The Association of Business Executives

QCF
Quantitative Methods for
Business Management
30 May 2012, Afternoon
1. Time allowed: 3 hours.
2. Read the instructions at the top of each section carefully.
The number of questions you have to answer is marked clearly at the top of each section.
Do not answer more questions than instructed.
3. The number of marks per question may vary. Marks for subdivisions of questions and the
total marks for each question are shown in brackets after the question.
4. No books, dictionaries, notes or any other written materials are allowed in this
examination.
5. Calculators, including scientifc calculators, are allowed providing they are not
programmable and cannot store or recall information. Electronic dictionaries and
personal organisers are NOT allowed. All workings must be shown.
6. Formulae sheets and tables for the Normal and Chi-Squared distributions are provided on
pages 7-11.
7. Candidates who break ABE Examination Regulations (Conduct during the Examinations), or
commit any misconduct, will be disqualifed from the examinations.
8. Question papers must not be removed from the Examination Hall.
5QMBM0612 ABE 2012 K/502/4800
5QMBM0612
STRUCTURE OF PAPER: Answer BOTH sections
SECTION A: Answer ALL EIGHT questions
Maximum marks for Section A
Q1-Q8 5 marks
each
40 marks
SECTION B: Answer ANY FOUR questions
Maximum marks for Section B
Q9-Q13 15 marks
each
60 marks
TOTAL MARKS AVAILABLE FOR THE PAPER 100 marks
5QMBM0612 2
This paper consists of TWO SECTIONS.
Follow the instructions at the top of EACH section.
SECTION A
You must answer ALL EIGHT questions in this section.
Each question carries 5 marks.
Section A is worth 40% of the total marks available.
Q1 (a) Defne the term simple random sample. (2 marks)
(b) Explain how a simple random sample can be selected in practice. (3 marks)
(Total 5 marks)
Q2 Outline the advantages and disadvantages of the mode and median as measures of location.
(5 marks)
Q3 On average, a salesperson succeeds in making a sale with one in every four potential
customers contacted. During a particular week, fve new potential customers are contacted.
Use the binomial distribution to calculate the probability that the salesperson will succeed in
making more than one sale. (5 marks)
Q4 The following set of measurements shows the actual weights of grain sold in ten randomly
selected 10kg sacks:
8 9 11 9 10 11 10 12 10 9 (kg)
(a) Find the range. (1 mark)
(b) Calculate the standard deviation. (4 marks)
(Total 5 marks)
Q5 Distinguish between the trend and seasonal variations in a time series. (5 marks)
5QMBM0612 3 [Turn over
Q6 A frm has commissioned an analyst to predict the probabilities of different proft and loss
levels resulting from two strategies (A and B). The results are shown below:
Probabilities
Proft/Loss Strategy A Strategy B
1.5 million proft 0.5 0.7
500,000 proft 0.4 0
1 million loss 0.1 0.3
Calculate the expected monetary values (EMVs) of each strategy (A and B) and advise the
frm on the better strategy to follow. (5 marks)
Q7 In a competitive market, the supply function for a particular good is given by the equation:
P 100 2Q
S
where P is the price of the good (in per unit) and Q
S
is the quantity supplied per time
period.
The demand function is given by the equation:
P 400 Q
D
where Q
D
is the quantity demanded per time period.
Calculate the equilibrium price and quantity. (5 marks)
Q8 A researcher is using a chi-squared test of independence to investigate a possible link
between three age groups (18-25, 26-40 and over 40) and three political affliations (social
democrat, conservative and independent). Using a large sample, the calculated chi-squared
value is found to be 5.2.
Use the chi-squared tables to fnd the critical value at the 5% level of signifcance and
interpret the researchers result. (5 marks)
END OF SECTION A
MAXIMUM MARKS FOR SECTION A: 40
TURN OVER TO SECTION B
5QMBM0612 4
SECTION B
You must answer ANY FOUR questions in this section.
Each question carries 15 marks.
Section B is worth 60% of the total marks available for the paper.
Q9 The numbers of visitors to a large leisure and sports centre are shown quarterly over three
years in the following table:
Year Quarter Visitors
(000s)
2009 1 9
2 11
3 25
4 7
2010 1 11
2 15
3 29
4 9
2011 1 15
2 17
3 33
4 13
(a) Calculate a centred four-point moving average trend. (5 marks)
(b) Using the additive model and the trend calculated in part (a), estimate the seasonal
factors in each quarter (to 3 decimal places). (5 marks)
(c) Use your results to forecast the number of visitors in the frst quarter of 2012.
Comment on the likely accuracy of your forecast. (5 marks)
(Total 15 marks)
5QMBM0612 5 [Turn over
Q10 The following table shows the prices of three popular fruits sold in a country and the
quantities sold in the two years 2010 and 2011:
2010 2011
Fruit Price per kg
()
Quantity sold
(millions)
Price per kg
()
Quantity sold
(millions)
Apples 1.40 50 2.20 45
Peaches 2.00 30 1.50 40
Pears 1.60 11 2.00 15
(a) Construct a Laspeyres price index for 2011, using 2010 as the base year. (5 marks)
(b) Construct a Paasche price index for 2011, using 2010 as the base year. (5 marks)
(c) Explain why the Laspeyres price index is usually larger than the Paasche price index.
(5 marks)
(Total 15 marks)
Q11 (a) Explain what is meant by a signifcance test and give an example of how signifcance
testing could be used in business decision-making. (5 marks)
(b) In a simple random sample of 500 households in Glasgow, 25 per cent stated that they
would be interested in participating in a car-sharing scheme. In a similar survey of 400
households in Manchester, 30 per cent expressed an interest in participating in such a
scheme. To test whether the difference between the two sample results is statistically
signifcant, you are required to:
(i) State the appropriate null and alternative hypotheses for your test. (2 marks)
(ii) Find the critical value of z for a two-tailed test at the 5% level. (2 marks)
(iii) Calculate the test statistic and interpret the result. (6 marks)
(Total 15 marks)
5QMBM0612 6
Q12 In the following set of data, y represents the annual costs of maintaining and repairing ten of
a manufacturing companys machines (in 000) and x represents the age of each machine
(in years).
y x
4 10
1 5
1 5
3 15
3 20
2 20
2 8
2 6
1 1
3 10
(a) Find the equation of the least-squares regression line, assuming that maintenance and
repair costs depend on the age of the machine. (5 marks)
(b) Calculate the Pearson correlation coeffcient and comment on the result. (5 marks)
(c) Use the results of parts (a) and (b) to predict the maintenance and repair costs of a
12-year-old machine and a 25-year-old machine. Comment on the likely accuracy of
your predictions. (5 marks)
(Total 15 marks)
Q13 A small frm manufactures laptops with a projected selling price of 1,000. The frm has fxed
costs of 90,000 per month and variable costs per laptop are 400.
(a) Find the frms break-even level of monthly output. (5 marks)
(b) If the frm plans to sell 200 laptops per month, calculate its expected monthly proft.
(5 marks)
(c) If the frm is making a loss of 54,000 per month, calculate the increase in production
that would be required to make a proft of 18,000. (5 marks)
(Total 15 marks)
END OF SECTION B
MAXIMUM MARKS FOR SECTION B: 60
TOTAL MAXIMUM MARKS: 100
END OF QUESTION PAPER
5QMBM0612 7 [Turn over
FORMULAE
Mean of ungrouped data:
=

