Economics 120A July 30, 2003

Name: ________key_________________ Student ID#: _________________________ ANSWER to Final Exam: Econometrics

1.(10 points) The stamping machine on a production line periodically is taken off-line for maintenance. Assume that the amount of time the machine is off-line is uniformly distributed between 15 and 30 minutes. What is the probability that the machine is offline for more than 18 minutes? What is the probability that the machine is off-line between 21 and 27 minutes? (Answer) (a) 18 to 30 minutes represent 80% of the distance between 15 and 30 minutes. (b) The range 21 to 27 is 40% of the distance between 15 and 30 minutes.

2. (10 points) The length of time it takes to fill an order at a local sandwich shop is normally distributed with a mean of 4.1 minutes and a standard deviation of 1.3 minutes. If the sandwich shop employees make $6.00 an hour, what is the mean and standard deviation for the labor costs per sandwich? (answer) E(X) = 4.1 sd(X) = 1.3 Labor cost per minute = $0.10 Y = 0.10X E(Y) = (0.10)(4.1) = $0.41

sd(Y) = 0.1*sd(X) = 0.13.

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FINAL EXAM, ECON 120A, SUMMER 2003

3. (15 points) Let the random variable Z follow a standard normal distribution. Calculate the following probabilities. What is the probability P(Z>0.29)? Note F(0.29)=0.6141. What is the probability P(-0.44<Z<1.2)? Note F(0.44)=0.6700 and Note F(1.2)=0.8849. (Answer) (a.) P(Z>0.29) = 1-F(0.29)=1-0.6141=0.3859. (b) P(-0.44<Z<1.2)= F(1.2)-F(-0.44)= F(1.2)-(1-F(0.44))= 0.8849-(1-0.6700)= 0.5549.

4. (15 points) Let the random variable Z follow a standard normal distribution. Calculate the following values. Show the calculation procedure. Find the value k, such that P(Z>k) = 0.43. Note F(0.17)=0.57 Find the value k, such that P(-0.71<Z<k) = 0.67. Note F(0.71)=0.7611, F(1.33)=0.9089 (Answer) (a) P(Z>k) =0.43, P(Z ≤ k) =0.57. Since F(0.17)=0.57, so k=0.17 (b) P(-0.71<Z<k)=0.67, F(k)-F(-0.71)=0.67, Note that F(0.71)=0.7611. F(-0.71)=1-F(0.71)=0.2389. F(k)=F(-0.71)+0.67=0.9089. Note that F(1.33)=0.9089. So k=1.33.

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FINAL EXAM, ECON 120A, SUMMER 2003

5. (10 points) You are in charge of arranging the catering for a company meeting. Your company is responsible for paying for all meals ordered, so you don’t want to order too many. Suppose that the expected number of people for the meeting is 84, with a standard deviation of 4 people. What is the fewest number of meals should you order so that the probability of having more people than meals is 5%? Note that F(1.645)=0.95. (Answer) P(X>k) = 0.05, P((X-µ)/σ>(k-84)/4) =0.05, P(Z>(k-84)/4) = 0.05 (k-84)/4 = 1.645 k = 90.58 91 meals

6. (15 points) The length of time it takes to fill an order at a local sandwich shop is normally distributed with a mean of 4.1 minutes and a standard deviation of 1.3 minutes. The manager knows that he can expect complaints if the average time it takes to make a sandwich is 4.5 minutes or longer. From a sample of 12 randomly-selected customers, the manager finds that the mean was 4.97. Does the manager have reason to believe that the mean time for making a sandwich is actually greater than 4.1? Explain. Note that F(2.32)=0.9898.

⎛ X − µ 4.97 − 4.1 ⎞ ⎟ (Answer) P( X >4.97) = p⎜ ⎜ σ n > 1.3 12 ⎟ = P(Z>2.32) = 0.0102 ⎝ ⎠ It is very unlikely that 12 people would have to wait 4.97 minutes or longer. The average time to make a sandwich is probably greater than 4.1 minutes.

