1. When constructing a confidence interval, which case is preferable?

A. Large confidence level, small confidence interval

B. Small confidence level, small confidence interval
C. Small confidence level, large confidence interval
D. Large confidence level, large confidence interval

(Q2 – Q5) A firm that processes insurance claims monitors the length of time its agents
spend to process each claim. The claims concern storm damages to homes. Homeowners call
the firm, are connected to an agent, and the agent handles the administrative details. Based
on prior experience, management believes that these calls require, on average, 20 minutes to
resolve. Occasionally, some calls are considerably longer, or shorter. As a result the standard
deviation is about 15 minutes. To monitor the process, 16 calls are randomly selected from
phone records every day and their mean duration is recorded and charted as shown below.
The process is deemed to be “running normal” if the daily mean duration falls between
12.50 and 27.50 (called upper and lower control limits).

2. The MOST APPROPRIATE summary for management of the output indicates that the
process

A. Is under control on Day 30 and an investigation, if conducted thoroughly, will

reveal no problems
B. Can be deemed to be running normal throughout this period of 30 days
C. Might be actually running normal on Day 6 and even an exhaustive, error-free
investigation might not lead to the identification of any systematic cause
D. Has a greater mean duration than that assumed by the management

3. If the system is operating in the fashion expected by management, the probability that
the above chart signals a problem on a randomly chosen day is
 A. 0.025
B. 0.05
C. 0.01
D. 0.0027

4. A training program of agents reduced the standard deviation of the call duration by half.
Then, which of the following statements is most likely to be true?

A. Everything else remaining the same, the process will be deemed as running
normal more often than before.
B. There will be less Type II errors now
C. The standard error of the mean will be higher than before.
D. There will be more Type-I errors now.

5. If the number of calls monitored each day is doubled (from 16 to 32), then the distance
between the control limits in the chart would

A. become twice as large as shown

B. become half the size shown
C. become 71% of the size shown
D. remain the same as shown

6. Assume that male weights are normally distributed with a national average of 165.7 lbs.
The probability of an individual chosen at random having a weight of greater than 190
lbs. is 25%. The probability that the mean weight of a sample of 40 men being greater
than 190 lbs. is 2%. This rather large difference is due to the fact that

A. Standard deviation of samples is larger than the standard deviation of the

population
B. The distribution of sample means is less variable than the distribution of
individual data
C. Sampling error may have occurred during the research
D. The mean of the sample means varies from the population mean

7. Suppose you wish to test H0: μ =50 versus HA: μ 50. The sample size is 17 and the value
of the t - statistic is 2.82. The p-value of the test is:

A. Between 0.05 and 0.10

B. Between 0.025 and 0.05
C. Between 0.005 and 0.01
D. Between 0.01 and 0.02

8. A fast food restaurant is considering a new product. It will be worthwhile to introduce

this product if the mean sales per store are more than $600 per week. In a marketing test
the product is sold at 26 stores. From the sample it is found that the mean for weekly
sales is $603.20 and the standard deviation is $60. The hypotheses that the restaurant
should test before making a decision are:

A. H0: Xbar = 600, HA: Xbar 600

 B. H0: μ = 600, HA: μ 600
C. H0: μ 600, HA: μ < 600
D. H0: μ ≤ 600, HA: μ > 600

9. The 68.3% confidence interval for a population mean (with known population standard
deviation and sufficiently large sample size) has a margin of error of 20. If we quadruple
the sample size, but have the same margin of error for the new confidence interval, the
approximate confidence level associated with the new confidence interval would be

A. 99%
B. 90%
C. 95%
D. Cannot be determined without more information

10. The Economic Times reported a survey that indicated 68% of readers agree with the
statement “Auditors should obtain regulatory clearance before auditing
listedcompanies.” If the survey result is based on a random sample of 170 readers of The
Economic Times, then we should conclude that

A. 68% of all readers agree with the statement.

B. We are 99%confident that more than half of all readers agree with the statement.
C. Less than half of all readers agree with the statement.
D. More than 60% of all readers agree with the statement.

