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TECHNIQUES IN
BUSINESS
Statistical part
Measures of Central Tendency
A measure of central tendency is a single value
that attempts to describe a set of data by
identifying the central position within that set of
data. As such, measures of central tendency are
sometimes called measures of central location.
The mean, median and mode are all valid
measures of central tendency, but under
different conditions, some measures of central
tendency become more appropriate to use than
others.
Summary of when to use the
mean, median and mode
Mean (Arithmetic)
The mean (or average) is the most popular and well known measure
of central tendency. It can be used with both discrete and
continuous data, although its use is most often with continuous data.
n = Total number of
f = Frequency
values
Geometric mean
The Geometric Mean is a special type of
average where we multiply the numbers together
and then take the nth root, which is commonly
used to determine the performance results of an
investment or portfolio.
The geometric mean must be used when
working with percentages (which are derived
from values), whereas the standard arithmetic
mean will work with the values themselves.
Formulas of geometric mean
ungrouped data and grouped data
Log G = 1/n(logx1+logx2+logx3.+logxn)
= 1/n
G = antilog [1/n]
Harmonic mean
The harmonic mean is defined as the
reciprocal of the arithmetic mean of
the reciprocal of the values.
The harmonic mean is an appropriate
type to be used in averaging certain
kinds of ratio or rate of change.
Formulas of harmonic mean
ungrouped data and grouped data
Justification:
Sum of deviation = (xi-) (i = 1,2,3.n )
= xi-n ()
= xi- xi =0 ()
Properties Of Arithmetic Mean
Justification:
(xi-a)2 = (xi-)2
= [(xi-)2+2(xi-)()+()2]
= (xi-)2+2 () (xi-)+n()2]
= (xi-)2+n ()2 [((xi-)=0]
This property is usually called the minimum
property of the mean.
If yi = axi+b (1 = 1,2,3,n, where a and b are any
two numbers and a 0, then +b.
Justification:
Now summing all values of is,
we obtain:
yi = axi + nb
Dividing both side by n, we get:
=a+
=a+b
This property is usually called the invariance of
the mean under linear transformation.
Property 5
If and are the arithmetic mean of two
samples of sizes n1 and n2 respectively
then, the arithmetic mean of the
distribution combining the two can be
calculated as: