Managerial

Statistics
DR. LEONARDO C. MEDINA, JR.
 Chapter Three

Graphical
Descriptive Techniques II

2.2
Example 3.1
Following deregulation of telephone service, several new
companies were created to compete in the business of
providing long-distance telephone service. In almost all
cases these companies competed on price since the service
each offered is similar. Pricing a service or product in the
face of stiff competition is very difficult. Factors to be
considered include supply, demand, price elasticity, and the
actions of competitors. Long-distance packages may employ
per-minute charges, a flat monthly rate, or some combination
of the two. Determining the appropriate rate structure is
facilitated by acquiring information about the behaviors of
customers and in particular the size of monthly long-distance
bills.

2.3
Example 3.1
As part of a larger study, a long-distance company wanted to
acquire information about the monthly bills of new
subscribers in the first month after signing with the
company. The company’s marketing manager conducted a
survey of 200 new residential subscribers wherein the first
month’s bills were recorded. These data are stored in file
Xm03-01. The general manager planned to present his
findings to senior executives. What information can be
extracted from these data?

2.4
Example 3.1
We have chosen eight classes defined in such a way that each
observation falls into one and only one class. These classes are defined
as follows:
Classes
Amounts that are less than or equal to 15
Amounts that are more than 15 but less than or equal to 30
Amounts that are more than 30 but less than or equal to 45
Amounts that are more than 45 but less than or equal to 60
Amounts that are more than 60 but less than or equal to 75
Amounts that are more than 75 but less than or equal to 90
Amounts that are more than 90 but less than or equal to 105
Amounts that are more than 105 but less than or equal to 120

2.5
Example 3.1
Histogram

80
70
60
Frequency

50
40
30
20
10
0
15 30 45 60 75 90 105 120
Bills

2.6
Interpret…

(18+28+14=60)÷200 = 30%
about half (71+37=108)
i.e. nearly a third of the phone bills
of the bills are “small”,
are $90 or more.
i.e. less than $30

There are only a few telephone

bills in the middle range.

2.7
Building a Histogram…
1) Collect the Data
2) Create a frequency distribution for the data…
How?
a) Determine the number of classes to use…
How?
Refer to table 3.2:
With 200 observations,
we should have
between 7 & 10
classes…

Alternative, we could use Sturges’ formula:

Number of class intervals = 1 + 3.3 log (n)

2.8
Building a Histogram…
1) Collect the Data
2) Create a frequency distribution for the data…
How?
a) Determine the number of classes to use. [8]
b) Determine how large to make each class…
How?
Look at the range of the data, that is,
Range = Largest Observation – Smallest Observation
Range = $119.63 – $0 = $119.63
Then each class width becomes:
Range ÷ (# classes) = 119.63 ÷ 8 ≈ 15

2.9
Building a Histogram…

2.10
Building a Histogram…

2.11
 Shapes of Histograms…
Symmetry
A histogram is said to be symmetric if, when we draw a
vertical line down the center of the histogram, the two sides
are identical in shape and size:
Frequency

Frequency
Frequency

Variable Variable Variable

2.12
 Shapes of Histograms…
Skewness
A skewed histogram is one with a long tail extending to
either the right or the left:
Frequency

Frequency
Variable Variable

Positively Skewed Negatively Skewed

2.13
Shapes of Histograms…
Modality
A unimodal histogram is one with a single peak, while a
bimodal histogram is one with two peaks:

Bimodal
Unimodal
Frequency

Frequency
Variable Variable

A modal class is the class with

the largest number of observations

2.14
Shapes of Histograms…
Bell Shape
A special type of symmetric unimodal histogram is one that
is bell shaped:

Frequency

Many statistical techniques

require that the population
be bell shaped.
Variable

Drawing the histogram

helps verify the shape of
the population in question. Bell Shaped
2.15
Histogram Comparison…
Compare & contrast the following histograms based on data
from Ex. 3.3 & Ex. 3.4:
The two courses, Business Statistics
and Mathematical Statistics have very
unimodal vs. bimodal different histograms…

2.16
Stem & Leaf Display…
• Retains information about individual observations that
would normally be lost in the creation of a histogram.

• Split each observation into two parts, a stem and a leaf:

• e.g. Observation value: 42.19

• There are several ways to split it up…
Stem Leaf
42 19
• We could split it at the decimal point:
4 2
• Or split it at the “tens” position (while rounding to the
nearest integer in the “ones” position)
2.17
Stem & Leaf Display…
• Continue this process for all the observations. Then, use
the “stems” for the classes and each leaf becomes part of
the histogram (based on Example 3.1 data) as follows…

Stem Leaf
0 0000000000111112222223333345555556666666778888999999
1 000001111233333334455555667889999
2 0000111112344666778999
3 001335589
4 124445589
5 33566
6 3458
7 022224556789
8 334457889999 Thus, we still have access to our
9 00112222233344555999 original data point’s value!
10 001344446699
11 124557889

2.18
 Histogram and Stem & Leaf…

Compare the overall shapes of the figures…

2.19
Ogive…
• (pronounced “Oh-jive”) is a graph of
• a cumulative frequency distribution.

• We create an ogive in three steps…

• First, from the frequency distribution created earlier,

calculate relative frequencies:

• Relative Frequency = # of observations in a class

• Total # of observations

2.20
Relative Frequencies…
For example, we had 71 observations in our first class
(telephone bills from $0.00 to $15.00). Thus, the relative
frequency for this class is 71 ÷ 200 (the total # of phone
bills) = 0.355 (or 35.5%)

2.21
Ogive…
Is a graph of a cumulative frequency distribution.

We create an ogive in three steps…

1) Calculate relative frequencies. 
2) Calculate cumulative relative frequencies by adding the
current class’ relative frequency to the previous class’
cumulative relative frequency.
(For the first class, its cumulative relative frequency is just its relative frequency)

2.22
Cumulative Relative Frequencies…

first class…

:
:

2.23
Ogive…
Is a graph of a cumulative frequency distribution.
1) Calculate relative frequencies. 
2) Calculate cumulative relative frequencies. 
3) Graph the cumulative relative frequencies…

2.24
Ogive…

The ogive can be used to

answer questions like:

What telephone bill value

is at the 50th percentile?

