Basic Business Statistics, 11e 2009 Prentice-Hall, Inc.

Chap 3-1
Chapter 3

Measures of Central Tendency


Basic Business Statistics
11
th
Edition
Chapter Topics
Measures of Central Tendency
* Mean
* Median
* Mode

Measures of Shape
* Skewness
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc. Chap 3-2
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc.. Chap 3-3


Measures of Central Tendency

Central Tendency
Arithmetic
Mean
Median Mode Geometric Mean
n
X
X
n
i
i
=
=
1
n / 1
n 2 1
G ) X X X ( X =
Middle value
in the ordered
array
Most
frequently
observed
value
Rate of
change of
a variable
over time
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc.. Chap 3-4
Measures of Central Tendency:
The Mean (Arithmetic Mean)
The arithmetic mean (often just called mean)
is the most common measure of central
tendency

For a sample of size n:
Sample size
n
X X X
n
X
X
n 2 1
n
1 i
i
+ + +
= =

=

Observed values
The i
th
value
Pronounced x-bar
Mean (Arithmetic Mean)
Mean (Arithmetic Mean) Of Data Values

Population mean
1 1 2
N
i
i N
X
X X X
N N

=
+ + +
= =

Population Size
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc.. Chap 3-5
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc.. Chap 3-6
Measures of Central Tendency:
The Mean (Arithmetic Mean)
The most common measure of central tendency
Mean = sum of values divided by the number of values
Affected by extreme values (outliers)

(continued)
0 1 2 3 4 5 6 7 8 9 10
Mean = 3
0 1 2 3 4 5 6 7 8 9 10
Mean = 4
Mean (Arithmetic Mean) From a
Frequency Distribution
Approximating the Arithmetic Mean
Used when raw data are not available



Basic Business Statistics, 11e 2009 Prentice-Hall, Inc. Chap 3-7

Calculation of Grouped Mean
Class Interval Frequency Class Midpoint fM
20-under 30
30-under 40
40-under 50
50-under 60
60-under 70
70-under 80
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc. Chap 3-8
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc.. Chap 3-9
Measures of Central Tendency:
The Median

In an ordered array, the median is the middle
number (50% above, 50% below)





Not affected by extreme values
0 1 2 3 4 5 6 7 8 9 10
Median = 3
0 1 2 3 4 5 6 7 8 9 10
Median = 3
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc.. Chap 3-10
Measures of Central Tendency:
Locating the Median
The location of the median when the values are in numerical order
(smallest to largest):



If the number of values is odd, the median is the middle number

If the number of values is even, the median is the average of the
two middle numbers

Note that is not the value of the median, only the position of
the median in the ranked data

data ordered the in position
2
1 n
position Median
+
=
2
1 n+
Median From a Frequency
Distribution
( )
p
med
1
2
:
L the lower limit of the median class
cf = cumulative frequency of class preceding the median class
f = frequency of the median class
W = width of the median class
N = tot
p
med
f
cf
Median L W
f
Where
+

= +
=
al of frequencies
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc. Chap 3-11
Calculation of Grouped Median

Cumulative
Class Interval Frequency Frequency
20-under 30 6 6
30-under 40 18 24
40-under 50 11 35
50-under 60 11 46
60-under 70 3 49
70-under 80 1 50
N = 50
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc. Chap 3-12
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc.. Chap 3-13
Measures of Central Tendency:
The Mode
Value that occurs most often
Not affected by extreme values
Used for either numerical or categorical
(nominal) data
There may may be no mode
There may be several modes

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Mode = 9
0 1 2 3 4 5 6
No Mode
Five houses on a hill by the beach
Review Example
$2,000 K
$500 K
$300 K
$100 K
$100 K
House Prices:

$2,000,000
500,000
300,000
100,000
100,000

Basic Business Statistics, 11e 2009 Prentice-Hall, Inc. Chap 3-14
Mod From a Frequency
Distribution
( )
1
1 2
A
(
= +
(
A + A

Mod Lm W
Lm = the lower limit of the mod class

1 =
the difference between the mod
class and the class before the mod
class

2 =
the difference between the mod
class with class after mod class

w = width of the mod class
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc. Chap 3-15
Calculation of Grouped Mod
Class
Interval
Frequency
(f)
MidPoints
(M)

20 -30
30-40
40-50
50-60
60-70
70-80


6
18
11
11
3
1

25
35
45
55
65
75
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc. Chap 3-16
Shape of a Distribution
Describes how data are distributed
Measures of shape
Symmetric or skewed
Mean = Median

Mean < Median Median < Mean
Right-Skewed Left-Skewed Symmetric
Basic Business Statistics, 11e 2009 Prentice-Hall, Inc. Chap 3-17