ECON205

Problem Set 3
2013-2014 Fall
1) The weekly repair cost, X for a certain machine has a probability density function given by:
f(x) =

cx(1 x), 0 x 1
0, otherwise
a) Find the value of c that makes this function a valid probability density function.
b) Find the distribution function of X.
c) What is the probability that repair costs will exceed $75 during a week?
d) What is the probability that the repair costs will exceed $75 during a week given that they will
exceed $50?
2) Ali is always early for appointments, arriving between 10 minutes early to exactly on time.
The distribution function associated with X, the number of minutes early he arrives, is as follows
f(x) =

0, x < 0
x
2
40
, 0 x < 4
20xx
2
40
60
, 4 x 10
1, x > 10
a) Find the probability that Ali arrives at least 5 minutes early.
b) Find the probability density function of X.
c) Find the mean number of minutes that Ali is early for appointments.
3) The density function of X is given by; f(x) =

ax +bx
2
, 0 x 1
0, elsewhere
and E(X) =
1
9
. Find a and b.
4) Random variable X has CDF: F
X
(x) =

0, x < 0
x
2
, 0 x 2
1, x > 2
a) Find E(X)
b) Find V (X)
5) The bid that a competitor makes on a real estate property is estimated to be somewhere
between 0 and 3 million dollars. Specically, the bit X is viewed to be a continuous random
variable with density function;
f(x) =

c(9 x
2
), 0 < x < 3
0, otherwise
You make a bid (without knowing the competitors bid). The higher of the two bids wins.
a) Find the value of c that makes f(x) a density function.
b) Find the cumulative distribution function, F(x). Use the cumulative distribution to determine
the probability that you lose the bid if you make a bid of 2 million? 1 million?
c) Find the expected value and standard deviation for the competitors bid.
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6) A lling station is supplied with gasoline once a week. If its weekly volume of sales in thou-
sands of gallons is a random variable with probability density function
f(x) =

5(1 x)
4
, 0 < x < 1
0, otherwise
What must the capacity of the tank be so that the probability of the supplys being exhausted in
a given week is 0.01?
7) Each day, a newsboy buys newspapers from the publisher for c
1
cents each, sells them for c
2
cents each, and recycles the unsold papers (if any) getting c
3
cents for each. Note that c
2
> c
1
> c
3
.
Let H denote the number of papers that the newsboy purchases each day. The demand for papers
is a discrete random variable X that takes on non-negative integer values. Let F(u) denote the
CDF of X.
a) Express the probability that the newsboy is able to sell all H papers in terms of F(u).
b) One day, the newsboy decides to buy one additional paper in the hopes of selling it and
increasing his prot. Express the probability that he is unable to sell the additional paper in
terms of F(u). (Hint: Be sure you understand the dierence between not being able to sell the
(H + 1)
th
paper and being able to sell all H papers but not the extra (H + 1)
th
paper.)
8) Suppose X is a continuous random variable with density function:
f(x) =

1
2
x
2
e
x
, x 0
0, otherwise
Find the moment-generating function M
x
(t).
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