Question 1

We worry that false negatives occur too often relative to false positives due to
A)most hypotheses being false
B)it being appropriate to set a high standard for acceptance of a hypothesis
C)managers having an incentive to make a false negative conclusion because they are harder for superiors to observe
D)they are not too common

Accepted Answer

Managers may have an incentive to make a false negative conclusion because such errors are less likely to be detected by superiors, leading to a higher occurrence of false negatives relative to false positives.

Question 2

Half of all potential customers would pay $16 for your product but half would only pay $10 but you cannot tell them apart.Your marginal costs are $4.If you set the price at $10,the expected profit is:
A)$3
B)$4
C)$5
D)$6

Accepted Answer

The answer of Half of all potential customers would pay...

Question 3

Four possibilities have probabilities 0.4,0.2,0.2 and 0.2 and values $20,$20,$40,and $40 respectively.The expected value is:
A)$22
B)$24
C)$26
D)$28

Accepted Answer

We can calculate the expected value using the formula $E(X) = \sum\limits_{i=1}^n p_i x_i$, where $p_i$ is the probability of outcome $i$ and $x_i$ is the value of outcome $i$. 
In this case, we have:
$E(X) = (0.4)(20) + (0.2)(20) + (0.2)(40) + (0.2)(40) = 8 + 4 + 8 + 8 = 28$
Therefore, the expected value is $28$. 
The best choice is D, which matches the calculation.

Question 4

Half of all potential customers would pay $10 for your product but half would only pay $8 but you cannot tell them apart.Your marginal costs are $4.If you set the price at $8,the expected profit is:
A)$3
B)$4
C)$5
D)$6

Accepted Answer

The answer of Half of all potential customers would pay...

Question 5

Four possibilities have probabilities 0.4,0.2,0.2 and 0.2 and values $40,$30,$20,and $10 respectively.The expected value is:
A)$22
B)$24
C)$26
D)$28

Accepted Answer

The answer of Four possibilities have probabilities 0.4,0.2,0.2 and 0.2...

Question 6

You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami.If you are worried about "leakage" with your control group,a poor comparison city would be
A)Boston
B)San Francisco
C)St.Paul
D)Tampa Bay

Accepted Answer

Tampa Bay is geographically close to Miami, increasing the risk of leakage, where the control group might be influenced by the treatment group's price change.

Question 7

You want to run a difference-in-difference experiment with a price increase for the bacon cheeseburger item on your menu.If you are worried about "leakage" with your control group,a good comparison menu item would be
A)soft drink sales
B)the bacon burger without cheese
C)the bacon-lettuce-and-tomato sandwich
D)the regular cheeseburger

Accepted Answer

The answer of You want to run a difference-in-difference experiment...

Question 8

Half of all potential customers would pay $10 for your product but half would only pay $8 but you cannot tell them apart.Your marginal costs are $4.If you set the price at $10,the expected profit is:
A)$3
B)$4
C)$5
D)$6

Accepted Answer

Half of the customers would pay $10 and the other half would pay $8. The expected profit from each customer is ($10 - $4) / 2 + ($8 - $4) / 2 = $3. Therefore, the expected profit from all customers is $3 * 1/2 = $1.5.

Question 9

You want to run a difference-in-difference experiment with a price increase for the bacon cheeseburger item on your menu.If you are worried about the "representativeness" with your control group,a poor comparison menu item would be
A)soft drink sales
B)the bacon burger without cheese
C)the bacon-lettuce-and-tomato sandwich
D)the regular cheeseburger

Accepted Answer

Soft drink sales are a poor comparison for a bacon cheeseburger price increase experiment due to their different product categories. Food items, especially those closely related to the test item like other burgers, are more representative controls than beverages.

Question 10

You increase your advertising buy for your product in market A but not in market B.Sales in A rise from 1140 units per week to 1180 while sales in B fall from 1270 to 1230.The Difference-in-difference estimate of the effect of the increased advertising is:
A)80 units
B)100 units
C)120 units
D)140 units

Accepted Answer

The difference-in-difference estimate is calculated as (1180 - 1140) - (1230 - 1270) = 40 - (-40) = 80 units.

