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Aplia: Studert Question MindTap-Cengage Learnin× New Tab Home | Chegg.com . i courses.aplia.com/af/servlet/quiz?quiz_action-t bGuid-QNAPCOA801010000003 ctxzdelil.martinez. |QSearch Applied Statistics for Business and Economics F17 Michael Norton Customer Support | Sign Out aplia Home Grades Course Materials Continuous Probability Distributions Graded Assignment | Read Chapter 6| Back to Assignment Due Sunday 10.08.17 at 11:45 PM Attempts: Average: 18 7. The exponential distribution An economist studied a large data set of Mexican consumer prices covering episodes of both high and low inflation One of the goods in the study was milk. When the inflation rate was low, an average of 1.7 changes in the price of milk occurred each year. When the inflation rate was high, the price of milk changed more frequently-an average of 7.5 times each year. [Source: E. Etienne Gagnon, Price setting during low and high infiation: Evidence from Mexico International Finance Discussion Papers, No. 896 (City: Board of Governors of the Federal Reserve System, 2007).1 The expected number of milk-price changes in a I-month period is when inflation is low and -when inflation is high Assume that y, the number of price changes in any 1-month period, is described by a Poisson probability distribution with a mean equal to one of the values you just calculated (depending on whether the inflation rate is high or low Then x, the number of months between consecutive price changes, is exponentially distributed with a mean of when inflation is low and a mean of when inflation is high. Now use the following Distributions tool to help you answer some of the questions that follow. 57:40 732 PM 10/3/2017

Explanation / Answer

The expected number of mild price changes in a 1-month period is=1.7/12=0.141 when inflation is low

7.5/12=0.625 when inlation is high.

Then x, the number of months between consecutive price changes, is exponentially distributed with mean of 1/0.141=7.1 when inflation is low and a mean of 1/0.625=1.6 wehn inflation is high.

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