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Business Statistics with Solutions in R
Business
Statistics with
Solutions in R
Mustapha Abiodun Akinkunmi
Mustapha Abiodun Akinkunmi
American University of Nigeria
Yola, Nigeria

ISBN: 978-1-5474-1746-9
e-ISBN (PDF): 978-1-5474-0135-2
e-ISBN (EPUB): 978-1-5474-0137-6

Library of Congress Control Number: 2019949179

Bibliographic information published by the Deutsche Nationalbibliothek

The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie;
detailed bibliographic data are available on the Internet at http://dnb.dnb.de.

© 2019 Mustapha Abiodun Akinkunmi, published by Walter de Gruyter GmbH, Berlin/Boston

Cover image: golero / iStock / Getty Images Plus
Typesetting: Integra Software Services Pvt. Ltd.
Printing and binding: CPI books GmbH, Leck

www.degruyter.com
To My Son
Omar Olanrewaju Akinkunmi
Contents
1 Introduction to Statistical Analysis 1
1.1 Scales of Measurement 2
1.2 Data, Data Collection, and Data Presentation 3
1.3 Data Groupings 5
1.3.1 Categories of Data Groupings 5
1.3.2 Calculation of Class Interval for Ungrouped Data 7
1.3.3 Class Limits and Class Boundaries 8
1.4 Methods of Visualizing Data 9
1.5 Exploring Data Analysis (EDA) 12
1.5.1 Stem-and-Leaf Displays 13
1.5.2 Box Plots 13
1.5.2.1 Importance of Box Plots 14
Exercises for Chapter 1 14

2 Introduction to R Software 16
2.1 How to Download and Install R 17
2.2 Using R for Descriptive Statistical Analysis and Plots 17
2.3 Basics of R 18
2.3.1 R Is Vectorized 18
2.3.2 R Data Types 22
2.3.2.1 Scalars 22
2.3.2.2 Vectors 23
2.3.2.3 Matrices 24
2.3.2.4 Data Frames 25
2.3.2.5 Lists 26
2.3.2.6 Factors 27
2.3.2.7 Coercions 28
2.3.2.8 Date and Time 28
2.3.3 Missing Values 30
2.3.4 Data Creation 31
2.3.5 Data Type Conversion 37
2.3.6 Variable Information 38
2.4 Basic Operations in R 38
2.4.1 Subsetting 39
2.4.2 Control Structures 41
2.4.2.1 Conditional 41
2.4.2.2 For Loop 41
2.4.2.3 Repeat Loop 42
VIII Contents

2.4.2.4 While Loop 43

2.4.3 Built-In Functions in R 44
2.4.3.1 Numerical Functions 44
2.4.3.2 Character Functions 45
2.4.3.3 Statistical Probability Functions 45
2.4.3.4 Other Statistical Functions 45
2.4.3.5 Other Useful Functions 45
2.4.4 User-Written Functions 46
2.4.5 Importing, Reporting, and Writing Data 49
2.4.5.1 Packages 49
2.4.5.2 Working Directory and R Script 49
2.4.5.3 Reading and Writing Local Flat Files 49
2.4.5.4 Reading and Writing Excel Files 51
2.4.5.5 Connection Interfaces 52
2.4.5.6 Connect to a Database 52
2.5 Data Exploration 53
2.5.1 Data Exploration through Visualization 54
2.5.1.1 Bar Chart 54
2.5.1.2 Pie Chart 55
2.5.1.3 Box-Plot Distributions 56
Exercises for Chapter 2 57

3 Descriptive Statistics 58
3.1 Central Tendency 58
3.1.1 The Mean 58
3.1.2 The Median 59
3.1.3 The Mode 60
3.2 Measure of Dispersion 61
3.3 Shapes of the Distribution—Symmetric and Asymmetric 63
3.3.1 Skewness Illustrated 64
3.3.2 Kurtosis 64
Exercises for Chapter 3 66

4 Basic Probability Concepts 67

4.1 Experiment, Outcome, and Sample Space 67
4.1.1 Experiment 67
4.1.2 Outcome 67
4.1.3 Sample Space 67
4.2 Elementary Events 68
4.3 Complementary Events 68
 Contents IX

4.4 Mutually Exclusive Events 68

4.5 Mutually Inclusive Events 69
4.6 Venn Diagrams 69
4.7 Probability 70
4.7.1 Simulation of a Random Sample in R 71
4.8 Axioms of Probability 73
4.9 Basic Properties of Probability 74
4.10 Independent Events and Dependent Events 74
4.11 Multiplication Rule of Probability 76
4.12 Conditional Probabilities 76
4.13 Computation of Probability in R 77
Exercises for Chapter 4 80

