Study Unit 6

Question 1

relevant range

Answer 1

range from highest to smallest measures in set for a linear relationship; can’t project beyond it

Question 2

High-low method

Answer 2

generate regression line based on highest and lowest observations
criticism- values may be abnormal
high $600 for 1300 hours
low  $400 for 800 hours
increase $200 for 500 hours
variable cost=200/500=$.4
for low month VC= $.4*800=320
400 is total and 320 is VC, 80 is FC
y=80+.4x

Question 3

Perfect direct vs perfect inverse vs strong direct

Answer 3

direct r=1
inverse r= -1
strong direct r=.7

Question 4

r=0

Answer 4

doesn’t mean there isn’t a relationship; relationship can’t be expressed as a linear equation

Question 5

coefficient of determination

Answer 5

measure of fit between independent and dependent variables
-proportion of total variation in dependent variable that is accounted for by the indep variable
-closer r^2 is to 1 the more useful the indep var (x) is to predicting y
r^2=.64; 64% of new car sales explained by changes in income

Question 6

standard error

Answer 6

how well linear equation represents the data
vertical distance between the data points in a scatter diagram and the regression line
-closer the data points are to line, lower the std error

Question 7

learning curve analysis

Answer 7

reflects increased rate ppl perform tasks as they gain experience

• time req becomes shorter
• expressed as % of reduced time to complete task for each doubling of cumulative production
• 80% l.c. means doubling will reduce cumulative avg unti completion time by 20%

Question 8

expected value

Answer 8

used by DM that is risk neutral
associating dollar amount w/ each possible outcome of probability distribution; outcome yielding the highest expected value is the optimal alternative
-decision alt is under mgr control
-state of nature is future event whose outcome mgr predicts
-payoff is financial result of comb of mgr decision and actual state of nature

calculated by multiplying probability of outcome by payoff and summing products
criticism- repetitive trials, decision involve 1 event

Question 9

sensitivity analysis

Answer 9

how sensitive expected value calculations are to the accuracy of the initial estimates

• useful to determine if should spend adtl resources
• used in cap budgeting, small changes of interest rates or payoff amnts can make difference in profitability

Question 10

simulation analysis

Answer 10

refinement of std probability theory
computer generates examples of results based on assumptions
-costly

Question 11

monte carlo technique

Answer 11

simulation to generate indiv values for a random variable
perf of quant model under uncertainty investigated by random selection of values for variables in model & calculating the soln

Question 12

Delphi technique

Answer 12

opinions from experts, summarize opinions, feeds summaries back to experst w/o revealing participants
-repeat until opinions converge to optimal solution

Question 13

Time series analysis

Answer 13

trend analysis
process of projecting future trends based on past experience
regression model w/ time as independent variable