MGEB12: Quantitative Methods in Economics-II

Problem Set-1

Chpater-9: 4a, 6, 10, 12, 14, 20, 22, 24, 26, 30, 34
Supplemental:

1. Suppose a random sample of size 25 is selected from a population with mean , the value of which is
unknown. The sample statistics are x 6.4 , s = 10. In the test:
H0: = 10
H1: < 10 using = .05.

Which of the following statements do you KNOW is correct?

A. A type 1 error has been committed.
B. H0 is rejected.
C. H0 is not rejected.
D. Statements (A) and (B) are correct.
E. None of the above.

2. If one does not reject the null hypothesis Ho: = 20, and thus does not accept the alternative H1: < 20,
with x =10, then

A. a mistake has been made because the null hypothesis should be Ho: 20, if the alternative hypothesis is
Ha: < 20.
B. at the same significance level, the null hypothesis Ho: = 0 can not be rejected in favor of the alternative Ha:
> 10, for x =10.
C. at the same significance level, the null hypothesis Ho: = 0 can not be rejected in favor of the alternative Ha:
> 0, for x =10.
D. there is statistical proof that is 20 and that it is not less than or greater than 20.
E. there is statistical proof that is 20 and that it is not less than 20.
3. An analyst, using a simple random sample, obtained a 99 percent confidence interval for mean monthly
family income in a Toronto suburb with the following results: $3,200 < < $10,000. If the analyst had used a 90
percent confidence instead of a 99 percent one, then the interval would be:
A. shorter and would involve a larger risk of being an incorrect interval estimate.
B. longer and would involve a smaller risk of being an incorrect interval estimate.
C. shorter and would involve a smaller risk of being an incorrect interval estimate.
D. longer and would involve a larger risk of being an incorrect interval estimate.
E. cannot say without knowing the sample mean

4. The p-value of a test:

A. is the smallest at which the null hypothesis can be rejected

B. is the largest at which the null hypothesis can be rejected
C. is the smallest at which the null hypothesis cannot be rejected
D. is the largest at which the null hypothesis cannot be rejected

E. increases if increases

5. Researchers determined that 60 Kleenex tissues is the average number of tissues used during a cold. Suppose

a random sample of 100 Kleenex users yielded the following data on the number of tissues used during a cold:
x = 52 and s = 22. Suppose the alternative we wanted to test was H1 : 60 . The correct rejection region for
= 0.05 is
A. reject H o if t > 1.6604

B. reject H o if t < - 1.6604

C. reject H o if t > 1.9842 or Z < - 1.9842

D. reject H o if t < - 1.9842
E. reject H o if t > 1.9842

6. A random sample of size 15 taken from a normally distributed population revealed a sample mean of 75 and a
sample variance of 25. The upper limit of a 95% confidence interval for the population mean would equal:
A. 72.231
B. 72.727
C. 77.273
D. 73.241
E. 77.769
Questions 7-8: A random sample of 10 college students was drawn from a large university with normal
distribution. Their ages have an average of 21.3 and standard deviation equal to 3.20.
7. The 90% confidence for the age of the population is.
A. LCL = 19.791, and UCL = 22.809
B. LCL = 19.446, and UCL = 23.154
C. LCL = 18.888, and UCL = 23.712
D. LCL = 18.467, and UCL = 24.133
E. LCL = 19.067, and UCL = 23.554
8. Test to determine if we can infer at the 5% significance level that the population mean is not equal to 20:
A. Rejection region: |t| > t0.025,9 = 2.262, Test statistic: t = 1.285
B. Rejection region: |t| > t0.025,9 = 1.833, Test statistic: t = 1.285
C. Rejection region: |t| > t0.025,9 = 2.262, Test statistic: t = 1.241

