Random Motors Project

Submission
Name – Yashwanth Dhanaraj
Q-1a) Formulate the null hypotheses to check whether the new models are
performing as per the desired design specifications.

For Rocinante36: For Marengo32:

Mileage HO : Mileage HO :
Mileage of Rocinante 36 = 22 Mileage of Marengo32 =15 km/litre
km/litre
Top speed HO :
Top speed HO :
Top Speed of Marengo 32 = 210
Top Speed of Rocinante 36 = 140 km/hr
km/hr
Q-1b) Formulate the alternate hypotheses to check whether the new models are
performing as per the desired design specifications.

For Rocinante36: For Marengo32:

Mileage H1 : Mileage H1 :
Mileage of Rocinante36 ≠ 22 Mileage of Marengo32 ≠ 15
km/litre km/litre

Top speed H1 : Top speed H1 :

Top Speed of Rocinante36 ≠ 140 Top Speed of Marengo 32 ≠ 210

km/hr km/hr
Q-2) In order to comment on whether the design specifications are being
matched or not, perform relevant hypothesis tests and calculate the p-value for
each. What will you conclude? Assume you are performing the tests at 95%
confidence level.
For Rocinante36: Conclusion:
Since the p- value is greater than
p-value for mileage = 0.082200247 alpha(.05) for all 4 data sets. We fail to
p-value for top speed = reject all 4 null hypotheses The data does
not prove the engineers claims are false
0.431566151
We can say with a 95% confidence level
For Marengo32: that the design specifications given by the
p-value for mileage = 0.134212987 engineers are matched and conclude that
the assumption that the null hypothesis
p-value for top speed = 0.373 is true remains.
Q-3) You have learnt about the possible errors that might result from the
hypothesis tests. What type of error is more expensive for Random motors
based on the hypothesis they are testing? Why? Assume that you need to
refund all your customers if your cars deviate from specifications.
The type of error which is more Reason:
expensive:
A type 2 error will result in refunding the
A type 2 error is more expensive. (Fail entire amount to the customer plus the
to reject null hypothesis when it is redesigning and manufacturing the new
false) cars according to the specifications which
will be far more expensive than a type 1
Mileage/top speed was not equal to error when we reject a true null hypothesis
the specifications, but we failed to which will result in re-testing the
reject the null hypotheses. specifications, thus being far cheaper.
Q-4) Develop a regression equation for each model at 95 percent confidence
level. From the regression equation predict the sales of the two models.
Develop the regression equation for the Develop the regression equation for the
Rocinante models and Predict the number Marengo models and Predict the number of
of unit sales of Rocinante36 model? unit sales of Marengo32 model?

Regression coefficients Regression coefficients

Price: -0.79503 Price: -0.18672817
Mileage: 8.306331 Mileage: 0.041301187 (non significant)
Top speed: -0.01857 Top speed: 0.220801682

Equation: Y= X1* Price(in lakhs) + X2*Mileage (in Equation: Y= X1* Price (in Lakhs) + X2* Top Speed
kmpl) +C ; i.e. (in Km/hr) + C ; i.e.

Sales( in 1000’s) = 50.72313 - 0.79503 *7(Price in Lakh) + Sales(in 1000’s) = -13.44764- 0.01867* 41 (Price in L) +
8.306331 *22 (Mileage in kmpl) 0.2208* 210 ( Speed in km/hr) = 25.26485

Predicted Sales(in units): 227.8972 (in thousands) Predicted Sales(in units): 25.26485 (in thousands)

2,27,897 units in total (rounded off) 25,265 units ( rounded off)

Q-5) Based on sales prediction, what is the overall predicted profit for
Rocinante36 model and Marengo32 model ?

Overall predicted profit (Sales Prices – Cost Price)* Predicted No. of sales

Rocinante36 Model: (7-6) * 227.8972= 1000*227.8972

=INR 227897.2 Lakh
Marengo32 Model: (41-33)* 25.26485= 202.1188*1000
= INR 202118.8 Lakh

Predicted Profit for R36: INR 2,27,897.2 Lakh

for R32: INR 2,02,118.8 Lakh
Q-6) As a CEO, you wish to invest only in the model which is predicted to be
more profitable. Which model among Rocinante36 and Marengo32 will you
invest in?

Which model you will invest in?

As a CEO, I will choose to invest in the Rocinante 36 due to it bigger overall

predicted profits. Although the Marengo 32 offers higher profit per car sold,
the volume of Rocinante 36 is far higher and compensates for its lower
profitability per car sold and thus giving us a clear cut winner for making our
investment.
Q-7) Now you must have derived the regression equation for both models, Rocinante and
Marengo. Now if you increase the price of Rocinante36 and Marengo32 by 1 lac rupees
each, which car will have a higher impact on the sales due to increase in price? Give proper
logic for your answer. You can consider that all other specifications such as mileage and top
speed remain the same for both models.

Which car is most affected by a price increase? Why?

By increasing the price value by 1 we get,
BRAND Regression Equation Sales Difference Percentage
Rocinante 50.72313 - 0.79503 *8(Price+1) + 227.1 227.89- 227.10= -0.3488
36 8.306331 *22 (kmpl) 0.79
Marengo -13.44764- 0.1867* 42 (Price+1) + 25.07 25.26- 25.07= -0.7390
32 0.2208* 210 (km/hr) 0.1867

Marengo 32 has a worse impact due to the price increase. The table notes a higher percent fall in
sales for Marengo 32. The logic behind it is, we substituted the value for the price in the regression
equation. Using that, we can calculate the difference in the sales value. Comparing pre-price increase
and post price increase values, we can calculate the sales drop percent for R36 and M32.
By comparing the sales drop percent we can conclude, M32 has a higher impact on sales due to the
price increase.
Q-8) After developing the regression equation for both models (Rocinante and Marengo), if you
analyse the p values for coefficients in the regression results, you will notice that some of the
regression variables (top speed, mileage and price) are insignificant. Remove the insignificant
regression variables from your selection and rebuild the regression model using only significant
variables. Compare the Adjusted R square value for the new and old regression model. Do you
notice any change in Adjusted R square value? If yes, explain the reason for the change.

Is there a change on Adjusted R square Value? If so, Why?

There are no significant changes to the adjusted R values for both Rocinante
and Marengo. This is due to the fact that, in the old regression model, the
removal of insignifcant variables has very minimal impact on the adjusted R
values. The orginal model already adjusted for the insignificant predicators
thus, we don’t see much change in the adjusted R square value