Random Motors Project

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

For Rocinante36: For Marengo32:

Null Hypothesis states the default claim Null Hypothesis is the default claim made
made by the company. In this case, claim by the company. For Marengo32 model,
made on the specifications of the claim made by the company on cars
Rocinante36 car model is as follows. specifications is as follows.
Mileage HO : 22 km/litre Mileage HO :15 km/litre
Top speed HO : 140 km/hr Top speed HO : 210 km/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:

Alternate hypothesis is opposite to the Alternate hypothesis is opposite to the
claims made in the null hypothesis. claims made in the null hypothesis.
Mileage H1 : Mileage of Mileage H1 : Mileage of
Rocinante36 not equals 22 Marengo32 not equals 15
km/litre km/litre.
Top speed H1 :Top speed of Top speed H1 : Top speed of
Rocinante36 not equals 140 Marengo32 not equals 210 km/hr
km/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

t-score for mileage = -1.838 We know that the significance
p-value for mileage = 0.08175t-score for
top speed = 0.8036 level(rejection region) is 5%. If the p
p-value for top speed = 0.4316 value(probability value) is less than the
significance level then we reject the null
For Marengo32: hypothesis but since all the p values are >
t-score for mileage = 1.5735 0.05 , hence we “fail to reject” the null
p-value for mileage = 0.1321 hypothesis which implies claims made by
t-score for top speed = 0.913p- the company on its cars specifications is
value for top speed = 0.3727 true.
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 1 error is when null Company manufactures and sells cars
hypothesis is rejected when its actually with incorrect specifications due to which
true and Type 2 error is when Null cars would underperform, leading to
hypothesis is false but not rejected. Type poor customer satisfaction and financial
2 error is more expensive for Random losses(for eg. due to low mileage).
motors based on the hypothesis they are customer dissatisfaction would lead to
testing. demand for refund on their purchase and
eventually loss would be borne by the
company.
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
Rocinante models and Predict the number Marengo models and Predict the number of
of unit sales of Rocinante36 model? unit sales of Marengo32 model?
Regression coefficients Regression coefficients
Price: -0.79503 Price: -0.18673
Mileage: 8.306331 Mileage: 0.041301 (insignificant variable as
Top speed: -0.01857 (insignificant variable p(0.843080034)>0.05)
as p(0.547763026)>0.05) Top speed: 0.220802
Equation: Sales = 50.72 - 0.79 * Price + 8.30 Equation: Sales = -13.44 - 0.186 * Price +
* Mileage-0.01857*Top Speed 0.22 * Top Speed+0.041301*mileage
Predicted Sales(in units): 225.293 Predicted Sales(in units): 25.734
Q-5) Based on sales prediction, what is the overall predicted profit for
Rocinante36 model and Marengo32 model ?

Overall predicted profit

Total Profit = Profit per car * Sales
Rocinante36 Model:
Profit per car = Selling Price - Manufacturing cost
Selling Price = 7 L ; Manufacturing cost = 6 L ; Profit per car =1L
Total Profit = 1L * 225.293 = 225.293 L
Marengo32 Model:
Profit per car = Selling Price - Manufacturing cost
Selling Price = 41 L ; Manufacturing cost = 33 L ; Profit per car = 8L
Total Profit = 8L * 25.734 = 205.8L
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?

The model that is predicted to generate a high profit is to be chosen for the success of
the organisation. Comparing the profits of the two models using the formula. Total
Profit = Profit per car * Sales,Profit per car = Selling Price - Manufacturing cost. The
profit for Rocinante36 Model is calculated as 225.293 L(Profit per car=1L,Sales=
225.293) whereas the profit for Marengo32 model is calculated as 205.8L (Profit per
car=8L,Sales= 25.734) which clearly depicts that as a CEO I must invest in Rocinante36
Model as it will lead to more profit. Tough its profit per car is 1L but its number of
sales is huge i.e. 225.293 cars units which is the reason for greater profit.
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?

The regression equations for the car models are as follows:
Rocinante36 : Sales = 50.72 - 0.79 * Price + 8.30 * Mileage-0.01857*Top Speed
Marengo32 : Sales = -13.44 - 0.186 * Price + 0.22 * Top Speed+0.0413*Mileage
Since Rocinante36 has a much higher price coefficient (-0.7829) compared to
Marengo32 (-0.1825), it is more price-sensitive. This means that an increase in price
has a significantly larger negative impact on Rocinante36’s sales compared to
Marengo32. Rocinante36 will experience a much higher drop in sales than Marengo32
if both models increase their price by ₹1 lakh.
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?

Adjusted R square values for the old regression model (including both significant and
insignificant variables) is 0.995356 for Rocinante model and 0.847875 for Marengo
model. Adjusted R square values after rebuilding the regression model with only
significant variables is 0.99544756 for Rocinante model and 0.853091209 for Marengo
model. Since by removing the insignificant values, the new Adjusted Square values
increases margianally which implies that the insignificant variables were not improving
the old regression model and hence by removing them helps in improving R square
values as well as the new regression model.