. Answers to Homework Assignment 3 for Units 7, 8, 9, 10, and 11 (30 points) .

Problem 1 (Unit 7). Let X1, X2, X3, X4, and X5 be a random sample of five observations from a

population with mean μ and variance σ2. Consider the following point estimators of μ:

= .2 X1 + .2 X2 + .2 X3 + .2 X4 + .2 X5 and ̂ = .1 X1 + .3 X2 + .1 X3 + .4 X4 + .1 X5

a. Is an unbiased point estimator of μ? Is ̂ an unbiased point estimator of μ? Show your work.

Answer: We first take expectations of both sides of ( = .2 X1 + .2 X2 + .2 X3 + .2 X4 + .2 X5)

E( ) = E(.2 X1 + .2 X2 + .2 X3 + .2 X4 + .2 X5)

E( ) = E(.2 X1) + E(.2 X2) + E(.2 X3) + E(.2 X4) + E(.2 X5)

E( ) = .2 E(X1) + .2 E(X2) + .2 E(X3) + .2 E(X4) + .2 E(X5)

E( ) = .2 μ + .2 μ + .2 μ + .2 μ + .2 μ = μ

E( ) = μ (meaning that the point estimator is unbiased.)

Next, we take expectations of both sides of ( ̂ = .1 X1 + .3 X2 + .1 X3 + .4 X4 + .1 X5)

E( ̂ ) = E(.1 X1 + .3 X2 + .1 X3 + .4 X4 + .1 X5)

E( ̂ ) = E(.1 X1) + E(.3 X2) + E(.1 X1) + E(.4 X2) + E(.1 X1)

E( ̂ ) = .1 E(X1) + .3 E(X2) + .1 E(X1) + .4 E(X2) + .1 E(X1)

E( ̂ ) = = .1 μ + .3 μ + .1 μ + .4 μ + .1 μ = μ

E( ̂ ) = μ (meaning that the point estimator ̂ is unbiased.)

1
b. Which point estimator is more efficient (or more accurate)? Show your work.

Answer: We first take variance of both sides of ( = .2 X1 + .2 X2 + .2 X3 + .2 X4 + .2 X5)

V( ) = V(.2 X1 + .2 X2 + .2 X3 + .2 X4 + .2 X5)

V( ) = V(.2 X1) + V(.2 X2) + V(.2 X1) + V(.2 X2) + V(.2 X1)

V( ) = .04 V(X1) + .04 V(X2) + .04 V(X1) + .04 V(X2) + .04 V(X1)

V( ) = .04 σ2 + .04 σ2 + .04 σ2 + .04 σ2 + .04 σ2 = .20 σ2

V( ) = .20 σ2 Se( ) = .45 σ

Next, we take variance of both sides of ( ̂ = .1 X1 + .3 X2 + .1 X3 + .4 X4 + .1 X5)

V( ̂ ) = V(.1 X1 + .3 X2 + .1 X3 + .4 X4 + .1 X5)

V( ̂ ) = V(.1 X1) + V(.3 X2) + V(.1 X1) + V(.4 X2) + V(.1 X1)

V( ̂ ) = .01 V(X1) + .09 V(X2) + .01 V(X1) + .16 V(X2) + .01 V(X1)

V( ̂ ) = .01 σ2 + .09 σ2 + .01 σ2 + .16 σ2 + .01 σ2 = .28 σ2

V( ̂ ) = .28σ2 Se( ̂ ) = .53 σ

With Se( ) =.45σ < Se( ̂ )=.53σ, the point estimator is more accurate than point estimator ̂ .

c. Show your answers in parts (a) and (b) graphically.

Answer: As shown below, displays less deviation from the true mean value (μ).

2
d. Give an intuitive reason for your answer to part (b).

Answer:

 The point estimator ( = .2 X1 + .2 X2 + .2 X3 + .2 X4 + .2 X5) is more accurate, since it

assigns the same weight to the randomly selected observations (X1, X2 , X3, X4, and X5).

 In contrast, the point estimator ( ̂ = .1 X1 + .3 X2 + .1 X3 + .4 X4 + .1 X5) is less accurate.

This is because it assigns different weights to the randomly selected observations (X1, X2, X3,

X4, and X5).

 Since the observations are randomly selected, there is no reason to discriminate by

assigning different weights.

e. Clearly explain what it means when we say the point estimator is unbiased.

Answer:

being unbiased means that the point estimator ( = .2 X1 + .2 X2 + .2 X3 + .2 X4 + .2 X5) does

not systematically under- or over-estimate the true mean value (μ). That is, E( ) = μ

f. Clearly explain what it means when we say the point estimator is BLUE.

Answer:

BLUE means that ( = .2 X1 + .2 X2 + .2 X3 + .2 X4 + .2 X5) is the Best (most accurate), Linear

(a linear function of sample observations), Unbiased (that is, E( ) = μ) point Estimator of μ.

3
Problem 2 (Unit 7). For a particular country, let the population distribution of gasoline prices

(denoted by X) be normal with a mean value of μ = $4 and a standard deviation of σ = $.30. A

random sample of 9 (= n) gasoline prices from 9 cities is taken.

a. Find the standard error of the sample mean gasoline price ( ). Show your calculations.

Answer: With the sample standard deviation σ = $.30 and n = 9,

.
Se( ) = = $. 10
√ √

b. Is the sampling distribution of the sample mean ( ) normal? Which theorem (1 or 2) do we need

to use for answering this question? Explain with enough reasoning.

Answer: Theorem 1. Under Theorem 1, when the population distribution is normal, then the

sampling distribution of is normal. That is, ~ N(μ , σ2/n).

c. Find the probability that the sample mean gasoline price is between $3.94 and $4.12. Show your
calculations.

Answer: Here, we want to find P(3.94 < < 4.12).

. .
P(3.94 < < 4.12) = P( < ) = P(‒.6 < Z < 1.2)
. .

= P(Z < 1.2) – P(Z < ‒.6) = .8849 ‒ .2743 = .6106 (or 61.06%)

4
d. First, draw the sampling distribution of the sample mean ( ), and then locate your answer in part

(c) in the distribution.

Answer:

The sampling distribution of the sample mean ( )

e. Find the probability that the sample mean gasoline price is below $3.8. Show your calculations.

Answer: Here, we want to find P( < 3.8).

.
P( < 3.8) = P( < ) = P(Z < –2) = .0228 (or 2.28%)
.

5
f. First, draw the sampling distribution of the sample mean ( ), and then locate your answer in part

(e) in the distribution.

Answer:

The sampling distribution of the sample mean ( )

6
Problem 3 (Unit 8 & 9). Let X be the speed of cars traveling over a specific stretch of highway. In

addition, let the distribution of X be normal with mean μ and variance σ2. Recently, there is a concern

about the speed of cars traveling over a specific stretch of highway. For a random sample of seven

cars, radar showed the following speeds (in kilometers per hour):

127 119 111 124 139 114 113

Answer:
i ̅ ̅
________________________________________________________________________________________________

1 127 127 – 121 = 6 36

2 119 119 – 121 = –2 4
3 111 111 – 121 = –10 100
4 124 124 – 121 = 3 9
5 139 139 – 121 = 18 324
6 114 114 – 121 = –7 49
=7 113 113 – 121 = –8 64
________________________________________________________________
∑ = 847 ∑ ̅ =0 ∑ ̅ = 586
̅ = 121 = 97.667
9.883
a. Find the point estimate of the population men (μ).

Answer: The point estimate of μ is 121 kilometers per hour.

∑
̅ = = 121

b. Find the point estimate of the population standard deviation (σ).

Answer: The point estimate of σ is 9.883 kilometers per hour.

∑ ̅
= = 97.667

√ = √97.667 = 9.883

7
c. Find the standard error of .

.
Answer: Se( ) = = = 3.735 kilometers per hour
√ √

d. Test the null hypothesis that the true mean speed of all cars travelling over this stretch of highway
is 125 kilometers per hour. In answering, write the null and alternative hypotheses in addition
to the decision rule. Show your calculations and state your conclusion.

Answer: The population distribution is normal, the sample size is small (n = 7), and the
population standard deviation (σ) is unknown. Thus, we need to make use of the decision rule
in Case 3. That is,

H0: μ = μ0 or H0: μ = 125

H1: μ ≠ μ0 H1: μ ≠ 125

The decision rule is:

̅
Reject H0 at the 100α% level of significance if | calculated t-value ⁄√
| ≥ critical t-value tn-1,α/2

̅
The calculated absolute t-value | ⁄√
|=| ⁄√
|= 1.07
.

Critical t-values from the t-table are:

t6,.05 = 1.943 t6,.025 = 2.447 t6,.005 = 3.707

With the calculated absolute t-value of 1.07 < 1.943, we cannot reject H0: μ = 125 at any reasonable

level of significance.

