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Economics
ECO 3411 – TEST 3
Select the single best answer for the following 25 questions. Use a brown scantron for
your responses.
1.
A Chi Square “Test of Independence” allows one to determine if there is a
relationship between
a. A quantitative and a qualitative variable
b. Two quantitative variables
c. Two qualitative variables **
d. Any two variables
2. The Chi Square test statistic is fundamentally based on
a. Expected frequencies
b. Observed frequencies
c. Expected frequencies divided by observed frequencies
d. Observed minus expected frequencies **
The professor of a business statistics class wants to determine if there is a relationship
between grades in business statistics and the students class standing. To facilitate the
research, the professor collects the following data from six of his former classes.
Class
Standing
Freshmen &
Sophomores
Junior &
Senior
Grades
A
10
B
20
C
60
D
40
F
20
20
40
80
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2
Based on this information answer the following six questions.
3. The observed frequency, fo, for Freshmen & Sophomore and C grade is
a. 60 **
b. 30
c. 134
d. 70
4. The expected frequency, fe, for Junior 7 Senior and B grade is?
a. 40
b. 30 **
c. 80
d. 20
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5.
a.
b.
c.
d.
Economics
The degrees of freedom for this Chi Square test is
10
4 **
5
2
6.
a.
b.
c.
d.
The test statistic(calculated Chi Square) is
325.0
68.32
15.21
48.92 **
a.
b.
c.
d.
The critical Chi Square statistic, assuming a 1 percent level of significance is
13.2767 **
7.77944
23.2093
15.0863
7.
8.
a.
b.
c.
d.
Based on your analysis above, which of the following statements would be true?
It appears that there is no relationship between class standing and the grade in
business statistics.
Do not reject the null hypothesis.
Reject the null hypothesis. **
ISER
9.
A decision maker that weights the payoffs associated with each act with unequal
probabilities of the events and chooses the act with the maximum expected payoff is
using which of the following decision criterion?
a. Maximax
b. Maximin
c. Principle of Insufficient Reason
d. Bayes Decision Rule **
An entrepreneur plans to produce Holiday wreaths this season. She is considering three
different types of wreaths – basic, standard, and fancy. The cost and pricing for each are
detailed in the table below.
Type of Wreath
Basic
Standard
Fancy
Selling Price
per wreath
$10
$12
$15
Fixed Costs
$5,000
$40,000
$40,000
Variable Costs per
wreath
$0.50
$3.00
$5.00
There are 3 possible events that could occur that will influence the sale of wreaths. If the
economy is in a recession during the holiday season, sales are estimated to be 40,000
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Economics
wreaths. However, if the economy is normal, the entrepreneur expects to sell 50,000 and
if the economy is booming, she expects to sell 80,000 wreaths. Answer the next 10
questions based on this information.
10.
a.
b.
c.
d.
Act ________ is inadmissible and is dominated by ____________.
Basic:
both standard and fancy
Fancy:
basic
Basic:
only standard but not fancy
Standard:
both basic and fancy **
11.
What is the profit or payoff if she decides to produce the fancy wreath and the
economy is in a recession during the holiday season?
a. $760,000
b. $375,000
c. $360,000 **
d. $540,000
12.
If we assume that there is a 0.6 chance that the economy will be in a recession, a
0.1 chance the economy will be normal, and a 0.3 chance that the economy will be
booming, which act maximizes the expected payoff and what is its value?
a. Standard, $ 63,000
b. Fancy, $500,000
c. Basic, $498,500 **
d. Fancy, $490,000
13.
What is the opportunity loss or regret if she produces a basic wreath and the
economy is booming during the holiday season?
a. $ 380,000
b. $ 1,500
c. $-5,000
d. $ 5,000 **
14.
a.
b.
c.
d.
The expected opportunity loss if she produces a fancy wreath is
$ 0
$24,000
$ 3,000
$10,000 **
a.
b.
c.
d.
The expected value of perfect information, EVPI, is
$ 3,000
$ 2,500
$ 10,000
$1,500 **
15.
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16.
Economics
a.
b.
c.
d.
The expected payoff of perfect information, EPPI, is
$63,000
$500,000 **
$498,500
$1,500
a.
b.
c.
d.
Assume that the decisionmaker is a pure pessimist, which is the optimal act?
Basic **
Standard
Booming
Fancy
a.
b.
c.
d.
What is the maximum amount you would be willing to pay for perfect
information if you were the decisionmaker in this problem?
$3,000
$1,500 **
$500,000
$10,000
a.
b.
c.
d.
Assume that the decisionmaker is a pure optimist, which is the optimal act?
Basic
Standard
Fancy **
Recession
17.
18.
19.
In a certain university department 30% of the word processing jobs are done by Mary,
60% are done by Tom, and the rest are done by Sally. From past experience it is known
that 10% of jobs done by Mary have errors in them, 30% of the jobs done by Tom have
errors, and 50% of those by Sally have errors. Based on this information answer the next
2 questions.
20.
a.
b.
c.
d.
A job was just completed and had errors in it, what is the probability that it was
done by Tom?
.2600
.1154
.3871
.6923 **
21. A job was just done and had no errors in it, what is the probability that it was done
by Mary?
a. .5676
b. .0740
c. .3649 **
d. .2525
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Economics
22. A job was just done and had errors in it, what is the probability that it was done by
Mary?
a. .1656
b. .0825
c. .1154 **
d. .5676
23.
a.
b.
c.
d.
One can use the following to revise probabilities in light of additional
information.
Union Rule
Intersection Rule
Binomial distribution
Bayes Theorem **
a.
b.
c.
d.
A diagrammatic representation of a decision problem is accomplished with a(n)
Flow chart
Pert chart
Tree diagram **
Input-output table
a.
b.
c.
d.
This class is
ISM 3011
ECO 2023
ECO 3411 **
ECO 3401
24.
25.
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