MGEB11H3Y – L01

Quantitative Methods in Economics I

Test 1
Saturday June 4, 2016
9:00 – 11:00
Victor Yu

Last Name (Print) __ _Solution____________

First/Other Names

Student Number

Time allowed: Two (2) hours

Aids allowed: Any Calculator

A formula sheet is attached with the test.

 This test consists of 25 questions in 8 pages including this cover page.

 It is the student’s responsibility to hand in all pages of this test. Any missing
page will get zero mark.
 Show your work in each question in Part 2.
 This test is worth 30% of your course grade.

Do not write on the space below, for markers only.

Page Question Max Mark

2–5 1–22 66
5 23 11
6 24 11
6 25ab 12
Total 100

The University of Toronto's Code of Behaviour on Academic Matters applies to all University of Toronto
Scarborough students. The Code prohibits all forms of academic dishonesty including, but not limited to,
cheating, plagiarism, and the use of unauthorized aids. Students violating the Code may be subject to penalties
up to and including suspension or expulsion from the University.

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 Part I. Multiple Choice. 3 marks in each question. No part mark.
Circle only one answer. If there are more than one correct answer, circle the best one.

1. The Davis Manufacturing Company has completed a sample of five weeks of operation using a
new process that is supposed to increase productivity. The number of parts produced each week
are 410, 420, 390, 400 and 380. The sample variance is closest to

(a) 100 (b) 150 (c) 200 √ (d) 250 (e) 300

2. The Union Bank of Switzerland conducted a survey to obtain data on the hourly wages of blue
and white-collar workers throughout the world. A sample of 25 workers from the Los Angeles
area provided the data shown as: 11.50, 8.40, 11.75, …, 9.80.
Some calculations show that
11.50 + 8.40 + 11.75 + … + 9.80 = 300
11.502  8.402  11.752  ...  9.802  3654
The sample standard deviation is equal to

(a) 0.25 (b) 0.5 √(c) 1.5 (d) 2.25 (e) none of these

3. The graph shows the distribution of the types of sandwiches offered by Arby’s Fast Food
Restaurant.

Which of the following best describes the shape of this distribution?

(a) symmetric
(b) unimodal and symmetric
(c) skewed to the left (i.e., has a long tail on the left)
(d) skewed to the right (i.e., has a long tail on the right)
√(e) none of the above (This is a categorical variable, so the order of the categories could
easily be switched around)

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4. Let A and B be two events, P A  0.8 , PB   0.5 and P A  B   0.9 . Then A and B are
(a) independent and mutually exclusive
√ (b) independent but not mutually exclusive
(c) not independent but mutually exclusive
(d) not independent and not mutually exclusive
(e) none of these

5. The experience for a particular model computer is that 90% of the computers will operate for at
least one year before repair is required. A manager purchases three of these computers. The
probability that all three will operate for one year without requiring any repair is

(a) 0.19 (b) 0.271 √(c) 0.729 (d) 0.81 (e) 0.90

6. Let A and B be two events, P A  0.6 and PB   0.4 . Which one of the following is always
true?
(a) P A  B   1 (b) PB | A  2 / 3
(c) A and B are mutually exclusive (d) A and B are independent
√(e) none of the above is always true

7. Let X be number of units produced per week, and Y be the total weekly cost (in dollars) of
production. A random sample of 100 weeks shows the following summary statistics:
Average Standard Deviation
X 30 10
Y 156 40
Suppose the correlation coefficient between X and Y is r = 0.80.

The covariance between X and Y is

(a) 100 (b) 130 (c) 250 √(d) 320 (e) 400

8. Eddie’s Restaurant collected data on the relationship between the advertising (x in $1000) and
sales (y in $1000) using a sample of 10 restaurants. Sample data and some calculations are
shown below:
Restaurant x y x2 y2 xy
1 1 19 1 361 19
2 . . . . .
. . . . .
. . . . .
10 20 54 400 2916 1080
Total 60 300 800 11000 2482

The correlation coefficient between advertising and sales is

(a) 0.315 (b) 0.543 √(c) 0.727 (d) 0.815 (e) 0.952

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9. The correlation coefficient from the n pairs of data x1 , y1 , x2 , y2 ,..., xn , yn  may be affected
when each xi , yi  is replaced by which of the following?
(a) y , x 
i i

√ (b)  x , y i i

(c) x  c, y  c, where c is a constant

i i

(d) x  c, y  c, where c is a constant

i i

(e) cx , cy , c  0 , where c is a constant

i i

10. It is known that 30% of young girls favorite color is blue while 70% of young boys favorite color
is blue. Assume the population is split evenly into 50% boys and 50% girls. The two events
(being a boy) and (favorite color is blue) are

(a) independent √(b) not independent (c) mutually exclusive

(d) all of the above (e) none of the above

11. Three friends are interviewing for jobs at a prestigious consulting company. They each have a
65% chance of getting a job offer from the firm. Assuming the outcome for each individual is
independent from the others what is the probability that at least one of them gets a job offer?

(a) 0.2746 (b) 0.3333 (c) 0.9275 √(d) 0.9571 (e) None of the above

12. Investing is a game of chance. Suppose there is a 40% chance that a risky stock investment will
end up in a total loss of your investment. Because the rewards are so high, you decide to invest in
four independent risky stocks. Find the probability that at least one of your investments becomes
a total loss.

(a) 0.0256 (b) 0.40 √(c) 0.8704 (d) 0.9744 (e) none of these

13. An investment analyst collects data on stocks and notes that whether or not dividends were paid
and whether or not the stocks increased in price over a given period. Data are presented below.

Price Increase No Price Increase Total

Dividends paid 35 77 112
No dividends paid 85 48 133
Total 120 125 245

What is the probability that a randomly selected stock is worth holding, i.e., it increased in price,
or paid dividends, or did both?

197 112 120 35

√(a) (b) (c) (d) (e) none of these
245 245 245 120

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Questions 14–15: Tabulation of the variable X is given below.
X Frequency Percent Cumulative
1 2,570 4.60 4.60
2 20,216 36.17 40.77
3 19,944 35.69 76.46
4 9,041 16.18 92.64
5 2,896 5.18 97.82
6 859 1.54 99.35
7 253 0.45 99.81
8 71 0.13 99.93
9 27 0.05 99.98
10 8 0.01 100.00
11 2 0.00 100.00
Total 55,887 100.00

14. The median of X is equal to

(a) 2 (b) 2.5 √ (c) 3 (d) 5.5 (e) 6

15. The probability P X  3 | X  8 is closest to

(a) 0.33 (b) 0.44 (c) 0.55 (d) 0.66 √ (e) 0.77

Questions 16–18. A company has 500 employees and their average salary is $40,000 with a standard
deviation of $10,000.

16. The number of employees with salaries between $20,000 and $60,000 can be best described as
√ (a) at least 375 employees (b) approximately 375 employees
(c) at least 475 employees (d) approximately 475 employees
(e) between 375 and 475 employees

17. If salaries in this company follow approximately a bell-shape curve. The number of employees
with salaries between $20,000 and $60,000 can be best described as
(a) at least 375 employees (b) approximately 375 employees
(c) at least 475 employees √ (d) approximately 475 employees
(e) between 375 and 475 employees

18. In the upcoming year, the company plans to give each employee a new salary that equals to a
1% increase of the current salary, plus $100. The mean and standard deviation of this new
salary in the upcoming year are

√ (a)mean = $40,500 and standard deviation = $10,100.

(b) mean = $40,400 and standard deviation = $10,000.
(c) mean = $40,500 and standard deviation = $10,000.
(d) mean = $40,400 and standard deviation = $10,100.
(e) none of these.
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Questions 19–20: The overnight shipping business has skyrocketed in the last ten years. The single
greatest predictor of a company's success has been proven time and again to be customer service.
A study was conducted to study the customer satisfaction levels for one overnight shipping
business. In addition to the customer's satisfaction level, the customers were asked how often
they used overnight shipping. The results are shown below in the following table:

Satisfaction Level
Frequency of Use High Med Low Total
< 2 per month 250 140 10 400
2-5 per month 140 55 5 200
>5 per month 70 25 5 100
Total 460 220 20 700

19. What proportion of the respondents did not have a high level of satisfaction when their
frequency of use is over 5 times per month?

(a) 0.25 √ (b) 0.30 (c) 240/700 (d) 220/700 (e) none of these

20. A random sample of 4 customers is selected from the customers who used overnight shipping
more than 5 times per month. The probability that more than 2 of them have high satisfaction
level is closest to

(a) 0.1422 (b) 0.2041 (c) 0.3412 (d) 0.4816 √ (e) 0.6517

Questions 21–22. Suppose the monthly spending of customers in a store has an average  and
standard deviation  .

