Indian Institute of Management Bangalore

PGP 2009-10
Quantitative Methods I
Mid Term Examination
TS
Time: 2 hours 30 minutes

Name:____________________________

Maximum Points: 60

Roll. No.________________ Section____

Question No.
Maximum Marks
Students Score

1
8

2
8

3
20

4
12

5
12

Total
60

Instructions: Please do not seek any clarifications, but state any assumptions that you
make. Assumptions made should be reasonable. Please show calculations and provide
reasons to support your answers.
1. A highway restaurant is trying to plan its capacity. It finds that on average during the 2
hours between 12.30pm and 2.30 pm, one vehicle arrives every 5 minutes. Each vehicle
on average has four customers, and they can all sit on one table. To break even on a
particular day, there should be at least 15 vehicles arriving during the two hour lunch
period.
(a) What is the probability of breaking even?

(2 marks)

(b) If more than 3 vehicles arrive during a five minute period, there will overcrowding
and the customers will either have to wait or may decide to leave. What is the
probability of this occurring?
(2 marks)
(c) They want to tackle the problem of overcrowding. The Manager feels that the 2 hour
period should be divided into 5 minute intervals. If there are 3 or fewer vehicle
arrivals in each interval, there is no overcrowding. What is the probability that there is
overcrowding in 10 such 5 minute intervals?
(2 marks)
(d) What is the probability that the 3rd overcrowded interval is the 5th interval, starting
from 12.30 pm?
(2 marks)
(e) What is the expected time between arrivals?

(2 marks)

2. The ABC company produces detergent packets of 1 kg each for the lower income
segments. Its competitor announces that it guarantees that its 1 kg packets never fall short
on weight. ABC knows that its filling machines are set at 1.10 kg and that the standard
deviation of the quantity filled is 50 grams.
a. What percentage of the packets sold by ABC are below the 1 kg level?
b. If ABC wants at most 1% to be below 1 kg, then where must it set the mean
value for the filling machine? Assume that the standard deviation does not
change.
c. The production manager comes up with an alternative. He says with an
investment of Rs. 60,000, they can reduce the standard deviation to 35 grams
and keep the setting at the same level. If we use the current setting of 1.10 kg
as a benchmark, and assign a cost of Rs.3 to each packet that is of lower
weight than 1 kg (in terms of customer goodwill loss etc.), is this investment
justified? Assume that they sell a million packets a year and would want to
recover the investment in the first year of operations.

2. Consider the following table. The starting salary and grades a sample population have
been classified, and the probabilities are as given below:

Grade
1
2
3
4

1
0.05
0.06
0.09
0.11

Salary packet
2
0.11
0.06
0.05
0.1

3
0.12
0.1
0.12
0.03

a. Find the marginal distributions, and the coefficient of correlation. Assume the levels as
values of the two variables, namely, grade and salary.
(6 marks)
b. Does high grade lead to high income? (2 marks)
3. A small farmer is trying to figure out whether he should use the high yielding variety
(H) of seeds or the traditional (T) one. He has some idea that the costs will go up, and
that the high yield will depend on the monsoon since his land is not irrigated. In addition
to seed costs there are additional costs of fertilizer, and if he uses H, the total cost per acre
will be Rs.4,000, whereas if he uses T the cost is Rs.2000. The monsoon is either
excellent with probability of 0.25, good with probability 0.35, or bad with probability 0.4.
If the monsoon is excellent, H gives a revenue of Rs.10,000 per acre, and T only
Rs.4,000. If the monsoon is good, H gives a revenue of Rs.6,000 per acre, and T still
gives Rs.4,000. If the monsoon is bad, H gives zero revenue, and T gives Rs.3,000.

a) What would you advise him to do?

(4 marks)

b) The CEO of the company marketing the high yielding variety decides to reduce the
cost of seed per acre by Rs.300, and also lobby with the government to give input
subsidy to the tune of Rs.500. This will only benefit those farmers who use the H
variety. If he succeeds, what would your advice to the farmer be? (2 marks)
c) Someone advises the Government that instead of giving subsidy, it should invest in
better forecasting. He shows some data that indicates that if the monsoon is excellent,
the forecast is also excellent with probability 0.7, good with probability 0.2, and bad
with probability 0.1. If the monsoon is good, the forecast is excellent with probability
0.2, good with probability 0.6, and bad with probability 0.2. If the monsoon is bad,
the forecast is excellent with probability 0.05, good with probability 0.1, and bad with
probability 0.85. What would you advise the government to do?
(6 marks)
d) What is the value of this information per acre for the farmer?

(2 marks)

e) What is the value of perfect information?

(2 marks)

f) Using satellites and the latest modeling techniques, it is possible to get perfect
forecasts well in advance of the sowing season. However it costs Rs. 250 crores, but
will benefit 10 million acres of rain fed land. The Agriculture Ministry is pushing for
the subsidy of Rs.500 per acre. As Finance Minister, what would you do? Assume that
the entire cost will be borne by the Government.
(2 marks)
4. A box has n items. Consider an experiment where each two items are chosen at
random, and if a particular designated item, say item A is selected, we stop. Else, we pick
another item from the remaining n-2 items and continue. Let X be the number of times
we pick lots of 2 items. What is the probability distribution of X? Assume n is an even
number.
5. The CEO of a company is trying to form an elite sales team of 25 persons. There are
18,10,6 and 3 aspirants respectively for the four regions, North, South, East and West. He
decides that there will be 13, 6, 4 and 2 persons respectively for the four regions.
a.
In how many ways can he form the sales team?
b.
If you choose 11 people at random from the sales team, what is the
probability that there are 5,3,2,1 respectively from the four regions?
c.
If we know that someone is from the North, what is the probability that he
will be chosen?
d.
If we know that there is one person from each of the four regions who
have a post graduate degree and aspire to be in the elite sales team, what is
the probability that each region has 1 of them? Assume that the team is
formed at random from the aspirants.