D. Rejection region: |t| > t0.025,9 = 1.833, Test statistic: t = 1.241

E. The sample size is too small cannot use the table.

9. In testing the hypothesis H 0 : 100 vs. H 1 : 100 , the p-value is found to be 0.074, and the sample
mean is 105. Which of the following statements is true?
A. The probability of observing a sample mean at least as large as 105 from a population whose mean is 100 is
0.074.
B. The probability of observing a sample mean smaller than 105 from a population whose mean is 100 is 0.074
C. The probability that the population mean is larger than 100 is 0.074
D. The probability that the margin of error is larger than 5 is 0.074
E. None of the above
10. In a given hypothesis test, the null hypothesis can be rejected at the .10 and .05 level of significance, but
cannot be rejected at the .01 level. The most accurate statement that can be made about the p-value for this test
is that:
A. p-value = 0.01
B. p-value = 0.10
C. 0.01 < p-value < 0.05
D. 0.05 < p-value < 0.10
E. p-value < 0.01
11. The null and alternative hypotheses are stated as Ho: =10 and Ha: < 10. When a random sample of size n
= 36 is drawn, it yields a mean of 13; thus:
A. The null hypothesis can be rejected if the sample standard deviation is 6 and the probability of a type I error
is relatively large at 0.10, but not for a small alpha = 0.01.
B. The null hypothesis can be rejected for any of the typical type I error levels (0.10, 0.05, or 0.01) because the
p-value is smaller.
C. The null hypothesis cannot be rejected regardless of the type I error level.
D. The alternative hypothesis can be accepted at any of the type I error levels.
E. None of the above
12. The prices of CD players are normally distributed, with a standard deviation of $12. A random sample of 16
CD player prices is drawn. A confidence interval for the mean price shows a $9.30 margin of error. What was
the level of confidence?
A. 99.9%
B. 99.8%
C. 99.7%
D. 99.6%
E. 99.5%
13. One characteristic of any Students t distribution is
A. it is right skewed.
B. it is left skewed.
C. as n increases, the t-distribution approaches a uniform distribution.
D. it is described by its degrees of freedom.
E. it has a mean of 0 and a standard deviation of 1.
14. The 95% confidence interval for is between [10, 15]. What conclusion can you make if you test H 0: = 16
versus H1: # 16 at = 0.05?
A. Reject the null and conclude the alternative.
B. Fail to reject the null.
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C. Accept the null.

D. Reject the null but cannot conclude the alternative.
E. We cannot tell what our decision will be from the information given.
15. If a test of hypothesis has a Type I error probability of .01, it means:
A. if the null hypothesis is true, we dont reject it 1% of the time.
B. if the null hypothesis is true, we reject it 1% of the time.
C. if the null hypothesis is false, we dont reject it 1% of the time.
D. if the null hypothesis is false, we reject it 1% of the time.
E. None of the above.
16. Which of the following about the Students t distribution is true?
A. It has more area in the center and less in the tails than does the normal distribution.
B. It is used to construct confidence intervals for the population mean when the population standard deviation is
known.
C. It is bell shaped and symmetrical.
D. As the number of degrees of freedom increases, the t distribution approaches the binomial.
E. It will be symmetric for large sample sizes.
17. Suppose an economist interested in poverty wishes to determine whether there is evidence that average
family income in a community falls short of $25,000. What type of hypothesis test should he use?
A. either a one-sided or two-sided test could be used with equivalent results.
B. a one-sided lower tail test should be used.
C. a two-sided test should be used.
D. a one-sided upper tail should be used.
E. None of the above
18. In classical hypothesis testing, the test statistic is to the critical value what the ____________.
A. p-value is to alpha.
B. critical value is to alpha.
C. test statistic is to the p-value.
D. level of significance is to the test statistic.
E. all of the above
Questions 19-22: We are interested in measuring the size of television advertising budgets for firms with
excellent customer product identification recall. We would like to make a case that the mean TV advertising
budget for such firms has increased from its traditional level of $49 M. We have the following Descriptive
Statistics for variable SPEND which is the TV advertising budget in millions of dollars.
Descriptive Statistics: SPEND ($M)
Mean
Median
Mode
Sample Variance
Range
Minimum
Maximum
Sum

50.4
27
26.9
2927.8
180.9
5
185.9
1058.4

Count

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19. The appropriate hypotheses for a test described above is:

A. H0: = $49 M H1: # $49 M
B. H0: = $49 M H1: > $49 M
C. H0: #=$50.4M H1: > $50.4M
D. H0: x > 0 $ $50.4M H1: x < $50.4M
E. None of the above
20. If the p-value for the hypothesis test described above is 0.005, the null hypothesis of the test would be
A. rejected at =.01 but not at =.001.
B. rejected at =.001 but not at =.01.
C. rejected at both =.01 and =.001.
D. not rejected at =.01 and =.001.
E. not rejected at =.02 and =.001.
21. If the p-value calculated for the hypothesis test described above is 0.45, this would mean
A. the probability of getting a sample mean at least as great as $49M should be rejected at 0.45, as it is quite
small.
B. the probability of getting a sample mean at least as great as $49M should be rejected at 0.45, as it is quite
large.
C. the probability of getting a sample mean at least as great as $50.4M , assuming = $49M is 0.45, that is,
highly unlikely.
D. the probability of getting a sample mean at least as great as $50.4M, assuming = $49M is 0.45, that is,
highly likely.
E. C and D
22. With reference to the Descriptive Statistics, can a hypothesis test legitimately be performed using this data
set?
A. Yes, because of the Central Limit Theorem.
B. No, because the data set indicates the population is right skewed.
C. No, because we dont know the population standard deviation.
D. Yes, because we know the sample size and the sample standard deviation.
E. Do not have enough information to evaluate the statement
Questions 23-27: A machine dispenses liquid salad dressing ingredients into bottles that move along a filling
line. The machine is working properly when 800 grams are dispensed. The standard deviation of the process is
15 grams with deviations from 800 grams being normally distributed.
A sample of 36 bottles is selected periodically and the filling line is stopped if there is evidence that the average
amount dispensed is actually less than 800 grams. Suppose that the average amount dispensed in a particular
sample of 36 bottles is 798 grams.
23. A 95% confidence interval of the average amount dispensed in the bottles
A. Falls between 797 grams and 799 grams
B. Falls between 795 grams and 801 grams
C. Falls between 793 grams and 803 grams
D. falls between 791 grams and 805 grams
E. None of the above

24. If the level of significance is 0.05, the null hypothesis that the mean amount dispensed is 800 grams
A. Should not be rejected
B. Should be rejected
C. Should be accepted
D. Cannot be determined as there is insufficient information
E. None of the above
25. The p-value of the test in Question 23 is
A Less than 0.1
B Between 0.1 and 0.2
C Between 0.2 and 0.3
D Above 0.3
E None of the above
26. The sample size needed for the test to result in a p-value of 0.01 is
A. Less than 50
B. Between 50 and 100
C. Between 100 and 200
D. Between 200 and 300
E. None of the above
27. Suppose that the standard deviation given represents the unbiased sample standard deviation corresponding
to the 36 bottles. If the level of significance is 0.05, the critical value associated with the t test (in absolute term )
is:
A Less than 1.63
B Between 1.63 and 1.66
C Between 1.66 and 1.69
D. More than 1.69
E. None of the above

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B
C
A
A
B
E
B
A
A
C
C
B
D
A
B
C
B
A
B
A
D
B
C
A
C
E
C

MC: Solution Keys

Note: This is one sided Test

Long Question
Question-1: The manager of a department store is thinking about establishing a new billing system for the
store's customers. After a thorough financial analysis, she determines that the new system will be cost-effective
only if the mean monthly account balance is greater than $250. A random sample of 111 monthly accounts is
drawn. The sample mean is $272.50, and the sample standard deviation is $130.00.
a) Identify the Null and Alternative hypotheses for a hypothesis test that would allow the manager to decide
whether there is sufficient evidence to conclude that the new system will be cost-effective. Using a value of
= .05, identify the critical value(s) of the test statistic used for this hypothesis test. State your conclusion.
b) Using the t-table show how you can approximate the p-value of your test. in (a).
c) Calculate the 95% confidence interval for the population mean. Briefly explain the meaning of the
confidence interval. Based on this confidence interval redo your test in (a).
d) Find the smallest value for X that allows you to reject the null in (a).
e) (Lecture-3) Find the power of your test in (a) for an alternative of 275. Comment on your answer. (Note:
the sample size is large, approximate t with Z)

Solutions

Question-1: The manager of a department store is thinking about establishing a new billing system for the
store's customers. After a thorough financial analysis, she determines that the new system will be cost-effective
only if the mean monthly account balance is greater than $250. A random sample of 111 monthly accounts is
drawn. The sample mean is $272.50, and the sample standard deviation is $130.00.
a) Identify the Null and Alternative hypotheses for a hypothesis test that would allow the manager to decide
whether there is sufficient evidence to conclude that the new system will be cost-effective. Using a value of
= .05, identify the critical value(s) of the test statistic used for this hypothesis test. State your conclusion.
Solution: H0: = 250

H1: > 250

Answer: t.05, 110 = 1.6588

X 0 272.50 250.00

1
.
8235

Test Statistic: t = S
130

n
111

Decision: Reject the null hypothesis.

Conclusion: There is enough evidence to indicate that the new system is cost effective.
b) Using the t-table show how you can approximate the p-value of your test. in (a).
Solution:
0.025<p-value <0.05
the t-stat of 1.8235 is between 1.658, 1.980 from the table.
c) Calculate the 95% confidence interval for the population mean. Briefly explain the meaning of the
confidence interval. Based on this confidence interval redo your test in (a).
Solution:

X t / 2

272.50 1.98
272.50 24.43

130

111

The null as appeared in (a) is inside the confidence interval implying that the null cannot be
rejected at 2.5%, (Note: this is a one sided test)). We cannot reject at 2.5% but that does not
imply we cannot reject at 5%. Therefore based on the confidence interval alone we cannot
do the test in (a).

d) Find the smallest value for X that allows you to reject the null in (a).

Answer: To reject the null hypothesis, we would need to see a test statistic that is more extreme than
the critical value of 1.6588:

X 250 .00
= 1.6588;
Test Statistic: t = 130

111

X = 270.47

e) Find the power of your test in (a) for an alternative of 275. Comment on your answer. (Note: the sample
size is large, approximate t with Z)
xl 250 1.645
xl 270.30

130
111

prob( xl 270.30 | 275)

270.30 275
0.3811
130
111
prob(t stat 0.3811) 0.352
Z

Power 1 0.648

The beta error is relatively high, the test has low power.

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