Geometric mean of ungrouped data:
=

where: = "the product of "

Mean of grouped data:
=

Median of grouped data:
=

where: L = lower boundary of the median class
F = cumulative frequency up to the median class
f = frequency of the median class
i = width of the median class

Mode of grouped data:
=

where: L = lower boundary of the modal class
f
m
= frequency of the modal class
f
m1
= frequency of the pre-modal class
f
m+1
= frequency of the post-modal class
i = width of the modal class

Standard deviation of ungrouped data:
=

( )

Standard deviation of grouped data:
=
( )

5QMBM0612 8
Sk =
S( )
s

where:

= median
s = standard deviation

egression:
y = b
b =
y y

()

= y b

earson correlation:
R =
y y
|

()

] | y

(y)

]

R = b

Spearmans ran correlation:
R = 1
6

1)


Laspeyres price inde:
p

q
0
p
0
q
0
1uu

aasche price inde:
p

p
0
q

1uu

inomial distribution:
P() =
n
C
x
p
x
q
nx


oisson distribution:
P() =

p
x
!


oefficient of sewness:
5QMBM0612 9 [Turn over
Standard normal distribution:
z =
p

onfidence interval for a mean:
p = _z

onfidence interval for a proportion:
n = p _z_
pq

est statistic for a single mean:
z =
p
0

est statistic for a difference between means:
z =

est statistic for a single proportion:
z =
p n
0
_
n
0
(1 n
0
)

est statistic for a difference between proportions:
z =
p

_p q [
1

where:
p =

q = 1 p

hi-squared test statistic:
_

=
(0 E)

