QM 721: BUSINESS STATISTICS I

1.0

Measures of Central Tendency

Introduction:
To investigate a set of quantitative data, it is useful to define numerical measures
that describe important features of the data. One of the important ways of
describing a group of measurements, whether it is a sample or a population is by
means of Average.
Therefore, any measure indicating the center of a set of data, arranged in an
increasing or decreasing order of magnitude, is called a Measure of Central
Tendency/Location. The most commonly used of central location are the Mean,
median and Mode.
Before we go into details, let us consider the following important mathematical
notations.

=Sigma i.e Sum of the values

1.1

Arithmetic Mean

Usually we use the symbol

X
i.e

to denote the sample mean (Arithmetic mean)

x1 x 2 ... x n
n
n

i 1

i 1

X xi / n f i

OR, when a single data has appeared more than once, in other words, it has
frequency of more than one, then the Arithmetic Mean is given by
n

fx
i 1
n

f
i 1

Eg.(a) Find an Arithmetic mean of the following data: 12

23
1
19
17
12
34 and 53.

34

56

34

21

Soln
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i 1
n

i 1

316 / 12 26.3

(b) Calculate the A.M of the marks from the following table
Marks
0-10
10-20
20-30
30-40
40-50
50-60

No. Of students
12
18
27
20
17
6

In this case, it should be noted that, if the values of

are large, then the
calculation of A.M by direct method is time consuming and tedious. So the use of
Assumed mean method can be employed to find the A.M
Arithmetic Mean for Grouped Data
Assumed mean Method
The assumed mean method is given by
n

X A

fd
i 1
n

f
i 1

where d i xi A , and A- is the assumed mean

For instance, consider the example (b) above,

Soln.
Marks
0-10
10-20
20-30
30-40
40-50
50-60
Total

Freq.
12
18
27
20
17
6
f 100

Class marks (X)

5
15
25
35
45
55

Qm721: Measures of Central Tendency: By Bukwimba

d=x-A
-20
-10
0
10
20
30
fd 300

fd
-240
-180
0
200
340
180

Page 2

X A

fd
i 1
n

f
i 1

Now, from X 25

300
28
100

X 28

Eg2. Calculate an Arithmetic mean from the following data

Soln.

Using

Assumed

Method
Let A=37.5
Class

frequency

Class mark(X)

d=X-A

fd

20-25

10

22.5

-15

25-30

12

27.5

-10

-120

30-35

32.5

-5

-40

35-40

20

37.5

40-45

11

42.5

55

45-50

47.5

10

40

50-55

52.5

15

75

-150

X A

fd
i 1
n

f
i 1

X 37.5

140
35.5
70

X 35.5
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Correct and Incorrect values

Eg1. The average weekly wage for a group of 25 persons working in a certain factory was
calculated to be $378.40. it was later discovered that one figure was misrecorded as $160
instead of the correct value of $200. Calculate the correct average wage.
Soln.

We know that

n
X n X n 25, X 378.4

Then, X=25 x 378.4=9460

So, Total incorrect value

9460

Less incorrect figure

-160
9300

Add the correct figure

+200

Total correct figure

9500

Hence, the correct average =

X correct $380
Eg2. The mean of 200 observations was 50. Later on, it was discovered that two
observations were wrongly recorded as 92 and 8 instead of 192 and 88. Find out the
correct mean. (Exercise)

Combined Arithmetic mean

It is possible to compute a combined average of two or more related groups. Thus the
formula for calculating the combined average/mean is given below (in case of two
groups)
X 12

n1 X 1 n2 X 2
n1 n2

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Where

X 12 = is a combined Mean of the two groups

X1

=A.M of the first group

=A.M of the second group

X2
n1

=Number of observations of the first group

n2

=Number of observation of the second group

Merits of the Arithmetic Mean

It
It
It
It

is easy to understand
is easy to calculate
utilizes entire data in the group
provides a good comparison

Limitations

In the absence of actual data it can mislead

Its value can not be determined graphically
It is affected by extreme values

1.2

Median

The Median is the middle value when the data are arranged in ascending or descending
order. Thus
for discrete data.
For instance, Given the following data 4 ,6 ,12 ,8 ,6 ,7 ,3. What is its Median?
Soln.
Arrange the values in either ascending or descending order
i.e 3

