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EC351_F10_Test1 - Name EC 351 001 Econometrics I TEST 1...

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1 Name: _____________________________________________ EC 351 – 001: Econometrics I TEST 1 September 16, 2010 Instructions: Provide all answers on this exam paper. You must show all work to receive credit. You are allowed to use your notes on this exam, provided that they are written in your own handwriting. Make your final answer clear in order to receive full credit. Allocate your time appropriately across all questions and make sure to finish within the time limit of 75 minutes. Question values are shown beside each question as a percentage of the total exam grade.
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2 1. For-profit companies spend a lot of time trying to understand two variables: Revenue and Cost. Suppose that each is normally distributed with N (5,100). Economists define Profit as Revenue minus Cost. (Hint: To apply the appropriate formula, following the notation in your book, use 1 and 1.) a b   a. (4%) What is the distribution of the Profit variable if Revenue and Cost are independently distributed? b. (8%) What is the distribution of the Profit variable if the correlation between Revenue and Cost is 0.25?
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