E

5QMBM0612 10
Areas in the Right-Hand Tail of the Normal Distribution
z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3.0
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4.0
.5000 .4960 .4920 .4880 .4840 .4801 .4761 .4721 .4681 .4641
.4602 .4562 .4522 .4483 .4443 .4404 .4364 .4325 .4286 .4247
.4207 .4168 .4129 .4090 .4052 .4013 .3974 .3936 .3897 .3859
.3821 .3783 .3745 .3707 .3669 .3632 .3594 .3557 .3520 .3483
.3446 .3409 .3372 .3336 .3300 .3264 .3228 .3192 .3156 .3121
.3085 .3050 .3015 .2981 .2946 .2912 .2877 .2843 .2810 .2776
.2743 .2709 .2676 .2643 .2611 .2578 .2546 .2514 .2483 .2451
.2420 .2389 .2358 .2327 .2296 .2266 .2236 .2206 .2177 .2148
.2119 .2090 .2061 .2033 .2005 .1977 .1949 .1922 .1894 .1867
.1841 .1814 .1788 .1762 .1736 .1711 .1685 .1660 .1635 .1611
.1587 .1562 .1539 .1515 .1492 .1496 .1446 .1423 .1401 .1379
.1357 .1335 .1314 .1292 .1271 .1251 .1230 .1210 .1190 .1170
.1151 .1132 .1112 .1093 .1075 .1056 .1038 .1020 .1003 .0985
.0968 .0951 .0934 .0918 .0901 .0885 .0869 .0853 .0838 .0823
.0808 .0793 .0778 .0764 .0749 .0735 .0721 .0708 .0694 .0681
.0668 .0655 .0643 .0630 .0618 .0606 .0594 .0582 .0571 .0559
.0548 .0537 .0526 .0516 .0505 .0495 .0485 .0475 .0465 .0455
.0446 .0436 .0427 .0418 .0409 .0401 .0392 .0384 .0375 .0367
.0359 .0351 .0344 .0336 .0329 .0322 .0314 .0307 .0301 .0294
.0287 .0281 .0274 .0268 .0262 .0256 .0250 .0244 .0239 .0233
.02275 .02222 .02169 .02118 .02068 .02018 .01970 .01923 .01876 .01831
.01786 .01743 .01700 .01659 .01618 .01578 .01539 .01500 .01463 .01426
.01390 .01355 .01321 .01287 .01255 .01222 .01191 .01160 .01130 .01101
.01072 .01044 .01017 .00990 .00964 .00939 .00914 .00889 .00866 .00842
.00820 .00798 .00776 .00755 .00734 .00714 .00695 .00676 .00657 .00639
.00621 .00604 .00587 .00570 .00554 .00539 .00523 .00508 .00494 .00480
.00466 .00453 .00440 .00427 .00415 .00402 .00391 .00379 .00368 .00357
.00347 .00336 .00326 .00317 .00307 .00298 .00289 .00280 .00272 .00264
.00256 .00248 .00240 .00233 .00226 .00219 .00212 .00205 .00199 .00193
.00187 .00181 .00175 .00169 .00164 .00159 .00154 .00149 .00144 .00139
.00135
.00097
.00069
.00048
.00034
.00023
.00016
.00011
.00007
.00005
.00003
5QMBM0612 11
p value
df
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
40
50
60
80
100
0.25 0.20 0.15 0.10 0.05 0.025 0.02 0.01 0.005 0.0025 0.001 0.0005
1.32 1.64 2.07 2.71 3.84 5.02 5.41 6.63 7.88 9.14 10.83 12.12
2.77 3.22 3.79 4.61 5.99 7.38 7.82 9.21 10.60 11.98 13.82 15.20
4.11 4.64 5.32 6.25 7.81 9.35 9.84 11.34 12.84 14.32 16.27 17.73
5.39 5.59 6.74 7.78 9.49 11.14 11.67 13.23 14.86 16.42 18.47 20.00
6.63 7.29 8.12 9.24 11.07 12.83 13.33 15.09 16.75 18.39 20.51 22.11
7.84 8.56 9.45 10.64 12.53 14.45 15.03 16.81 13.55 20.25 22.46 24.10
9.04 9.80 10.75 12.02 14.07 16.01 16.62 18.48 20.28 22.04 24.32 26.02
10.22 11.03 12.03 13.36 15.51 17.53 18.17 20.09 21.95 23.77 26.12 27.87
11.39 12.24 13.29 14.68 16.92 19.02 19.63 21.67 23.59 25.46 27.83 29.67
12.55 13.44 14.53 15.99 18.31 20.48 21.16 23.21 25.19 27.11 29.59 31.42
13.70 14.63 15.77 17.29 19.68 21.92 22.62 24.72 26.76 28.73 31.26 33.14
14.85 15.81 16.99 18.55 21.03 23.34 24.05 26.22 28.30 30.32 32.91 34.82
15.93 16.98 18.90 19.81 22.36 24.74 25.47 27.69 29.82 31.88 34.53 36.48
17.12 18.15 19.40 21.06 23.68 26.12 26.87 29.14 31.32 33.43 36.12 38.11
18.25 19.31 20.60 22.31 25.00 27.49 28.26 30.58 32.80 34.95 37.70 39.72
19.37 20.47 21.79 23.54 26.30 28.85 29.63 32.00 34.27 36.46 39.25 41.31
20.49 21.61 22.98 24.77 27.59 30.19 31.00 33.41 35.72 37.95 40.79 42.88
21.60 22.76 24.16 25.99 28.87 31.53 32.35 34.81 37.16 39.42 42.31 44.43
22.72 23.90 25.33 27.20 30.14 32.85 33.69 36.19 38.58 40.88 43.82 45.97
23.83 25.04 26.50 28.41 31.41 34.17 35.02 37.57 40.00 42.34 45.31 47.50
24.93 26.17 27.66 29.62 32.67 35.48 36.34 38.93 41.40 43.78 46.80 49.01
26.04 27.30 28.82 30.81 33.92 36.78 37.66 40.29 42.80 45.20 48.27 50.51
27.14 28.43 29.98 32.01 35.17 38.08 38.97 41.64 44.18 46.62 49.73 52.00
28.24 29.55 31.13 33.20 36.42 39.36 40.27 42.98 45.56 48.03 51.18 53.48
29.34 30.68 32.28 34.38 37.65 40.65 41.57 44.31 46.93 49.44 52.62 54.95
30.43 31.79 33.43 35.56 38.89 41.92 42.86 45.64 48.29 50.83 54.05 56.41
31.53 32.91 34.57 36.74 40.11 43.19 44.14 46.96 49.64 52.22 55.48 57.86
32.62 34.03 35.71 37.92 41.34 44.46 45.42 48.28 50.99 53.59 56.89 59.30
33.71 35.14 36.85 39.09 42.56 45.72 46.69 49.59 52.34 54.97 58.30 60.73
34.80 36.25 37.99 40.26 43.77 46.98 47.96 50.89 53.67 56.33 59.70 62.16
45.62 47.27 49.24 51.81 55.76 59.34 60.44 63.69 66.77 69.70 73.40 76.09
56.33 53.16 60.35 63.17 67.50 71.42 72.61 76.15 79.49 82.66 86.66 89.56
66.98 68.97 71.34 74.40 79.08 83.30 84.58 88.38 91.95 95.34 99.61 102.70
88.13 90.41 93.11 96.58 101.90 106.60 108.10 112.30 116.30 120.10 124.80 128.30
109.10 111.70 114.70 118.50 124.30 129.60 131.10 135.80 140.20 144.30 149.40 153.20
Chi-Squared Critical Values
5QMBM0612 12 691230

Please note that these are not fully-worked model answers, but they
are intended as a guide to the type of answer expected.

The Association of Business Executives
QCF
Quantitative Methods for
Business Management
Suggested Answers
June 2012


STRUCTURE OF PAPER: Answer BOTH sections
SECTION A: Answer ALL EIGHT questions Q1Q8 5 marks
each
Total marks for Section A: 40 marks
SECTION B: Answer ANY FOUR questions Q9Q13 15 marks
each
Total marks for Section B: 60 marks
TOTAL MARKS AVAILABLE FOR THE PAPER 100 marks

Please note that these are not fully-worked model answers, but they
are intended as a guide to the type of answer expected.
SECTION A
Candidates are required to answer ALL EIGHT questions in this section. Section A is worth
40% of the total marks available for the paper.

Question 1


Question 2

Q1
(a)


Define the term simple random sample.
A simple random sample is a sub-set of a population, selected in such a way
that every member of the population has an equal chance of being included. 2 marks
Q1
(b)


Explain how a simple random sample can be selected in practice.
To select a simple random sample, a sampling frame (which lists the entire
population) is required. Each item on the sampling frame can be numbered,
and then a series of random numbers (e.g. generated on a computer) can be
used to select the sample members




3 marks
Q1 Total Maximum Marks for Question 5 marks
Q2


Outline the advantages and disadvantages of the mode and median as measures of
location.
The mode is not distorted by extreme values and is easy to calculate. It is useful for
clothes and shoe sizes. But it cannot be used to calculate further statistics and may have
more than one value. It does not always exist. The median is not distorted by extreme
values and is unique for any set of data. It has only limited use in calculating further
statistics.
Q2 Total marks for question 5 marks

Please note that these are not fully-worked model answers, but they
are intended as a guide to the type of answer expected.
Question 3

Question 4
Q3


On average, a salesperson succeeds in making a sale with one in every four potential
customers contacted. During a particular week, five new potential customers are
contacted.

Use the binomial distribution to calculate the probability that the salesperson will succeed
in making more than one sale.
p = 0.25, q = 0.75, n = 5
P(0) = (0.75)
5
= 0.2373
P(1) = 5 0.25 (0.75)
4
= 0.3955
P(more than 1) = 1 - (0.2373 + 0.3955) = 0.3672
Q3 Total marks for question 5 marks
Q4


The following set of measurements shows the actual weights of grain sold in ten randomly
selected 10kg sacks:

8 9 11 9 10 11 10 12 10 9 (kg)
(a) Find the range.
(b) Calculate the standard deviation.
(a) Range = 12 8 = 4

(b)
095 . 1
10
100
10
1012
2
=
|
.
|

\
|
= SD

[Credit also given for 1.155, obtained using the (n-1) formula]

Q4 Total Maximum Marks for Question 5 marks

Please note that these are not fully-worked model answers, but they
are intended as a guide to the type of answer expected.
Question 5


Question 6


Q5



Distinguish between the trend and seasonal variations in a time series.
The trend is the long-term, relatively smooth movement or direction of a time-series.
Seasonal variations are predictable regular short-term fluctuations which take place
within one complete period. If the data are measured quarterly, seasonal fluctuations
would be associated with each season of the year.
Q5 Total Maximum Marks for Question 5 marks
Q6



A firm has commissioned an analyst to predict the probabilities of different profit and loss
levels resulting from the two strategies (A and B). The results are shown below:
Probabilities
Profit/Loss Strategy A Strategy B
1.5 million profit 0.5 0.7
500,000 profit 0.4 0
1 million loss 0.1 0.3

Calculate the expected monetary values (EMVs) of each strategy (A and B) and
advise the firm on the better strategy to follow.

The expected values of the firms profits associated with each strategy are:
Strategy A: Expected profit = (0.5 1.5) + (0.4 0.5) (0.1 1) = 0.85 million

Strategy B: Expected profit = (0.7 1.5) + (0 0.5) (0.3 1) = 0.75 million

So to maximise expected profit, the firm should adopt Strategy A.

Q6 Total Maximum Marks for Question 5 marks

Please note that these are not fully-worked model answers, but they
are intended as a guide to the type of answer expected.
Question 7

Question 8

End of SECTION A
Maximum for SECTION A: 40 marks
Q7



In a competitive market, the supply function for a particular good is given by the
equation:
P = 100 + 2Q
S

Where P is the price of the good (in per unit) and Q
S
is the quantity supplied per time
period. The demand function is given by the equation:

P = 400 - Q
D

where Q
D
is the quantity demanded per time period.

Calculate the equilibrium price and quantity.
Equilibrium is reached when Q = Q
S
= Q
D
. So, we have:

100 + 2Q = 400 - Q
3Q = 300
Q = 100
P = 300
Q7 Total Maximum Marks for Question 5 marks
Q8



A researcher is using a chi-squared test of independence to investigate a possible
link between three age groups (18-25, 26-40 and over 40) and three political
affiliations (social democrat, conservative and independent). Using a large sample,
the calculated chi-squared value is found to be 5.2. Use the chi-squared tables to find
the critical value at the 5% level of significance and interpret the researchers result.
A (3 3) contingency table has 4 degrees of freedom. So the critical chi-squared value
at the 0.05 level of significance is 9.49.
Since the calculated value of 5.2 is less than this critical value, the hypothesis of
independence cannot be rejected. Therefore we accept the null hypothesis. The sample
evidence does not support the view that there is a link between age and political
affiliation.
Q8 Total Maximum Marks for Question 5 marks

Please note that these are not fully-worked model answers, but they
are intended as a guide to the type of answer expected.
SECTION B
Candidates are required to answer ANY FOUR questions from this section. Each question
carries 15 marks.
Section B is worth 60% of the total marks available for the paper.
Question 9
The numbers of visitors to a large leisure and sports centre are shown quarterly over three years in
the following table:

Year Quarter Visitors (000s)
2009 1 9
2 11
3 25
4 7
2010 1 11
2 15
3 29
4 9
2011 1 15
2 17
3 33
4 13
Q9
(a)


Calculate a centred four-point moving average trend.
The centred moving averages are:

13.25, 14, 15, 15.75, 16.5, 17.25, 18, 19
5 marks
Q9
(b)


Using the additive model and the trend calculated in part (a), estimate the seasonal
factors in each quarter (to 3 decimal places).

Qtr 1 Qtr 2 Qtr 3 Qtr 4
11.75 -7
-4 -0.75 12.5 -8.25
-3 -2
-3.5 -1.375 12.125 -7.625
-3.40625 -1.28125 12.21875 -7.53125
Adjusted to
sum to zero








So the seasonal factors to three decimal places are:
-3.406, -1.281, 12.219, -7.531








5 marks

Please note that these are not fully-worked model answers, but they
are intended as a guide to the type of answer expected.

Q9
(c)



Use your results to forecast the number of visitors in the first quarter of 2012.
Comment on the likely accuracy of your forecast.

The average quarterly increase in the trend is (19 13.25)/7 = 0.82143

The forecast for the sales in the first quarter of 2012 is:

Qtr 1: [19 + (3 0.82143)] - 3.406 = 18.058 (18 to 1 d.p.)

The forecasts may not be accurate because they are based on a very short
time series of only three years, and because other factors that are likely to
influence the number of visitors are not taken into account (e.g. household
incomes). Also, the possibility of cyclical variations is ignored.
5 marks
Q9 Total Maximum Marks for Question
15
marks

Please note that these are not fully-worked model answers, but they
are intended as a guide to the type of answer expected.
Question 10
The following table shows the prices of three popular fruits sold in a country and the
quantities sold in the two years 2010 and 2011:
2010 2011
Fruits Price per kg Quantity Price per kg Quantity
() sold (millions) () sold (millions)


Apples 1.40 50 2.20 45
Peaches 2.00 30 1.50 40
Pears 1.60 11 2.00 15
Q10
(a)


Construct a Laspeyres price index for 2011, using 2010 as the base year.
The calculations required for parts (i) and (ii) are as follows:
P
1
Q
0
P
0
Q
0
P
1
Q
1
P
0
Q
1

110 70 99 63
45 60 60 80
22 17.6 30 24
177 147.6 189 167

(where the subscript 0 refers to 2009 and the subscript 1 refers to 2010)
LPI = (177 / 147.6) 100 = 119.9 5 marks
Q10
(b)


Construct a Paasche price index for 2010, using 2009 as the base year.

Using the data in the table in part (i):

PPI = (189 / 167) 100 = 113.2 5 marks
Q10
(c)


Explain why the Laspeyres price index is usually larger than the Paasche price
index.
The Laspeyres index uses base-year quantities as weights, while the
Paasche index uses current-year quantities as weights.
It is likely that there will be a bigger fall in demand for those goods whose
prices rise more quickly. Thus, the Laspeyres index will give more weight to
those goods whose prices rise more quickly and the Paasche index will give
more weight to those goods whose prices fall or rise more slowly. In a period
of rising prices, therefore, we expect the Laspeyres price index to exceed the
Paasche price index, as in the example. 5 marks
Q10 Total Maximum Marks for Question
15
marks

Please note that these are not fully-worked model answers, but they
are intended as a guide to the type of answer expected.
Question 11
Q11
(a)


Explain what is meant by a significance test and give an example of how significance
testing could be used in business decision-making.
A significance test uses sample data to test hypotheses about a
population. The test checks whether there is a significant difference between
the sample results and the claimed population value. If the significance level
were set at 5%, say, a null hypothesis about a population would be rejected if
the sample value were in the range of values that would only be expected to
occur in 5% of samples (if the claimed population value were true).

In business, a quality control inspector could use significance tests to check
manufacturers claims about the average number of defective goods
produced. (Any other relevant examples may be accepted.) 5 marks
Q11
(b)


In a simple random sample of 500 households in Glasgow, 25 per cent stated that they
would be interested in participating in a car-sharing scheme. In a similar survey of 400
households in Manchester, 30 per cent expressed an interest in participating in such a
scheme. To test whether the difference between the two sample results is statistically
significant, you are required to:
(i) State the appropriate null and alternative hypotheses for your test.
(ii) Find the critical value of z for a two-tailed test at the 5% level.
(iii) Calculate the test statistic and interpret the result.

(i) H
0
: t
1
= t
2

H
1
:
2 1
t t =
(where the subscript 1 refers to Glasgow and the subscript
2 refers to Manchester)
(ii) This is a two-tailed test, so the critical value at the 5% level
is 1.96.
(iii)

n
1
= 500, p
1
= 0.25
n
2
= 400, p
2
= 0.3

272 . 0
400 500
) 3 . 0 400 ( ) 25 . 0 500 (
=
+
+
= p

67 . 1
400
1
500
1
728 . 0 272 . 0
3 . 0 25 . 0
=
|
.
|

\
|
+

= z
























10
marks

Please note that these are not fully-worked model answers, but they
are intended as a guide to the type of answer expected.