21. Suppose at least 95% of the monthly spending are between   k and   k . The minimum
value of k is

(a) 10 √ (b) 20 (c) 10 (d) 20 (e) 30

22. Suppose monthly spending follows a bell shape curve, and 95% of the monthly spending are
between   k and   k . The minimum value of k is

(a) 1 (b) 1.5 √(c) 2 (d) 2.5 (e) 3

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 Part 2 Show your work in all questions.
23. (11 marks)
Players A, B, and C toss a fair die in order. That is, A tosses first, then B, then C, then A, and so
on. The first player to throw a 6 wins. What is the probability that player C wins?
(11 marks)
Solution: Let A = the outcome that A throws a 6,
Ac = the outcome that A does not throw a 6,
B = the outcome that B throws a 6,
B c = the outcome that B does not throw a 6,
C = the outcome that C throws a 6,
C c = the outcome that C does not throw a 6.

The event that C wins is


Ac BcC, Ac BcC c Ac BcC, Ac BcC c Ac BcC c Ac BcC,...
The probability that C wins is
8
 5  5  1   5  5  5  5  5  1   5   1 
                  ...
 6  6  6   6  6  6  6  6  6   6   6 
 
 
 5   1   5   5   5   5 1
2 3 6 9 2
 1  25
=    1           ... =     =
 6   6   6   6   6    6   6    5   91
3

1    
 6 

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24. (11 marks)
In statistical surveys where individuals are selected randomly and are asked questions,
experience has shown that only 48% of those under 25 years of age, 67% between 25 and 50, and
89% above 50 will respond. A social scientist is about to send a questionnaire to a group of
randomly selected people. Suppose 30% of the population are younger than 25, and 17% are
older than 50.
Suppose an individual has responded to the survey, what is the probability that he/she is
younger than 25?
(11 marks)
Solution: Let R=responded, U=under 25, B=between 25 and 50, A=above 50.

Method 1. P( R | U )  0.48 P( R U )  (0.30)(0.48)  0.144

P(U)=0.30
P( Rc U )  0.52 P( Rc U )  (0.30)(0.52)  0.156

PR | B   0.67 PR  B  (0.53)(0.67)  0.3551

P(B)=0.53
   
P Rc | B  0.33 P Rc  B  (0.53)(0.33)  0.1749

PR | A  0.89 PR  A  (0.17)(0.89)  0.1513

P(A)=0.17
   
P Rc | A  0.11 P Rc  A  (0.17)(0.11)  0.0187

P( R)  P( R  U )  PR  B  PR  A  P( R U ) P(U )  PR | BPB  PR | AP A

= (0.48)(0.30) + (0.67)(0.53) + (0.89)(0.17) = 0.65
PU  R  0.144
PU | R     0.2215
PR  0.65

Method 2. U B A Total
R 0.144 0.3551 0.1513 0.65
Rc 0.156 0.1749 0.0187 0.35
Total 0.30 0.53 0.17 1.00

Since P( R | U )  0.48 , we have P( R  U )  P( R | U ) P(U )  (0.48)(0.30)  0.144 .

Similarly we can calculate other joint probabilities in the above table.
PU  R  0.144
Hence PU | R     0.2215 .
PR  0.65

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25. (12 marks)
A corporation has 15,000 employees and 9,000 employees are male. Among the male
employees, 270 of them earn less than $30,000 a year.

(a) If gender (male or female) and earning (“less than $30,000 a year” versus “$30,000 or more a
year”) are independent events, how many female employees earn $30,000 or more a year?
(6 marks)
Solution: Given that this corporation has 15,000 employees and 9,000 employees are male. Among the
male employees, 270 of them earn less than $30,000 a year. We can form the following table.
Gender
Earning M (male) F (female) Total
L (earn less than $30,000) 270
O(earn $30,000 or more)
Total 9,000 15,000

Since gender and earning are independent, we can construct the probability distribution as follow:
Gender
Earning M (male) F (female) Total
L (earn less than $30,000) 0.018 0.012 0.03
O(earn $30,000 or more) 0.582 0.388 0.97
Total 0.600 0.400 1.00

The number of female employees earn $30,000 or more is

15000PF  O  150000.388  5,820

(b) If gender (male or female) and earning (“less than $30,000 a year” versus “$30,000 or more a
year”) are NOT independent events, but 3,750 employees earn less than $30,000 a year, how
many female employees earn $30,000 or more a year?
(6 marks)
Solution. From the given conditions, we construct the following table:
Gender
Earning M (male) F (female) Total
L (earn less than $30,000) 270 3,480 3,750
O(earn $30,000 or more) 8,730 2,520 11,250
Total 9,000 6,000 15,000

The number of female employees earn $30,000 or more is 2,520.

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