COMPREHENSIVE ASSIGNMENT 1

QUESTION ONE
a) A set is any well-defined collection of objects. It is important in a
business.
Clearly defining and describing aspects involved in a venture.
It helps in presenting and interpreting probability concepts.
Problem formulation.
Analyzing probability concepts.
b) Leontief formula is used for input analysis. i.e.
Out put = inter industry demand + Non industry demand.
This is represented in matrix algebra as X = AX +D
Where;

x1
x2

Industry output is X =

.
.
.

xn
a
Inter industry demand AX =11
a21

a12
a22

. . . a1n
. . . a2n

.
.

da1n1
d2

an2

. . . ann

Non Industry demand D =

.
.
.

dn

Rearranging the formula, to make X the subject, we get;

X = AX + D
X- AX = D
(I A) X =D
X = (I A)-1 D

if the inverse of (I A) exists.

This is represented in matrix algebra as,

x1
x2
.
.
.

xn

1-a11 -a12 . . . -a1n

-a21 1-a22 . . . -a2n
.
.
.

-an1 -an2 . . . 1-ann

-1

d1
d2
.
.
.

dn

x1
x2

xn

c) ACT = (X2

5
2

X + 50 +

AR =800 2X2

500 X
x

Total Cost (TC) = Average cost Number of floppy disks (X)

= (X2
= X3

5
2
5
2

X + 50 +

500
x

)X

X2 + 50X + 500

Total Revenue (R) = Average revenue Number of floppy disks (X)

= (800 2X2)X
= 800X 2X3
i.
The profit function P
P = R TC
=800X 2X3 (X3

5
2

X2 + 50X + 500)

Collecting the like terms together we get;

P=
ii.

5
2

X2

5
2

X3+750X 500

Floppies required to maximize profit,

We are required to maximize the profit function
dP_ = 5X

15 2
X + 750 = 0
2

dx
to find the values of X required to maximize profits we solve for
X
thus X = 5

X = 5

5 4 750 152
15

using the quadratic root formula

150.1
15

= - 9.67 or 10.34
To find the maximizing value of X we substitute these values to the second
derivative of y
d2P_ = 5 15X
dx2

for X = 10.34 & - 9.67

since X= 10.34 gives a negative value then its the maximizing

value

the number of floppies required for maximum profit is 10,340

since the formula is in thousands, you multiply X by a thousand
iii)

The profit
P=

5
2

(10.34)2

= 4758.5
= Sh.4,758,500

5
2

(10.34)3+750(10.34) 500

since the formula is in thousands, you multiply by

a thousand

QUESTION TWO
(i)

Markov Process: this is a matrix based forecasting technique that uses

forecasting transition matrices (probabilities) to predict the future
given the current/initial state.
(ii)
Equilibrium/steady state: - it is a steady state when there is an equal
and opposite change between products i.e. market share in the n th
period = market share in (n + 1)th period.
The change in one direction is counter balanced by change in the
opposite direction, i.e. it is the long run state of a markov system
where it ceases to forecast.
(iii)
Absorbing state: - this refers to some of the states of a markov
problem in which the subjects of analysis reach or enter. They cannot
leave i.e. the system ends.
(iv)
Closed state: - this is an absorbing state whose entry has been
restricted.
(b)
(i)

Equilibrium before advertising: 0.85 0.15

a, b

0.25
0.75

Where a + b = 1
0.85a + 0.25b = a .(i)
0.15a + 0.75b = b (ii)
- 0.15a + 0.25b = 0
a+b=1
Solving the simultaneous equation a = 1 b
- 0.15(1 b) + 0.25b = 0
- 0.15 + 0.15b + 0.25b = 0
0.4b = 0.15 b = 0.375
a = 1 b = 1 0.375 = 0.625

(ii)

After
0.9
T =
0.3

0 .1

0.7

 0.9 0.1
x, y
0.3 0.7
0.9x + 0.3y = x (i)
0.1x + 0.7y = y (ii)

x,

Taking (i)
- 0.1x + 0.3y = 0

x+y=1

x + y = 1 (iii)

x=1y

Substituting
- 0.1 (1 y) + 0.3y = 0
- 0.1 + 0.1y + 0.3y = 0
y = 0.1

0.4y = 0.1

= 0.25

0.4

X = 1 y = x = 1 0.25 = 0.75
(iii)

Annual profit before campaign:

Equilibrium state before campaign Tamu Cola = 0.625 (a)
Total profit = 0.625 x 4.0m x 5 = Shs. 25 million
After campaign
Total profit = (0.75 x 40m x 5) (20m) = Shs. 130 million
Recommend to advertise due to the additional profit of Shs. 5 million
(Shs. 25 million Shs. 20 million).

