Honor Code: You must do these problems on your own, and submit your answers no later than 11 PM on Sunday, November 18.
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(Leon and his cub, continued)
In order to spur entrepreneurship (or reward large campaign contributors, depending on your level of cynicism), the government has granted a tax break to insurance companies which offer to bear some of the risks faced by small businesses. In accordance, an insurance company offers Leon the following deal: Pay a $200 premium at the time he purchases the cub, and in return, they'll give Leon $1,200 in (tax-free) compensation if he ends up - after six months - donating the cub to a zoo.
Assume that Leon has already decided to purchase the return option from the farm. What is Leon's expected profit (taking both the purchase price and long-term costs and gains into account) if he also buys the insurance (and acts optimally)? $
If Leon has, instead, decided not to buy the return option, what is his expected profit if he buys the insurance? $
Fill 500 cells of a spreadsheet with the formula =100*SQRT(RAND()). Then highlight this range of cells, and do a "Copy", followed by a "Paste Special / Values" (this will freeze those 500 observations). Viewing these 500 now-frozen values as a random sampling of observations of customers' reported levels of satisfaction (on a 100-point scale) with your company's product, what is your estimate of the average customer satisfaction level? points
What is the sample standard deviation? points
What is the margin of error (at the 95%-confidence level) in your estimate of the mean satisfaction level? points
Hint: These three problems are meant to be simple. The first two can be immediately answered using Excel's =AVERAGE(range) and =STDEV(range) functions (i.e., the "x" and "s" functions). I just want to be sure you are familiar with those two functions (which are listed on the second tab of the "Exercises on estimation" workbook).
When you are finished, click here: