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Theoretical Questions in Basic Business Statistics (ALD-2102)

Chapter 1: Levels of Measurement & Types of Variables

1. What are the di>erent levels of measurement in statistics? Explain each

with examples.

The four levels of measurement determine the mathematical operations that can
be performed on data:

• Nominal Scale:

o Categorizes data without any order.

o Example: Eye color (Blue, Green, Brown), Blood type (A, B, AB, O).

o Operations: Only mode can be calculated.

• Ordinal Scale:

o Orders data but without fixed diFerences between values.

o Example: Customer satisfaction (Satisfied, Neutral, Dissatisfied).

o Operations: Median, mode.

• Interval Scale:

o Ordered data with equal intervals but no absolute zero.

o Example: Temperature in Celsius (0°C doesn’t mean ‘no

temperature’).

o Operations: Mean, median, mode.

• Ratio Scale:

o Similar to the interval scale but has a true zero.

o Example: Weight, Height, Income.

o Operations: All statistical calculations (mean, median, mode,

ratios).
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2. Distinguish between nominal, ordinal, interval, and ratio scales.

Scale Order Equal Intervals True Zero Examples

Nominal No No No Gender, Religion

Ordinal Yes No No Satisfaction levels

Interval Yes Yes No Temperature in Celsius

Ratio Yes Yes Yes Age, Income

Chapter 2: Frequency Distribution & Graphical Representation

5. What is a frequency distribution? Why is it useful?

A frequency distribution is a table summarizing how often diFerent values

appear in a dataset.

Uses:

• Helps visualize large datasets.

• Identifies trends and patterns.

• Facilitates statistical analysis.

6. Explain the steps involved in constructing a frequency table for

quantitative data.

1. Identify the data set.

2. Determine the range (Max-Min).

3. Select the number of classes (typically 5-20).

4. Calculate class width: Range ÷ Number of classes.

5. List class intervals and count occurrences.

7. Describe di>erent methods of graphically presenting frequency

distributions.

• Histogram: Bars represent frequency of diFerent intervals.

• Pie Chart: Circular graph where slices represent proportions.

• Bar Graph: Displays categorical data.

• Line Graph: Shows trends over time.

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Chapter 3: Measures of Location & Dispersion

9. Define and di>erentiate the measures of central tendency: mean, median,

and mode.

• Mean: Average of all values.

• Median: Middle value when sorted.

• Mode: Most frequent value.

Measure Best Used When

Mean Data is symmetric, no outliers

Median Data has outliers/skewed distribution

Mode Categorical data, most common observation

10. What are the di>erences between arithmetic mean and geometric mean?

Measure Used When

Arithmetic Mean Normal datasets, equal-weighted values

Geometric Mean Growth rates (interest rates, population growth)

12. Explain the importance of variance and standard deviation in statistics.

• Variance (σ² or s²): Measures spread of data from the mean.

• Standard Deviation (σ or s): Square root of variance, gives average

deviation from mean.

Chapter 4: Data Visualization & Relationship Between Variables

15. Explain the concept of a stem-and-leaf display and its advantages.

A stem-and-leaf plot groups numerical data while preserving actual values.

Advantages:

• Retains raw data.

• Shows data distribution and outliers.

• Easy to construct manually.

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16. What are quartiles and how are they useful in statistical analysis?

Quartiles divide data into four parts:

• Q1 (25%): Lower quartile.

• Q2 (50%): Median.

• Q3 (75%): Upper quartile.

• IQR (Interquartile Range): Q3 - Q1 (measures spread).

Chapter 5: Probability Concepts

19. Di>erentiate between objective and subjective probability with

examples.

• Objective Probability: Based on empirical evidence.

o Example: Probability of rolling a 6 on a die (1/6).

• Subjective Probability: Based on personal judgment.

o Example: A doctor estimating recovery chances.

20. What are the rules of addition and multiplication in probability?

• Addition Rule:

o For mutually exclusive events:

P(A ∪ B) = P(A) + P(B)

o For non-mutually exclusive events:

P(A ∪ B) = P(A) + P(B) - P(A ∩ B)

• Multiplication Rule:

o For independent events:

P(A ∩ B) = P(A) × P(B)

o For dependent events:

P(A ∩ B) = P(A) × P(B | A)
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21. Explain Bayes' theorem and its applications.

Bayes' Theorem:

P(A∣B)=P(B∣A)P(A)P(B)P(A | B) = \frac{P(B | A) P(A)}{P(B)}

Applications:

• Medical testing (disease diagnosis).

• Spam email filtering.

Chapter 6-7: Probability Distributions

24. Explain the binomial probability distribution and its key characteristics.

A binomial distribution is used when:

• Fixed number of trials (n).

• Each trial has two outcomes (success/failure).

• Constant probability (p) of success.

Formula:

P(X=k)=(nk)pk(1−p)n−kP(X = k) = \binom{n}{k} p^k (1-p)^{n-k}

26. Define the Poisson probability distribution. When is it used?

The Poisson distribution models the probability of a given number of events

occurring in a fixed interval.

Formula:

P(X=k)=e−λλkk!P(X = k) = \frac{e^{-\lambda} \lambda^k}{k!}

Used in:

• Call center incoming calls.

• Number of defects per unit in manufacturing.

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Chapter 8-9: Sampling & Confidence Intervals

31. Why is sampling necessary in statistics?

• Saves time and resources.

• More practical than a full population study.

• Enables estimation of population parameters.

36. Di>erentiate between point estimates and confidence intervals.

• Point Estimate: Single best guess of a population parameter (e.g., sample

mean).

• Confidence Interval: Range of values likely to contain the population

parameter.

Formula for CI:

xˉ±Zα/2σn\bar{x} \pm Z_{\alpha/2} \frac{\sigma}{\sqrt{n}}

Chapter 10-11: Hypothesis Testing

41. What is hypothesis testing? Explain its importance in statistics.

Hypothesis testing is a procedure to test if a claim about a population is

supported by sample data.

Importance:

• Helps in decision-making.

• Tests research hypotheses.

46. Explain the di>erent types of errors (Type I and Type II) in hypothesis
testing.

• Type I Error (α): Rejecting a true null hypothesis.

• Type II Error (β): Failing to reject a false null hypothesis.

50. How do you conduct a two-sample test for proportions?

1. Define null and alternative hypotheses.

2. Calculate test statistic: Z=(p^1−p^2)p^(1−p^)(1n1+1n2)Z = \frac{(\hat{p}_1

- \hat{p}_2)}{\sqrt{\hat{p}(1-\hat{p}) (\frac{1}{n_1} + \frac{1}{n_2})}}

3. Compare with critical value.

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Here are the complete answers for Chapters 6 to 11 in Basic Business

Statistics (ALD-2102).

Chapter 6: Probability Distributions

23. What are the characteristics of a probability distribution?

A probability distribution shows how probabilities are assigned to diFerent

outcomes.

Characteristics:

1. Each probability is between 0 and 1.

2. Sum of all probabilities equals 1.

3. For discrete distributions, only specific values are possible.

4. For continuous distributions, probabilities are given over intervals.

24. Explain the binomial probability distribution and its key characteristics.

A binomial distribution describes the probability of getting a fixed number of

successes in a fixed number of trials.

Characteristics:

• Fixed number of trials (n).

• Each trial has two outcomes (success or failure).

• Probability of success (p) is constant.

• Trials are independent.

Formula:

P(X=k)=(nk)pk(1−p)n−kP(X = k) = \binom{n}{k} p^k (1-p)^{n-k}

Example: The probability of getting 3 heads in 5 coin flips.

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25. What is the hypergeometric probability distribution? How does it di>er

from the binomial distribution?

The hypergeometric distribution is used when selecting objects without

replacement, meaning probabilities change.

Formula:

P(X=k)=(Kk)(N−Kn−k)(Nn)P(X = k) = \frac{\binom{K}{k} \binom{N-K}{n-

k}}{\binom{N}{n}}

Di>erences from Binomial:

Feature Binomial Hypergeometric

Sampling With replacement Without replacement

Probability Constant (p) Changes in each trial

Example: Probability of drawing 2 red balls from a bag of 10 balls, 4 of which

are red.

26. Define the Poisson probability distribution. When is it used?

The Poisson distribution models the number of occurrences of an event over a

fixed time/space.

Formula:

P(X=k)=e−λλkk!P(X = k) = \frac{e^{-\lambda} \lambda^k}{k!}

where:

• λ\lambda = expected number of occurrences.

• kk = actual occurrences.

Uses:

• Counting arrivals at a service point (e.g., calls at a call center).