Since -1.67 > -1.96, we cannot reject the null hypothesis at
the 5% level. The evidence suggests that the difference
between the two survey results is not statistically significant
at the 5% level.
Q11 Total Maximum Marks for Question
15
marks

Please note that these are not fully-worked model answers, but they
are intended as a guide to the type of answer expected.
Question 12
In the following set of data, y represents the annual costs of maintaining and repairing ten of a
manufacturing companys machines (in 000) and x represents the age of each machine (in
years).

y x

4 10
1 5
1 5
3 15
3 20
2 20
2 8
2 6
1 1
3 10
Q12
(a)

Find the equation of the least-squares regression line, assuming that maintenance
and repair costs depend on the age of the machine.
The following calculations are required:
y x xy x
2
y
2

4 10 40 100 16
1 5 5 25 1
1 5 5 25 1
3 15 45 225 9
3 20 60 400 9
2 20 40 400 4
2 8 16 64 4
2 6 12 36 4
1 1 1 1 1
3 10 30 100 9
22 100 254 1376 58









0904 . 0
100 ) 1376 10 (
) 22 100 ( ) 254 10 (
2
=


= b



a = 2.2 (0.0904 10) = 1.296
So the least-squares regression equation is x y 0904 . 0 . 0 296 . 1 + =


5 marks

Please note that these are not fully-worked model answers, but they
are intended as a guide to the type of answer expected.

Q12
(b)


Calculate the Pearson correlation coefficient and comment on the result.
57 . 0
) 22 ) 58 10 )( 100 ) 1376 10 (
) 22 100 ( ) 254 10 (
2 2
=


= R
(Any other correct method accepted.)
This represents a moderate degree of positive correlation. I.e. the x and y
values tend to move in the same direction
5 marks
Q12
(c)

Use your results in parts (a) and (b) to predict the maintenance and repair
costs of a 12-year old machine and a 25-year old machine. Comment on the
likely accuracy of your predictions.
x = 12: 38 . 2 ) 12 0904 . 0 ( 296 . 1 = + = y
x = 25: 56 . 3 ) 25 0904 . 0 ( 296 . 1 = + = y


So we predict the maintenance and repair costs to be 2,380 when
x = 12 and 3,560 when x = 25. The sample size is small and the second
prediction may be unreliable as 25 is outside the range of the data. The first
prediction is likely to be more reliable, as 12 is within the range of the data.
Also, the correlation coefficient is only moderate. The regression equation
fails to take in account the influence of other factors (such as the usage
intensity of the machines). 5 marks
Q12 Total Maximum Marks for Question
15
marks

Please note that these are not fully-worked model answers, but they
are intended as a guide to the type of answer expected.
Question 13

End of SECTION B
Maximum for SECTION B: 60 marks

A small firm manufactures laptops with a projected selling price of 1,000. The firm has fixed costs
of 90,000 per month and variable costs per laptop are 400.

Q13
(a)


Find the firms break-even level of monthly output.
TR = 1000Q
TC = 90000 + 400Q

For break-even, 1000Q - 400Q - 90000 = 0

Q = 150 laptops
5 marks
Q13
(b)


If the firm plans to sell 200 laptops per month, calculate its expected monthly profit.

Expected Profit = 600Q 90000
= (600 200) 90000
= 30,000
5 marks
Q13
(c)



If the firm is making a loss of 54,000 per month, calculate the increase in production that
would be required to make a profit of 18,000.

For loss of 54,000:
600Q 90000 = -54000
600Q = 36000
Q = 60 laptops


For profit of 18,000:
600Q 90000 = 18000
600Q = 108000
Q = 180 laptops

An increase in production of 180 60 = 120 laptops is required. 5 marks
Q13 Total Maximum Marks for Question
15
marks