“around $35”
(Refer also to Fig. 2.13 in your textbook)
2.25
Describing Time Series Data
Observations measured at the same point in time are called
cross-sectional data.

Observations measured at successive points in time are

called time-series data.

Time-series data graphed on a line chart, which plots the

value of the variable on the vertical axis against the time
periods on the horizontal axis.

2.26
Example 3.5
We recorded the monthly average retail price of gasoline
since 1976.
Xm03-05
Draw a line chart to describe these data and briefly describe
the results.

2.27
 Example 3.5
Line Chart
450

400

350

300

250

200

150

100

50

0
1 25 49 73 97 121 145 169 193 217 241 265 289 313 337 361 385 409 433

2.28
Example 3.6
Price of Gasoline in 1982-84 Constant Dollars

Xm03-06
Remove the effect of inflation in Example 3.5 to
determine whether gasoline prices are higher than they have
been in the past after removing the effect of inflation.

2.29
Example 3.6
Line Chart
200

180

160

140

120

100

80

60

40

20

0
1 25 49 73 97 121 145 169 193 217 241 265 289 313 337 361 385 409 433

2.30
Example 3.6
Using constant 1982–1984 dollars, we can see that the average
price of a gallon of gasoline hit its peak in the middle of 2008
(month 385).

From there, it dropped rapidly and then rose more or less

steadily until the end of 2012.

At that point, the adjusted price was about the same as the
adjusted price in 1978 (month 49).

2.31
Graphing the Relationship Between Two Interval Variables…

Moving from nominal data to interval data, we are

frequently interested in how two interval variables are
related.

To explore this relationship, we employ a scatter diagram,

which plots two variables against one another.

The independent variable is labeled X and is usually placed

on the horizontal axis, while the other, dependent variable,
Y, is mapped to the vertical axis.

2.32
Example 3.7
A real estate agent wanted to know to what extent the selling
price of a home is related to its size. To acquire this
information he took a sample of 12 homes that had recently
sold, recording the price in thousands of dollars and the size
in hundreds of square feet. These data are listed in the
accompanying table. Use a graphical technique to describe
the relationship between size and price. Xm03-07
Size 2354 1807 2637 2024 2241 1489 3377 2825 2302 2068 2715 1833
Price 315 229 355 261 234 216 308 306 289 204 265 195

2.33
Example 3.7
It appears that in fact there is a relationship, that is, the
greater the house size the greater the selling price…
Scatter Diagram
400
350
300
Price $1,000s)

250
200
150
100
50
0
0 500 1000 1500 2000 2500 3000 3500 4000

House size

2.34
Patterns of Scatter Diagrams…
Linearity and Direction are two concepts we are interested in

Positive Linear Relationship Negative Linear Relationship

Weak or Non-Linear Relationship

2.35
Chapter-Opening Example
WERE OIL COMPANIES GOUGING CUSTOMERS 2000-2009: SOLUTION
In January 2000 the average retail price of gasoline was $01.301 per
gallon and the price of oil (West Texas intermediate crude) was $27.18
per barrel. Over the next 10 years the price of both substantially
increased. Many drivers complained that the oil companies were guilty
of price gouging. That is, they believed that when the price of
oil increased the price of gas also increased, but when the price of oil
decreased, the decrease in the price of gasoline seemed to lag behind.

2.36
Chapter-Opening Example
WERE OIL COMPANIES GOUGING CUSTOMERS 1999-2006: SOLUTION
To determine whether this perception is accurate we determined the
monthly figures for both commodities. Xm03-00
Graphically depict these data and describe the findings.

2.37
Chapter-Opening Example
Scatter Diagram
450

400

350

300
Price of gasoline

250

200

150

100

50

0
0 20 40 60 80 100 120 140 160
Price of oil

2.38
Chapter-Opening Example
The scatter diagram reveals that the two prices are strongly
related linearly. When the price of oil was below $60 the
relationship between the two was stronger than when the
price of oil exceeded $60.

2.39
Summary I…
Factors That Identify When to Use Frequency and Relative Frequency Tables, Bar and Pie
Charts
1. Objective: Describe a single set of data.
2. Data type: Nominal

Factors That Identify When to Use a Histogram, Ogive, or Stem-and-Leaf Display

1. Objective: Describe a single set of data.
2. Data type: Interval

Factors that Identify When to Use a Cross-classification Table

1. Objective: Describe the relationship between two variables.
2. Data type: Nominal

Factors that Identify When to Use a Scatter Diagram

1. Objective: Describe the relationship between two variables.
2. Data type: Interval

2.40
Summary II…

Interval Nominal
Data Data
Histogram Frequency and
Single Set of Relative Frequency
Data Tables, Bar and Pie
Charts
Relationship Scatter Diagram Cross-classification
Between Table, Bar Charts
Two Variables

2.41