This means that there is not enough sample evidence to reject the null hypothesis.

8
e. Find a 90% confidence interval estimate for μ and interpret it. Show your calculations.

Answer: Here, the population distribution is normal, the population standard deviation (σ) is
unknown, and the sample size small (n = 7) is small. As such, we need to use the confidence
interval estimators of μ in Case 3.

 The 90% C.I. estimator of μ is: – tn-1,.05 < μ< + tn-1,.05

√ √

 With tn-1,.05 = t15,.05 = 1.943, and the 90% C.I. estimator of μ is:

121 – (1.943)(3.735) < μ < 121 + (1.943)(3.735)

113.743 < μ < 128.257

Interpretation: We are 90% confident that this interval estimate contains the population mean (μ).

f. Is your conclusion in part (d) consistent with your results in part (e)? Explain clearly.

Answer: Always Yes. This is because the interval estimate (113.743 < μ < 128.257) includes

the claimed value of 125, meaning that we cannot reject the null hypothesis (H0: μ = 125) at the

10% level of significance. Same conclusion made in part (d).

g. Do you expect the interval estimate of μ to become wider, narrower, or stay the same, when

the sample size (n) increases? Explain with enough reasoning.

Answer: When the sample size (n) increases, the standard error of (which is, Se( ) = )
√

declines and, thus, the confidence interval estimate becomes narrower (or more precise).

9
Problem 4 (Unit 9). Define the following phrases (limit your answer to one sentence for each phrase):

a. Null hypothesis.

Answer: Null hypothesis (H0) is a hypothesis about the population parameter that is held to be true
(until sufficient evidence to the contrary is obtained).

b. Alternative hypothesis.

Answer: Alternative hypothesis (H1) is a hypothesis against which the null hypothesis is tested.

c. Decision rule.

Answer: The decision rule allows one to either “reject” or “fail to reject” the null hypothesis. This
is done by comparing the calculated test-value with the critical value.

d. Type I error

Answer: Type I error occurs when a true null hypothesis is rejected.

e. The level of significance (α)

Answer: The level of significance (α) is the probability of making a Type I error.

f. Reasonable levels of significance.

Answer: Reasonable levels of significance at which we reject the null hypothesis are .10 or lower
(i.e., 10% or lower).

g. The p-value.

Answer: The p-value is the lowest level of significance at which we can reject the null hypothesis.

 We reject the null hypothesis when the p-value ≤ .10

 We fail to reject the null hypothesis when the p-value > .10

10
Problem 5 (Units 9 & 10). It is generally believed that men and women have different expectations
about future inflation.

Let X (with mean μx and variance ) represent men’s expectations about future inflation. For a
random sample of 100 men, the mean rate of inflation expected for the next year is 5% and the
sample standard deviation is 1.2%.

Let Y (with mean μy and variance ) represent women’s expectations about future inflation. For a
random sample of 120 women, the mean rate of inflation expected for the next year is 4% and the
sample standard deviation is 1%.

a. Test the null hypothesis that the population means are equal against a one-sided alternative.
In answering, write the null and alternative hypotheses in addition to the decision rule. Show
your calculations and state your conclusion.

Answer: Here, = 100 ̅ 5 = 1.2 = 120 4 =1

H0: μx = μy

H1: μx > μy

The decision rule is: Reject H0 at the 100α% level of significance if

| the calculated z-value | ≥ critical z-value zα

̅‒
The absolute calculated z-value = | |=| | = 6.63
.

The one-tailed-test critical z-values are:

1.28 (10%) 1.645 (5%) 2.33 (1%)

With 6.63 > 2.33, we reject the null hypothesis that μx = μy at the 1% level of significance.

This means that there is overwhelming sample evidence to reject the null hypothesis.
11
b. Clearly state the assumption(s) that is necessary for your answer to part (a) to be valid.

Answer: We do not need to assume that the population distribution of X is normal, since, with
the sample size ( = 100) large, we rely on the CLT and state that the sampling distribution of
̅ is normal. Similarly, we do not need to assume that the population distribution of Y is normal,
since, with the sample size ( = 120) large, we rely on the CLT and note that the sampling
distribution of is normal. However, we need to assume that the two samples are conclusion.

c. Test the null hypothesis that the variances of the two populations are equal against a one-sided
alternative at the 5% level of significance. In answering, write the null and alternative
hypotheses in addition to the decision rule. Show your calculations and state your conclusion.

