STATISTICS FOR MANAGEMENT: PROBLEMS ON ESTIMATION

(For Classroom discussion only) Prof. Arnab Bisi 1. The probability distribution of a certain quality characteristic is specified by the density function f ( x) = ( x ) e ( x ) , if x , = 0, otherwise. Here ( < < ) is an unknown parameter. A random sample of size n is drawn from this distribution. Let X 1 ,..., X n denote these sample observations and M be their arithmetic mean. (a) Find a constant c, if any, such that cM is an unbiased estimator of . (b) Find a constant d, if any, such that M + d is an unbiased estimator of . (c) Let n = 4 and consider the estimator Z = 2 M + 1 of . What is the mean squared error of this estimator at = 0 ? (d) For general n, which of the following are consistent estimators of ? 2 2 2 2 (i) M , (ii) M + 4 , (iii) M 4 + , (iv) M 2 + . n n n n (e) Let n = 1 and suppose the single observation equals zero. What is the MLE of ? 2. The probability density function of the payoff (in Rupees) from a single trial with a gambling instrument is given by 7cx 6 + d , 2 x , f ( x) = 3(43c 7 + d ) where c and d are known positive constants and (> 0) is an unknown parameter. Let X 1 ,, X n be the payoffs (in Rupees) from n independent trials of the gambling instrument. (a) If n = 7 and the payoffs from the seven trials are found to be 40, 56 , 23, 29, 86 , 64 and 56 , then what is the maximum likelihood estimate of ? (b) Suppose c = 1 and d = 0, and consider the case of general n. If M be the arithmetic mean of X 1 ,, X n , then for what value(s) of the constant k, if any, will kM be an unbiased estimator of ? (c) Let c = 0, d = 1, and M be the arithmetic mean of X 1 ,, X n . Consider an unbiased estimator of of the form hM, where h is a constant. For what value(s) of n, if any, will such an unbiased estimator have variance 2 ? 3. (a) The distribution of scores in a public examination is normal with unknown mean and known standard deviation 5. It is, however, known that equals 52, 60 or 67. If the scores of three randomly chosen candidates turn out to be 88, 93, 59, then find the maximum likelihood estimate of . (b) Every morning, a casino manager fixes the value of a parameter of a gambling instrument as either 1 or 3 or 5 or 7. A gambler knows that the payoff to him in any single operation of the instrument has a distribution given by the probability density function 1 , < x < . f ( x) = [1 + ( x + ) 2 ] However, he does not know the value of . In two independent trials with the gambling instrument on a particular day the payoffs to the gambler turn out to be 1 and 5. On the basis of this information, find the maximum likelihood estimate of for that day.

4. A company conducts an aptitude test for the recruitment of its sales personnel. The following are known: (I) The test score is distributed normally with mean 50 and standard deviation 5 for people without any past sales experience. (II) The test score is distributed normally with mean and standard deviation 5 for people with past sales experience; here is an unknown parameter. (III) Among the people taking the test, 80% do not have any past sales experience. A random sample of n test scores is drawn. Let X be the sample mean. (a) Find constants c and d such that T = (c X + d) is an unbiased estimator of . (b) What will be the variance of T when (i) = 60, (ii) = 70 ?. (c) With c and d as in part (a) above, is T consistent for ? 5. In a business school, a particular paper is considered to be very tough. However, the students are allowed to make an unlimited number of attempts to pass the paper. The probability for any student to pass the paper in the x-th attempt is (1 ) x1 , where x = 1, 2, 3, , and ( 0 < < 1 ) is an unknown parameter. For a random sample of 36 students, the arithmetic mean of the number of attempts to pass the paper is observed to be 4. Find the MLE of and the MLE of P(X < 3). 6. There are two competing brands, A and B of a product. The two brands are essentially alike and the preference of any consumer for A or B depends on a certain psychological trait X. A consumer, with positive X, prefers A to B. On the other hand, a consumer, with zero or negative X, prefers B to A. The distribution of X (in the population of all consumers) is continuous uniform over the range [1, ] , 1 where is an unknown parameter. Both and the quantity = , that measures the relative +1 preference for A to B in a certain sense, are of interest to a market researcher. In order to estimate these quantities, a single consumer is chosen at random and his/her preference for A or B is noted. The preference is, in fact, quantified as Y, where Y = 1 if this consumer prefers A to B, and Y = 0 if this consumer prefers B to A. Direction for parts (a), (b) and (c): The parameter is known to be positive. No further information about is available. Thus any positive real number is a possible value of . (a) Find constants c and d, if any, such that c + d Y is an unbiased estimator of . (b) Find constants a and b, if any, such that a + bY is an unbiased estimator of . (c) As an estimator of , what is the mean squared error of T = Y 1 at = 1 ? Direction for parts (d) and (e): More detailed information is available about . It is known that equals either 1 or 2. (d) Find constants g and h, if any, such that g + hY is an unbiased estimator of 2 . (e) Suppose Y = 0 . Then what is the maximum likelihood estimate of ? 7. The IQ of the students in a college is known to have the continuous uniform distribution over the range [130-m, 130+m], where m (> 0) is unknown. A random sample of six students shows the following IQ figures: 125, 132, 122, 129, 137, 133. On the basis of this information, find the maximum likelihood estimate of m. 8. The distribution of a certain psychological trait X is specified by the probability density function 1 f ( x) , where f ( x) = ( x ) if x + 4 , and f ( x) = 0 otherwise. Find a constant d, if any, 8 such that [ X d , X + 2] is a confidence interval for with confidence coefficient 0.95.

Here is a real-valued unknown parameter. A single observation, X , is drawn at random from this distribution. Consider a confidence interval of the form [ X 2c, X + c] for , where c is a suitable positive constant. What is the value of c if the confidence interval has confidence coefficient 95% ? 10. The probability distribution of a certain psychological trait influencing consumer behavior is specified by the probability density function f ( x) , where 2( x) , if 0 x , f ( x) = 2

9. A certain quality characteristic in a production process has the following probability density function: f ( x) = 1 exp( | x | ) , < x < . 2

and f ( x) = 0, otherwise. Here is a positive-valued unknown parameter. A single observation, say X, is drawn at random from this distribution. Let I = [kX , cX ] be a confidence interval for , where k ( 1) and c (> 1) are positive constants. What values of c, if any, will ensure a confidence coefficient 0.95 for I when (i) k = 0.5 and (ii) k = 1 ? 11. (a) The distribution of a certain quality characteristic is continuous uniform over the range [2 , ] , where (> 0) is unknown. If the values of the quality characteristic in a random sample of size five are 0.63, 0.27, 1.62, 0.71 and 1.38, then what is the maximum likelihood estimate of ? (b) The life (in hours) of an electrical component is exponentially distributed with mean , where ( > 0) is unknown. let be the probability that a system, consisting of two such components arranged in series, survives for five hours or more. If five randomly chosen components are seen to survive for 7, 6, 4, 8 and 5 hours, then what is the maximum likelihood estimate of ? 12. The personnel department of a large corporation wants to estimate the family medical expenses of its employees to determine the feasibility of providing a medical insurance plan. Assume the population is normally distributed. A random sample of 10 employees reveals the following family medical expenses (in 100s) for the preceding year: 110 362 246 85 510 208 173 425 316 179 (a) Compute the unbiased estimators of the population mean and population variance. 2 (Hint: = = 173400.39 ) xi 2614, ( x i x) (b) Construct a 90% confidence interval estimate of the mean family medical expenses for all employees of the corporation. (c) The personnel department divides the families into two groups (Group A and Group B). A family with medical expenses higher than 230 is classified as Group A. Use the above sample of 10 employees to compute the unbiased estimate of the proportion of families that are in Group A. (d) Continue with (c), construct a 95% confidence interval of the proportion of families that are in Group A.

Problems on Estimation: Answer key 1. (a) None, (b) 2 , (c) 27, (d) only (iv), (e) 1 2. (a) 43, (b) 344/595, (c) 3 3. (a) 67, (b) 5 4. (a) c = 5, d = 200, (b) 1025/n, 2225/n, (c) Yes 5. 1/4, 7/16 6. (a) c = 1, d =2, (b) none, (c) 2.5, (d) g = 8, h = 18, (e) 1 7. 8 8. 3.8987 9. 2.3902 10. (i) 39.4936, (ii) 39.4936 11. (a) 0.81, (b) 0.1889 12. (a) 261.4, 19266.71, (b) (180.95 to 341.85), (c) 0.5, (d) (0.19 to 0.81)