Office Use Only

Semester One 2015

Examination Period
Faculty of Business & Economics
EXAM CODES:

ETC1010/ ETW1010

TITLE OF PAPER:

Data Modelling and Computing - PAPER 1

EXAM DURATION:

2 hours writing time

READING TIME:

10 minutes

THIS PAPER IS FOR STUDENTS STUDYING AT:( tick where applicable)

Berwick
Clayton
Malaysia
Off Campus Learning
Caulfield
Gippsland
Peninsula
Enhancement Studies
Parkville
Other (specify)

Open Learning
Sth Africa

During an exam, you must not have in your possession, a book, notes, paper, electronic device/s, calculator,
pencil case, mobile phone, smart watch/device or other material/item which has not been authorised for the
exam or specifically permitted as noted below. Any material or item on your desk, chair or person will be
deemed to be in your possession. You are reminded that possession of unauthorised materials, or attempting to
cheat or cheating in an exam is a discipline offence under Part 7 of the Monash University (Council) Regulations.
No exam paper or other exam materials are to be removed from the room.

AUTHORISED MATERIALS
OPEN BOOK

YES

NO

CALCULATORS

YES

NO

SPECIFICALLY PERMITTED ITEMS

if yes, items permitted are:

YES

NO

Candidates must complete this section if required to write answers within this paper

STUDENT ID:

__ __ __ __ __ __ __ __

DESK NUMBER:

__ __ __ __ __

Page 1 of 15

INSTRUCTIONS TO CANDIDATES:
1. NO EXAMINATION PAPERS ARE TO BE REMOVED FROM THE ROOM
2. WRITE ALL ANSWERS IN THE EXAM BOOKLET
3.

THE EXAM BEGINS ON PAGE THREE

Page 2 of 15

Question 1: Spreadsheet Modelling (15 pt)

Murdock realty manages real estate investment properties, such as, condominiums and commercial real estate. For each rental property, the company has two associated revenue streams:
administrative fees associated with maintaining the investment properties and fees associated
with managing each investment property. In addition to the revenue streams, Murdock realty
has several cost outlays associated with managing each individual property: labor costs, leasing
costs for the building Murdock realty operates out of, marketing costs associated with the Murdock realty website, and additional expenses. Use the above information and Figure 1 to answer
the following questions.
(A) Murdock realty is currently trying to expand into new markets. To do so, they need to
raise new capital, which will require borrowing money from a bank. As part of their loan
application the bank has asked Murdock realty to explain their business model, including
all revenue and cost streams. Draw an influence diagram that accurately represents this
information and how these different pieces relate to company profit. (4 pt)
(B) Consider the spreadsheet model in Figure 1. Currently, Murdock realty charges a flat
management fee per managed property. The current fee is $250. Determine, using Figure
1, how profit will change if the management fee is increased to $325 (assuming the same
number of clients is retained). Do you expect the same number of clients to be retained
after Murdock realty increases the management fee? (5 pt)

Figure 1: Spreadsheet model for Murdock Realty, with excel formulas.

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(C) Murdock realty currently has labor costs and revenues given in Figure 1. Murdock realty
would like to give its employees a raise. Using Figure 1, determine how much Murdock
realty can increase their employees hourly wage before earning zero profit (holding everything else constant). Explain how this can be answered using native spreadsheet functions
in excel. (6 pt)

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Question 2: Regression Analysis (35 pt)

Nearly forty years of economic research says that wages are positively related to an employees level of education and job experience. The goal of this question is to determine the exact
relationship between wages, education, and experience. We record data related to wages, experience, education, and age for a representative survey of 753 individuals in Australia. The
precise definition of the recorded variables in the data set are as follows: lwage, the logarithm
of the individuals stated wage; Age, age of the individual at the time of the survey; Educ, the
individuals level of education at the time of the survey; Exp, the individuals level of experience
at the time of the survey.
(A) From the output given in Figure 2, state the regression model that is being estimated. (1
pt)

Figure 2: Regression output.

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(B) What percentage of the variation in ln(wage) is explained by this model and state whether
or not this model is a good fit? (2 pt)
(C) Calculate the coefficient estimate of education. (3 pt)
(D) Using the information in Figure 2 and your knowledge of the student t-distribution, and
standard normal distribution, report an approximate 95% confidence interval for the coefficient of experience (3pt). Please state why you are only able to build an approximate
95% confidence interval (2 pt). (total = 5pt)
(E) We know from class that 95% CIs can be used to conduct two-sided hypothesis tests. Is a
two-sided hypothesis test for education appropriate in this example (2 sentence maximum
please)? (3 pt)
(F) Using the critical value approach, conduct a one-sided approximate hypothesis test for a
positive educational affect at the 95% level (please state all testing steps) (4 pt). Why is
the test approximate? (1 pt) (total = 5)
(G) In the observed sample there are many missing values for wages, as not all individuals in
the sample were employed at the time the sample information was collected.
(G.1) State the missing data method used to generate the regression results in Figure 2. (1
pt)
(G.2) Does the missing data method in (G.1) place any restrictions on how the coefficients
in the regression output contained in Figure 2 can be interpreted? (3 pt)
(G.3) State two possible ways of dealing with the missing values for lwage. For one of the
two methods, give a short description as to why this method may be appropriate. (2
pt)
(H) Figure 3 contains regression output associated with an alternative way of dealing with the
missing values.

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Figure 3: Regression output using alternative missing data method.

(H.1) From the given output, calculate and interpret the coefficient estimate for education.
(3 pt)
(H.2) Using the regression output in Figure 3 test the null hypothesis that there is no effect
of education on wages. (Please include all testing steps.) (3pt)
(H.3) Compare and contrast the coefficient estimates from education and experience across
the two methods for dealing with the missing data. What do these results say about
the appropriateness of the two missing data methods (four sentences maximum)? (4
pt)

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Question 3 (20pt)
The Precision Engineering Service (PCES hereafter) Company uses engineers and technicians
to work on design projects for its customers. Engineers cost more per hour than technicians,
but they also require less supervision and secretarial assistance than technicians. Engineers cost
$100 per hour and technicians cost $50 per hour. Each hour of engineering time requires 1/4
hour of supervision time and 3/4 hour of secretarial assistance. Each hour of technician time
requires 1/2 hour of supervision time and 1 hour of secretarial assistance. PCES bid and received
a large design project several months ago and now must determine how many engineering and
technician hours to use on the project. The company bid a total labor cost of $100,000, and
management will not tolerate labor cost overruns because of a severe cash shortage. A maximum
of 600 hours of supervision and 1,500 hours of secretarial assistance is available for this project.
PCES charges its customer a hourly rate when labor is used so that each hour of technician time
yields $40 in profit and each hour of engineering time yields $30 in profit. We want to determine
how many engineering and technician hours, respectively, should be allocated to the project.
(A) State the objective function. (2pt)
(B) What are the decision variables in part (A)? (2pt)
(C) Formulate the mathematical optimization problem based on the above description. (6pt)
This problem has been solved in Excel and the following output was received.

Figure 4: Answer report for Precision Engineering Service Company.

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Figure 5: Sensitivity report for Precision Engineering Service Company.

(D) How many hours of engineering and technician time should be allocated to the project?
(2pt)
(E) What is the maximum profit that can be achieved? (2pt)
(F) One of the managers suggested that he can contribute 10 hours of his time (unpaid) for
supervision. How will this change the optimal solution (amount of hours and/or total
profit)? (3pt)
(G) Another manager is willing to contribute 30 hours of his personal secretary to help the
engineers and technicians working on the project. How will this change the optimal solution
(amount of hours and/or total profit) in part (A)? (3pt)

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Question 4 (12pt)
You are a senior business analyst in a chocolate production company. The company largely
produces one particular type of crunchy chocolate bar. There are two machines in the plant that
produce this chocolate bar. The maintenance costs per day incurred on these two machines are
$100 and $120, respectively. The manufacturing cost per chocolate bar is $2.5 for Machine-1
and $2 for Machine-2. The maximum daily production capacity for Machine-1 and Machine-2
are 1100 and 1250, respectively, and the company must produce at least 1000 chocolate bars per
day.
(A) Develop (give a mathematical representation of) an optimization programming model for
minimizing the total cost of production. (6pt)
(B) One of the junior business analysts has developed an optimization Excel file to solve this
problem. Examine the print screens from the excel file in Figures 6, 8, 7, and determine if
there are any mistakes in the file. (4pt)

Figure 6: First screen shot of excel file for chocolate production company.

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Figure 7: Second screen shot of excel file for chocolate production company.

Figure 8: Third screen shot of excel file for chocolate production company.
(C) The company is now interested in saving money by only operating one machine. What
constraint should you add to the optimization problem in question (A)? (2pt)

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Question 5 (18pt)
An investor is to purchase one of three types of real estate . The investor must decide among an
apartment building, an office building, and a warehouse. Two future states of nature determine
how much profit the investor will make: state one is characterized by good economic conditions,
and state two is characterized by poor economic conditions. The profits that will result from
each decision in the event of each state of nature are shown in the following payoff table:

Figure 9: Company profit given different possible states of Nature.

(A) Determine the best decision without probabilities based on the following criterion:
(A.1) Minimax (optimistic approach). (1pt)
(A.2) Maximin (conservative approach). (1pt)
(A.3) Minimax Regret. (1pt)
(B) Let us suppose that, based on several economic forecasts, the investor is able to estimate
a .60 probability that good economic conditions will prevail and a 0.40 probability that
poor economic conditions will prevail.
(B.1) Determine the best decision using expected value. (2pt)
(B.2) Determine the best decision using expected opportunity loss. (2pt)
(B.3) Compute the expected value given perfect information. (2pt)
(B.4) Develop a decision tree with the expected value at each of the nodes. (3pt)
(C) Suppose that the investor has decided to hire a professional economic analyst who will
provide additional information about the future economic conditions. Based on past history, the investor knows the prediction quality (conditional probabilities) of the economist
as follows:
P (P |g) = .80 and P (N |p) = .90,
where
g = good economic conditions
p = poor economic conditions
P = positive economic report (predict good)
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N = negative economic report (predict poor)

(C.1) Determine posterior probabilities using Bayes rule (or Contingency Table) and the
probabilities given in part (B). (3pt)
(C.2) Perform a decision tree analysis using the posterior probability obtained in part 1.
(3pt)

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Standard Normal Probabilities

Table entry

Table entry for z is the area under the standard normal curve
to the left of z.

z
z

.00

.01

.02

.03

.04

.05

.06

.07

.08

.09

3.4
3.3
3.2
3.1
3.0
2.9
2.8
2.7
2.6
2.5
2.4
2.3
2.2
2.1
2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0

.0003
.0005
.0007
.0010
.0013
.0019
.0026
.0035
.0047
.0062
.0082
.0107
.0139
.0179
.0228
.0287
.0359
.0446
.0548
.0668
.0808
.0968
.1151
.1357
.1587
.1841
.2119
.2420
.2743
.3085
.3446
.3821
.4207
.4602
.5000

.0003
.0005
.0007
.0009
.0013
.0018
.0025
.0034
.0045
.0060
.0080
.0104
.0136
.0174
.0222
.0281
.0351
.0436
.0537
.0655
.0793
.0951
.1131
.1335
.1562
.1814
.2090
.2389
.2709
.3050
.3409
.3783
.4168
.4562
.4960

.0003
.0005
.0006
.0009
.0013
.0018
.0024
.0033
.0044
.0059
.0078
.0102
.0132
.0170
.0217
.0274
.0344
.0427
.0526
.0643
.0778
.0934
.1112
.1314
.1539
.1788
.2061
.2358
.2676
.3015
.3372
.3745
.4129
.4522
.4920

.0003
.0004
.0006
.0009
.0012
.0017
.0023
.0032
.0043
.0057
.0075
.0099
.0129
.0166
.0212
.0268
.0336
.0418
.0516
.0630
.0764
.0918
.1093
.1292
.1515
.1762
.2033
.2327
.2643
.2981
.3336
.3707
.4090
.4483
.4880

.0003
.0004
.0006
.0008
.0012
.0016
.0023
.0031
.0041
.0055
.0073
.0096
.0125
.0162
.0207
.0262
.0329
.0409
.0505
.0618
.0749
.0901
.1075
.1271
.1492
.1736
.2005
.2296
.2611
.2946
.3300
.3669
.4052
.4443
.4840

.0003
.0004
.0006
.0008
.0011
.0016
.0022
.0030
.0040
.0054
.0071
.0094
.0122
.0158
.0202
.0256
.0322
.0401
.0495
.0606
.0735
.0885
.1056
.1251
.1469
.1711
.1977
.2266
.2578
.2912
.3264
.3632
.4013
.4404
.4801

.0003
.0004
.0006
.0008
.0011
.0015
.0021
.0029
.0039
.0052
.0069
.0091
.0119
.0154
.0197
.0250
.0314
.0392
.0485
.0594
.0721
.0869
.1038
.1230
.1446
.1685
.1949
.2236
.2546
.2877
.3228
.3594
.3974
.4364
.4761

.0003
.0004
.0005
.0008
.0011
.0015
.0021
.0028
.0038
.0051
.0068
.0089
.0116
.0150
.0192
.0244
.0307
.0384
.0475
.0582
.0708
.0853
.1020
.1210
.1423
.1660
.1922
.2206
.2514
.2843
.3192
.3557
.3936
.4325
.4721

.0003
.0004
.0005
.0007
.0010
.0014
.0020
.0027
.0037
.0049
.0066
.0087
.0113
.0146
.0188
.0239
.0301
.0375
.0465
.0571
.0694
.0838
.1003
.1190
.1401
.1635
.1894
.2177
.2483
.2810
.3156
.3520
.3897
.4286
.4681

.0002
.0003
.0005
.0007
.0010
.0014
.0019
.0026
.0036
.0048
.0064
.0084
.0110
.0143
.0183
.0233
.0294
.0367
.0455
.0559
.0681
.0823
.0985
.1170
.1379
.1611
.1867
.2148
.2451
.2776
.3121
.3483
.3859
.4247
.4641

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Standard Normal Probabilities

Table entry

Table entry for z is the area under the standard normal curve
to the left of z.

z
z
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3.0
3.1
3.2
3.3
3.4

.00

.01

.02

.03

.04

.05

.06

.07

.08

.09

.5000
.5398
.5793
.6179
.6554
.6915
.7257
.7580
.7881
.8159
.8413
.8643
.8849
.9032
.9192
.9332
.9452
.9554
.9641
.9713
.9772
.9821
.9861
.9893
.9918
.9938
.9953
.9965
.9974
.9981
.9987
.9990
.9993
.9995
.9997

.5040
.5438
.5832
.6217
.6591
.6950
.7291
.7611
.7910
.8186
.8438
.8665
.8869
.9049
.9207
.9345
.9463
.9564
.9649
.9719
.9778
.9826
.9864
.9896
.9920
.9940
.9955
.9966
.9975
.9982
.9987
.9991
.9993
.9995
.9997

.5080
.5478
.5871
.6255
.6628
.6985
.7324
.7642
.7939
.8212
.8461
.8686
.8888
.9066
.9222
.9357
.9474
.9573
.9656
.9726
.9783
.9830
.9868
.9898
.9922
.9941
.9956
.9967
.9976
.9982
.9987
.9991
.9994
.9995
.9997

.5120
.5517
.5910
.6293
.6664
.7019
.7357
.7673
.7967
.8238
.8485
.8708
.8907
.9082
.9236
.9370
.9484
.9582
.9664
.9732
.9788
.9834
.9871
.9901
.9925
.9943
.9957
.9968
.9977
.9983
.9988
.9991
.9994
.9996
.9997

.5160
.5557
.5948
.6331
.6700
.7054
.7389
.7704
.7995
.8264
.8508
.8729
.8925
.9099
.9251
.9382
.9495
.9591
.9671
.9738
.9793
.9838
.9875
.9904
.9927
.9945
.9959
.9969
.9977
.9984
.9988
.9992
.9994
.9996
.9997

.5199
.5596
.5987
.6368
.6736
.7088
.7422
.7734
.8023
.8289
.8531
.8749
.8944
.9115
.9265
.9394
.9505
.9599
.9678
.9744
.9798
.9842
.9878
.9906
.9929
.9946
.9960
.9970
.9978
.9984
.9989
.9992
.9994
.9996
.9997

.5239
.5636
.6026
.6406
.6772
.7123
.7454
.7764
.8051
.8315
.8554
.8770
.8962
.9131
.9279
.9406
.9515
.9608
.9686
.9750
.9803
.9846
.9881
.9909
.9931
.9948
.9961
.9971
.9979
.9985
.9989
.9992
.9994
.9996
.9997

.5279
.5675
.6064
.6443
.6808
.7157
.7486
.7794
.8078
.8340
.8577
.8790
.8980
.9147
.9292
.9418
.9525
.9616
.9693
.9756
.9808
.9850
.9884
.9911
.9932
.9949
.9962
.9972
.9979
.9985
.9989
.9992
.9995
.9996
.9997

.5319
.5714
.6103
.6480
.6844
.7190
.7517
.7823
.8106
.8365
.8599
.8810
.8997
.9162
.9306
.9429
.9535
.9625
.9699
.9761
.9812
.9854
.9887
.9913
.9934
.9951
.9963
.9973
.9980
.9986
.9990
.9993
.9995
.9996
.9997

.5359
.5753
.6141
.6517
.6879
.7224
.7549
.7852
.8133
.8389
.8621
.8830
.9015
.9177
.9319
.9441
.9545
.9633
.9706
.9767
.9817
.9857
.9890
.9916
.9936
.9952
.9964
.9974
.9981
.9986
.9990
.9993
.9995
.9997
.9998

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