ISOM 2500 SP21 Practice Final_ Solutions

Note: this practice final covers only the materials that were not included in Quiz 1 and Quiz 2. Our
real final is comprehensive, so you should review practice quizzes as well.

1. In economic downturns, companies attempt to downsize their workforces by offering early retirement
incentives to older employees. A survey of 723 companies found that 195 engage in such downsizing
practices. The 99% confidence interval for the proportion of companies that downsize their workforces by
offering early retirement incentives is ______.

Ans:

99% confidence level⇒ " = 0.01, We are looking for z such that P(Z > z) = 0.005, we use the
upper percentile notation.
34,
Critical value = '(/* = '+.++, = 2.576, 1̂ = 5*6 = 0.270
;+.*5+(3=+.*5+)
Margin of error (L) = 2.576789 = 2.576 × = 0.043
√5*6
The 99% confidence interval is [0.270 − D, 0.270 + D] = [0.227,0.312]. (z-interval)

2. The number of patients entering a regional hospital in an hour follows a distribution with a variance of
10.8. Another random sample of 80 hours is selected. Find the width of the 90% confidence interval for
the mean of the number of patients entering the regional hospital in an hour. (Using z-interval to
estimate) (Round to 3 decimal places)

Ans:

90% confidence level

Critical value = We are looking for z such that P(Z > z) = 0.05, we use
the upper percentile notation.

Margin of error (L) =

The width of the 90% confidence interval (z-interval) = 2L = 1.208

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3. A large metropolitan bank has analyzed the amount of time required to process home loans
and determined that the times follow a normal distribution with mean time µ=45 hours. The
bank’s operations manager has developed a new procedure for processing the loans which
involves extensive use of new computer software. He believes that the new procedure will
decrease the population mean amount of time required to process home loans. After training
a group of loan officers, a random sample of 25 loan applications will be selected and the
average amount of time required to process the loans will be determined. The information of
the sample mean amount of time is xI=43.118 hours with the sample standard deviation s=5.5
hours; If the switch is made to the new procedure, the cost of the additional software will be
more than offset by the savings in manpower required to process the loans.

a. Set up the null hypothesis and alternative hypothesis to test the manager’s belief.
b. Which test should we use: Upper-tail test? Or Lower-tail test? Or Two-sided test?
c. Which test should we use: z-test or t-test or Chi-square test? Find the value of the
corresponding statistic (i.e., the z-statistic, or t-statistic, or the Chi-square statistic)
d. Should we reject the null hypothesis? State the conclusion you would reach for α=0.025.
e. Describe the Type I error and the Type II error in this specific context. No need to compute the
values.

Ans:
a. Use the hypotheses Ho: µ≥45 hours and Ha: µ<45 hours.
b. Lower-tail test
c. Since we only have the sample standard deviation and the sample size is 25<30, we should use t-test
and calculate the t-statistics:
KI=L P6.33Q=P,
t = M∕√O= ,.,∕√*,
=-1.711

d.
Using the critical value approach, our rejection rule is:
Reject H0 in favor of Ha. if the t- statistic t is smaller than the critical value -tα,n-1, where the
degree of freedom n-1 is 24 in our exercise.
Here t= -1.711> -t0.025,24 =-2.064.
Conclusion:
We do not Reject H0. There is not enough evidence to support the new procedure will decrease
the population mean amount of time required to process home loans.

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 e. Type I error: we reject the null hypothesis but the mean amount of time required to
process home loans is actually >=45 hours, i.e., H0 is true.
Type II error: we fail to reject the null hypothesis but the mean amount of time required
to process home loans is actually is actually <45 hours, i.e., Ha is true.

4. According to the U.S. Bureau of Labor Statistics, the average weekly earnings of a production
worker in 1997 were $424.20. Suppose a labor researcher wants to test and determine whether this
figure is still accurate today. The researcher randomly selects 70 production workers from across
the United States and obtains a representative earnings statement for one week from each. The
resulting sample average is $432.70. Assuming a population standard deviation of $32, and a 5%
level of significance, determine whether the mean weekly earnings of a production worker have
changed.

a. Set up the null hypothesis and alternative hypothesis.

b. Which test should we use: Upper-tail test? Or Lower-tail test? Or Two-sided test?
c. Which test should we use: z-test or t-test or Chi-square test? Find the value of the corresponding
statistic (i.e., the z-statistic, or t-statistic, or the Chi-square statistic)
d. Find the p-value.
e. Should we reject the null hypothesis? Use the result of (d) to explain the reason.

Ans:
a. let µ be the average weekly earnings (in $) of production workers today, x" be the
sample mean, and α=0.05 be the significance level. The hypothesis is
H% : µ = 424.2
H a : µ ¹ 424.2

b. Two-sided test
c. z-statistic, because the sample size is 70 >30.

'() 012.4%(020.2
Z= +/√.* = 12/√4%
= 2.222

d. P-value=2´Pr( Z>2.222)=2*0.0131 = 0.0262.

e. As the p-value is smaller than α=0.05, We reject H0.
With a 5% significance level, there is a strong evidence showing that the mean weekly earning
of a production worker has changed.

