MSPE PROGRAM
ECON 506
FALL 2011
Instructions for Excel Problem in HW7
NOTE
:
This is a quick review of the basic things that you are supposed to do. Note that
NORMSINV and NORMDIST are two functions in Excel.
Power function:
Assume that
θ
is the population unknown parameter. Then power
function power (
θ
) is defined as:
power (
θ
) = Prob. (rejecting null  the true value of
θ
is
θ
)
In other words power function gives the probability of rejecting null for different possible
values of parameter.
Thus to find the power function we should:
1
First find the rejection region and then
2
Find the probability that sample points fall in the rejection region for different
possible values of the parameter under consideration.
How to find the Rejection Region?
For finding the rejection region we use the given significance level,
α
. Note that
in 3 of 4 tests in the HW, the test is one sided and the rejection region lies in the lower
tail of the distribution. The one remaining test (test #3) is two sided and rejection region
is composed of two regions at the lower and upper tails of the distribution. Let’s now
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 Spring '08
 Staff
 Statistics, Null hypothesis, Statistical hypothesis testing, Statistical significance, Type I and type II errors, power function

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