5-27E

a.

The given data tabulates evaluation on quality rating and meal price for 300 restaurants in
metropolitan area. It is required to develop a bivariate probability distribution for quality
and meal price of a randomly selected restaurant in the given city.

Divide value in each cell by the total number of restaurants. The bivariate empirical
discrete probability distribution is as follows:

1 2 3 Total
1 0.14 0.13 0.01 0.28
2 0.11 0.21 0.18 0.5
3 0.01 0.05 0.16 0.22
Total 0.26 0.39 0.35 1.00
Table 5a-27E probability distribution.

b.

The expected value for quality rating, x is as follows:

E ( x)  0.28 1  0.5  2   0.22  3

= 1.94

Therefore, the required answer is: 1.94 .

The variance for quality rating, x is as follows:

Var ( x)  0.28 1  1.94   0.5  2  1.94   0.22  3  1.94 

2 2 2

= 0.4964

Therefore, the required answer is: 0.4964 .

c.

The expected value for meal price, x is as follows:

E ( y )  0.26 1  0.39  2   0.35  3

= 2.09

Therefore, the required answer is: 2.09 .

The variance for meal price, x is as follows:

Var ( y )  0.26 1  2.09   0.39  2  2.09   0.35  3  2.09 

2 2 2

= 0.6019

Therefore, the required answer is: 0.6019 .

d.

The formula for computing covariance for random variables x and y is given as follows:

 xy  Var  x  y   Var  x   Var ( y )  / 2 (1)

Where, Var  x  y  is variance of x  y , Var  x  is variance of x, and Var ( y ) is variance

of y.

From information,

Var  x  y   1.6691,Var ( x)  0.4964,Var ( y)  0.6019

Substitute the values in equation (1) and obtain the required covariance. Therefore, the
covariance is as follows:

 xy  1.6691  0.4964  0.6019 / 2

= 0.2854

Therefore, the required answers is: 0.2854 . The positive sign of the value indicate that
variables x and y are positively related. In other words, there is positive relationship
between quality and meal price.

e.

The correlation coefficient between random variable x and y is as follows:

 xy
 xy  (2)
 x y
Where,  xy is the covariance of random variable x and y;  x is standard deviation of x,
 y is standard deviation of y.

Substitute the values in the equation (2) and obtain the required value.

 xy
 xy 
 x y
0.2854
=
0.4964 0.6019
= 0.5221

Therefore, the required answers is: 0.5221 . The value of correlation coefficient lies in
middle position from -1 to 1, which implies a moderate, positive relationship between the
variables. Therefore, it is not feasible to find a low cost, high quality restaurant in the
city, as with increasing cost, quality increases.