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IMT RandomMotors

The document discusses hypotheses testing for two new car models, Rocinante36 and Marengo32, to determine if they meet design specifications for mileage and top speed. Null and alternative hypotheses are formulated. Hypothesis tests are performed and p-values are calculated for each model, leading to a conclusion that the null hypotheses cannot be rejected. A Type II error is considered more expensive for the manufacturer. Regression equations are developed to predict unit sales of each model, with Rocinante36 predicted to be more profitable. Raising the price of each model by 1 lakh rupees would have a greater impact on sales for Marengo32 based on its price coefficient. Adjusted R-squared values may change slightly when insignificant variables

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112 views

IMT RandomMotors

The document discusses hypotheses testing for two new car models, Rocinante36 and Marengo32, to determine if they meet design specifications for mileage and top speed. Null and alternative hypotheses are formulated. Hypothesis tests are performed and p-values are calculated for each model, leading to a conclusion that the null hypotheses cannot be rejected. A Type II error is considered more expensive for the manufacturer. Regression equations are developed to predict unit sales of each model, with Rocinante36 predicted to be more profitable. Raising the price of each model by 1 lakh rupees would have a greater impact on sales for Marengo32 based on its price coefficient. Adjusted R-squared values may change slightly when insignificant variables

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SS 1818
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We take content rights seriously. If you suspect this is your content, claim it here.
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Random Motors Project

Submission
Q-1a) Formulate the null hypotheses to check whether the new models are
performing as per the desired design specifications.

For Rocinante36: For Marengo32:

Mileage HO : 22 km/litre Mileage HO : 15 km/litre

Top speed HO : 140 km/hr Top speed HO : 210km/hr


Q-1b) Formulate the alternate hypotheses to check whether the new models
are performing as per the desired design specifications.

For Rocinante36: For Marengo32:

Mileage H1 : ≠ 22km/litre Mileage H1 : ≠ 15km/litre

Top speed H1 : ≠ 140km/hr Top speed H1 : ≠ 210km/hr


Q-2) In order to comment on whether the design specifications are being
matched or not, perform relevant hypothesis tests and calculate the p-value for
each. What will you conclude? Assume you are performing the tests at 95%
confidence level.
For Rocinante36: Conclusion
Hypothesis testing with reference to P-
p-value for mileage = p- 0.0822 value, we state “We fail to reject the null
p-value for top speed = p- 0.4316 hypothesis if P-value > Significance value
For Marengo32: (1- confidence value). Thus, as per the
obtained P values for Rocinante 36 &
p-value for mileage = p- 0.1342 Marengo 32, we can confirm that “We fail
p-value for top speed = p- 0.373 to reject the null hypothesis”. Hence, the
chief engineer is correct.
Q-3) You have learnt about the possible errors that might result from the
hypothesis tests. What type of error is more expensive for Random motors
based on the hypothesis they are testing? Why? Assume that you need to
refund all your customers if your cars deviate from specifications.
The type of error which is more Reason:
expensive:
Type II error is committed when we
fail to reject a null hypothesis that is
Type – II error for Rocinante and false. Thus, if Random Motors fails to
Marengo deliver the top speed and mileage
figures it would be more expensive as
they would be forced to refund the
money back to customers.
Q-4) Develop a regression equation for each model at 95 percent confidence
level. From the regression equation predict the sales of the two models.
Develop the regression equation for the Develop the regression equation for the Marengo
Rocinante models and Predict the number of models and Predict the number of unit sales of
unit sales of Rocinante36 model? Marengo32 model?

Regression coefficients Regression coefficients

Price: -0.795026440875324 Price: -0.186728172116573

Mileage: 8.30633109237939 Mileage: 0.0413011869886482

Top speed: -0.0185725639929489 Top speed: 0.22080168203862

Equation: Y (Sales) = 50.7231271792463 – Equation: Y (Sales) = -13.4476488883451 -


0.795026440875324 x Price + 0.186728172116573 x Price +
8.30633109237939 x Mileage 0.0413011869886482 x Mileage

Predicted Sales(in units): 227,897 Predicted Sales(in units): 25,265


Q-5) Based on sales prediction, what is the overall predicted profit for
Rocinante36 model and Marengo32 model ?

Overall predicted profit

Rocinante36 Model: 227,897

Marengo32 Model: 202,119


Q-6) As a CEO, you wish to invest only in the model which is predicted to be
more profitable. Which model among Rocinante36 and Marengo32 will you
invest in?

Which model you will invest in?

As the predicted profit for Rocinante36 is more than Marengo 32, we should
invest in Rocinante36.
Q-7) Now you must have derived the regression equation for both models, Rocinante and
Marengo. Now if you increase the price of Rocinante36 and Marengo32 by 1 lac rupees
each, which car will have a higher impact on the sales due to increase in price? Give proper
logic for your answer. You can consider that all other specifications such as mileage and top
speed remain the same for both models.

Which car is most affected by a price increase? Why?

Regression comparison:
Rocinante36: 50.72312718 - 0.795026441 x Price + 8.306331092 x Mileage
Marengo32: -13.44764889 - 0.186728172 x Price + 0.220801682 x Top speed

Since Marengo has a price coefficient of -186 while Rocinante36's is -795. The pricing variable will be
more affected by any modification than Rocinante36. Therefore, there will be a reduction in sales of
795 units for the Rocinante and 187 units for the Marengo if the price of both models is raised by 1
lakh per unit.
Q-8) After developing the regression equation for both models (Rocinante and Marengo), if you
analyse the p values for coefficients in the regression results, you will notice that some of the
regression variables (top speed, mileage and price) are insignificant. Remove the insignificant
regression variables from your selection and rebuild the regression model using only significant
variables. Compare the Adjusted R square value for the new and old regression model. Do you
notice any change in Adjusted R square value? If yes, explain the reason for the change.

Is there a change on Adjusted R square Value? If so, Why?

The R-squared varies depending on whether independent variables are added


or removed. The R-squared will rise or fall even if there is no relationship
between the input and output variables. Therefore, there is a marginal
change in R square if the insignificant variable is removed.

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