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Indian Institute of Management Bangalore

PGP 2007-08
Quantitative Methods I
Revised Mid Term Examination Sections C and D
TS

Time: 2 hours 30 minutes Name:____________________________

Maximum Points: 60 Roll. No.________________ Section____

Question No. 1 2 3 4 5 Total
Maximum Marks 8 8 20 12 12 60
Students Score

Instructions: Please do not seek any clarifications, but state any assumptions that you
make. Assumptions made should be reasonable. Please show calculations and provide
reasons to support your answers.

1. A TV show is getting sms messages at the rate of one every 2 minutes from Chennai
and one every minute from Hyderabad.
(a) What is the probability of getting a message from Chennai within the next 5 minutes?
(2 marks)












(b) What is the probability of getting exactly one message from either of these two cities
in the next 2 minutes? (2 marks)










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(c) Getting 7 messages from Hyderabad in the next 10 minutes? (2 marks)













(d) Getting one message from Hyderabad in exactly 7 of the next 10 one minute
intervals? (2 marks)
















2. Consider the following table. The education levels and income of a sample population
have been classified into four categories each, and the probabilities are as given below:

Level of Education
Level
of
Income 1 2 3 4
1 0.05 0.05 0.11 0.04
2 0.06 0.06 0.03 0.05
3 0.04 0.04 0.09 0.03
4 0.1 0.1 0.07 0.08


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a. Find the marginal distributions, and the coefficient of correlation. Assume the levels as
values of the two variables, namely, education and income. (6 marks)


























b. What is more likely, Income level higher than Education level of vice versa? (2 marks)








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3. The MVG Corporation has just won a bid for a new project. The contract states that if
they complete the project ahead of time, the net revenue is Rs.3 crores. If they complete it
on time, they will get Rs. 2 crores, and if it is delayed, they will end up paying a net
penalty of Rs. 2 crore. The probability of each of these completion times is 0.4, 0.5 and
0.1 respectively. They have also discovered a new technology to complete the project.
The net revenues are now Rs.3.5 crore and Rs. 1.5 crore and nil respectively. In addition,
there is a fixed cost of Rs. 10 lakhs upfront.

a) Draw a decision tree of the MVG Corporation. What is the best decision to make if
they use expected returns as the criterion? (4 marks)

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There are various factors that could affect the project that are beyond the control of
the Corporation. A consultant offers to assess them and give a report. The report
either says excellent, mediocre or slow. MVG estimates that the consultant predicts
excellent with probability 0.6 if the project is completed ahead of schedule, 0.2 if on
time and 0.2 if delayed; mediocre with probability 0.2 if the project is completed
ahead of schedule, 0.6 if on time and 0.2 if delayed; and, slow with probability 0.2 if
the project is completed ahead of schedule, 0.2 if on time and 0.6 if delayed. The
consultant charges Rs.5 lakhs.

b) Draw a decision tree. (Use the page on the left hand). What is the best sequence of
decisions for MVG? (4+6 marks)


















c) What is the value of perfect information? (3 marks)

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d) What is the value of information provided by the consultant? (3 marks)
















4. The ABC Corporation supplies its depots with a perishable product. The cost of
production and transportation is Rs.10. The Accounts Department estimates that the
average cost of interest for the period over which the product is stored is 20 paisa. The
selling price is Rs.15. It is estimated that the average demand is 100 units with a standard
deviation of 20. Unsold stock can be sold for a discount of 40%. Assume Normal
demand.

a) What is the optimal quantity to stock? (3 marks)
















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b) If there are 400 variations of the product with the same costs, selling price and
discount, what is the total stock? Assume demand for each of the 400 items is
independent and identical. (2 marks)
















c) If the 400 products can be differentiated at the point of sale and shipped to the
depot in a generic form, how much would you stock? (5 marks)


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d) How much do you save in part (c ) compared to part (b)? (2 marks)

























5. The Student Affairs Committee (SAC) has three students from each of four sections.

a) In how many ways can you choose 8 members of SAC so that there are 2 from
each of the 4 sections? (3 marks)
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b) In how many ways can you choose 8 students from SAC? (3 marks)














c) If there are 65 students in each section, in how many ways can a SAC be formed?
(3 marks)











d) Suppose 5 persons are chosen at random from SAC. What is the probability that
two of them are from Section A? (3 marks)