QUESTION THREE

e
d

f
h
g
C

Coffee = K
Tea = T
Cocoa = C
a = take coffee only
b = take coffee & tea only

c = take tea only

d= take coffee and cocoa.
Using the information the number of elements in each region is determined
using a simple arithmetic equations.
Solve: a + b + d + e = 230 .. (i)
k + e + f + c = 245 .. (ii)
g + d + e + f = 325 . (iii)
e = 30
d + e = 70; a = 110;
d = 70 e = 70 = 30 = 40

g = 185

Solving (iii) f = 325 e d g

F = 325 30 40 185 = 70
Solving (i)
Solving (ii)

b = 230 a d e = 230 110 40 30 = 50

c = 245 e b = 245 70 30 50 = 95

h = 800 {a + b + c + d + e + f + g}
800 {100 + 50 +95 + 40 + 30 + 70 + 185}
h = 220
(ii)
(iii)
(iv)
(v)
(b)
(i)

Take tea only = C = 95

Take coffee and tea only = b = 50
Take tea and cocoa only = f = 70
None of the beverages = h = 220
Chi square test is a measure of relative discrepancy between the
observed and expected frequencies. It is given by

(ii)

fo fe 2

Where fo is the observed

value

Where
fe is the
H0 there is no relationship
between
theexpected
day of the week and the
number of books borrowed.
H1 = there is a relationship between the day of the week and the
number of books borrowed.
X2 =

Mean =

fe

625
5

= 125 = fe

We are testing the hypothesis at the 1% level of significance using a X 2

test with (1 - 0) (1 0) = 1 degree of freedom. From the table we find
that:
2
X 1,1 = 6.635
fo
132
110

fe

(fo fe)

(fo fe)2

125
125

7
- 15

49
225

fo fe 2

fe

0.392
1.8

128
105
150

125
125
125

3
- 20
25

9
400
625

0.072
3.2
____5
10.464

X2 = 10.464
2

Since: 10.464 > X 0.01,1 = 6.635 the result

level. We rejected H0 at this level, and
reasonably sure that the data indicates an
day of the week and the number of books
illustrated in the following diagram.

is significant at the 1%
accept H1. We can be
association between the
borrowed. This can be

Accept H0

f(x2)

Reject H0

1%

X2

X =
6.635

Observed
value
X2 = 10.464

QUESTION FOUR
(a)

X 11 X 12.. ... X 1P

y1

y = n + 1 y2
y n

XnxP =

Vector of response variable

Matrix of explanatory variables

21 X 22.. ... X 2P
..... ...... .... .....
X

n1 X n2 .... X nP

E1

0
P 1 1 and
p

E = n 1 E2

En

Vector of parameters

Vector of random errors

In matrix notation

y1
y
2

X 12
X 22

.......
........

1........

.......

.........

1X n1

X n2

.........

1X 11
1X
21

yn

n 1

In compact form
b (i)

n (p+1)
Y = X + E

X 1n 0 E1
X 2 n 1 E 2

......

X np p E n
p 1 n 1

 50 20 35 1 105
40 30 10 1
8
0

25 42.5 5 72.5
60
1 0 15 35 1

20 17.5 2 .5 60
(ii)

1 1 2 0
0 1 1 2

105 80 72.5 60 60 3 2 1 1 382.5450 722.5352.5
0 0 3 1

1 2 3 1
QUESTION FIVE

(a)

(i)

Rate at which expenditure is incurred

E(t)

= Sh. 10,000

Expenditures and contributions functions intersect when

C(t) =
E(t)
- 100t2 + 200,000 = 10,000
- 100t2 = - 190,000
t2 = 1,900
t = 43.6 days
(ii)

Total expenditure = Number of days x Expenditure per day

E = Sh. 10,000 x 43.6 days
= Sh. 436,000

(iii)
Total contributions during the 43.6 days is given by the area
under the curve
C(t) = - 100t2 + 200,000 between t = 0 and t = 43.6 days.
43.6
C = (-100t2 + 200,000)dt
0
100 3
t 200,000t ) 43.6
=
3
0
43.63
200,000x43
.6 0
3

= 100x

= -2,762,729 + 8,720,000
= Sh. 5,957,271

(b)

(iv)

Net proceeds = contributions - Expenditure

= 5,957,271 436,000
= Sh. 5,521,271

(i)

Demand (D) for each type of car is given by

D = Nt
1
1
1
=

(ii)

1
=

400
500

160 + 150 + 100 + 120

400 + 300 + 100 + 400
500 + 200 + 150 + 300

160
300
200

150
100
150

=
=
=

530
1,200
1,150

Total number of repairs required

Salons
S/wagons
17
16
15

100
400
300

120

Saloons
S/wagons
Doubtcabs

Double cabs
530

P = RD =

(iii)

