Random Motors Project
Submission
Name – Neethu Nair
Q-1a) Formulate the null hypotheses to check whether the new models are
performing as per the desired design specifications.
For Rocinante36: For Marengo32:
Mileage HO : Mean = 22 km/ltr Mileage HO : Mean = 15 km/ltr
Top speed HO : Mean = 140 km/hr Top speed HO : Mean = 210 km/hr
Q-1b) Formulate the alternate hypotheses to check whether the new models
are performing as per the desired design specifications.
For Rocinante36: For Marengo32:
Mileage H1 : Mean ≠ 22 km/ltr Mileage H1 : Mean ≠ 15 km/ltr
Top speed H1 : Mean ≠ 140 km/hr Top speed H1 : Mean ≠ 210 km/hr
Q-2) In order to comment on whether the design specifications are being
matched or not, perform relevant hypothesis tests and calculate the p-value for
each. What will you conclude? Assume you are performing the tests at 95%
confidence level.
For Rocinante36: Conclusion
Since the P-Value of Mileage and Top
p-value for mileage = 0.082
Speed for both models are greater
p-value for top speed = 0.432 than Alpha (0.05), we “Fail to Reject”
all the four null hypotheses.
For Marengo32:
Hence, at 95% confidence level the
p-value for mileage = 0.134 given specifications by the Chief
Engineer/’s remains true.
p-value for top speed = 0.373
Q-3) You have learnt about the possible errors that might result from the
hypothesis tests. What type of error is more expensive for Random motors
based on the hypothesis they are testing? Why? Assume that you need to
refund all your customers if your cars deviate from specifications.
The type of error which is more Reason:
expensive:
TYPE OF ERRORS If Random Motors do not deliver as per the
Type I Error: Rejecting Ho, when it is True promised specifications, they will have to refund
Type II Error: Fail to reject H0, when it is False the amount to the customers as per the given
In this case, Type II Error is considered as more assumption.
expensive - Fail to reject null hypothesis when it
is false. Hence, the Type II will be more expensive for
Random Motor’s.
(I.e. specifications are not as per the null
hypothesis, but we fail to reject the null
hypothesis)
Q-4) Develop a regression equation for each model at 95 percent confidence
level. From the regression equation predict the sales of the two models.
Develop the regression equation for the Develop the regression equation for the
Rocinante models and Predict the number Marengo models and Predict the number of
of unit sales of Rocinante36 model? unit sales of Marengo32 model?
Regression coefficients Regression coefficients
Price: -0.7950 (Significant) Price: -0.1867 (Significant)
Mileage: 8.3063 (Significant) Mileage: 0.0413 (Not Significant)
Top speed: -0.0186 (Not Significant) Top speed: 0.2208 (Significant)
Equation: Sales = 50.7231 - 0.7950*Price + 8.3063*Mileage Equation: Sales = 0.2208*Top Speed - 0.1867*Price - 13.4476
Predicted Sales(in units): 227897.23 (In Units) Predicted Sales(in units): 25264.85 (In Units)
Q-5) Based on sales prediction, what is the overall predicted profit for
Rocinante36 model and Marengo32 model ?
Overall predicted profit
Rocinante36 Model: 227,897.23 (In lakh rupees)
Marengo32 Model: 202,118.79 (In lakh rupees)
Q-6) As a CEO, you wish to invest only in the model which is predicted to be
more profitable. Which model among Rocinante36 and Marengo32 will you
invest in?
Which model you will invest in?
It is worth to be invested on Rocianante36, as the predicted profit from
Rocianante36 is higher (which is 25,778.43 lakh rupees more) than
Marengo32.
Models Rocinante36 Marengo32
Overall Predicted Profit
(In lakh rupees): 227,897.23 202,118.79
Q-7) Now you must have derived the regression equation for both models, Rocinante and
Marengo. Now if you increase the price of Rocinante36 and Marengo32 by 1 lac rupees
each, which car will have a higher impact on the sales due to increase in price? Give proper
logic for your answer. You can consider that all other specifications such as mileage and top
speed remain the same for both models.
Which car is most affected by a price increase? Why?
Models Initial Price Increased Price Difference
Rocinante36 (In Units)227,897.23 227,102.20 -795.03
Marengo32 (In Units) 25,264.85 25,078.12 -186.73
From the above table, it can be derived that the higher impact due to the increase in
price is on Rocinante36.
Reason: As per the regression equation, the regression coefficient for price of
Rocinante36 is higher than that of Marengo32. This higher regression coefficient is
reason for the high impact on the sales in Rocinante36 models.
Q-8) After developing the regression equation for both models (Rocinante and Marengo), if you
analyse the p values for coefficients in the regression results, you will notice that some of the
regression variables (top speed, mileage and price) are insignificant. Remove the insignificant
regression variables from your selection and rebuild the regression model using only significant
variables. Compare the Adjusted R square value for the new and old regression model. Do you
notice any change in Adjusted R square value? If yes, explain the reason for the change.
Is there a change on Adjusted R square Value? If so, Why?
Rocinante36 Marengo32
Difference (After- Difference (After-
Before After Before) Before After Before)
R Square 0.9958 0.9957 -0.0001 0.8631 0.8629 -0.0002
Adjusted R Square 0.9954 0.9954 0.0001 0.8479 0.8531 0.0052
From the new regression model (ignoring the insignificant variable), there is a slight
increase on the Adjusted R Square observed for both models. The increase in adjusted
R Square indicates that the new term improves the model fit (I.e. the ignored variable
has no contribution to the model goodness of fit).