• Number of defects in manufacturing.

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Chapter 7: Continuous Probability Distributions

27. What is a uniform probability distribution? Provide an example.

A uniform distribution assigns equal probabilities across a range.

Formula:

f(x)=1b−a,a≤x≤bf(x) = \frac{1}{b-a}, \quad a \leq x \leq b

Example: Probability of randomly picking a number between 1 and 10.

28. Explain the characteristics of a normal distribution.

A normal distribution is symmetric and bell-shaped.

Characteristics:

• Mean = Median = Mode.

• Total area under the curve = 1.

• Follows empirical rule:

o 68% within 1 standard deviation (σ).

o 95% within 2σ.

o 99.7% within 3σ.

29. Why is the standard normal distribution important in statistics?

It allows for direct probability calculations using the z-score formula:

Z=X−μσZ = \frac{X - \mu}{\sigma}

where:

• XX = observed value.

• μ\mu = mean.

• σ\sigma = standard deviation.

Used in confidence intervals and hypothesis testing.

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30. How do you find areas under the normal curve using the z-score?

1. Convert data to z-score.

2. Use the z-table to find probabilities.

3. Interpret results based on area under the curve.

Example: Find P(X>90)P(X > 90) when μ=80,σ=5\mu = 80, \sigma = 5.

Chapter 8: Sampling & Sampling Distributions

31. Why is sampling necessary in statistics?

• Saves time and cost.

• Practical for large populations.

• Allows estimation of population parameters.

32. Describe di>erent types of sampling methods with examples.

1. Simple Random Sampling – Equal chance for all (e.g., lottery draw).

2. Stratified Sampling – Dividing population into groups and sampling each.

3. Cluster Sampling – Randomly selecting entire groups.

4. Systematic Sampling – Selecting every kthk^{th} individual.

33. What is a sampling error? How does it a>ect statistical results?

Sampling error is the diFerence between sample statistics and population

parameters.

Impact:

• Reduces accuracy.

• Can lead to misleading conclusions.

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34. Explain the concept of a sampling distribution of the sample mean.

The sampling distribution is the distribution of sample means across multiple

samples.

By Central Limit Theorem:

• For large samples, the distribution becomes normal.

35. Define standard error and explain its significance in statistical inference.

Standard Error (SE) measures variability of the sample mean.

SE=σnSE = \frac{\sigma}{\sqrt{n}}

• Smaller SE → More reliable estimate.

Chapter 9: Estimation & Confidence Intervals

36. Di>erentiate between point estimates and confidence intervals.

• Point Estimate: Single value estimate of a population parameter.

• Confidence Interval (CI): Range of values likely containing the parameter.

Formula:

CI=xˉ±Zα/2σnCI = \bar{x} \pm Z_{\alpha/2} \frac{\sigma}{\sqrt{n}}

37. How do you estimate the population standard deviation for known and
unknown variances?

• Known Variance: Use Z-distribution.

• Unknown Variance: Use t-distribution.

38. Compare and contrast the z-statistic and t-statistic.

Statistic Use Case

z-test Population SD known, large samples

t-test Population SD unknown, small samples

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Chapter 10: Hypothesis Testing

41. What is hypothesis testing? Explain its importance in statistics.

Hypothesis testing evaluates claims about a population.

Importance:

• Guides decision-making.

• Ensures scientific validity.

42. Di>erentiate between one-tailed and two-tailed tests.

Test Type Use Case

One-Tailed Testing for greater/less than

Two-Tailed Testing for any diFerence

43. What are the steps involved in hypothesis testing?

1. State null (H₀) and alternative (H₁) hypotheses.

2. Set significance level (α).

3. Calculate test statistic.

4. Find p-value or critical value.

5. Make a decision.

46. Explain the di>erent types of errors (Type I and Type II) in hypothesis
testing.

• Type I Error (α): Rejecting a true H₀.

• Type II Error (β): Accepting a false H₀.

50. How do you conduct a two-sample test for proportions?

1. State hypotheses.

2. Compute test statistic: Z=(p^1−p^2)p^(1−p^)(1n1+1n2)Z =

\frac{(\hat{p}_1 - \hat{p}_2)}{\sqrt{\hat{p}(1-\hat{p}) (\frac{1}{n_1} +
\frac{1}{n_2})}}

3. Compare with critical value.