REVIEW QUESTIONS

PART A
1. What is the difference between quantitative and qualitative analysis? Give several examples.
2. Define quantitative analysis. What are some of the organizations that support the use of the
scientific approach?
3. What are the three categories of business analytics?
4. What are the two basic laws of probability?
5. What is the meaning of mutually exclusive events? What is meant by collectively exhaustive?
Give an example of each.
6. Define opportunity loss. What decision-making criteria are used with an opportunity loss table?
7. What is a risk seeker? What is a risk avoider? How does the utility curve for these types of
decision makers differ?
8. Discuss how the coefficient of determination and the coefficient of correlation are related and
how they are used in regression analysis.
9. What is the SSE? How is this related to the SST and SSR?
10. What are some of the problems and drawbacks of the moving average forecasting model?

PART B
1. Gina Fox started her own company, Foxy Shirts, which manufactures imprinted shirts for special
occasions. Since she has just begun this operation, she rents the equipment from a local printing
shop when necessary. The cost of using the equipment is $350. The materials used in one shirt
cost $8, and Gina can sell these for $15 each.
a. If Gina sells 20 shirts, what will her total revenue be? What will her total variable cost
be?
b. How many shirts must Gina sell to break even? What is the total revenue for this?
2. A couple of entrepreneurial business students at State University decided to put their education
into practice by developing a tutoring company for business students. While private tutoring
was offered, it was determined that group tutoring before test in the large statistics classes
would be most beneficial. The students rented a room close to campus for $300 for 3 hours.
They developed handouts based on past tests, and these handouts (including color graphs) cost
$5 each. The tutor was paid $25 per hour, for a total of $75 for each tutoring session.
a. If students are charged $20 to attend the session, how many students must enroll for
the company to break even?
b. A somewhat smaller room is available for $200 for 3 hours. The company is considering
this possibility. How would this affect the break-even point?
3. There are 10 questions on a true-false test. A student feels unprepared for this test and
randomly guesses the answer for each of these.
a. What is the probability that the students gets exactly 7 correct?
b. What is the probability that the student gets exactly 8 correct?
c. What is the probability that the student gets exactly 9 correct?
d. What is the probability that the student gets exactly 10 correct?
e. What is the probability that the student gets more than 6 correct?
4. Susan Williams has been the production manager of Medical Suppliers, Inc., for the past 17
years. Medical Suppliers, Inc., is a producer of bandages and arm slings. During the past 5 years,
the demand for No-Stick bandages has been fairly constant. On the average, sales have been
about 87,000 packages of No-Stick. Susan has reason to believe that the distribution of No-Stick
follows a normal curve, with a standard deviation of 4,000 packages. What is the probability that
sales will be less than 81,000 packages?
 5. Megley Cheese Company is a small manufacturer of several different cheese products. One of
the product is a cheese spread that is sold to retail outlets. Jason Megley must decide how many
cases of cheese spread to manufacture each month. The probability that the demand will be six
cases is 0.1, seven cases is 0.3, eight cases is 0.5, and nine cases is 0.1. The cost of every case is
$45, and the price that Jason gets for each case is $95. Unfortunately, any cases not sold by the
end of the month are of no value, due to spoilage. How many cases of cheese should Jason
manufacture each month?
6. Mickey Lawson is considering investing some money that he inherited. The following payoff
table gives the profits that would be realized during the next year for each of three investments
alternatives Mickey is considering:

STATE OF NATURE
DECISION GOOD POOR
ALTERNATIVE ECONOMY ECONOMY

Stock market 80,000 -20,000

Bonds 30,000 20,000
CDs 23,000 23,000
Probability 0.5 0.5

a. What decision would maximize expected profits?

b. What is the maximum amount that should be paid for a perfect forecast of the economy?
7. The operations manager of a musical instrument distributor feels that demand for a particular
type of guitar may be related to the number of YouTube view for a music video by the popular
rock group Marble Pumpkins during the preceding month. The manager has collected the data
shown in the following table:

YouTube
GUITAR
VIEWS
SALES
(1,000s)
30 8
40 11
70 12
60 10
80 15
50 13
a. Graph these data to see whether a linear equation might describe the relationship between
the views on YouTube and guitar sales.
b. Using the software, compute the SST, SSE, AND SSR. Find the least squares regression line
for these data
c. Using the regression equation, predict guitar sales if there were 40,000 views last month.
8. Students in a management science class have just received their grades on the first test. The
instructor has provided information about the first test grades in some previous classes as well
as the final average for the same students. Some of these grades have been sampled and are as
follows:

STUDENT 1 2 3 4 5 6 7 8 9
1st test grade 98 77 88 80 96 61 66 95 69
Final average 93 78 84 73 84 64 64 95 76
 a. Develop a regression model that could be used to predict the final average in the course
based on their first test grade.
b. Predict the final average of a student who made an 83 on the first test.
c. Give the values of r and r2 for this model. Interpret the value of r2 in the context of this
problem.
9. Sales of Cool-Man air conditioners have grown steadily during the past 5 years:

Year SALES
1 450
2 495
3 518
4 563
5 584
6 ?
a. The sales manager had predicted, before the business started, that year 1’s sales would be
410 air conditioners. Using exponential smoothing with a weight of α = 0.30, develop
forecasts for years 2 through 6.
b. Using smoothing constants of 0.6 and 0.9, develop forecasts for the sales of Cool-Man air
conditioners above.
c. Use a three year moving average forecasting model to forecast the sales of Cool-Man air
conditioners
10. Consulting income at Kate Walsh Associates for the period of February – July has been as
follows:

INCOME
MONTH ($1,000s)
February 70.0
March 68.5
April 64.8
May 71.7
June 71.3
July 72.8

Use exponential smoothing to forecast August’s income. Assume that the initial forecast for February is
$65,000. The smoothing constant selected is α = 0.1
.

11. The following table provides the Dow Jones Industrial Average (DJIA) opening index value on the
first working day of 1994-2013:
a. Develop a trend line and use it to predict the opening DJIA index value for years 2014,
2015, and 2016. Find the MSE for this model.

YEAR DJIA YEAR DJIA

2013 13,104 2003 8,342
2012 12,392 2002 10,022
2011 11,577 2001 10,791
2010 10,431 2000 11,502
2009 8,772 1999 9,213
2008 13,262 1998 7,908
2007 12,460 1997 6,448
2006 10,718 1996 5,117
2005 10,784 1995 3,834
2004 10,453 1994 3,754

b. Using the DJIA data above, use exponential smooth with trend adjustment to forecast the
opening DJIA value for 2014. Use α = 0.8 and β = 0.2. Compare the MSE for this technique with
the MSE for the trend line.