MGCR 271
Winter 2010
Business Statistics
1.
(10 points)
Because of uncertainty in real estate markets, many homeowners are considering remodeling and
constructing additions rather than selling. The most expensive room in the house to remodel is the kitchen,
with an average cost of $23,400.
In terms of resale value, is remodeling the kitchen worth the cost?
The
following cost and resale figures are published in a magazine for 11 cities:
S.No
City
Cost
Resale
Gain
1
Atlanta
20,427
25,163
4,736
2
Boston
27,255
24,625
-2,630
3
Des Moines
22,115
12,600
-9,515
4
Kansas City
23,256
24,588
1,332
5
Louisville
21,887
19,267
-2,620
6
Portland, OR
24,255
20,150
-4,105
7
Raleigh-Durham
19,852
22,500
2,648
8
Reno
23,624
16,667
-6,957
9
Ridgewood, NJ
25,885
26,875
990
10
San Fransisco
28,999
35,333
6,334
11
Tulsa
20,836
16,292
-4,544
Average
23,490
22,187
-1,303
Stdev
2,916
6,207
4,938
(a) (1 point) Clearly state the hypothesis described in the problem using mathematical notation only.
(b) (2 points) How would you test the hypothesis stated in (a)? Explain your choice of test.
(c) (4 points) Compute the values of the standard error and the test statistic.
2