Business Decision Making 2, Spring 2021
Review for Final Exam
SECTION 1: (3 points)
The quality of sheep's wool is primarily based on the average diameter of its fibres, measured in
microns (micrometres). A wool producer wishes to make a claim about the average diameter of
fibres in one bale of wool sourced from one flock of Australian Merino sheep. Historically, the
wool sourced from this flock has a fibre diameter that is normally distributed with a standard
deviation of 2.5 microns.
The wool producer chooses 90 fibres randomly from the bale, then measures the diameter of
each of these fibres and calculates their sample mean as 𝑥𝑥̅ 90 = 17.5 microns.
a) Based on this sample, calculate the 95% confidence interval for the population mean (𝜇𝜇).
(0.5 point)
b) Based on this sample, the wool producer labels this bale of wool as having an average
fibre diameter of 18.1 microns or less. A manufacturer can make a claim with “k % level
of confdence” if it is supported by a k % confidence interval. With reference to your
answer to part (a), what can you conclude about the confidence with which the wool
producer can label this bale of wool as having an average fibre diameter of 18.1 microns
or less? Justify your answer. (0.5 point)
c) What is the maximum level of confidence with which the wool producer can label this
bale of wool as having an average fibre diameter of 17.8 microns or less? (1 point)
d) Determine the sample size required to ensure that the margin of error in a 95%
confidence interval is less than 0.3 microns. (1 point)
SECTION 2: (2 points)
Consumer Reports uses a survey of readers to obtain customer satisfaction ratings for the
nation’s largest retailers. Each survey respondent is asked to rate a specified retailer in terms of
six factors: quality of products, selection, value, checkout efficiency, service, and store layout.
An overall satisfaction score summarizes the rating for each respondent with 100 meaning the
respondent is completely satisfied in terms of all six factors. Sample data representative of
independent samples of Target and Walmart customers are shown below.
• Target: 𝑛𝑛1 = 30, 𝑥𝑥̅ 1 = 79
• Walmart: 𝑛𝑛2 = 35, 𝑥𝑥̅ 2 = 72
a) Formulate the null and alternative hypotheses to test whether there is a difference
between the population mean customer satisfaction scores for the two retailers. (0.5
point)
b) Assume that experience with the Consumer Reports satisfaction rating scale indicates that
a population standard deviation of 12 is a reasonable assumption for both retailers.
Conduct the hypothesis test and report the p-value. At a 0.05 level of significance, what
is your conclusion? (1 point)
c) Which retailer, if either, appears to have the greater customer satisfaction? Provide a 95%
confidence interval for the difference between the population mean customer satisfaction
scores for the two retailers. (0.5 point)
SECTION 3: (2 points)
Concur Technologies, Inc., is a large expense-management company located in Redmond,
Washington. The Wall street Journal asked Concur to examine the data from 8.3 million expense
1
reports to provide insights regarding business travel expenses. Their analysis of the data showed
that New York was the most expensive city, with an average daily hotel room rate of $198 and
an average amount spent on entertainment, including group meals and tickets for shows, sports,
and other events, of $172. In comparison, the U.S. averages for these two categories were $89
for the room rate and $99 for entertainment. The following table shows the average daily hotel
room rate and the amount spent on entertainment for a random sample of 8 of the 25 most visited
U.S. cities.
City Room rate ($) Entertainment ($)
Boston 148 161
Denver 96 105
Nashville 91 101
New Orleans 110 142
Phoenix 90 100
San Diego 102 120
San Francisco 136 167
San Jose 90 140
a) Develop the least squares estimated regression equation for these data with the room rate
as the independent variable. (0.5 point)
b) Provide an interpretation for the slope of the estimated regression equation. (0.5 point)
c) Calculate the correlation coefficient and coefficient of determination and interpret the
results. (0.5 point)
d) The average room rate in Chicago is $128, considerably higher than the U.S. average.
Predict the entertainment expense per day for Chicago. (0.5 point)
SECTION 4: (3 points)
The quarterly sales data (number of copies sold) for a college textbook over the past three years
follow.
Quarter Year 1 Year 2 Year 3
1 1700 1810 1860
2 950 910 1110
3 2635 2910 2940
4 2510 2370 2625
a) Show the four-quarter and centered moving average values for this time series. (1 point)
b) Compute the average seasonal variable for the four quarters using the multiplicative
model of time series analysis. (1 point)
c) Compute the quarterly forecasts for next year using the multiplicative model. (1 point)
