Class 5.2 B Business Statistics Central Tendency: Research Scholar Priya Chugh
Class 5.2 B Business Statistics Central Tendency: Research Scholar Priya Chugh
2 B
BUSINESS STATISTICS
CENTRAL TENDENCY
RESEARCH SCHOLAR
PRIYA CHUGH
Central Tendency/Average
• One of the important objectives of statistical analysis is to determine various numerical measures
which describe the inherent characteristics of a frequency distribution.
• The first of such measures is central tendency or average.
• The averages are the measures which condense a huge unwieldy set of numerical data into single
numerical values which are representative of the entire distribution.
• In the words of Prof. R.A. Fisher, “The inherent inability of the human mind to grasp in its entirety a
large body of numerical data compels us to seek relatively few constants that will adequately
describe the data”.
• Averages are one of such few constants. Averages provide us the gist and give a bird’s eye view of the
huge mass of unwieldy numerical data.
• Averages are the values which lie between the two extreme observations, (i.e., the smallest and the
largest observations), of the distribution and give us an idea about the concentration of the values in
the central part of the distribution. Accordingly they are also sometimes referred to as the Measures of
Central Tendency.
• Averages are also sometimes referred to as Measures of Location since they enable us to locate the
position or place of the distribution in question.
Objectives of Measuring Central Tendency
To present a brief picture of data: It helps in giving a brief description of the main feature of the entire data.
Essential for comparison: It helps in reducing the data to a single valueand it enables us to compare two or more
groups in terms of typical performance
Helps in decision making: Most of the companies use measuring central tendency to plan and develop their
businesses’ economy.
Formulation of policies: Many governments rely on this medium while forming any policies.
Overall picture of the series: Average provides the overall picture of the series. We cannot remember each and
every facts relating to a field of enquiry.
To find representative value:
Measures of central tendency or averages give us one value for the distribution and this value represents the entire
distribution. In this way averages convert a group of figures into one value.
Helpful in further statistical analysis:
Many techniques of statistical analysis like Measures of Dispersion, Measures of Skewness, Measures of Correlation,
and Index Numbers are based on measures of central tendency. That is why; measures of central tendency are also
called as measures of the first order.
MEASURES OF CENTRAL TENDENCY
The following are the five measures of average or central tendency that are in
common use :
(i) Arithmetic average or arithmetic mean or simple mean
(ii) Median
(iii) Mode
(iv) Geometric mean
(v) Harmonic mean
Arithmetic mean, Geometric mean and Harmonic means are usually called
Mathematical averages
while Mode and Median are called Positional averages.
We come across statements like "the average monthly income of a family is ₹15,000 or the average monthly rainfall of a place
is 1000 mm" quite often. Average is typically referred to as Arithmetic Mean but the fact is one of the types of average. In
statistics, the Arithmetic Mean (AM) is nothing but the ratio of all observations to the total number of observations in a data
set. Some of the examples include the average rainfall of a place, the average income of employees in an organization.
f 7 8 10 15 10
Solution:
xi fi xifi
10 7 10×7 = 70
30 8 30×8 = 240
50 10 50×10 = 500
70 15 70×15 = 1050
89 10 89×10 = 890
Class-
15-25 25-35 35-45 45-55 55-65 65-75 75-85
Interval
Frequency 6 11 7 4 4 2 1
Example II (continuous class intervals): Let's try finding the mean of the following distribution:
Solution:
When the data is presented in the form of class intervals, the mid-point of each class
(also called class mark) is considered for calculating the mean.
The formula for mean remains the same as discussed above.
Note:
Class Mark = (Upper limit + Lower limit) / 2
Class- Interval Class Mark (xi) Frequency (fi) xifi
15-25 20 6 120
25-35 30 11 330
35-45 40 7 280
45-55 50 4 200
55-65 60 4 240
65-75 70 2 140
75-85 80 1 80
Total 35 1390
Class-
45-50 50-55 55-60 60-65 65-70 70-75 75-80
Intervals
Frequenc
5 8 30 25 14 12 6
y
Solution: Let us make the calculation table. Let the assumed mean be A = 62.5
Note: A is chosen from the xi values. Usually, the value which is around the middle is taken.
Classmark/ Mid-
Class- Interval fi di = (xi - A) f id i
points (xi)
45-50 47.5 5 47.5-62.5 =-15 -75
50-55 52.5 8 52.5-62.5 =-10 -80
Class
0-10 10-20 20-30 30-40 40-50 50-60 60-70 Total
Intervals
Frequency 4 4 7 10 12 8 5 50
Solution: To find the mean, we first have to find the class
marks and decide A (assumed mean). Let A = 35 Here h (class
width) = 10
C.I. xi fi ui= xi−Ahxi−Ah fiui
0-10 5 4 -3 4 x (-3)=-12
10-20 15 4 -2 4 x (-2)=-8
20-30 25 7 -1 7 x (-1)=-7
30-40 35 10 0 10 x 0= 0
40-50 45 12 1 12 x 1=12
50-60 55 8 2 8 x 2=16
60-70 65 5 3 5 x 3=15
Total ∑fi=50 ∑fiui=16
Using mean formula:
x̄ = A + h × (∑fiui/∑fi) =35 + (16/50) ×10 = 35 + 3.2 = 38.2
Mean = 38.