12

then, the median is given by

therefore, Median=6
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Median for Grouped Data

The Median for grouped data is given by

Where;

Merits of the median

Simple to understand
Since it is the middle value of the data set, then its value is not affected by extreme
values

Limitation

It can not be used for further computing other statistical measures such as standard
deviation
1.3

Mode

Mode is the value with the highest frequency, in other words, mode is the value which
occurs most oftenly. It is useful when it is not possible to calculate Mean and median.
Mode for Grouped Data
The following formula is used to calculate the mode for grouped data.

Where;

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Merits of the Modes

It can be easily located by mere inspection

It eliminates extreme values
Can be determined graphically

Limitations
It is not capable of further mathematical treatment
Eg . Obtain the median and mode for the given set of data
Income
($)
No.of
workers
Soln.

300-309 310-319 320-329 330-339 340-349 350-359 360-369 370-379

9

Income ($)

20

24

38

48

No. Of Workers (freq.)

27

17

Cum.freq.

299.5-309.5

309.5-319.5

20

29

319.5-329.5

24

53

329.5-339.5

38

91

339.5-349.5

48

139

349.5-359.5

27

166

359.5-369.5

17

183

369.5-379.5

189

Now,

= +

, the median class is 339.5-349.5

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The modal class is 339.5-349.5

We know that,
Then,

10 x(48-38)/(2 x 48-38-27)=242.72

Notes: Despite of all limitations of the Arithmetic Mean, but still it is an

appropriate measure of central tendency as compared to Median and Mode.

MEASURES OF VARIABILITY/ DISPERSION

A measure of variation is designed to state the extent to which the individual value
differ/fluctuate on an average from the true value i.e Mean.
The following are important measures of variability or dispersion.
i.

Range: This is the simplest measure of variability of a set of data; it is calculated as

ii.

Interquartile range: it is given by

Where,

3
N fbQ3
But, Q3 LQ3 4
f Q3

iii.

C and

fbQ1
C
Q1 LQ1 4
f Q1

Mean Deviation: The mean deviation is obtained by calculating the absolute

deviations of each observation from the mean and then averaging these deviations
by taking their Arithmetic mean.
i.e

M .D

Xi X
N

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iv.

Standard deviation: This is the most common and useful measure because it is
the average distance of each score from the mean.
That is to say, the standard deviation is given by

S .d

fx
i

2
i

f i xi

Short method for finding standard deviation (S.d) is by using Assumed mean
method.
S .d

v.

fd
i

2
i

fi di

Coefficient of variation: whenever we want to compare the variability of two

series or groups which which differ widely in their averages or which are measured
in different units. We do not merely calculate the measure of dispersion, but we
calculate the coefficient of variation which are purely numbers independent to the
units of the measurements. The distribution for which the coefficient of variation is
more or larger is said to be less stable, less uniform, less consistent, less
homogeneous.
The main advantage of the coefficient of variation is that the uniformity,
consistency, stability and homogeneity of entirely different distributions, measured
in different units can be compared.
S .d
C.V
100
X

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Worked Examples:
Qn 1.given the following information on the marks obtained by 100 students below.
Marks

No. of
Students

Class marks
(x)

(f)

0-10

11

10-20

12

15

20-30

24

25

30-40

20

35

40-50

13

45

50-60

55

60-70

65

70-80

75

80-90

85

90-80

95

f n 100
Calculate
i.

Mean using assumed method

ii.

Median

iii.

Mode

iv.

Mean deviation

v.

Interquatile range

vi.

Standard deviation

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Qn2. An analysis of monthly wages paid to workers in two different firms A and B gives the
following results.
Firm

No. of workers

60

80

Average wage

$300

$350

Standard deviation

40

45

In which firm there is a greater variability of wage?

Soln.
40
Coefficient of variationof Firm A 300 100 13.33%
45
Coefficient of variation of Firm B 350 100 12.85%

Thus, Firm A has a greater variability

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