10 = 4 (i. 0
20
20 30

ee. 44,,000000)
The average prot earned by the newsagents in the sample is 4,500, while the median
(or typical) value and the mode (most commonly occurring value) are both 4,000.
The fact that the mean exceeds the median and the mode suggests that the data is
positively skewed.
(c) SD =
5700
60
- 4.5 = 8.646
2
(i.e. 8,646)
Also accept the SD(n - 1) formula, which gives 8,719.
(d) Sk
mean median
sd
=
-
=
x 3 3 0 5
8 646
( ) .
.
= 0.173
Also accept Sk =
x
= 0.172
3 0 5
8 719
.
.

As expected, the distribution has a small degree of positive skew (i.e. a longer tail to
the right).
Q3 (a) C = y = =
994
10
9999..44

y
= - 99.4 =
2
99168
10
66..0044
(6.36 is also acceptable)
INC = x = =
1137
10
111133..77

x
= - 113.7 =
2
129997
10
88..4499
(8.94 is also acceptable)
QMBM0609 16
(b) b =
- (1137 x 994)
-
1134880
1299970 113 7
2
.
== 0.652965


a = 99.4 - (0.652965 x 113.7) = 25.158
So the equation is: y

= 25.158 + 0.653x
Where C is the dependent variable y and INC is the independent variable x.
(c) R = 0.653 x =
8 49
6 04
.
.
00..991188
This represents a very high degree of positive linear correlation.
(d) (i) y

(ii)
(e) To achieve a level of y equal to 110, the required value of x is given by:
x = (110 - 25.158)/0.652965 = 129.93
(f) The sample size is small and both x = 130 and x = 140 are outside the range of the
data. So even though the correlation coefcient is very high, we would not expect the
predictions (which require extrapolation) to be very accurate. Also, the results may be
spurious because both consumer spending and national income may have upward
trends over time.
Q4 (a) The Central Limit Theorem states that the sampling distribution of the mean
(for example) is normally distributed if the sample size is sufciently large, regardless
of the distribution of the parent population. This means that statisticians can use
the normal distribution to conduct signicance (or hypothesis) tests by constructing
condence intervals or calculating test statistics which can then be compared with
appropriate critical values. Statisticians can therefore test claims made by businesses,
government departments or trade associations with statistical rigour.
(b) (i) 99% condence interval:

4 5
1 2
50
.
.
. 2.576 x =

44 55 00..443377

(ii) 90% condence interval:

4 5
1 2
50
.
.
. 1.645 x

= 44 55 00..227799
= 25.158 + (0.652965 x 130) = 111100..0044
y

= 25.158 + (0.652965 x 140) = 111166..5577
QMBM0609 17 [Turn over
(iii) The required sample size can be found by solving the
following equation for n:

1 645
1 2
.
.
x = 0.2
n
This gives n = 97.42, so a sample of 98 should be taken.
(iv) H
0
: = 5
H
0
: 5
Critical value at 5% level of signicance = 1.96
z =
-
= -
4 5 5
1 2
50
.
.
22..9955
Reject H
0
. The evidence does not support the claim.
Q5 (a) Seasonal variations are predictable regular uctuations in a time series that repeat over
the period of a year or less. An example would be sales of garden furniture which are
normally higher in summer months and lower in winter months. Random variations are
unpredictable uctuations in a time series that occur by chance.
(b) (i) The centred moving averages are:
13, 14.25, 15.25, 16, 17.25, 18.75, 19.75, 20
(ii) Q1 Q2 Q3 Q4
9 -4.25
-3.25 0 6.75 -4.75
-1.75 2
Averages -2.5 1 7.875 -4.5
Adjusted -2.96875 0.53125 7.40625 -4.96875
So the seasonal factors to three decimal places are:
-2.969, 0.531, 7.406, -4.969
(iii) The average quarterly increase in the trend is (20 - 13)/7 = 1.
The forecast for the rst quarter of 2009 is:
Q1: 20 + (3 x 1) - 2.969 = 20.031 (i.e. 20 billion)
QMBM0609 18
(iv) The seasonally-adjusted series (y - S) is calculated below:
y S y - S
2006 8 -2.969 10.969
10 0.531 9.469
22 7.406 14.594
10 -4.969 14.969
2007 12 -2.969 14.969
16 0.531 15.469
24 7.406 16.594
14 -4.969 18.969
2008 18 -2.969 20.969
22 0.531 21.469
26 7.406 18.594
14 -4.969 18.969
Q6 (a) (i) Equilibrium is reached when Q = Q
S
= Q
D
. i.e. when:
50 + 0.2Q = 500 - 0.05Q
Q = 1,800 tables per month
P = 410 (i.e. 410 per table)
(ii) After demand increases by 1,000 units, the new demand function is:
P = 500 - 0.05(Q
D
+ 1,000) or P = 550 - 0.05Q
D
The new equilibrium is reached when:
50 + 0.2Q = 550 - 0.05Q
Q = 2,000 tables per month
P = 450 (i.e. 410 per table)
(b) (i) Breaking even requires that:
410Q = 2,000 + 210Q
200Q = 2,000
Q = 10 tables per month
(ii) To make a monthly prot of 1,000 requires that:
200Q - 2,000 = 1,000
Q = 15 tables per month
(iii) The new prot function is:
Prot/loss = 450Q - 210Q - 2,000 = 240Q - 2,000
Now if Q = 15, Prot/loss = (240 x 15) - 2,000 = 1,600
So there would be a prot of 1,600 per month.
QMBM0609 19 [Turn over
Q7 (a) The expected monetary value of a business decision is the average return that can
be expected, taking into account probabilities. For any business strategy, the EMV
is calculated by multiplying the estimated value of the possible outcomes by their
associated probabilities and then summing. It is a useful measure in business as it
allows decision-makers to compare alternative decisions - the highest EMV being one
criterion employed by decision-makers to choose among alternative strategies.
(b) (i)
Re-locate
Takeover
No new
investment