Question 11

A pharmaceutical company executive has to decide whether to fund a new drug development project.For this project,a success would earn $10 million and a failure would cost $90 in lost profits.At what probability of expected success should she fund the project?
A)0)10
B)0)20
C)0)80
D)0)90

Accepted Answer

The expected value of the project is 10 million * probability of success - 90 * probability of failure. The project should be funded if the expected value is positive. So, 10 million * probability of success - 90 * probability of failure > 0. Solving for probability of success, we get probability of success > 0.009. So, the project should be funded if the probability of success is greater than 0.009.

Question 12

Four possibilities have probabilities 0.4,0.2,0.2 and 0.2 and values $80,$30,$0,and -$80 respectively.The expected value is:
A)$22
B)$24
C)$26
D)$28

Accepted Answer

Expected value = (0.4)($80) + (0.2)($30) + (0.2)($0) + (0.2)(-$80) = $32 + $6 - $16 = $22. Therefore, the best choice is option A.

Question 13

You put your product on 20% off sale market A but leave it unchanged in market B.Sales in A increase from 840 units per week to 1040 while sales in B rise from 770 to 830.The Difference-in-difference estimate of the effect of the price change is:
A)80 units
B)100 units
C)120 units
D)140 units

Accepted Answer

The answer of You put your product on 20% off...

Question 14

You experiment by offering free warranties for your product in market A not in market B.Sales in A rise from 240 units per week to 360 while sales in B rise from 410 to 430.The Difference-in-difference estimate of the effect of the free warranty is:
A)80 units
B)100 units
C)120 units
D)140 units

Accepted Answer

The answer of You experiment by offering free warranties for...

Question 15

Half of all potential customers would pay $16 for your product but half would only pay $10 but you cannot tell them apart.Your marginal costs are $4.If you set the price at $16,the expected profit is:
A)$3
B)$4
C)$5
D)$6

Accepted Answer

The answer of Half of all potential customers would pay...

Question 16

A "false negative" is
A)when you incorrectly conclude that your hypothesis is true
B)when you incorrectly conclude that your hypothesis is false
C)when you correctly conclude that your hypothesis is true
D)when you correctly conclude that your hypothesis is false

Accepted Answer

A false negative occurs when the test or experiment fails to detect a true positive result, meaning the hypothesis is actually true but it is incorrectly concluded that it is false. Therefore, choice B is the correct answer.

Question 17

A "false positive" is
A)when you incorrectly conclude that your hypothesis is true
B)when you incorrectly conclude that your hypothesis is false
C)when you correctly conclude that your hypothesis is true
D)when you correctly conclude that your hypothesis is false

Accepted Answer

A false positive occurs when you incorrectly conclude that your hypothesis is true, leading to a type I error.

Question 18

A movie executive has to decide to fund a new movie project.For this project,a success would earn $20 million and a failure would cost $60 in lost profits.At what probability of expected success should he fund the movie?
A)0)20
B)0)25
C)0)50
D)0)75

Accepted Answer

To determine the expected value of funding the movie project, we need to calculate the expected value of the profits:

E(profits) = P(success) * $20 million + P(failure) * (-$60 million)

We want the expected value to be positive for the executive to fund the project. Therefore, we can set up an inequality:

P(success) * $20 million + P(failure) * (-$60 million) > 0

Solving for P(success), we get:

P(success) > 0.75

Therefore, the movie executive should fund the project if the probability of success is greater than 0.75 or 75%.

Question 19

You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami.If you are worried about the "representativeness" of your control group,a good comparison city would be
A)Boston
B)San Francisco
C)St.Paul
D)Tampa Bay

Accepted Answer

It would be best to choose a city that is geographically and demographically similar to Miami to ensure representativeness of the control group. St. Paul, located in the Midwest, and Boston and San Francisco, both located on the East and West Coasts respectively, may not be as similar to Miami as Tampa Bay, which is located in Florida just a few hours away from Miami. Additionally, choosing a city within the same state may help control for state-level policies or other factors that could affect the outcome of the experiment.

