Essay by   •  October 20, 2011  •  Essay  •  348 Words (2 Pages)  •  2,999 Views

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Question 1: How may variance and standard deviation be applied to a real-world-business-related problem? Provide a specific application in which these measures are useful.

Variance is the squared deviation from the mean. The positive square root of the variance is called the standard deviation. Standard deviation has the same component as the random variable so it is easier to interpret than the variance is. Variance and standard deviations are both measures of dispersion. When more of the individual observations deviate away from the mean value, the higher the standard deviation and variance.

An application in which variance and standard deviation would be useful is comparing stock options for companies. You would need to consider the variability in the different prices from the companies as a measure of the risk involved. So ,the sock portfolio that will have the higher standard deviation for the stock return would be considered the higher risk. These measures are useful in deciding what the best way to invest monies for a company.

Question 2: As a manager, what are some of the benefits of applying probability concepts to solve business-related problems? Would business decisions suffer without probability concepts? Explain.

A benefit of applying probability concepts to solve business related problems for managers is that it will allow the manager to determine the ways business is being conducted. For example, if a business was opening a new store the manager will need to determine what products would sell better in that particular store. The manager would need to research the population as a whole and measure the preferences for the population in that particular area. Different areas will have different preferences as a whole population. For instance, in the southern states you will find the population prefers sweet tea as opposed to the northern states that prefer un-sweet tea.

Business decisions would suffer without probability concepts because managers need to review relevant information when beginning new opportunities. If a manager fails to use probability concepts then the business will suffer because no relevant information was used and un-informed business decisions will be made.

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