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Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
To my wonderful wife Mary—my best friend and travel mate; to Sam, Lindsay, Teddy, and
Archie; and to Bryn, our ball-playing Welsh corgi! S.C.A
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
About the Authors
S. Christian Albright got his B.S. degree in
Mathematics from Stanford in 1968 and his PhD in
Operations Research from Stanford in 1972. He taught
in the Operations & Decision Technologies Department
in the Kelley School of Business at Indiana University
© Cengage Learning
(IU) for close to 40 years, before retiring from teaching
in 2011. While at IU, he taught courses in management
science, computer simulation, statistics, and computer
programming to all levels of business students, including
undergraduates, MBAs, and doctoral students. In addition,
he taught simulation modeling at General Motors and Whirlpool, and he taught
database analysis for the Army. He published over 20 articles in leading operations
research journals in the area of applied probability, and he has authored the books
Statistics for Business and Economics, Practical Management Science, Spreadsheet
Modeling and Applications, Data Analysis for Managers, and VBA for Modelers.
He worked for several years after “retirement” with the Palisade Corporation
developing training materials for its software products, he has developed a
commercial version of his Excel ® tutorial, called ExcelNow!, and he continues to
revise his textbooks.
On the personal side, Chris has been married for 44 years to his wonderful wife,
Mary, who retired several years ago after teaching 7th grade English for 30 years. They
have one son, Sam, who lives in Philadelphia with his wife Lindsay and their two sons,
Teddy and Archer. Chris has many interests outside the academic area. They include
activities with his family (especially traveling with Mary), going to cultural events at IU,
power walking while listening to books on his iPod, and reading. And although he earns
his livelihood from statistics and management science, his real passion is for playing
classical piano music.
iv
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
University of Houston. His current interest is showing how spreadsheet models can
be used to solve business problems in all disciplines, particularly in finance and
marketing.
Wayne enjoys swimming and basketball, and his passion for trivia won him an
appearance several years ago on the television game show Jeopardy!, where he won two
games. He is married to the lovely and talented Vivian. They have two children, Gregory
and Jennifer.
v
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Brief Contents
Preface xviii
1 Introduction to Business Analytics 1
Part 1 Exploring Data 17
2 Describing the Distribution of a Single Variable 19
3 Finding Relationships among Variables 79
Part 2 Probability and Decision Making Under
Uncertainty 137
4 Probability and Probability Distributions 139
5 Normal, Binomial, Poisson, and Exponential Distributions 166
6 Decision Making under Uncertainty 222
Part 3 Statistical Inference 277
7 Sampling and Sampling Distributions 279
8 Confidence Interval Estimation 311
9 Hypothesis Testing 363
Part 4 Regression Analysis and Time Series Forecasting 415
10 Regression Analysis: Estimating Relationships 417
11 Regression Analysis: Statistical Inference 482
12 Time Series Analysis and Forecasting 539
Part 5 Optimization and Simulation Modeling 597
13 Introduction to Optimization Modeling 599
14 Optimization Models 661
15 Introduction to Simulation Modeling 759
16 Simulation Models 829
Part 6 Advanced Data Analysis 895
17 Data Mining 897
Introduction to Spreadsheet Modeling (only in MindTap)
vi
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Part 7 Bonus Online Material* 18-1
18 Importing Data into Excel 18-3
19 Analysis of Variance and Experimental Design 19-1
20 Statistical Process Control 20-1
Appendix A Statistical Reporting A-1
•
Bonus Online Material for this text can be found on the text companion website at cengagebrain.com.
References 943
Index 945
viii
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3 Finding Relationships among Variables 79
3-1 Introduction 80
3-2 Relationships among Categorical Variables 82
3-3 Relationships among Categorical Variables and a Numerical Variable 86
3-3a Stacked and Unstacked Formats 86
3-4 Relationships among Numerical Variables 95
3-4a Scatterplots 95
3-4b Correlation and Covariance 101
3-5 Pivot Tables 108
3-6 Conclusion 131
Contents ix
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5-4 The Binomial Distribution 190
5-4a Mean and Standard Deviation of the Binomial Distribution 193
5-4b The Binomial Distribution in the Context of Sampling 193
5-4c The Normal Approximation to the Binomial 194
5-5 Applications of the Binomial Distribution 195
5-6 The Poisson and Exponential Distributions 207
5-6a The Poisson Distribution 207
5-6b The Exponential Distribution 210
5-7 Conclusion 212
x Contents
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7-4 Introduction to Estimation 292
7-4a Sources of Estimation Error 292
7-4b Key Terms in Sampling 293
7-4c Sampling Distribution of the Sample Mean 295
7-4d The Central Limit Theorem 299
7-4e Sample Size Selection 304
7-4f Summary of Key Ideas for Simple Random Sampling 305
7-5 Conclusion 307
Contents xi
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9-4c Hypothesis Test for Equal Population Variances 387
9-4d Hypothesis Tests for Differences between Population Proportions 388
9-5 Tests for Normality 395
9-6 Chi-Square Test for Independence 401
9-7 Conclusion 406
xii Contents
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11-8 Violations of Regression Assumptions 517
11-8a Nonconstant Error Variance 517
11-8b Nonnormality of Residuals 518
11-8c Autocorrelated Residuals 519
11-9 Prediction 521
11-10 Conclusion 527
12 Time Series Analysis and Forecasting 539
12-1 Introduction 540
12-2 Forecasting Methods: An Overview 541
12-2a Extrapolation Models 541
12-2b Econometric Models 542
12-2c Combining Forecasts 543
12-2d Components of Time Series Data 543
12-2e Measures of Accuracy 546
12-3 Testing for Randomness 548
12-3a The Runs Test 550
12-3b Autocorrelation 552
12-4 Regression-Based Trend Models 556
12-4a Linear Trend 556
12-4b Exponential Trend 559
12-5 The Random Walk Model 562
12-6 Moving Averages Forecasts 565
12-7 Exponential Smoothing Forecasts 570
12-7a Simple Exponential Smoothing 571
12-7b Holt’s Model for Trend 575
12-8 Seasonal Models 580
12-8a Winters’ Exponential Smoothing Model 581
12-8b Deseasonalizing: The Ratio-to-Moving-Averages Method 584
12-8c Estimating Seasonality with Regression 585
12-9 Conclusion 590
Contents xiii
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13-5 Properties of Linear Models 626
13-6 Infeasibility and Unboundedness 629
13-7 A Larger Product Mix Model 631
13-8 A Multiperiod Production Model 640
13-9 A Comparison of Algebraic and Spreadsheet Models 649
13-10 A Decision Support System 750
13-11 Conclusion 652
xiv Contents
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15-6 The Effects of Input Distributions on Results 811
15-6a Effect of the Shape of the Input Distribution(s) 812
15-6b Effect of Correlated Input Variables 815
15-7 Conclusion 820
Contents xv
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PART 7 BONUS ONLINE MATERIAL 18-1
xvi Contents
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Exploring the Variety of Random
Documents with Different Content
“adorable,” “too cute for words,” or “truly stunty,” according to their
favorite adjectives. The open fire, the carriage lamps, and the
darkened oak gave just the effect of dim splendor that Madeline had
wanted. The bits of old brass tempted one to exploring expeditions;
the double-decker bread-trays made one long to order them filled
and eat them empty.
“When we get the prints and the candle-shades, it will be about
perfect,” declared Madeline, surveying the scene complacently.
“You need a horseshoe over the door for luck,” suggested Dr.
Hinsdale.
So Georgia rushed out to a near-by stable to get one, and Dr.
Hinsdale nailed it up while the girls sang:
Betty, standing with Georgia’s arm around her, gave a little shiver.
“What’s the trouble? Are you catching cold?” whispered Georgia
anxiously.
“No, nothing,” Betty whispered back. Well, there wasn’t—
anything at least that you told people, except perhaps Miss Ferris,
who had been kept from the private view by an important department
meeting. It was only what K. had once laughingly dubbed “growing
pains,”—the same frightened feeling that you had the first time your
brother teased you to swim out over your depth, and you weren’t a
bit sure he could rescue you if you went down. Also, it had taken
Betty the whole long afternoon to clean and fill the carriage lamps
that every one was exclaiming over. Cleaning lamps didn’t come
under the head of either waiting on table or cooking. Betty wondered,
with a tired little sigh, who would do it all the other days.
CHAPTER VI
EUGENIA FORD’S LUNCHEON
Madeline had been gone for three weeks and never sent so
much as a line of “inspirations” back to the Tally-ho Tea-Shop, when
the expressman drove up one morning with a great mahogany
writing-desk for Betty, with “Sent by M. Ayres” on the shipping ticket.
On one of the lovely old-fashioned brass knobs was tied a note, and
Betty stopped unpacking the desk to read it.
“The chief joy of having a tea-shop,” Madeline wrote, “is that it
grows on your hands. I never was quite satisfied with your desk. A
harness cupboard, with a covered watering trough underneath it,
ought to have made a picturesque and Tally-ho-ish effect, but some
way it didn’t. Yesterday I went out into the country to meditate on my
Literary Career, and at the little old inn where I lunched I saw the
very thing, which I enclose herewith. (That’s what I say to all the
editors about my stories. I hope you’ll like the enclosure well enough
to keep it, which is a thing no editor has done yet.)
“Isn’t the inlay lovely, and don’t you adore the bulgy little
compartments? There’s also a secret drawer—not the fake kind that
anybody can open after a little hunting, but the real thing. I got all
these fascinating features for a song, with the recipe for the most
luscious cake thrown in—literally thrown in, Miss Betty Wales. Open
the secret drawer, and you’ll find it. (Ha! ha! A lively hunt you’ll have
first.) It’s called Aunt Martha’s cake, and if it doesn’t make a hit for
the Tally-ho, I shall lose faith in the Harding appetite.
“Now don’t look solemn and sigh over the wild extravagance of all
good Bohemians, Betty dear. If you feel that the Tally-ho can’t afford
the desk just now, why, Mrs. Bob Enderby is crazy about it, and she’ll
give the firm exactly twice what I paid. Get little Mary Brooks to
bidding against her, and we shan’t have to worry over dull times.
“I am sending this with the desk, because my Literary Career
takes all the postage stamps I can afford,—and then some. Dick
Blake says that writing is exactly like painting. You’ve got to learn
how. He calls my stories ‘beginner’s daubs—promising, but daubs.’
I’ve talked to a lot of other discouraging people, and I’ve got
hundreds of plans, and several inspirations for B. W. & Co., so I’m
coming back to-morrow to settle down for what Katherine calls a little
spell of work.”
“Goodness, but I shall be glad to see her and talk things over!”
Betty said to herself, and looked up to find Mary Brooks standing in
the door, smiling in her vague, near-sighted fashion.
“Oh, it is you,” she said, as Betty hurried to meet her. “Are you all
by yourself? Where are the members of the ‘Why-Get-Up-to-
Breakfast Club’?”
Betty laughed and then looked sober. “It’s almost as nice a name
as the ‘Merry Hearts,’ isn’t it? They’ve stopped coming here lately. I
wish I knew why.”
“Give them buckwheat griddle-cakes,” advised Mary promptly.
“Cuyler has nothing but wheat ones. Tell Lucile to tell everybody that
yours are heaps nicer. What’s that in the crate?”
Betty explained, and Mary, who adored old writing-desks and had
been hunting for years for one just to her liking, pulled off her gloves
in great excitement and helped unpack the desk, move it into a
sunny alcove between the front door and a window, and hunt for the
secret drawer.
“It’s exactly what I want,” she declared rapturously, after they had
spent half an hour without finding any trace of the recipe for Aunt
Martha’s cake. “I’ll give you ten dollars more than your Mrs. Bob
offered. But you mustn’t sell it to either of us, Betty. A secret drawer
is a splendid tea-room feature. It suggests all kinds of romantic
mysteries.”
Betty nodded. “Of course, I should just love to have it here, but
we can’t afford it. We haven’t done a bit well lately, Mary.”
“Try the buckwheat griddle-cakes,” Mary called over her shoulder,
as she hurried off to meet her husband at the end of his eleven
o’clock class.
But directly after luncheon she was back again. “I’m bound to find
that drawer before Madeline comes, so we can crow over her,” she
explained. “Besides, George Garrison Hinsdale is writing a paper for
a philosophical society with a name a yard long, and he’s most
dreadfully cross. So I thought that as I can’t help talking and looking
frivolous, I’d better go away. Shall I bother here?”
Mary hunted for the secret drawer in the same sociable fashion in
which she evidently expected Dr. Hinsdale to write a paper for his
learned society. She stopped the girls as they went out, to ask if they
knew anything about secret springs, and she soon had an animated,
admiring group around her, eagerly examining the points of Betty’s
treasure, and incidentally revealing to the astute Mary their opinions
of the Tally-ho Tea-Shop and drinking in her casual references to
delicious crispy brown buckwheat griddle-cakes and to the wonderful
new recipe in the desk, that would certainly come to light before
long.
About four o’clock, in the lull between lunch and afternoon tea,
Mary detached herself self from the girls around the desk and
buttonholed Betty in a secluded corner.
“I always knew I had a head for business,” she began modestly.