11. A retail store buys imported apparel from a cheap offshore supplier. The clothing is not
of top quality, but the customers like the low price. The retailer would like to know the
defective rate of apparels to within a margin of error of 0.05 (95.4% confidence).
Regardless of the true defect rate, the smallest sample size that guarantees this margin
for error is

A. 25 items
B. 100 items
C. 200 items
D. 400 items

(Q12– Q14) A private equity firm is considering purchasing a chain of retail clothing
stores.Preliminary to the purchase, it has obtained data on the level of sales at 64
retailoutlets of the chain. The data gives the sales in dollars per square foot per year. Inorder
for the acquisition to be profitable, the stores must produce sales in excess of $380 per square
foot annually.
12. If the company performs a break-even analysis of these data with α = 0.025, then it
should conclude that the acquisition

A. Is definitely going to be profitable.

B. Has proven its profitability beyond reasonable doubt.
C. Has not proven its profitability.
D. Could be profitable if we are willing to increase the significance level of the test
to 5%

13. Each store in this chain has approximately 6,000 square feet of retail space. The95%
confidence interval for the expected total sales during a year at a store in thischain is
approximately

A. $6,370,000 to $6,433,000
B. $2,220,000 to $2,600,000
C. $2,409,328 to $2,409,391
D. $2,409,106 to $2,409,614

14. Had the analysis been conducted with a larger sample of 256 stores, then we can be
assured that

A. The sample mean would have been larger

B. The sample standard deviation would have been smaller
C. The confidence interval for μ would be about ½ as long as shown
D. The confidence interval for μ would be about ¼ as long as shown

(Q15 – Q17) The owner of a Pizza delivery restaurant is concerned about meeting the
delivery time target of 30 minutes. He has kept close track of the delivery times over a very
long period and has found that they follow a normal distribution with mean of 25 minutes
and standard deviationof 5 minutes.
15. On a particular day, he delivers 36 pizzas, of which 9 pizzas are delivered in more than
30 minutes. Which is the smallest level of significance at which the evidence is strong
enough to believe that the process has changed?

A. 1%
B. 5%
C. 10%
D. 15%

16. Irrespective of your answer to the above question, suppose that the process mean
changed. If the proportion of delayed deliveries now becomes 0.25, what is the new
mean duration of the delivery process? Assume that the standard deviation remains
unchanged.

A. 22.1
B. 26.7
C. 32.5
D. 35.2

17. Revisit the evidence described in Q15. Suppose the owner wanted to check if the pizza
delivery process has become slower. Which is the smallest level of significance at which
the evidence is strong enough to believe that the process has slowed down?

A. 1%
B. 5%
C. 10%
D. 15%

18. A company’s manufacturing process uses 500 gallons of water at a time. A “scrubbing”
machine then removes most of a chemical pollutant before pumping the water into a
nearby lake. To meet federal regulations the treated water must not contain more than
80 parts per million (ppm) of the chemical. Because there is a fine charged if regulations
are not met, the company sets the machine to attain an average of 75 ppm in the treated
water. The machine’s output can be described by a normal model with standard
deviation 4.2 ppm. The company’s lawyers insist that not more than 2% of the treated
water should be over the limit. In order to achieve this, to what mean should the
company set the scrubbing machine? Assume the standard deviation does not change.

A. 82 ppm
B. 75 ppm
C. 71 ppm
D. 85 ppm

19. A truck company wants on-time delivery for 98% of the parts they order from a metal
manufacturing plant. They have been ordering from Hudson Manufacturing but will
switch to a new, cheaper manufacturer (Steel-R-Us) unless there is evidence that this
new manufacturer cannot meet the 98% on-time goal. As a test the truck
companypurchases a random sample of metal parts from Steel-R-Us, and then
determines if these parts were delivered on-time. Which hypotheses should they test?

A. H0: ≤0.98, Ha: >0.98

 B. H0: ≥0.98, Ha: <0.98
C. H0: =0.98, Ha: ≠0.98
D. H0: ≥0.98, Ha: ≠0.98

20. We have created a 95% confidence interval for µ with the result (10, 15). What
conclusion will we make if we test H 0 : µ = 16 versus HA: µ ≠ 16 at α = .05?

A. Reject the null hypothesis

B. Accept the null hypothesis
C. Fail to reject the null hypothesis.
D. Reject the alternative hypothesis.

21. A local politician was interested in studying the opinion regarding the government’s
bailout bill for easing the 2008 financial crisis on Wall Street. He surveyed sample of his
constituents and got the following data. Use 5% significance.

Income Level Favor Oppose

> $ 200,000 40 30
< $ 200,000 30 40

A. He can reject the two null hypotheses that (a) less than 50% people with income
level >$200,000 and, (b) less than 50% people with income level < $200,000 favor
the bailout bill.
B. He can reject the two null hypotheses that (a) more than 50% people with income
level >$200,000 and, (b) more than 50% people with income level < $200,000 favor
the bailout bill.
C. He can reject the two null hypotheses that (a) more than 50% people with income
level >$200,000 and, (b) less than 50% people with income level < $200,000 favor
the bailout bill.
D. He will fail to reject the two null hypotheses that (a) more than 50% people with
income level >$200,000 and, (b) 50% people in the whole population favor the
bailout bill.

22. We draw a large number of simple random samples of size 35 from a large population
and use this information to find the sampling distribution of mean value. The resulting
sampling distribution has a kurtosis of 5. This implies that:

A. We can conduct hypothesis testing on the mean value using the current sample
of size 35.
B. In order to do hypothesis testing on the mean value, we must use a sample of size
greater than 35.
C. It will not be possible to do hypothesis testing on the mean value with a sample
of any size.
D. Since we are using simple random sampling, the kurtosis cannot be 5.

23. A bottling plant fills a beverage in glass bottles. The weight of the beverage is normally
distributed with mean 12 oz and standard deviation 0.15 oz. Sometimes, the bottling
process goes out of order and the mean weight reduces to below 12 oz. The manager of
the plant thinks that he can find out when this happens by doing a hypothesis test on the
 weight of a randomly selected bottle. However, his assistant, who has recently
graduated with an MBA degree points out that it is better to select a simple random
sample of 50 bottles and then do a hypothesis test using the sample mean. Which of the
following is the MOST APPROPRIATE statement in this situation? The acceptable level
of Type I error is 5%.

A. The threshold weight, below which the null hypothesis that the process is
working as designed is rejected, will be larger in the case of a single bottle than in
the case of the sample of 50 bottles.
B. The assistant’s advice should be taken as it is not possible to do hypothesis
testing on the weight of a single bottle
C. Both the methods proposed by the manager and his assistant will work in
determining when the manufacturing process goes out of order
D. The method proposed by the assistant will work provided the sample size is
increased to 100 to ensure that CLT can safely be taken to be applicable

24. Let X 1 and X 2 be the means of two separate samples of size 25 each that are randomly,
and independently selected from the same population. Assume that CLT conditions
apply. Consider the following expressions: a = P( − 0.2 X1 + ) , and b =
P( − X2 + 0.2 ) . Which of the following statements is true?

A. a > b
B. a < b
C. a = b
D. a = b

25. A basketball player shoots 60 free throws a day and historically makes 75 percent of
them. What is the probability that he will make at most 80 percent tomorrow?

A. 0.10
B. 0.81
C. 0.19
D. 0.89

(Q26-27) You have recently joined a Weight Watchers club. Suppose that the number of
times you expect to visit the club in a month is represented by a normally distributed
random variable with a mean of 12 and a standard deviation of 2.50.
26. Over the course of the next year, what is the probability that you average more than 13
visits to the club per month?

A. 0.16
B. 0.42
C. 0.34
D. 0.08

27. Suppose your friend also joins this club. The number of his visits to the club each month
is also a random variable and follows a similar distribution as yours. What is the
probability that the number of visits you do exceeds the number of visits by your friend
by 4 in any month?
 A. 0.03
B. 0.13
C. 0.23
D. 0.43

28. As the value of sample proportion increases from 0.1 to 0.9, for a given level of
confidence, the accuracy of predicting the population proportion

A. Always increases
B. Always decreases
C. First increases, then decreases
D. First decreases, then increases

(Q29 – Q30) A dean of college of business in the Midwest claims that he can correctly
identify whether a student is finance major or a music industry management major by the
way the student dresses. Suppose in actuality that he can correctly identify finance major
84% of the time, while 16% of the time he mistakenly identifies music industry management
major as finance major. Presented with one student and asked to identify the major of this
student (who is either a finance or music industry management major), the dean considers
this to be a hypothesis test with the null hypothesis being that the student is finance major
and the alternative that the student is a music industry management major.

29. Which of the following statements illustrates a Type I error?

A. Saying that the student is music industry management major when in fact the
student is finance major.
B. Saying that the student is finance major when in fact the student is finance major.
C. Saying that the student is finance major when in fact the student is music
industry management major
D. Saying that the student is music industry management major when in fact the
student is music industry management major.

30. Which of the following statements illustrates a Type II error?

A. Saying that the student is music industry management major when in fact the
student is finance major.
B. Saying that the student is finance major when in fact the student is finance major.
C. Saying that the student is finance major when in fact the student is music
industry management major.
D. Saying that the student is music industry management major when in fact the
student is music industry management major.