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5. Fusion in LG7 now decides to produce gloves for which the population proportion of gloves with
defective threads is .10 (10%). A developer approaches Fusion in LG7 and claims that she has a
new source that can guarantee the following: the population proportion of gloves with defective
threads will be less than .10. To test the validity of this claim, 900 gloves provided by the
developer are selected at random and the sample proportion of defectives is computed.
Please set up the alternative hypothesis.
Ans:
p < 0.10

[Q6-Q8]
A manufacturer of household products is considering a proposal by the research department to
invest in a development program for a new “environmentally safe” laundry detergent to add to
their product line. The management believes that the proportion of consumers buying this
product is greater than .30. It is decided that a random sample of 500 consumers will be selected
and the sample proportion who indicate they will buy such a product is to be computed. This
result will be used to test the management belief.
6. State an appropriate null and alternative hypothesis for the test described above.
Ans:
Ho: ≤ .30 Ha: > .30

7. The survey results are that 160 out of 500 of the consumers indicated they will buy such a
product. What is the p-value of this hypothesis test?

Ans:
3\+
p[ = ,++ = 0.32
][=] +.6*=+.6
'= =
;^(3=]) ⁄Y ;+.6(+.5) ⁄,++
= 0.976, p-value = P[Z ≥ 0.976]= 0.166

8. What conclusion should be reached based on this data, given α=0.05?

Ans:

p-value = P[Z ≥ 0.976]= 0.166 > .05 ⇒ Do not reject H0

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[Q9-Q13]
The editor of a higher education book publisher claims that a large part of the cost of books is the cost
of paper. This implies that larger textbooks will cost more money. As an experiment to analyze the
claim, a university student visits the bookstore and records the number of pages and the selling price
of twelve randomly selected textbooks. The corresponding calculations are given below. These data
are listed below.

Textbook Number of Pages Selling Price ($)

1 844 55
2 727 50
3 360 35
4 915 60
5 295 30
6 706 50
7 410 40
8 905 53
9 1058 65
10 865 54
11 677 42
12 912 58

Σab =8,674 ; Σeb =592 ; Σab* = 6,937,938 ; Σeb* = 30,428 ; Σab eb = 455,595 ; SSE=76.021

9. Determine the least squares regression line.

ANS: ei = 19.387 + 0.041j

(k8l )(kml ) Q,\5P∗,4*
Σab eb − Y
=455,595- 3*
= 27,677.667
(k8l )p (Q,\5P)p
Σab* - Y
= 6,937,938- 3*
= 668,081.667
(uvl )(uwl ) y,z{|∗}~p
rst k8l ml = P,,,,4,= *5,\55.\\5
q3 = rsp
= x
(uvl ) p
= p
(y,z{|)p
= \\Q,+Q3.\\5 = 0.041
p
k8l = \,465,46Q=
x p

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 !" $%&
!"= # ! = '& = 49.333
!( ),+,-
#"= # ! = '& = 722.833

%. = !"-%' #"= 49.33-(722.8336)* 0.041=19.387 . Thus, !1 = 19.387 + 0.0418

10. Determine the standard error of estimate s .

ANS:
//0
We know s=9#1& SSE=∑#23'(!2 − !12 )& = 76.021

,+..&'
s=9 '&1&
=2.757

11. Interpret the value of the slope of the regression line.

ANS:
For every additional page(x), the price (Y) of a book increases by an average of about 4 cents.

12. Estimate the selling price for a 650 pages book.

ANS: When x=650, !1 = 19.387 + 0.041(650)=$46.04

13. Calculate a 95% prediction interval of the selling price for a 650 pages book.

ANS:
(%& ) "
We know !1 = 19.387 + 0.041(650)=$46.04; !!" = (Σ%#" − (! ) / n-1
' 7 #
(($ 1( ) ' (+$.1,&&.)::) #
!1 ± @",#1& A 91 + # + (#1')9 # = 46.04±2.228 ∗ 2.757 91 + '& + ''∗+.,,:-.,
# %
=(39.623,52.457)
95% PI of y given x=650: (39.623,52.457)

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[Q14-Q16]
At a recent Allman Brothers concert, a survey was conducted that asked a random sample of 20 people their
age and how many concerts they have attended since the first of the year. The following data were collected:

An Excel output follows:

14. Determine the least squares regression line.

ANS:

15. Interpret the value of the slope of the regression line.

ANS:
For every additional year of age, the number of concerts attended increases on average by
0.126.

16. Estimate the number of Allman Brothers concerts attended by a 64-year-old person.

ANS:

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17. To gauge the reactions of possible customers, the manufacturer of a new type of
cellular telephone displayed the product at a kiosk in a busy shopping mall. The
following table summarizes the results for the customers who stopped to look at
the phone:

Male Female
Favorable 36 18
Ambivalent 42 7
Unfavorable 29 9

The manufacturer wants to determine if the reaction to the new phone is independent of
the sex of the customer.
(a) State the null and alternative hypothesis.
(b) What is the degree of freedom of the Chi-square test statistic?
(c) Suppose the Chi-square test statistic is 5.099. Do we reject the null hypothesis at 5%
significant level?

(a) ANS:

H0: reaction to the new phone is independent of the sex of the customer,
Ha: reaction to the new phone is not independent of the sex of the customer

(b) ANS:

The degree of freedom is (3-1)(2-1)=2

(c ) ANS:
Reject H0 if Chi-sq> Chi-Sq0.05,2 or p-value <α

Using the critical value approach, Chi-Sq = 5.099< Critical value Chi-Sq0.05,2=5.991. We fail
to reject H0 at significance level 5%.

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