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FINAL EXAM, ECON 120A, SUMMER 2003

7. (15 points) Suppose that 15% of all invoices are for amounts greater than $1,000. A random sample of 60 invoices is taken. What is the mean and standard error of the sample proportion of invoices with amounts in excess of $1,000? What is the probability that the proportion of invoices in the sample is greater than 18%? Note that F(0.65) = 0.7472.
(Answer) π = 0.15, n = 60 E(p) = 0.15 Var(p) = (0.15)(0.85)/60 = 0.002 Std. Error = 0.046 P(p>0.18) = P(Z>(0.18 – 0.15)/0.046) = P(Z>0.65) = 0.2578

8. (10 points) The filling machine at a bottling plant is operating correctly when the variance of the fill amount is equal to 0.3 ounces. Assume that the fill amounts follow a normal distribution. The probability is 0.10 that for a sample of 30 bottles, the sample variance is less than what number? That is, find k such that P(s2<k) = 0.10. Note that 2 P( χ 29 <19.77) = 0.10.
(Answer) P(s2<k) = 0.10 P( χ 2 <(n-1)k/(0.3)) = 0.10

So 19.77 = 29k/(0.3); thus we have k =19.77*0.3/29 Therefore, k = 0.2045

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FINAL EXAM, ECON 120A, SUMMER 2003

9. (15 points) An advertisement claims that four out of five doctors recommend a particular product. A consumer group wants to test that claim, and takes a random sample of 30 doctors. The consumer group finds that of this group of doctors, only 0.75 would recommend the product. What is the probability that the proportion of doctors in this sample who recommend the product is 0.75 or less? Do you have reason to doubt the manufacturer’s claim? Explain. Note that F(0.68)=0.7517.
(Answer) π = 0.80, n = 30 P(p<0.75) = P(Z<(0.75 – 0.80)/ (0.80)(0.20)/30 = P(Z<-0.68) = 0.2483 It would not be unusual to have 70% or fewer doctors recommending the product out of a group of 30. Cannot really doubt the manufacturer’s claim.

10. (15 points) The Daytona Beach Tourism Commission is interested in the average amount of money a typical college student spends per day during spring break. They survey 35 students and find that the mean spending is $63.57 with a standard deviation of $17.32. Develop and interpret a 95% confidence interval for the population mean daily spending. Note that P(t>t34, 0.05)=2.032.
(Answer) X ± tn-1, α/2s/ n =63.57 ± 2.032(17.32)/

35 =63.57 ± 5.95

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FINAL EXAM, ECON 120A, SUMMER 2003

11. (10 points) The supervisor of a production line believes that the average time to assemble an electronic component is 14 minutes. Assume that assembly time is normally distributed with a standard deviation of 3.4 minutes. What are the appropriate null and alternative hypotheses? a.) b.) c.) d.) H0: µ =14 H0: µ =14 H0: µ =14 H0: µ >14 H1: µ < 14. H1: µ > 14. H1: µ ≠ 14. H1: µ ≤ 14.

(Answer) c

12. (15 points) The supervisor of a production line believes that the average time to assemble an electronic component is 14 minutes. Assume that assembly time is normally distributed with a standard deviation of 3.4 minutes. The supervisor times the assembly of 14 components, and finds that the average time for completion was 11.6 minutes. Is there evidence that the average amount of time required to assemble a component is something other than 14 minutes?
(Answer)

H0: µ =14 H1: µ ≠ 14 Reject H0 if (11.6 - 14)/(3.4/ 14 ) < -Zα/2; that is, -Zα/2= -2.64 Reject H0 at α = 0.0041 Sufficient evidence to disprove claim. Population mean appears to be less than 14 minutes.

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FINAL EXAM, ECON 120A, SUMMER 2003

13. (10 points) The concentration of a drying compound in an epoxy is critical to its final strength. The standard deviation of the amount of the compound must be 1,500 parts-permillion or less. What is the decision rule for this test?
2 a.) Reject H0 if (n - 1)s2/σ02 > χ n −1,α
2 b.) Reject H0 if (n - 1)s/σ0 > χ n −1,α 2 2 c.) Reject H0 if (n - 1)s/σ0 < χ n −1,α / 2 or > χ n −1,1−α / 2 2 d.) Reject H0 if (n - 1)s/σ0 > χ n −1,1−α

(Answer) A

14. (15 points) The U.S. Postal Service advertises that 63.4% of all third class mail is read by the recipients. An environmental group, concerned about waste generation, wants to test this assertion. They take a sample of 220 households, and find that only 58.7% read their third class mail. Should you believe the U.S. Postal Service claim?
(Answer)

H0: π =0.634 H1: π < 0.634 Reject H0 if (p - π0)/ π 0 (1 − π 0 ) / n < - Zα Z statistic = - 1.45 Reject null hypothesis at α = 0.06

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