Properties of Arithmetic Mean
Let us have a look at some of the important properties of the arithmetic mean. Suppose we have n observations denoted by x1, x2,
x3, ….,xn and x̄ is their arithmetic mean, then:
1. If all the observations in the given data set have a value say ‘m’, then their arithmetic mean is also ‘m’. Consider the data
having 5 observations: 15,15,15,15,15. So, their total = 15+15+15+15+15= 15 × 5 = 75; n = 5. Now, arithmetic mean = total/n =
75/5 = 15
2. The algebraic sum of deviations of a set of observations from their arithmetic mean is zero. (x1−x̄ )+(x2−x̄)+(x3−x̄)+...+(xn−x̄)
= 0. For discrete data, ∑(xi−x̄) = 0. For grouped frequency distribution, ∑f(xi−∑x̄) = 0
3. If each value in the data increases or decreases by a fixed value, then the mean also increases/decreases by the same
number. Let the mean of x1, x2, x3 ……xn be X̄, then the mean of x1+k, x2+k, x3 +k ……xn+k will be X̄+k.
4. If each value in the data gets multiplied or divided by a fixed value, then the mean also gets multiplied or divided by the same
number. Let the mean of x1, x2, x3 ……xn be X̄, then the mean of kx1, kx2, kx3 ……xn+k will be kX̄. Similarly, the mean of
x1/k, x2/k, x3/k ……xn/k will be X̄k.
Note: While dividing each value by k, it must be a non-zero number as division by 0 is not defined.
Advantages of Arithmetic Mean
The uses of arithmetic mean are not just limited to statistics and mathematics, but it is also used in experimental science,
economics, sociology, and other diverse academic disciplines. Listed below are some of the major advantages of the arithmetic
mean.
1. As the formula to find the arithmetic mean is rigid, the result doesn’t change. Unlike the median, it doesn’t get affected by
the position of the value in the data set.
2. It takes into consideration each value of the data set.
3. Finding arithmetic mean is quite simple; even a common man having very little finance and math skills can calculate it.
4. It’s also a useful measure of central tendency, as it tends to provide useful results, even with large groupings of numbers.
5. It can be further subjected to many algebraic treatments, unlike mode and median. For example, the mean of two or more
series can be obtained from the mean of the individual series.
6. The arithmetic mean is widely used in geometry as well. For example, the coordinates of the “centroid” of a triangle (or any
other figure bounded by line segments) are the arithmetic mean of the coordinates of the vertices.
After having discussed some of the major advantages of arithmetic mean, let's understand its limitations.
Disadvantages of Arithmetic Mean
Let us now look at some of the disadvantages/demerits of using the arithmetic mean.
1.The strongest drawback of arithmetic mean is that it is affected by extreme values in the data set. To understand this, consider
the following example. It’s Ryma’s birthday and she is planning to give return gifts to all who attend her party. She wants to
consider the mean age to decide what gift she could give everyone. The ages (in years) of the invitees are as follows: 2, 3, 7, 7, 9,
10, 13, 13, 14, 14 Here, n = 10. Sum of the ages = 2+3+7+7+9+10+13+13+14+14 = 92. Thus, mean = 92/10 = 9.2 In this case,
we can say that a gift that is desirable to a kid who is 9 years old may not be suitable for a child aged 2 or 14
2. In a distribution containing open-end classes, the value of the mean cannot be computed without making assumptions
regarding the size of the class.
We know that to find the arithmetic mean of grouped data, we need the mid-point of every class. As evident from the table, there
are two cases (less than 15 and 45 or more) where it is not possible to find the mid-point and hence, arithmetic mean can’t be
calculated for such cases.
3. It's practically impossible to locate the arithmetic mean by inspection or graphically.
4. It cannot be used for qualitative types of data such as honesty, favorite milkshake flavor, most popular product, etc.
5. We can't find the arithmetic mean if a single observation is missing or lost.
The geometric mean is a type of average , usually used for growth rates, like population growth or interest rates. While the
arithmetic mean adds items, the geometric mean multiplies items. Also, you can only get the geometric mean for positive
numbers.
The geometric mean answers the question, “if all the quantities had the same value, what would that value have to be
in order to achieve the same product?” The geometric mean gets its name from the fact that when redistributed in this
way the sides form a geometric shape for which all sides have the same length. To see this, take the example of the
numbers 10, 51.2 and 8. The geometric mean is the product of multiplying these three numbers together (4,096) and
taking the cube root because there are three numbers among which this product is to be distributed. Thus the
geometric mean of these three numbers is 16. This describes a cube 16x16x16 and has a volume of 4,096 units.
Geometric Mean Properties
Some of the important properties of the G.M are:
•The G.M for the given data set is always less than the arithmetic mean for the data set
•If each object in the data set is substituted by the G.M, then the product of the objects remains unchanged.
•The ratio of the corresponding observations of the G.M in two series is equal to the ratio of their geometric means
•The products of the corresponding items of the G.M in two series are equal to the product of their geometric mean.
45 1.653
60 1.778
48 1.681
100 2.000
65 1.813
Total 8.925
Solution: Here n=5
GM = Antilog∑logx/n
= Antilog 8.925/5
= Antilog 1.785
= 60.95
Therefore the G.M of the given data is 60.95
Question 3: Find the geometric mean of the following grouped data for the frequency
distribution of weights.
Solution:
The calculation for the harmonic
mean is shown in the below table:
x f 1/x f/x
1 2 1 2
3 4 0.333 1.332
5 6 0.2 1.2
7 8 0.143 1.144
9 10 0.1111 1.111
11 12 0.091 1.092
N =42 Σ f/x = 7.879
The formula for weighted harmonic mean is
HMw = N / [ (f1/x1) + (f2/x2) + (f3/x3)+ ….(fn/xn) ]
HMw = 42 / 7.879
HMw = 5.331
Therefore, the harmonic mean, HMw is 5.331.