12
9
4

8
7
7

1200
1150

= 17 x 530 + 16 x 1,200 + 15 x 1,150

12 x 530 + 8 x 1,200 + 5 x 1,150
9 x 530 + 7 x 1,200 + 5 x 1,150
=
4 x 530 + 7 x 1,200 + 6 x 1,150

45,460
21,710
18,920
17,420

Total cost = pt

0
0

5
5
6

= (45,460
0
0

21,710

1,250 0
800 0
0
500
0

0
0
0
800

18,920

17,420)
0
0
0

800
0
0

250
0
0
6,500 0
0
8,400

= 56,825,000 + 17,360,000 + 122,980,000 + 139,360,000

= Sh. 336,525,000
QUESTION SIX
(a)
(i)
industries.
(ii)
(iii)

Transaction table a table that show the outputs and inputs of

(2 marks)
Primary inputs inputs that are received by the industries from
the non-producing sector e.g. labour
(2 marks)
Technical coefficients proportion of inputs needed by an
industry to produce a shilling worth of output.
(2 marks)

(b)

Planning for economic development of a region or state

Shows how resources in an economy are shared among
contributing sectors
Helps in determination of GDP
Reveals impact of decisions made by the contributing sectors
on the economy.
Determine the level of output each industry should operate at to meet
the demand of its product.
(1 mark for each)
(c)

(i)
Construction
Steel
Motor Vehicles
Construction

Steel

m/vehicles

0.2

0.2
0.3
0.4

0.3
0.4
0.2

0.4
0.1

(ii)
1_ 0.46
0.192 0.43 0.60
0.30 0.24 0.42

0.24
0.41

0.26
50
30

20
=
30.6

29
151.04
50.9
1_ 265.10
0.192 159.38

Total output
Steel =
151.04 m units
Motor vehicles = 265.1m units
Construction = 159.38m units
(3 marks)
(iii)
1__ 0.43
0.192 0.30

0.46
0.60
0.24

0.24
0.41
0.42

0.26
60
30

18
=

30.48
1__ 56.04
0.192 32.4

158.8
291.88
168.75
Change in construction output =
168.75
159.38
=
9.37m units (increase)
(5
marks)
(Total: 20 marks)
QUESTION SEVEN
(a)

Venn diagrams
The purpose of Venn diagrams is to visualize the relationships
between event sets. Useful in the area of probability.

(b)

Using a Venn diagram gives the following:

C
20

20
20

20
A

Where Event A
Event B
Event C

=
=
=

Owns a tent;
Owns a sleeping bag
Owns a camping store

Let the sample space be the 200 people interviewed.

Note that only 20 people own only a camping store.
To determine whether it is possible for thirty people to own both a
tent, and a sleeping bag, but not a camping store, note that the size of
Event A is 60. Therefore the shaded area above could not have a
value of thirty.
(5 marks)
(c)
No.

Question

Random Variable

1.

Family
income
Family size

X = annual gross income the family

reported on their tax return.
X = number of dependants in the
family reported on their return.
X = the distance in kilometers from
home to the store site.

2.
3.
4.

Distance
from home
to store
Car/Matatu

X = 1 if own no. car;

= 2 if own car (s) only;
= 3 if own matatu(s) only;

Discrete/contin
uous
Continuous
Discrete
Continuous
Discrete

= 4 if own car(s) if own car(s) and

matatu(s)
This is a continuous random variable even though it will appear to be
discrete due to the limits in accuracy of measurement.
QUESTION EIGHT
Let 7C = Total Cost
Average Cost

MC = Marginal Cost

AC =

Q = Number of units
d 7C
7C d 7C
AC = 7CQ
MC =
Q
dQ
dQ
Derivation of average cost with respect to quantity is different from
marginal cost. Thus, the analysis is wrong.

(b)

(i)

7C = MCdQ Q 2 28Q 211dQ

7C = 1 Q 3 14Q2 211Q f
3

7C =

1 Q 3 14Q2 211Q 10
3
(ii)

AR =

7R

7R = AR

Q =

200 8Q Q

7R = 200Q 8Q2
(iii)

Profit = Total revenue Total cost

= 7R 7C = 200Q 8Q2 - 13Q 3 14Q2 211Q 10

3
2
= 13Q 6Q 11Q 10

(iv)

For maximum or minimum, ddQ 0

d
-Q 2 12Q 11 0
dQ

Q=

12

Q2 12Q + 11 = 0

144 4 1 11

2 1

Second order condition;

When Q = 11,

d2
dQ2

12 10
2
d2
dQ2

Q = 11 or Q = 1

= -2Q + 12

= - 2 (11) + 12 = - 10 < 0 = > (Max.

turning point)
When Q = 1,
turning point)

d2
dQ2

= -2(1) + 12 = 10 > 0 = >

(min.

 Level of output that maximizes profit in 11 units.

(v)

MR =

d TR
dQ

= 200 16Q