Question 20

You raise your product price by $10 in market A but leave it unchanged in market B.Sales in A fall from 840 units per week to 740 while sales in B rise from 770 to 790.The Difference-in-difference estimate of the effect of the price change is:
A)80 units
B)100 units
C)120 units
D)140 units

Accepted Answer

To calculate the difference-in-difference estimate, we need to find the difference in sales before and after the price change in both markets, and then calculate the difference between the changes.

In market A, sales decreased by 100 units after the price change ($840 - $740 = -$100). In market B, sales increased by 20 units after the price remained unchanged ($790 - $770 = $20).

Therefore, the difference in the changes is -100 - 20 = -120 units. This means that the price change led to a decrease in sales of 120 units. Since the question asks for the absolute value, the answer is 120 units.

Quiz 17: Making Decisions With Uncertainty

We worry that false negatives occur too often relative to false positives due to

Half of all potential customers would pay $16 for your product but half would only pay $10 but you cannot tell them apart.Your marginal costs are $4.If you set the price at $10,the expected profit is:

Four possibilities have probabilities 0.4,0.2,0.2 and 0.2 and values $20,$20,$40,and $40 respectively.The expected value is:

Half of all potential customers would pay $10 for your product but half would only pay $8 but you cannot tell them apart.Your marginal costs are $4.If you set the price at $8,the expected profit is:

Four possibilities have probabilities 0.4,0.2,0.2 and 0.2 and values $40,$30,$20,and $10 respectively.The expected value is:

You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami.If you are worried about "leakage" with your control group,a poor comparison city would be

You want to run a difference-in-difference experiment with a price increase for the bacon cheeseburger item on your menu.If you are worried about "leakage" with your control group,a good comparison menu item would be

Half of all potential customers would pay $10 for your product but half would only pay $8 but you cannot tell them apart.Your marginal costs are $4.If you set the price at $10,the expected profit is:

You want to run a difference-in-difference experiment with a price increase for the bacon cheeseburger item on your menu.If you are worried about the "representativeness" with your control group,a poor comparison menu item would be

You increase your advertising buy for your product in market A but not in market B.Sales in A rise from 1140 units per week to 1180 while sales in B fall from 1270 to 1230.The Difference-in-difference estimate of the effect of the increased advertising is:

A pharmaceutical company executive has to decide whether to fund a new drug development project.For this project,a success would earn $10 million and a failure would cost $90 in lost profits.At what probability of expected success should she fund the project?

Four possibilities have probabilities 0.4,0.2,0.2 and 0.2 and values $80,$30,$0,and -$80 respectively.The expected value is:

You put your product on 20% off sale market A but leave it unchanged in market B.Sales in A increase from 840 units per week to 1040 while sales in B rise from 770 to 830.The Difference-in-difference estimate of the effect of the price change is:

You experiment by offering free warranties for your product in market A not in market B.Sales in A rise from 240 units per week to 360 while sales in B rise from 410 to 430.The Difference-in-difference estimate of the effect of the free warranty is:

Half of all potential customers would pay $16 for your product but half would only pay $10 but you cannot tell them apart.Your marginal costs are $4.If you set the price at $16,the expected profit is:

A "false negative" is

A "false positive" is

A movie executive has to decide to fund a new movie project.For this project,a success would earn $20 million and a failure would cost $60 in lost profits.At what probability of expected success should he fund the movie?

You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami.If you are worried about the "representativeness" of your control group,a good comparison city would be

You raise your product price by $10 in market A but leave it unchanged in market B.Sales in A fall from 840 units per week to 740 while sales in B rise from 770 to 790.The Difference-in-difference estimate of the effect of the price change is: