Econ 120B

Chapter 2 Extra Practice Problems

1.

Consider the following probability distribution:

x
5
10
15
20
a.
b.
c.
d.
e.

2.

Calculate the expected value of the random variable.

Let Y = X + 5. Calculate the expected value of the new random variable Y.
Let Z = 5 X. Calculate the expected value of the new random variable Z.
From your calculations in part a. and b., indicate the effect that adding a constant to a random
variable has upon the expected value of the random variable.
From your calculations in part a. and c., indicate the effect that multiplying a random variable
by a constant has upon the expected value of the random variable.

Consider the following probability distribution:

x
3
6
9
12
a.
b.
c.
d.
e.

3.

p(x)
0.10
0.15
0.25
0.50

p(x)
0.13
0.12
0.15
0.60

Calculate the variance and standard deviation of the random variable.

Let Y = X + 7. Calculate the variance and standard deviation of the new random variable Y.
Let Z = 7 X. Calculate the variance and standard deviation of the new random variable Z.
From your calculations in part a. and b., indicate the effect that adding a constant to a random
variable has upon its variance and standard deviation.
From your calculations in part a. and c., indicate the effect that multiplying a random variable
by a constant has upon the variance and the standard deviation of the random variable.

Consider the following probability distribution:

x
p(x)
a.
b.
c.
d.

5
0.01

10
0.05

15
0.14

20
0.20

25
0.30

30
0.15

35
0.05

40
0.04

45
0.01

50
0.05

Calculate the expected value and the standard deviation for this random variable.
Denote the expected value as and the standard deviation as . Calculate and + .
Determine the proportion of the distribution that is contained within and + .
Repeat part c. for (1) 2 and + 2, and (2) 3 and + 3.

4.

The US Census Bureau (2004 Annual Social and Economic Supplement) collects demographics
concerning the number of people in families per household. Assume the distribution of the number of
people per household is shown in the following table:
x
2
3
4
5
6
7
a.
b.

5.

p(x)
0.27
0.25
0.28
0.13
0.04
0.03

Calculate the expected number of people in families per household in the United States.
Compute the variance and the standard deviation of the number of people in families per
household.

A retail store keeps four alarm clock radios in stock. At the end of a week, the store restocks the item if
it has fewer than four clock radios available. The amount that is restocked each week is the number of
clock radios necessary to bring the in-stock level up to four. If weekly demand is greater than four
units in stock, the store loses the sale. The radio sells for $25 and costs the store $15. The store
estimates the probability distribution of weekly demand for the radio is as follows:
x
0
1
2
3
4
5
6
7
a.
b.
c.
d.

p(x)
0.05
0.05
0.10
0.20
0.40
0.10
0.05
0.05

What is the expected weekly demand for the alarm clock radio?
What is the probability that weekly demand will be greater than the number of available
radios?
What is the expected weekly profit from the sale of the alarm clock radio? (Remember: There
are only four clock radios available in any week to meet demand).
On average, how much profit is lost each week because the radio is not available when
demanded?

6.

Suppose that a college student is taking three courses: a two-credit course, a three-credit course, and a
four-credit course. The expected grade in the two-credit course is 3.5, while the expected grade in the
three- and four- credit courses is 3.0. What is the expected overall grade point average for the
semester? (Remember that each course grade is weighted by its share of the total number of units).

7.

Suppose that at a large university, college grade point average, GPA, and SAT score, SAT, are related
by the conditional expectation E(GPA | SAT) = 0.70 + .002 SAT.
a. Find the expected GPA when SAT = 800. Find E(GPA | SAT = 1400). Comment on the
difference.
b. If the average SAT in the university is 1,100, what is the average GPA for the university?
c. If a students SAT score is 1,100, does this mean he/she will have the GPA found in part b.?
Explain.

8.

A random variable is known to be normally distributed with the following parameters: = 5.5 and =
0.50.
a. Determine the value of x such that the probability of a value from this distribution exceeding
x is 0.10.
b. Referring to your answer in part a., what must the population mean be changed to if the
probability of exceeding the value of x found in part a is reduced from 0.10 to 0.05?

9.

Assume that a random variable is normally distributed with a mean of 1,500 and a variance of 324.
a. What is the probability that a randomly selected value will be greater than 1,550?
b. What is the probability that a randomly selected value will be less than 1,485?
c. What is the probability that a randomly selected value will be either less than 1,475 or greater
than 1,535?

10. A randomly selected value from a normal distribution is found to be 2.1 standard deviations above its
mean.
a. What is the probability that a randomly selected value from the distribution will be greater
than 2.1 standard deviations above the mean?
b. What is the probability that a randomly selected value from the distribution will be less than
2.1 standard deviations from the mean?

