Review Exercise 3: Characteristics of Services

WestJet was founded in 1996 as a low cost Canadian airline. Today, WestJet welcomes 20 million travelers annually. Use your own knowledge of WestJet and the company website at www.westjet.com to answer the following.

1. Explain how the four characteristics of services affect WestJet.

2. What marketing initiatives could WestJet employ to try to mitigate the negative effects of these characteristics as much as possible?

The Salem Board of Education wants to evaluate the efficiency of the town’s four elementary schools. The three outputs of the schools are

■   output 1 = average reading score
■   output 2 = average mathematics score

■   output 3 = average self-esteem score

The three inputs to the schools are

■   input 1 = average educational level of mothers
(defined by highest grade completed: 12 = high
school graduate; 16 = college graduate, and so on)

■   input 2 = number of parent visits to school (per child)

■   input 3 = teacher-to-student ratio

The relevant information for the four schools is given in the file P04_42.xlsx. Determine which (if any) schools are inefficient.

Problem 4 Consider a market for a homogenous product with n identical firms that compete by setting quantities. The cost function of each firm is 8 per unit. The inverse demand function for the product is P = S/Q, where Q is the aggregate quantity and S is a positive parameter.

(a) Compute the symmetric Nash equilibrium in the market and the equilibrium profit of each firm.

(b) Suppose that one firm can break itself into two independent divisions that choose their output levels independently (this is like GM which has several divisions: Chevrolet, Buick, Cadillac, and GMC which are independent and compete against each other). That is, now there are effectively n+1 "firms" in the industry, though one of them consists of two separate divisions and hence earns twice the profit of all rival firms. Compute the new symmetric Nash equilibrium. What is the equilibrium profit of each firm now?

(c) How large should n be so that it will pay a firm to create 2 independent divisions? What is the intuition for your answer?

(d) Now suppose that starting from the equilibrium you computed in (a), 2 firms would like to merge and become one firm (this firm still has a cost of 8 per unit). What should n be such that the merger will be profitable? (Hint: to be profitable the merger should allow the merged firm to earn more than the combined profits of the two merging firms before the merger takes place).

We will check to see if the mean salaries for Nursing School graduates for their respective schools are different. A sample of 36 graduates from School #1 found a mean hourly wage of $28.00 an hour. The school stated that the standard deviation for salaries for their graduates was $6.00 an hour. A sample of 40 graduates from School #2 found a mean hourly wage of $26.00 an hour. The standard deviation for the graduates of this school was known to be $5.00 an hour. At an alpha of .05 do we have evidence to refute the claim that there is no difference in these average salaries?

a. Null/Alternate Hypotheses

b. Test Statistic

c. Critical regions

d. Reject/Fail to Reject

e. Find the p-value

f. Answer the question.

Deep in the backwoods of Kentucky, there is a single town with a population of 100 individuals. 16 of these people have a rare condition that makes their skin blue. This blue skin is caused by a recessive allele in a single gene that is necessary for the proper synthesis of hemoglobin. The dominant allele is for normal pigmentation and these are the only two alleles that exist in this gene. Individuals must be homozygous recessive to actually have the blue skin phenotype. 1. What are the allelic frequencies for the two alleles of this gene in this population? [express as decimals]. 2. What percentage of this population is homozygous dominant? Heterozygous? Homozygous recessive? 3. What five conditions must be met for this population to be completely free from evolution?

The year is 1870, the location is the town of Silverton in Colorado. There are two saloons in town: Red's Beard and Sadie's White Garter. After years of cut-throat competition the two owners, Red and Sadie, decide to cooperate in order to make more money. They have been making $400 per month each by competing fair and square. They decide if they each raise prices and limit the number of beers served, they will earn $1,000 per month each. However if one limits the number of beers and raises prices and the other does not, then they will earn only $200 per month while their competitor will earn $1,500 per month. Not knowing what to do, they turn to you, the prospecting game theorist, to help them figure out what to do.

Fill in the following table with the payoffs they can expect. Enter as follows: (Red's payoff, Sadie's payoff). Enter whole numbers - no commas.

Based on the payoffs, what is the likely outcome of the game? Explain

both of them raises prices

both of them do not raise prices

sadie does but red does not

red does but sadie does not raise prices

Suppose that a recent issue of a magazine reported that the average weekly earnings for workers who have not received a high school diploma is $495. Suppose you would like to determine if the average weekly for workers who have received a high school diploma is significantly greater than average weekly earnings for workers who have not received a high school diploma. Data providing the weekly pay for a sample of 50 workers are available in the file named WeeklyHSGradPay. These data are consistent with the findings reported in the article.

(a)

State the hypotheses that should be used to test whether the mean weekly pay for workers who have received a high school diploma is significantly greater than the mean weekly pay for workers who have not received a high school diploma. (Enter != for ≠ as needed.)

H₀:

$$μ≤495

H_a:

$$μ>495

(b)

Use the data in the file named WeeklyHSGradPay to compute the sample mean, the test statistic, and the p-value. (Round your sample mean to two decimal places, your test statistic to three decimal places, and your p-value to four decimal places.)

sample mean= test statistic=18.542 p-value=

(c)

Use

α = 0.05.

What is your conclusion?

Reject H₀. We can not conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.Reject H₀. We can conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.    Do not reject H₀. We can not conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.Do not reject H₀. We can conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.

(d)

Repeat the hypothesis test using the critical value approach.

State the null and alternative hypotheses. (Enter != for ≠ as needed.)

H₀:

$$μ≤495

H_a:

$$μ>495

Find the value of the test statistic. (Round your answer to three decimal places.)

18.542

State the critical values for the rejection rule. (Round your answers to three decimal places. If the test is one-tailed, enter NONE for the unused tail.)

test statistic≤NONE test statistic≥

State your conclusion.

Reject H₀. We can not conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.Reject H₀. We can conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.    Do not reject H₀. We can not conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.Do not reject H₀. We can conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.

Suppose that a recent issue of a magazine reported that the average weekly earnings for workers who have not received a high school diploma is $496. Suppose you would like to determine if the average weekly for workers who have received a high school diploma is significantly greater than average weekly earnings for workers who have not received a high school diploma. Data providing the weekly pay for a sample of 50 workers are available in the file named WeeklyHSGradPay. These data are consistent with the findings reported in the article.
Weekly Pay
687.73   543.15   789.45   442.26   684.85   661.43   478.3   629.62   486.95   786.47
652.15   652.82   669.81   641.13   577.24   845.68   541.59   553.36   743.25   468.61
821.71   757.82   657.34   506.95   744.93   553.2   827.92   663.85   685.9   637.25
530.54   515.85   588.77   506.62   720.84   503.01   583.18   7,980.24   465.55   593.12
605.33   701.56   491.86   763.4   711.19   631.73   605.89   828.37   477.81   703.06
(a)
State the hypotheses that should be used to test whether the mean weekly pay for workers who have received a high school diploma is significantly greater than the mean weekly pay for workers who have not received a high school diploma. (Enter != for ≠ as needed.)
H0:

Ha:

(b)
Use the data in the file named WeeklyHSGradPay to compute the sample mean, the test statistic, and the p-value. (Round your sample mean to two decimal places, your test statistic to three decimal places, and your p-value to four decimal places.)
sample mean   =  
778.01
test statistic   =  
1.927
p-value   =  
0.0299
(c)
Use
α = 0.05.
What is your conclusion?
Reject H0. We can not conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.
Reject H0. We can conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.
Do not reject H0. We can not conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.
Do not reject H0. We can conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.
(d)
Repeat the hypothesis test using the critical value approach.
State the null and alternative hypotheses. (Enter != for ≠ as needed.)
H0:

Ha:

Find the value of the test statistic. (Round your answer to three decimal places.)
State the critical values for the rejection rule. (Round your answers to three decimal places. If the test is one-tailed, enter NONE for the unused tail.)
test statistic   ≤  
test statistic   ≥  
State your conclusion.
Reject H0. We can not conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.
Reject H0. We can conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.
Do not reject H0. We can not conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.
Do not reject H0. We can conclude that the mean weekly pay for workers who have received a high school diploma is higher than that for workers who have not received a high school diploma.school diploma.

1. Explain why, if you measure poverty according to the Supplemental Poverty Measure, the Earned Income Tax Credit (EITC) reduces poverty the most of any program except for Social Security, but if you measure poverty according to the Poverty Gap, the EITC is less effective at reducing poverty. (15 points)

2. In the paper “The EITC and the Extensive Margin: A Reappraisal,” Kleven says that the increases in the EITC in the mid-1990s did not increase the employment rates of mothers as much as had previously been thought. Give at least one of the pieces of empirical evidence Kleven relies on for that claim. (5 points)