1. I teach an executive education class in Toronto that has 60 students in it.

The class lasts for three

hours and the students ask questions at a rate of about 3 questions per hour. In the many classes I
have taught, I cannot recall a single student ever asking two questions in a class.

a. Model this situation with an appropriate binomial distribution and determine the probability
of receiving more than 5 questions in a class. Explain why your model is appropriate.
b. Model this situation with an appropriate Poisson distribution and determine the probability
of receiving more than 5 questions in a class. Explain why your model is appropriate.
c. Based on the discussion in our class, explain in managerial language which of these models,
if any, is the right one and why.
d. Should I be surprised that no student has ever asked two questions?

2. As a manager in a consulting company, I had to fly into the client’s site from Austin every week. Two
of my consultants had to fly in as well, one from Boston, the other from Chicago. All three flights are
scheduled to arrive at 10:00 AM. The flight from Austin was late 5% of the time; the flights from
Boston and Chicago were late about 10% and 20% of the time respectively. Assume that the arrival
times are independent.

a. Assuming the consultant from Chicago is on time, what is the probability that she will be
waiting for exactly one person?
b. What is the probability that the consultant from Boston will be late for at least 4 of the next
8 arrivals?
c. Is the assumption of independent arrival times a reasonable one? Explain why / why not.

3. Here are warmup problems:

a. I have a list of 10 songs stored on my phone, in random mode it plays songs completely at
random. I like only like three of the songs (it was Tracy’s playlist!) If I play 5 songs, what is
the probability that at least four of them are songs I like?

b. <Out of Scope in 2019> After a great deal of work, you have determined that the sales of a
product is given by the following function of price: Q(P) = 100 – 0.5P where P is the price in
dollars; the cost per unit is fixed at $10. Find the price that maximizes profit.

c. <Out of Scope in 2019> A small company is producing desk chairs by hand at a cost of $20
per unit for both labor and materials. It can use a machine that costs $1000 per week to
operate and $10 per unit for materials. Demand is currently 90 units and is growing
continuously at a rate of 10% per week.

Write out and solve the equations to determine the following:

i. At what quantity should they switch over to using the machine?
ii. Approximately when should that switch occur?
4. This actually happened: two workers from unrelated companies are supposed to show up at my
house sometime this morning: an appliance repair person and an electrician. The appliance repair
person claims she will arrive between 8:00 AM and 12:00 noon. The electrician claims he will arrive
between 10:00 AM and 12:00 noon. Other than this information, I have absolutely no idea when
they will arrive, all I know is that I have a phone call from 10:00 to 11:00 AM and it is currently 7:30
AM.
a. As described in the story above, are the events of each person’s arrival independent,
mutually exclusive or somehow dependent? Explain your reasoning.
b. What is the probability that the appliance repair person will arrive before my phone call
starts?
c. What is the probability that both of them will arrive while I am on the phone?
d. Suppose that as of 11:00 AM, neither have arrived, what is the probability that at least one
will arrive in the next 10 min?

5. Greener by design has been working in Montreal performing environmental audits for several years.
Lately the owner has been concerned that the sales are falling and in particular that average daily
revenue from audits in July are lower than those in June. If sales are falling, she plans to abandon
the market and will stop investing in further advertising. (Data on tab GBD Montreal.)
a. Construct an appropriate null and alternative hypothesis for this problem.
b. Draw a picture of how this test would work.
c. Perform an appropriate test, present your p-value and interpret the results based on an
alpha of 10%.
d. Based on these results, should she abandon the Montreal market? Provide a reasonably
comprehensive answer.

6. Greener by design has been working in Vancouver and Toronto performing environmental audits for
several years. The owner thinks that, given her staff, the two markets should be equally profitable,
but fears the Vancouver office may be underperforming and require a change in management. She
has been friends with the current manager for years and would prefer to keep him, but business is
business (isn’t it?) Using the data provided in the excel file, advise her.
a. Construct an appropriate null and alternative hypothesis for this problem.
b. Draw a picture of how this test would work.
c. Perform an appropriate test, present your p-value provide and justify a choice of alpha.
d. Based on these results, should she change the management in the Vancouver market?
Provide a reasonably comprehensive answer.

7. Developing and applying Models: (Note: Regression material will be covered on Saturday.)
a. A linear regression model to explain sales is given by the following equation:

Sales=B0 +B 1 Ad Budget + B2 Ad 2Budget

i. What sorts of numbers might you expect for B0, B1 and B2? Explain your reasoning
and what this would tell you about sales.
 ii. Illustrate how this function might look as a diagram, be sure to indicate the beta
values you chose on your chart.
iii. Calculate a function to describe the impact of a change in Ad_Budget on Sales.

b. When I buy lunch at school, the amount I spend is a random variable with a mean of 10 and
a sigma of 2. For next month, I will buy lunch 20 times, how much do I need to budget to be
95% confident of remaining within my budget? What assumptions did you need to make to
answer this question, if any?

c. Suppose I can put $10,000 into an RSP, where it will grow continuously at 5% for 20 years at
which point I will pay 50% tax on the total amount, or I can put $5,000 into a TFSA for the
same time at the same return but pay no tax on the money in 20 years’ time. It seems
obvious that these should be the same amount. Are they?