11. A random variable is normally distributed with a mean of 25 and a standard deviation of 5. If an
observation is randomly selected from the distribution:
a. What value will be exceeded 10% of the time?
b. What value will be exceeded 85% of the time?
c. Determine two values of which the smallest has 25% of the values below it and the largest has
25% of the values above it.

12. Bowser Bites Industries (BBI) sells large bags of dog food to warehouse clubs. BBI uses an automatic
filling process to fill the bags. Weights of the filled bags are approximately normally distributed with a
mean of 50 kilograms and a standard deviation of 1.25 kilograms.
a. What is the probability that a filled bag will weight less than 49.5 kilograms?
b. What is the probability that a randomly sampled filled bag will weight between 48.5 and 51
kilograms?
c. What is the minimum weight a bag of dog food could be and remain in the top 15% of all
bags filled?
d. BBI is unable to adjust the mean of the filling process. However, it is able to adjust the
standard deviation of the filling process. What would the standard deviation need to be so that
no more than 2% of all filled bags weigh more than 52 kilograms?

13. A normally distributed population has a mean of 500 and a standard deviation of 60.
a. Determine the probability that a random sample of size 16 selected from this population will
have a sample mean less than 475.
b. Determine the probability that a random sample of size 25 selected from the population will
have a sample mean greater than or equal to 515?

14. A population with a mean of 1,250 and a standard deviation of 400 is known to be highly skewed to
the right. If a random sample of 64 items is selected from the population, what is roughly the
probability that the sample mean will be less than 1,325?

15. Suppose the life of a particular brand of calculator battery is approximately normally distributed with a
mean of 75 hours and a standard deviation of 10 hours.
a. What is the probability that a single battery randomly selected from the population will have a
life between 70 and 80 hours?
b. What is the probability that 16 randomly sampled batteries from the population will have a
sample mean life of between 70 and 80 hours?
c. How large would the size of a randomly selected sample have to be in order to ensure that the
probability that the sample mean life is between 70 and 80 hours is at least 0.97?
d. If the manufacturer of the battery is able to reduce the standard deviation from 10 to 9 hours,
what would be the probability that 16 batteries randomly sampled from the population will
have a sample life of between 70 and 80 hours?

16. The branch manager for American Savings and Loan in Topeka, Kansas has worked with her
employees in an effort to reduce the waiting time for customers at the bank. Recently, she and the team
concluded that average waiting time is now down to 3.5 minutes with a standard deviation equal to 1.0
minute. However, before making a statement at a managers meeting, this branch manager wanted to
double-check that the waiting time was as thought. To make this check, she randomly selected 25
customers and recorded the time they had to wait. She discovered that mean wait time for this sample
of customers was 4.2 minutes. Based on the teams claims about waiting time, what is the probability
that a sample mean for n = 25 people would be as large as or larger than 4.2 minutes? What should the
manager conclude based on these data?

17. A few years ago the magazine The Economist listed some of the stranger explanations used in the past
to predict presidential election outcomes. These included whether or not the hemlines of women's
skirts went up or down, stock market performances, baseball World Series wins by an American
League team, etc. Thinking about this problem more seriously, you decide to analyze whether or not
the presidential candidate for a certain party did better if his party controlled the house. Accordingly
you collect data for the last 34 presidential elections. You think of this data as comprising a population
which you want to describe, rather than a sample from which you want to infer behavior of a larger
population. You generate the accompanying table:
Joint Distribution of Presidential Party Affiliation and Party Control of the House of
Representatives, 1860-1996
Democratic Control of
House (Y=0)

Republican Control of
House (Y=1)

Total

Democratic President
(X=0)

0.412

0.030

0.441

Republican President
(X=1)

0.176

0.382

0.559

Total

0.588

0.412

1.000

a.
b.
c.
d.

Interpret one of the joint probabilities and one of the marginal probabilities.
Compute and interpret E(X). How does this differ from E(X|Y=0)? Explain.
If you picked one of the Republican presidents at random, what is the probability that during
his term the Democrats had control of the House?
What would the joint distribution look like under independence? (You have to recompute the
joint probabilities, keeping the marginal probabilities as they are). Check your results by
calculating for example, Pr[X=0|Y=0] and comparing it to Pr[X=0].

18. Show that the correlation coefficient between Y and X is unaffected if you use a linear transformation
in both variables. That is, show that corr ( X ,Y ) = corr ( X * ,Y * ) , where X * = a + bX and

Y * = c + dY , and where a, b, c, and d are arbitrary non-zero constants.