Success (0.7)
Failure (0.3)

40m
-60m
Success
(0.5)
Failure (0.5)
0.6
0.4
50m
10m
-15m
0.5
0.2
0.3
0
10m
-1m
(ii) Re-location
EMV
I
= (0.7 x 40) + (0.3 x (-60)) = 10
Takeover
EMV
II
= 0.5 [(0.6 x 50) + (0.4 x 10)] + (0.5 x (-15)) = 9.5
No new investment
EMV
III
= (0.5 x 0) + (0.2 x 10) + (0.3 x (-1)) = 1.7
Based on the EMV criterion, the best strategy is Strategy I, i.e. to expand by
re-location.
QMBM0609 20
(iii) The director is clearly risk-averse and is adopting the maximin criterion, i.e.
choosing Strategy III with the highest minimum outcome. This may be sensible
in this example, as making no new investment avoids the risk (present in the
relocation and takeover strategies) of experiencing substantial falls in prot
which could place the company in a very difcult nancial position. There may
also be non-pecuniary factors which the directors should take into account, such
as the preferred location of the company and the level of employment that may
be created by each strategy. The environmental effects (externalities) of the three
strategies might also be important.
Q8 (a) Primary data refers to information collected for the rst time by a researcher for a
specic project. An example would be data on peoples opinions of a new product
collected by means of a questionnaire survey. Secondary data refers to information
that has already been collected for some other purpose, but which may be used in
a current research project. Examples might include the economic and social data
collected and published by the government, and nancial data published in companies
annual reports.
(b) Nominal scale measurements indicate which category a respondent belongs
to, but with no order or value being implied. An example would be the use of the
numbers 1 (for male) and 2 (for female) to indicate the gender of a respondent.
Ordinal measurements indicate a ranking of respondents according to some criterion.
For example, the preferences indicated on a rating scale (say, from strongly agree to
strongly disagree) yield ordinal scale measurements.
(c) (i) The row totals are 100 and 200.
The column totals are 60, 60 and 180.
The expected frequencies (calculated as (Row Total/Grand Total) x Column Total)
are:
20 20 60
40 40 120
(ii) H
0
: Type of dwelling and use of grocery store are independent
H
1
: Type of dwelling and use of grocery store are not independent (i.e. they are
linked)
A 2 x 3 table has 2 degrees of freedom. At the 5% level, the critical value is 5.99.
O E ((O - E)^2)/E
40 20 20
30 20 5
30 60 15
20 40 10
30 40 2.5
150 120 7.5
60
So the calculated chi-squared value is 60 > 5.99.
Reject H
0
. There is strong evidence of a link between type of dwelling and use of the
grocery store. In particular, it seems that those who live in apartments are more likely to
use the local grocery store than those who live in houses.
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QMBM0609 24 2343-114-1