8. Don’t hold your breath:

a. Apparently the average person can, with training, hold their breath for 2 minutes. (Frankly, I
don’t believe it, but that’s what was claimed on a random page I found on Google!)
Suppose that mean is 120 seconds and that standard deviation of this is 20 seconds. If we
had 100 people attempt to hold their breath as long as they could, how likely is it that the
average of that sample would be longer than 140 seconds?

b. Consider the data provided in the exam data file – what do you think of the claim made that
people can hold their breath for two minutes: construct an appropriate null and alternative
hypothesis and perform the relevant test? Explain any decisions you had to make and the
result of your analysis.

c. What is the probability that I can hold my breath for exactly 120 seconds?

9. While working as a consultant, I found some market research that proved that in Houston, Tx., 30%
of the non-commercial vehicles on the road were trucks. There was no information on the share of
trucks in Dallas, but I lived in Dallas for about a year and a half, and driving to work each day, I saw
what seemed to be a much higher percentage of trucks as a share of non-commercial vehicles. In
fact, I suspect that trucks represent at least say 40% of non-commercial vehicles in Dallas. If this is
the case, I should quit my job and open a dealership that focuses on selling trucks.
a. Construct the null and alternative hypothesis associated with my problem.
b. Explain how I might best think about choosing an alpha for this test. Be sure you indicate
what it means. Are there other considerations I should be thinking about? If so, what ones?
c. Suppose that what I’d really like is a fairly accurate estimate of the actual percentage of
trucks as a share of non-commercial vehicles – say within 2%. How many vehicles, at a
minimum, should I look at?
d. Suppose that I take your advice and review the next ‘N’ trucks. I am careful in the way I do
this and I randomly pick non-commercial vehicles out as I am driving to work. I then record
whether that vehicle was a truck or a car. At the end of a year, I have all the information.
 Explain, in principle, how this can be used to construct a confidence interval on the
percentage of trucks.
e. I feel like I am missing something in the way this is being done, it may be that I am just
paranoid… What do you think?

10. For each of the problems below, calculate the relevant probabilities and draw an approximate
picture of the distributions involved and note any assumptions you have to make.

The Starbucks by my hotel is an awesome thing. Granted, not a lot of people like to watch a coffee
shop, but I am always impressed by their efficiency, so I have taken some very detailed notes on
their operations – I am kind of strange that way. In any case, I noticed that, during peak hours,
about four people arrive per minute. Of these customers basically one in ten order the double-
smoked bacon breakfast sandwich.

a. So yesterday I really wanted to have a double-smoked bacon breakfast sandwich so I called

the coffee shop to see if they had any in stock, they said they had exactly 20. If I rush, I can
get there in 10 minutes. What is the probability that I will get my sandwich?

b. So I finally get to Starbucks and can see that they have 2 of the sandwiches left, but
wouldn’t you know it, there is a line up 20 people long in front of me. What is the
probability that I get my sandwich?

a. So as it happens the barista finally hands me my sandwich and coffee (extra-large, naturally)
and I was about to pay. I reached into my pocket to use my Starbucks card when I realized
that I had no idea how much money was on it. My wife loads it up with $25 whenever the
balance on it reaches 0. I have absolutely no idea when she last did that. Aside from my
Starbucks card, I have $2.25 in quarters and a subway token (which apparently Starbucks
does not accept as legal tender!) The bill was for $8.22, what is the approximate probability
that I can pay?

11. Collection of questions:

a. My wife has been admiring a particular pair of boots on Amazon.ca. She tells me that the
price changes every day but that she thinks it is normally distributed with a mean of 300 and
a standard deviation of 30. Apparently the price this morning was $240. She asked me to
calculate the probability that she will see a lower price in the next five days. What should I
tell her?

b. <Out of scope for 2019> The cost of production for a batch of size q for a particular product
is given by: c ( q ) =1000+10 q+0.1 q 2. What is the total cost of a batch that minimizes
production costs?

c. <Out of scope for 2019> There are two investment options in front of me. Option A grows
at a constant rate of 3% per year for ten years. Option B will either grow at 1.5% per year
 for ten years or 4.5% per year for ten years – each option is equally likely. Which is a better
investment and by how much?

d. I have to spend essentially all of my Teaching Assistant (TA) budget of $1000 this year or I
may not get it for next year. I have two types of TAs – undergraduate students who get paid
$20/hr, and graduate students who get paid $35. I need to have 35 hours of support to
handle all the activities. All of my TAs are awesome people or we would not be working
together, so I do not need to worry about quality.

i. Set up a matrix algebra representation of this problem. (Be sure to define variables
so we know what the equations mean.)
ii. Solve the system of equations anyway you like (i.e. you do not need to use matrix
algebra if you do not want to.) Approximately how much time of each type of TA
should I hire? Can I even solve this problem?