Answer: Let > .

H0: = or H0: =1

H1: > H1: >1

The decision rule is: Reject H0 at the 5% level of significance if

the calculated F-value = ≥ critical F-value, , ,.

.
The calculated F-value = = = 1.44
The critical F-value, , ,. = , ,. = , ,. = 1.37

With 1.44 > 1.37, we fail to reject the null hypothesis at the 5% level of significance.

d. Clearly state the assumption(s) that is necessary for your answer to part (c) to be valid.

Answer: Following Theorem 4, we need to assume that the population distribution of X is

normal, and the population distribution of Y is normal. In addition, we need to assume that the
two samples are independent.

12
Problem 6 (Unit 10). Let X be the daily demand for a product (with mean µ and variance σ2). One

important factor in inventory control is the variance of the daily demand for the product. A store

manager has developed the optimal order quantity and re-order point, with the assumption that the

variance (σ2) is equal to 250. Recently, the store has experienced some inventory problems, which

has made the store manager doubt his assumption.

To examine, the store manager takes a random sample of 31 days and records the demand. Using the

data, the manager finds the sample variance (S2) = 258. Now answer the following questions.

a. Do the sample data provide sufficient evidence to conclude that the store manager’s assumption
about the variance is wrong? For instance, test whether the variance (σ2) is 250 against a one-
sided alternative. In answering, write the null and alternative hypotheses in addition to the
decision rule. Show your calculations and state your conclusion.

Answer:
H0: σ2 = 250

H1: σ2 > 250

Decision Rule:

Reject H0 at the 100α% level of significance if

the calculated χ2-value ≥ the critical χ2-value, ,

The calculated χ2-value = = 31.992

The critical χ2-values are:

,. = 40.3 ,. = 43.8 ,. = 50.9

With 31.992 < 40.3, we cannot reject the null hypothesis at any reasonable level of

significance, meaning that there is not enough sample evidence to reject the null hypothesis

H0: σ2 = 250 against the alternative that H1: σ2 > 250.

13
 b. Find a 90% confidence interval estimate for the variance (σ2) and interpret it. Show your
calculations.

Answer: The 100(1-α)% confidence interval estimator for the population variance (σ2) is

< σ2 <
, / , /

With (1- α) = .90, α = .10, α/2 = .05, and (1 - α/2) = .95. With n = 31, (n – 1) = 30. With S2 = 258 and

30 degrees of freedom, the 90% confidence interval for the population variance is,

< σ2 < or < σ2 <

,. ,. . .

Note that, from the chi-square table, χ2 ,. = 43.8 and χ2 ,. = 18.5

Thus, the 90% confidence interval estimate of the population variance (σ2) is:

176.7 < σ2 < 418.4

Interpretation. We are 90% confident that this interval estimate contains the population variance
(σ2).

c. What assumption(s) is necessary for your answers to parts (a) and (b) to be valid? Explain.

Answer: Following Theorem 3, we need to assume that the population distribution is normal.

With the population distribution normal, the sampling distribution of the adjusted S2 is a chi-

square random variable with (n - 1) degrees of freedom.

14
Problem 7 (Unit 11). Of a random sample of 120 employers in the manufacturing sector, 54
indicated that providing workers with health care improves worker productivity.
^
a. Let P be the population proportion, and let P represent the sample proportion. Now, answer
the following calculations.

Answer: The point estimate of P is .45.

̂= = = .45

^
b. Find the standard error of the sample proportion ( P ). Show your calculations.

Answer: Se( ̂ ) = ̂ 1 ̂ / = . 45 1 .45 /120 = .045

c. Find a 90% confidence interval estimate for the population proportion and interpret it. Show
your calculations.

Answer: The 100(1–α)% confidence interval for the population proportion is

̂ – zα/2 ̂ 1 ̂ / < p < ̂ + zα/2 ̂ 1 ̂ /

With (1– α) = .90, α = .10, and α/2 = .05. From the table, the z-value z.05 = 1.645.

Then, the 90% confidence interval estimate for the population proportion is

.45 – 1.645 (.045) < p < .45 + 1.645 (.045)

.376 < p < .524

Interpretation. With a 90% confidence, this interval estimate contains the population proportion P.

15
d. Without doing the calculations, clearly explain whether a 95% confidence interval estimate

for P would be wider than, narrower than, or the same as that found in part (c).

Answer: The 95% confidence interval estimate would be wider than the 90% confidence

interval estimate, because it allows for less uncertainty. That is, as we reduce the probability

of being incorrect (α) from 10% to 5%, we need to tolerate a wider C.I. estimate.

e. A critic claims that the true proportion is .52. Test the validity of this claim against a two-

sided alternative. In answering, write down the null and alternative hypotheses in addition to

the decision rule. Show your calculations and state your conclusion.

Answer: The null and alternative hypotheses are:

H0: p = .52

H1: p ≠ .52

The decision rule: Reject H0 at the 100α% level of significance

if | calculated z-value = | ≥ critical z-value, zα/2

/

. .
The calculated z-value = = = -1.54 which, in absolute value, is
/ . . /

less than 1.645 (that is, 1.54 < 1.645). Thus, we cannot reject the claim or the null hypothesis

(H0: p = .52) at any reasonable level of significance.

16
f. Is your conclusion in part (e) consistent with your results in part (c)? Explain clearly.

Answer: Yes. This is because the 90% confidence interval found in part (c) is .376 < p < .524

includes the claim value of .52. As such, we cannot reject the claim or the null hypothesis H0:

p = .45 at any reasonable level of significance. We have the same conclusion in part (e).

g. What assumption(s) is necessary for your answers to parts (c) and (e) to be valid? Explain.

Answer: With n = 120 = large, we rely on the Central Limit Theorem (CLT) to state that the

binomial diction of X tends to be normal. This, in turn, means that the sampling distribution

̂ is normal.

h. The 2-tailed test p-value in part (e) is .123. Given this information, clearly explain whether

you reject (or fail to reject) the null hypothesis that the true proportion is .52 against the

alternative that it is less than .52. Show your calculations.

Answer: The one-tailed test p-value = (the two-tailed test p-value ÷ 2)

Thus, the one-tailed test p-value = (.123 ÷ 2) = .0615 < .10

With the one-tailed test p-value =.0615 < .10, we reject the null hypothesis (H0: p = .45) in

favor of the alternative hypothesis (H1: p < .45).

17
 Formula Sheets (Units 7, 8, 9, 10, and 11)

∑ ∑ ̅
= or = …

____________________________________________________________________________________________

Let X be a random variable (and let c be a constant)

Laws of expected value: E(c X) = c E(X) For example, E(10 X ) = 10 E(X)

Laws of variance: V(c X) = c2 V(X) For example, V(10 X) = 100 V(X)

____________________________________________________________________________________________

P(a < Z < b) = P(Z < b) – P(Z< a) P(Z > z) = P(Z < –z) P(Z > –z) = P(Z < z)

P(Z > z) = 1 – P(Z < z)

18
Se( ) = Se( ) = Se( ) =
√ √ √

⁄√
= ~ N(0, 1) ⁄√
= ~ N(0, 1) ⁄√
= ~ N(0, 1+)

– zα/2 < μ< + zα/2 – zα/2 < μ< + zα/2 – tn-1,α/2 < μ< + tn-1,α/2
√ √ √ √ √ √

/
M=
√

/
n=

̅ ̅
| calculated z-value ⁄√
| ≥ critical z-value, z α | calculated z-value ⁄√
| ≥ critical z-value, z α/2

̅ ̅
| calculated z-value ⁄√
| ≥ critical z-value, z α | calculated z-value ⁄√
| ≥ critical z-value, z α/2

̅ ̅
| calculated t-value ⁄√
| ≥ critical t-value, tn-1, α | calculated t-value ⁄√
| ≥ critical t-value, tn-1, α/2

One-tail test critical z-value: 1.28 1.645 2.33

Two-tail test critical z-value: 1.645 1.96 2.58

19
 ̅‒ ̅‒
| calculated z-value = | ≥ critical z-value, z α | calculated z-value= | ≥ critical z-value, z α/2

____________________________________________________________________________________________

∑ ̅
< σ2 <
, / , /

Calculated χ2-value ≥ critical χ2-value, , , ,α

____________________________________________________________________________________________

^
P= Se ̂ ̂ 1 ̂ /

̂ – zα/2 ̂ 1 ̂ / < p < ̂ + zα/2 ̂ 1 ̂ /

|calculated z-value = | ≥ critical z-value, z α |calculated z-value = | ≥ critical z-value, z α/2

/ /

20