The College Board provided comparisons of SAT scores based on the highest level of education attained by the test taker's parents. A research hypothesis was that students whose parents had attained a higher level of education would on average score higher on the SAT. This data set contains verbal SAT scores for a sample of students whose parents are college graduates and a sample of students whose parents are high school graduates. Use 0.01 as your level of significance.

1. Formulate hypotheses to test the research hypothesis. Let population 1 be the students whose parents are college graduates and let population 2 be students whose parents are high school graduates.
2. Is this an one-tailed or two-tailed test?
3. Use Excel to test your hypotheses. What is the test statistic?
4. What is the p-value?
5. What is the critical value?
6. What is your conclusion using 0.01 as the level of significance?
7. Explain your conclusion in the context of the problem (i.e. in terms a non-statistician could understand).

2. You randomly select 16 cars of the same model that were sold at a car dealership and determine the number of days each car sat on the dealership’s lot before it was sold. The sample mean is 9.15 days, with a sample standard deviation of 1.6 days. Construct a 95% confidence interval for the population mean number of days the car model sits on the dealership’s lot. (10 p)

(Round off final answers to two decimal places, if appropriate. Do not round off numbers taken directly from tables).

3. A researcher collected data from a random sample of 25 high school freshmen and found the mean of the sample to be 85.40 on the Test of Critical Thinking (TCT). She also calculated the standard deviation from the sample and discovered the value was 12.30. The average score on the Test of Critical Thinking for all high school seniors in a large school district is 90.00. The researcher wants to know if the mean TCT of the 25 high school freshmen in the random sample is different from the population’s (i.e., highschool seniors) TCT mean.

(Round off final answers to two decimal places, if appropriate. Do not round off numbers taken directly from tables).

e. What decision should be made about the null hypothesis? In other words, should you reject or retain the null hypothesis? (10p)

g. Provide a brief conclusion regarding your findings. Use your power point lecture slides for writing out the interpretation of your results. (10p)

EMU ELECTRONICS

Emu electronics is an electronics manufacturer located in Box Hill, Victoria. The company’s managing director is Shelly Chan, who inherited the company from the father. The company originally repaired radios and other household appliances when it was founded more than 50 years ago. Over the years. The company has expanded, and it is now a reputable manufacturer of various specialty electronics items. Robert McCanless, a recent MBA graduate, has been hired by the company in the finance department.     

One of the major revenue-producing items manufactured by Emu electronics is a smart phone. Emu electronics currently has a smart phone model on the market and sales have been excellent. The smart phone is a unique item in that it comes in a variety of colours and is pre-programmed to play Jimmy Barne’s music. However, as with any electronic item, technology changes rapidly, and the current smart phone has limited features in comparison with newer models. Emu electronics has spent $1 200 000 developing a prototype for a new smart phone that has all the features of the existing one, but adds new features, such as Wifi tethering. The company has spent a further $250 000 for a marketing study to determine the expected sales figures for the new smart phones.

   Emu electronics production manager has produced estimates of the costs associated with manufacture of the new smart phone. Variable costs are estimated at $210 per unit and fixed costs for the operation are expected to run at $5.3 million per year. The estimated sales volume is 64 000 units in the year 1; 106 000 units in the year 2; 87 000 units in the year 3; 78 000 units in Year 4; and 54 000 units in the final year. The unit price of the smart phone will be $515. The necessary manufacturing equipment can be purchased for $38.5 million and will be depreciated for tax purposes over a seven-year life (straight-line to zero). It is believed the value of the manufacturing equipment in five years’ time will be $5.8 million.

    Net working capital for the smart phones will be 20% of sales and will have to be purchased at the end of the year. The cost of the raw materials is reflected in the variable unit cost. Changes in NWC will first occur at the end of Year 1 based on the first years’ sales. Emu electronics has a 30% corporate tax rate and a 12% required return.

    Shelly has asked Robert to prepare a report that answers the following questions.

Questions

1. What is the payback period of the project?

2. What is the profitability index of the project?

3. What is the IRR of the project?

4. What is the NPV of the project?

5. How sensitive is the NPV to changes in the price of the smart phone?

6. How sensitive is the NPV to changes in the quantity sold?

7. Should Emu electronics produce the new smart phone?

8. Suppose Emu electronics loses sales on other models because of the introduction of the new model. How would this affect your analysis?

