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## Business Applications of Measure of

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Central Tendency
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“Measures of central tendency (averages) are statistical constants which enable us to gure out in a
Order Now single e ort the signi cance of the whole.” (Prof Bowley) The main objectives of measure of central

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page&utm_medium=ch_z&utm_term=info- To reduce data in a single value.
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There are di erent types of averages; each has its own business applications.

1 Arithmetic Mean
2 Median
3 Mode
4 Geometric Mean
5 Harmonic Mean

Arithmetic Mean
De nition

Most important measure of location is the mean or average value, for a variable. The mean provides
a measure of central location for the data. If the data are for a sample, the mean is denoted by; if the
data are for a population, the mean is denoted by the Greek letter μ. (David R. Anderson et al)

Arithmetic mean is considered a deal average. It is frequently used in all the aspects of business i.e.
number of items produced per day on a large assembly line, number of orders received per month
for a rm. further In economic analysis arithmetic mean is used extensively to calculate average
production, average wage, average cost, per capital income exports, imports, consumption, prices,
etc. (www.publishyourarticles.net)

Example

Say we want to nd the average annual salary of all secretaries. We believe we can do this on the
basis of our knowledge of annual salaries of 6 particular secretaries, who each earn \$.10400, \$34000,
\$14000, \$25800 respectively.

Our result is a sample mean because we are interested in nding the mean
annual income of all secretaries on the basis of the annual income of a smaller sample consisting of
only 6 secretaries. (Cheng F. Lee et al, 1993)

Median
De nition

The median is another measure of central location. The median is the value in the middle when the
data are arranged in ascending order.  With an odd number of observations, the median is the
middle value. An even number of observations has no single middle value. In this case, we follow
convention and de ne the median as the average of the values for the middle two observations.
(David R. Anderson et al)

Median is positional measures of central tendency. The median salary gives a value close to the
average salary commonly paid, without taking the extreme values into consideration. There are
mainly used in the qualitative cases like honesty, intelligence, ability, etc. These are also suitable for
the problems of distribution of income, wealth, investment, etc. (www.publishyourarticles.net)

Example

The U.S. Census Bureau nds the median household income. According to the U.S. Census Bureau,
“median household income” is de ned as “the amount which divides the income distribution into
two equal groups, half having income above that amount, and half having income below that
amount.” (www.ehow.com) 1.3 Mode

De nition

The mode is de ned as the element that appears most frequently in a given set of elements. Mode
can also be de ned as the element with the largest frequency in a given data set. (www.wyzant.com)

The mode is the most important when an analysis is looking for what happens most often. In
analyzing prices, most of the sales occur at a particular list price or possibly at a reduced, sale price.
While there may have been sales at other prices, very few customers will have paid an average or
a mean price. Those values are therefore less important when setting pricing in terms of what most
customers paid. (www.publishyourarticles.net)

Example

Mode is used to calculate the ‘modal size of a collar’, ‘modal size of shoe’, or ‘modal size of ready-
made garments’ etc.The mode may be bene cial for a manager of a shoe store. For example, you
would not see size 17 shoes stocked on the oor. Why? Because very few people have a size 17 shoe
size. Therefore, store managers may look at data and determine which shoe size is sold the most.
Managers would want to stock the oor with the best selling shoe size. (www.ehow.com)

Geometric Mean

De nition

Geometric mean is well de ned only for sets of positive real numbers. This is calculated by
multiplying all the numbers (call the number of numbers n), and taking the nth root of the total.
(ww.easycalculation.com)

## Business Applications of Geometric Mean

Geometric Mean is used in the construction of index number. The averages of proportions,
percentages and compound rates are computed by geometric mean. The growth of population is
measured in it as population increases in geometric progression.

Harmonic Mean

De nition

Harmonic mean is used to calculate the average of a set of numbers. Here the number of elements
will be averaged and divided by the sum of the reciprocals of the elements. The Harmonic mean is
always the lowest mean. (ww.easycalculation.com)

## Business Applications of Harmonic Mean

Harmonic mean is applied in the problems where small items must get more relative importance
than the large ones. It is useful in cases where time, speed, values given in quantities, rate and prices
are involved. But in practice, it has little applicability.