Solution

ID: past-exam-of-the-options-ii-course-of-the-university-of-oxford/2010/o/o4/b/iii/solution

Under the null, replace both parameters by a common . The likelihood becomes
The pooled maximum-likelihood estimate is
Under an interior null , part (ii) gives a centered asymptotic normal difference with variance . The law of large numbers makes in probability. By Slutsky's theorem, replacing by this consistent estimate gives
For the two-sided alternative, reject when , the corresponding standard-normal quantile. This has asymptotic significance level .

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