“The reason they don’t come in to feed isn’t because they don’t like
the eats, but because they’re saving up money for Christmas. Don’t
you remember how we used to do that? At least,” added Mary, with a
reminiscent smile, “I used to mean to save, but in the end I always
sent home for an extra check.”
“I know,” agreed Betty. “But what can you do about it? It’s just one
of the drawbacks of the tea-room business, isn’t it?”
Mary surveyed her smilingly. “Don’t you really see what to do?”
she inquired impressively. “Why, my child, it’s as plain as two and
two. Open a gift-shop department, of course.” Mary paused for the
full splendor of her idea to dawn upon Betty.
“But—but this is a tea-room,” began Betty doubtfully.
“Of course it is,” Mary took her up, “and if people won’t buy
enough tea, you have to give them griddle-cakes, don’t you? And if
they don’t jump at griddle-cakes, you’ve got to find out what they will
jump at. That’s business. What you want is their money. You’ve got
plenty of room for a long table of fol-de-rols over there in the corner.
They’ll hear about it and come in to buy Christmas presents, and
they’ll see Aunt Martha’s cake melting in their friends’ mouths and
have to have some. While they’re eating, they’ll remember that they
haven’t bought a thing for their own dear Aunt Martha. So they’ll hop
up and pick out more Christmas things. See? That’s Association of
Ideas, my child. George Garrison Hinsdale is writing his paper about
it. I’m going home this minute to tell him that I know how it works,
and also to give him his tea, which is an idea that he associates with
me. I’ll be in to-morrow, to see if you’ve found the drawer.”
The more Betty thought of the gift-shop department the better
she liked the idea. They could make a specialty of Tally-ho candle-
shades and one or two other things that Madeline could be trusted to
think up. The Students’ Aid girls that she had been obliged to
dismiss could take charge of the table—“I shan’t have it look a bit
like a counter,” Betty reflected, remembering the unpleasant remark
about tradespeople—during her own busiest hours. Some of the
other girls who were earning their own way might like to put work on
sale there.
“Pretty things would surely sell better here than from the bulletin-
board in the gym,” Betty decided swiftly, “and that’s a way to help.
We might take orders for mending and copying and such things, too.
The girls who come here are the very ones who have money to
spend, and I’m sure lots of them don’t bother to hunt up Students’
Aid girls, when they want work done. Why, this is more helpful than I
ever could be when I was in college! Miss Ferris was right—she
always is. We’ll do it! I must consult Babbie and Madeline first, of
course.”
But Mary, appearing bright and early the next morning, scoffed at
delays.
“George Garrison Hinsdale looked as if he wanted to put me in
storage till lunch time,” she explained, “so I can work for you the
whole morning if you’ll only decide now. Anyway, we know Madeline
is for it. Don’t you remember she said in her letter that she liked tea-
rooms because they grow on your hands? Well, this is a beautiful
example of growth. And you and Madeline are a majority, though I’m
sure Babbie will be for it too. Now I’ve thought of a lovely new kind of
Tally-ho candle-shade with little bunches of oats for fringe. I’m going
to fix up a workroom for the gift-shop department in the loft. I’ve
brought down oceans of things in here,” and Mary emptied paste,
paints and brushes, scissors, a sewing kit, and a miscellaneous
collection of scraps of paper, which she explained were designs for
Christmas cards, out of a very stylish shopping-bag, borrowed
Betty’s biggest apron, and proceeded to improvise a work-table out
of two sawhorses and an old storm door. But having laid out her
implements on it, she discovered to her dismay that the workroom
would be plainly visible to the inmates of the third stall, and she
came down to consult Betty about the most artistic color for a curtain
to screen her from the curious public below.
“For this gift business is to be a secret, you know,” she explained
to Betty, “until you’re ready to spring it on them. Not exactly a dead
secret, but the interesting half-way kind. Madeline knows how to
manage secrets. And speaking of Madeline, here she comes.”
Madeline approved the new departure so vehemently that she
would hardly wait to shake hands before she was up in the loft
investigating Mary’s arrangements, and emptying the miscellaneous
contents of her suit-case out on the floor, to find a “spook” candle-
shade, that the little artist, whose cousins had once had a tea-room,
had designed for the new adventurers in the same field. When you
examined it, you saw just a confused mass of red, blue, green,
yellow, and white spots separated by broad black lines; but with the
light behind them the spots resolved themselves in a big yellow Tally-
ho coach drawn by white horses, who pranced grandly up to a red-
roofed inn on the next panel, with a green lawn in front of it and
green trees and blue sky behind.
“Isn’t it too cute?” Betty declared enthusiastically. “It ought to be
our very specialest specialty, oughtn’t it, Mary?”
“I suppose so,” agreed Mary grudgingly. “They’ll take loads of
time to make, though. There’ll be more real profit in mine. I must get
some oats for my kind, while I’m out buying the curtain. Why, it’s
noon already—I must fly! Madeline, come down and show us the
secret drawer before I go.”
Madeline had appropriated a piece of Mary’s cardboard and was
tracing the design of the “specialest specialty” on it.
She shook her head absently. “It’s a trade secret, only for
members of the firm. Perhaps, if you don’t call me ‘my child’ too
often, and make us some terribly cute shades and cards, we’ll let
you into it by and by.”
“You ought to let her in right away,” declared Betty loyally. “I was
getting just dreadfully blue, with you and Babbie away, and first she
thought of buckwheat griddle-cakes and then of this.”
“Yes, I’m the very Perfect Patron,” Mary chimed in eagerly, “and I
ask you where any business would be without patrons? They’re as
necessary as the firm, if not more so.”
Madeline stopped work to smile benignly at her. “Mary, the
Perfect Patron,” she repeated, “your logic is irresistible. Your
distinguished husband ought to be very proud of you. I’ll tell you
what, Betty, I’ll make out a set of Rules for the Perfect Patron, and if
Mary agrees to abide by them she shall be duly initiated with the rite
of the Secret Drawer.”
“I agree to anything, if you’ll only show me that drawer right off,”
begged Mary.
But Madeline was inexorable. “It is the present duty of the
committee on Inspirations to see if it can copy this candle-shade,”
she said. “And I may add that it is the duty of the Perfect Wife to be
on time for meals. And the moral of that is——”
“Goodness gracious!” supplied Mary, who had been consulting a
diminutive watch, and now rushed down the stairs murmuring sadly,
“It must be fast, but I thought it was slow this morning.”
“I’m not at all sure that I can find that drawer again, myself,”
Madeline confided to Betty, when they were alone. “It’s an awfully
complicated arrangement.”
But that night just before they closed the tea-room, Madeline
found the combination, after a little preliminary fumbling, and proudly
entrusted to Betty the much-vaunted recipe for Aunt Martha’s cake.
“Let’s see.” She went over the formula. “First you press a spring
that opens this panel. Then you pull out that drawer. There’s a
second spring back of that, and a false bottom that comes up, and
then a spring to open the secret drawer. I shan’t forget it again. The
woman who sold the desk to me said she thought there was some
way of working the whole combination at once, but I don’t believe
there can be.”
“We mustn’t put anything in there if you’re ever going away
again,” Betty declared, “for I never could get it out, unless you write
down the rules for me.”
Madeline shook her head vigorously. “Don’t you see, dearie, that
the whole idea of a secret drawer is not to have the rules written
down where anybody can get at them? Sometimes things get lost in
secret drawers for a generation or two, and it’s so lovely having your
grandfather’s will or your great-aunt’s love-letters, or your wicked
uncle’s confession of a murder he committed, tumble out some day
unexpectedly, just because you touched a spring that you didn’t even
know was in existence. But the rules for the Perfect Patron are a
different matter. I shall devote my evening to composing them.”
Madeline sighed deeply. “I suppose I ought to devote it to my Literary
Career. I simply mustn’t neglect that, Betty, even to make extra-
special Tally-ho candle-shades.” She sighed again. “The trouble with
a Literary Career is that you work on it for ages, and you’ve got
nothing to show for your trouble but a story that ten editors have
turned down. Whereas a candle-shade is a candle-shade, and a
Rule for a Perfect Patron is sure to be amusing at least to yourself.
Let’s see—‘First Rule for the Perfect Patron: Don’t act patronizing to
the Firm; confine your patronage to the menu.’ How’s that, Betty?”
“Lovely!” declared Betty with enthusiasm. “Only Mary never can
do it. She loves to call us my children.”
“That’s the point of the rule,” explained Madeline sagely. “Little
Mary has got to work hard before we initiate her into the rite of the
Secret Drawer. If I can think up enough joyous impossibilities for
rules we might organize a Perfect Patrons’ Society, limited to six
members.” Madeline threw aside her pencil and paper and curled up
comfortably on Betty’s couch. “I foresee,” she announced blandly,
“that the secret drawer is going to be our prize feature. First rule for
tea-rooms: Take care of the features, and the patrons will take care
of you.”