MIni Case

EMU Electronics

Emu Electronics manufacturer located in Box Hill, Victoria. The company's managing director is Shelly Chan, who inherited the company from her father. The company originally repaired radios and other household appliances when it was founded more than 50 years ago. Over the years, the company has expanded, and it is now a reputable manufacturer of various specialty electronic items. Robert McCanless, a recent MBA graduate, has been hired by the company in the finanace department.

One of the major revenue-producing items manufactured by Emu Electronics is a smart phone. Emu Electronics currently has one smart phone model on the market and sales have been excellent. The smart phone is a unique item in that it comes in a variety of colours and is pre-programmed to play Jimmy Barnes music. However, as with any electronic item, technology changes rapidly, and the current smart phone has limited features in comparison with newer models. Emu Electronics has spent $1200000 developing a prototype for a new smart phone that has all the features of the existing one, but adds features, such as Wifi tethering. The company has spent a further $250000 for a marketing study to determine the expected sales figures for the new smart phone.

Emu Electronics' production manager has produced estimates of the costs associated with manufacture of the new smart phone. Variable costs are estimated at $210 per unit and fixed costs for the operation are expected to run at $5.3 million per year. The estimated sales is 64000 units in Year 1; 106000 units in Year 2; 87000 units in Year 3; 78000 units in Year 4 and 54000 units in the final year. The unit price of the new smart phone will be $515. The necessary manufacturing equipment in five years time will be $5.8 million.

Net working capital for the smart phones will be 20% of sales and will have to be purchased at the end of the year. The cost of the raw materials is reflected in the variable unit cost. Changes in NWC will first occur at the end of Year ! based on the first year's sales. Emu Electronics has a 30% corporate tax rate and a 12 % required return.

Shelly has asked Robert to prepare a report that answers the following questions:

1. What is the payback period of the project?

2. What is the profitability index of the project?

3. What is the IRR of the project?

4. What is the NPV of the project?

5. How sensitive is the NPV to changes in the price of the new smart phone?

6. How sensitive is the NPV to changes in the quantity sold?

7. Should Emu Electronics produce the smart phone?

8. Suppose Emu Electronics loses sales on other models because of the introduction of the new model. How would this affect your analysis?

Consider a town in which only two residents, Dmitri and Frances, own wells that produce water safe for drinking. Dmitri and Frances can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water.

Suppose Dmitri and Frances form a cartel and behave as a monopolist. The profit-maximizing price is ____ per gallon, and the total output is _____ gallons. As part of their cartel agreement, Dmitri and Frances agree to split production equally. Therefore, Dmitri's profit is_________, and Frances's profit is_________.

Suppose that Dmitri and Frances have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Dmitri says to himself, "Frances and I aren't the best of friends anyway. If I increase my production to 45 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow."

After Dmitri implements his new plan, the price of water (Increases or decreases?) to _______ per gallon. Given Frances and Dmitri's production levels, Dmitri's profit becomes_________ and Frances's profit becomes__________.

Because Dmitri has deviated from the cartel agreement and increased his output of water to 45 gallons more than the cartel amount, Frances decides that she will also increase her production to 45 gallons more than the cartel amount.

After Frances increases her production, Dmitri's profit becomes_________, Frances's profit becomes___________, and total profit (the sum of the profits of Dmitri and Frances) is now____________.

True or False: Based on the fact that both Dmitri and Frances increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity.

True

False

Dmitri and Frances have each cheated on their cartel agreement and increased production by 45 gallons more than the cartel amount. However, they both realize that if they continue to increase output beyond this amount, they'll each suffer a decrease in profit. (To see this for yourself, consider Dmitri's profit when he produces 90 gallons more than the cartel amount compared to his profit when he produces 45 gallons more than the cartel amount.)

Neither Dmitri nor Frances has an incentive to further increase output, nor does either have an incentive to decrease output. This outcome is an example of   .

A) resale price maintenance

B) predatory pricing

C) a Nash equilibrium

D) tying

Question 2

Currently Sam and Carla have the only taxi services in a small town. Both Sam and Carla are thinking about discounting their respective fares by 20% to attract more business.

The possible outcomes of this game are as follows.

First: Sam offers discounts, while Carla does not, which will result in Sam earning $1000 in profit and Carla earning $800 in profit.

Second: Sam and Carla both offer discounts, which will result in Sam earning $600 in profit and Carla earning $300 in profit.

Third: Sam and Carla both do not offer discounts, which will result in Sam earning $1400 in profit and Carla earning $1000 in profit.

Fourth: Carla offers discounts, while Sam does not, which will result in Sam earning $800 in profit and Carla earning $600 in profit.

a) Does Sam have a dominant (optimal) strategy? Please explain your answer.

b) Does Carla have a dominant (optimal) strategy? Please explain your answer.

c) Is there an equilibrium solution to this problem where we can predict the strategy of both Sam and Carla? Please explain your reasoning.

The town of Ballymarcove has three mobile phone providers ONE, TWO and THREE and every resident of Ballymarcove is a customer of exactly one provider. • Every year 10% of ONE customers switch to TWO and 20% switch to THREE (with 70% remaining with ONE). • Every year 30% of TWO customers switch to ONE and 20% switch to THREE (with 50% remaining with TWO). • Every year 30% of THREE customers switch to ONE and 30% switch to TWO (with 40% remaining with THREE). (a) [9 marks] Write down the transition matrix for this Markov process. (b) [8 marks] Explain why the transition matrix has 1 as an eigenvalue. (c) [8 marks] TWO is a relative newcomer to Ballymarcove and in the long term it aims to have a third of the market. Currently ONE has 60% of the market, TWO has 10% and THREE has 30%. If current trends continue, can TWO expect to achieve their aim?

The town of Bookville has a massive public library system. Bookville's municipal government faces a tradeoff between retaining the current number of library workers and replacing some of its workers with computers. The four options of workers and computers combinations available to the government are given in table below.

Number of workers

Number of computers

Choice A

30

50

Choice B

20

100

Choice C

10

150

Choice D

5

300

Computers and software cost $5,000 per year. In a non-unionized labor market, workers are paid $20,000 per year. In these circumstances, the optimal choice from a cost perspective for the Brookville city government is Choice (A, B, C, or D):
After the introduction of a strong union, the annual salary for workers increases to $30,000. In these circumstances, the optimal choice from a cost perspective for the Brookville city government is Choice (A, B, C, or D):

CRITICAL THINKING EXERCISE Ms. Anna vanDahm, one of the wealthiest and most influential people in town, was placed in the hospital's intensive care unit (ICU) after undergoing kidney replacement surgery. Because of the inability to deliver high-quality care as a result of financial constraints and a high turnover rate related to nurse discontentment with the dictatorial leadership styles of ICU nurse managers, the ICU was regularly short of qualified staff nurses. As a solution to this problem of short staffing, nurses from other units with lower levels of client acuity were routinely floated to the ICU, often without regard to whether they were cross-trained to take on ICU responsibilities. Abigail Friendly, an RN without prior training or experience in caring for ICU clients, was floated to the ICU, where she was assigned to provide care for Ms. vanDahm, who had responded very poorly to her surgery and was put on a life-support system by a physician just before Nurse Friendly's arrival. While Nurse Friendly was caring for her, Ms. vanDahm communicated, in the presence of her oldest son, that she did not want to be resuscitated in the event of cardiopulmonary arrest. When her shift ended a few minutes later, Nurse Friendly, exhausted and overwhelmed by what she had just experienced, left for home. Shortly thereafter, Ms. vanDahm sustained a cardiopulmonary arrest; however, in the absence of proper documentation and notification, she was resuscitated. Subsequently, the son, angry that his mother's request had not been followed, consulted an attorney, who promptly contacted the hospital's CEO. The next day, Nurse Friendly, who had always received highly positive performance evaluations over the 5 years she was employed by the facility and also was subject to protection under the provisions of an antidiscrimination statute, was told by the manager of her unit that she was being fired effective immediately.

1.Nurse manager of the ICU

a.On what grounds could the nurse manager be found legally liable?

b.What actions should have been taken by the nurse manager to prevent legal liability in this type of situation?

c.What ethical dilemma(s) did the nurse manager face in this situation?

d.What factors should have been considered by the nurse manager in dealing with the ethical dilemma(s) encountered in this situation?

2.Hospital

a.On what grounds could the hospital be found legally liable?

b.What actions should have been taken by the hospital to prevent legal liability in this type of situation?

Barbara owns the sole hairdressing salon in a small country town. She has estimated the demand and marginal revenue for her product.

They are P = 84 - 2Q (quantity) and MR = 84 - 4Q, respectively. She also experiences a constant marginal cost of $16.

A) What is Barbara’s profit-maximising quantity?

B) What price should Barbara charge at that profit-maximising quantity?

C) Assume the average total cost (ATC) at the profit maximising output is $20. Calculate the profit or loss Barbara makes.

D) Barbara is considering expanding the size of her salon and increasing daily output to Q = 25. Is this a good/bad idea? Why/why not?

Thank you!