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The Geometric Mean:
The geometric mean (G) of n nonnegative numerical values is the n
th
root of the product of the n values.
If some values are very large in magnitude and others are small, then the geometric mean is a
better representative of the data than the simple average. In a “geometric series", the most
meaningful average is the geometric mean (G). The arithmetic mean is very biased toward the
larger numbers in the series.
An Application:
Suppose sales of a certain item increase to 110% in the first year and to 150%
of that in the second year. For simplicity, assume you sold 100 items initially. Then the number
sold in the first year is 110 and the number sold in the second is 150% x 110 = 165. The
arithmetic average of 110% and 150% is 130% so that we would incorrectly estimate that the
number sold in the first year is 130 and the number in the second year is 169. The geometric
mean of 110% and 150% is G = (1.65)
1/2
so that we would correctly estimate that we would sell
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This note was uploaded on 10/03/2011 for the course ECO 6416 taught by Professor Staff during the Spring '08 term at University of Central Florida.
 Spring '08
 Staff

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