Problem Set 8

SA.999.702

Statistical Methods for Business and Economics

Teaching Assistants
Adam Lee alee173@jhu.edu
Zhangrui Wang zwang134@jhu.edu

A. ASWCC Self Test Problems

ASWCC self test problems do not need to be turned in and will not be graded, but are
good for practicing the statistical techniques we learn. Try to do as many as possible
and keep your solutions in a notebook. Answers are provided (with the work shown)
in Appendix D of ASWCC for these problems. The following problems from the 12th
Edition (matched to the 10th or 11th Editions) are recommended:

Chapter 9:

12th Edition 10th or 11th Edition

9.1 – Problem 2 9.1 – Problem 2
9.2 – Problem 5 (Problem asking 9.2 – Problem 5
for β)
9.3 – Problems 10, 11, 15 9.3 – Problems 10, 11, 15
9.4 – Problems 24, 27 9.4 – Problems 24, 27
9.5 – Problems 36, 38 9.5 – Problems 36, 38
Problems asking for β or
probability of Type II error
calculations:
Ch 9 – 46c, 49, 51 a/b, 53, 74

B. Additional Practice Problems

1. An extensive study of the cost of health care in the United States presented data
showing that the mean spending per Medicare enrollee in 2003 was $6883. To
investigate differences across the country, a researcher took a sample of 40
Medicare enrollees in Indianapolis. For the Indianapolis sample, the mean 2003
Medicare spending was $5980 and the standard deviation was $2518.
 a) State the hypotheses that should be used if we would like to determine whether
the mean annual Medicare spending in Indianapolis is lower than the national
mean.
b) Use the preceding sample results to compute the test statistic and the p-value.
c) Use  = .05. What is your conclusion?
d) Repeat the hypothesis test using the critical value approach.

2. At Western University, the historical mean of scholarship examination scores for

freshman applications is 900. A historical population standard deviation  = 180 is
assumed known. Each year, the assistant dean uses a sample of applications to
determine whether the mean examination score for the new freshman applications
has changed.
a) State the hypotheses.
b) What is the 95% confidence interval estimate of the population mean
examination score if a sample of 200 applications provided a sample mean of
935?
c) Use the confidence interval to conduct a hypothesis test. Using  = .05, what
is your conclusion?
d) What is the p-value?

C. Graded Problems

Show your work for all graded problems. If you use Excel, paste a copy of the
supporting output into your answers. Please use ASWCC statistical tables for all
problems as needed.

1. Set up hypotheses for the following situations and explain your reasoning.
Indicate whether a z-test or t-test would be recommended to evaluate the
hypotheses. If a t-test is recommended, how many degrees of freedom should be
used?

a) The EU wants to examine statistics on refugees’ ages. Historically, the mean

age of refugees arriving in Europe is 27.8 years old with a standard deviation of
3.2 years. In 2015, the EU conducted a simple random sample of 200 recently
arriving refugees and wants to determine whether their age has changed
compared to the historical average.
b) A monitoring station set up near the Panama Canal records daily passage of
vessels. A researcher obtains the daily records for the most recent one year to
compare with the daily data from a period of five years ago, which shows a
 historical mean of 120 vessels per day and a standard deviation of 14. The
older data can be treated as the population for purposes of this test. The
researcher is investigating international trade and wants to determine whether
the mean of daily passage has increased in the most recent one-year period.
c) An IDEV student team is evaluating the effectiveness of a new OECD
development assistance program in improving women’s socioeconomic welfare
in developing countries. Current data shows that women in developing
countries live on a mean of $2.83 daily living expenditure, and is believed to be
normally distributed, but the population standard deviation is not known. The
new program will be adopted only if it is clearly better and significantly increase
women’s daily living expenditure beyond $2.83. Because of the limited funding
for the team, it is expected that the sample will consist of only 25 women in
Africa.

2. Perform the following hypothesis tests and indicate whether or not you would
accept or reject H0 in each case. Restate the conclusion in terms of the problem.

a) WHO is examining the improvement in life expectancy in an

underdeveloped country. Historical data for the population shows a
population mean life expectancy of 50.3 years, and with a population
standard deviation of 4.37 years. A recent sample of 100 people
produced a sample mean of 50.83 years and a sample standard deviation
of 2.84 years. Evaluate H0:  ≤ 50.3 and HA:  > 50.3 at a .01 level of
significance.

b) A medical research team at the Johns Hopkins University is investigating the

effectiveness of a new medical treatment for a rare disease. Data indicates
that under the current treatment, patients have a mean white blood cell count
of 22 cells/cc (cubic centimeter). This distribution is understood to be
normally distributed, but the population standard deviation is not known. The
new treatment will only be deemed effective if it increases the patient’s white
blood cell count above 22 cells/cc.

The team has applied the treatment to a random sample of 8 patients. They
have reported the following blood cell counts: 24, 24, 27, 19, 22, 21, 22, 24.

At α = .05, is the new treatment effective?

3. The Department of Health & Human Service wants to determine whether the rate of
enrollment in Obamacare this year is growing as compared to last year’s rate of 13.72
percent. It selects a random sample of 500 people who enrolled in health insurance
plans this year, and finds that 71 of them enrolled in Obamacare.
a) Can the Department of Health & Human Service be reasonably sure that the
enrollment rate has increased?
b) If the significance level is set at .01, is this change in enrollment rate
statistically significant?

4. The UN Security Council wants to determine the mean number of peacekeeping

personnel that member countries contribute. A random sample of 10 contributing
countries is selected. In this sample, the mean number of peacekeeping personnel a
country contributes is 209, and the standard deviation is 17. The Security Council
would like to test whether the true mean is 200. If the significance level is set at .05
and if the Security Council wants to detect both positive and negative departures from
the hypothesized figure of 200, are these data consistent with the Security Council’s
hypothesis?

5. Consider the following hypothesis test.

H0:  = 32.87

HA:  ≠ 32.87

A sample of 50 items will be taken and the population standard deviation is σ=15. Use
Compute the probability of making a Type II error if the population mean is:

a) 

b) 

c) 