5 Discrete Probability Distributions 82

5.1 Probability Mass Distribution 82
5.2 Expected Value and Variance of a Discrete Random
Variable 83
5.3 Binomial Probability Distribution 86
5.4 Expected Value and Variance of a Binomial Distribution 87
5.4.1 Expected Value (Mean) of a Binomial Distribution 88
5.4.2 Variance of a Binomial Distribution 89
5.5 Solve Problems Involving Binomial Distribution Using R 92
5.5.1 Generating a Random Sample from a Binomial
Distribution 92
5.5.2 Calculate Probability from a Binomial Distribution 94
Exercises for Chapter 5 96

6 Continuous Probability Distributions 97

6.1 Normal Distribution and Standardized Normal
Distribution 98
6.1.1 Properties of a Normal Distribution 99
6.2 Standard Normal Score (Z-Score) 100
6.3 Approximate Normal Distribution to the Binomial 103
6.4 Use of the Normal Distribution in Business Problem Solving
Using R 104
Exercises for Chapter 6 105

7 Other Continuous Probability Distributions 107

7.1 Student’s t-Distribution 107
7.1.1 Properties of the Student’s t-Distribution 110
X Contents

7.1.2 R Code to Obtain t-values Using Example 7.1 111

7.2 Chi-square Distribution 112
7.2.1 Properties of the Chi-square Distribution 115
7.2.2 Uses of the Chi-square Distribution 116
7.3 F-Distribution 118
7.3.1 Properties of the F-Distribution 118
7.3.2 Uses of the F-Distribution 119
Exercises for Chapter 7 121

8 Sampling and Sampling Distribution 122

8.1 Probability and Non-Probability Sampling 122
8.2 Probability Sampling Techniques—Simple Random,
Systematic, Cluster, and Stratified 123
8.2.1 Simple Random Sampling (SRS) 123
8.2.2 Systematic Sampling 127
8.2.2.1 Advantages of Systematic Sampling 127
8.2.2.2 Disadvantages of Systematic Sampling 127
8.2.3 Cluster Sampling 127
8.2.3.1 Advantages of Cluster Sampling 128
8.2.3.2 Disadvantages of Cluster Sampling 128
8.2.4 Stratified Random Sampling 128
8.2.4.1 Advantages of Stratified Random Sampling 129
8.2.4.2 Disadvantages of Stratified Random Sampling 129
8.3 Non-Probability Sampling Techniques—Judgment, Quota, and
Convenience 129
8.3.1 Judgment Sampling 129
8.3.1.1 Advantages of Judgment Sampling 130
8.3.1.2 Disadvantages of Judgment Sampling 130
8.3.2 Quota Sampling 130
8.3.2.1 Advantages of Quota Sampling 130
8.3.2.2 Disadvantages of Quota Sampling 130
8.3.3 Convenience Sampling 131
8.3.3.1 Advantages of Convenience Sampling 131
8.3.3.2 Disadvantages of Convenience Sampling 131
8.4 Sampling Distribution of the Mean 131
8.5 Central Limit Theorem and Its Significance 134
Exercises for Chapter 8 137
 Contents XI

9 Confidence Intervals for Single Population Mean and

Proportion 138
9.1 Point Estimates and Interval Estimates 138
9.2 Confidence Intervals for Mean 139
9.3 Confidence Intervals for Proportion 142
9.4 Calculating the Sample Size 143
9.5 Factors That Determine Margin of Error 145
Exercises for Chapter 9 146

10 Hypothesis Testing for Single Population Mean and

Proportion 147
10.1 Null and Alternative Hypotheses 147
10.2 Type I and Type II Error 147
10.3 Acceptance and Rejection Regions 148
10.4 Hypothesis Testing Procedures 148
Exercises for Chapter 10 154

11 Regression Analysis and Correlation Analysis 157

11.1 Construction of Line Fit Plots 157
11.2 Types of Regression Analysis 157
11.2.1 Uses of Regression Analysis 158
11.3 Simple Linear Regression 158
11.3.1 Assumptions of Simple Linear Regression 160
11.4 Multiple Linear Regression 164
11.4.1 Significance Testing of Each Variable 168
11.4.2 Interpretation of Regression Coefficients and Other
Output 168
11.5 Pearson Correlation Coefficient 171
11.5.1 Assumptions of Correlation Test 172
11.5.2 Types of Correlation 172
11.5.3 Coefficient of Determination 172
11.5.4 Test for the Significance of Correlation Coefficient (r) 173
Exercises for Chapter 11 175

12 Poisson Distribution 179

12.1 Poisson Distribution and Its Properties 179
12.2 Mean and Variance of a Poisson Distribution 180
12.2.1 Mean 181
12.2.2 Variance 182
12.3 Application of the Poisson Distribution 187
XII Contents

12.4 Poisson to Approximate the Binomial 188

Exercises for Chapter 12 191

13 Uniform Distributions 193

13.1 Uniform Distribution and Its Properties 193
13.2 Mean and Variance of a Uniform Distribution 193
13.2.1 Mean 194
13.2.2 Variance 194
Exercises for Chapter 13 200

14 Time Series Analysis 202

14.1 Concept of Time Series Data 202
14.1.1 Uses and Application of Time Series Analysis 202
14.1.1.1 Time Domain Approach 203
14.1.1.2 Frequency Domain Approach 204
14.2 Univariate Time Series Model 204
14.2.1 Generating a Time-Series Object in R 207
14.2.2 Smoothing and Seasonal Decomposition 208
14.2.2.1 Smoothing with Simple Moving Averages 208
14.2.2.2 Seasonal Decomposition 211
14.2.2.3 Exponential Forecasting Models 217
14.2.2.4 Simple Exponential Smoothing 218
14.2.2.5 Holt and Holt-Winters Exponential Smoothing 222
14.2.2.6 The ets( ) Function and Automated Forecasting 224
14.2.2.7 Autoregressive Integrated Moving Average (ARIMA)
Forecasting Models 226
14.3 Multivariate Time Series Models 230
14.3.1 ARMA and ARIMA Models 230
14.3.2 Automated ARIMA Predictions 237
Exercises for Chapter 14 238

Appendix 240

Index 261
1 Introduction to Statistical Analysis

The science of statistics supports making better decisions in business, econom-

ics, and other disciplines. In addition, it provides necessary tools to summarize
data, analyze data, and make meaningful conclusions to arrive at these better
decisions. This book is a bit different from most statistics books in that it will
focus on using data to help you do business—the focus is not on statistics for
statistics’ sake but rather on what you need to know to really use statistics.
To help in that endeavor, examples will include the use of the R programming
language which was created specifically to give statisticians and technicians a tool
to create solutions to standard techniques as well as custom solutions.
Statistics is a word originating from the Italian word stato meaning
“state,” and statista is an individual saddled with the tasks of the state.
Thus, statistics is the collection of useful information to the statista. Its ap-
plication began in Italy during the 16th century and dispersed to other coun-
tries of the world. At present, statistics covers a wide range of information in
every aspect of human activity. It is not limited to the collection of numerical
information but includes data summarization, analysis, and presentation in
meaningful ways.
Statistical analysis is mainly concerned with how to make generalizations
from data. Statistics is a science that deals with information. In order to perform
statistical analysis on information (data) you have on hand or that you collect,
you may need to transform the data or work with the data to get it into a form
where it can be analyzed using statistical techniques. Information can be found
in qualitative or quantitative form. In order to explain the difference between
these two types of information, let’s consider an example. Suppose an individ-
ual intends to start a business based on the information in Table 1.1. Which of
the variables are quantitative and which are qualitative? The product price is
a quantitative variable because it provides information based on quantity—the
product price in dollars. The number of similar businesses and the rent for busi-
ness premises are also quantitative variables. The location used in establishing
the business is a qualitative variable since it provides information about
a quality (in this case a location, Nigeria or South Korea). The presence of basic
infrastructure requires a (Yes or No) response; these are also qualitative
variables.
A quantitative variable represents a number for which arithmetic operations
such as averaging make sense. A qualitative (or categorical) variable is con-
cerned with a decision. In a case where a number is applied to separate members
of different categories of a qualitative variable, the assigned number is subjective

https://doi.org/10.1515/9781547401475-001
2 1 Introduction to Statistical Analysis

Table 1.1: Business feasibility data.

Product price Number of Rent for the Location Presence of

similar business basic
businesses premise infrastructure

US$  US$ Nigeria No

US$  US$ South Korea Yes

but generally intentional. An aspect of statistics is that it is concerned with meas-

urements—some quantitative and others qualitative. Measurements provide the
real numerical values of a variable. Qualitative variables can be represented with
numbers as well, but such a representation may be arbitrary but useful for the
purposes at hand. For instance, you can assign numerics to an instance of
a qualitative variable such as Nigeria = 1, and South Korea = 0.

1.1 Scales of Measurement

In order to use statistics effectively, it is helpful to view data in a slightly dif-

ferent way so that it can be analyzed successfully. In performing a statistical
test, it is important that all data be converted to the same scale. For example,
if your quantitative data is in meters and feet, you need to choose one and
convert any data to that scale. However, in statistics there is another defini-
tion for scales of measurement. Scales of measurement are commonly classi-
fied into four categories, namely: nominal scale, ordinal scale, interval scale,
and ratio scale.
1. Nominal Scale: In this scale, numbers are simply applied to label groups
or classes. For instance, if a dataset consists of male and female, we may
assign a number to them such as 1 for male and 2 for female. In this situa-
tion, the numbers 1 and 2 merely denote the category in which a data point
belongs. The nominal scale of measurement is applied to qualitative data
such as gender, geographic classification, race classification, and so on.
2. Ordinal Scale: This scale allows data elements to be ordered based on
their relative size or quality. For example, buyers can rank three products
by assigning them 1, 2, and 3, where 3 is the best and 1 is the worst. The
ordinal scale does not provide information on how much better one product
is compared to others, only that it is better. This scaling is used for many
purposes—such as grading, either stanine (1 to 9) or A to F (no E) where
a 4.0 is all As and all Fs are 0.0; or rankings, such as on Amazon (1 to 5
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