COB201 Business Statistics One-Sample Procedures

The tests of hypothesis are used to test the validity of a claim about the value of a population parameter. Steps in Testing a Hypothesis 1. 2. 3. 4. 5. 6. Establish the hypothesis and its alternative. Set the significance level. Identify an appropriate test distribution. Find the critical values and state the rejection rule. Compute the test statistic (test ratio). Compare the test statistic to the critical values and make a decision. The owner of a cake shop claims that the mean number of cakes sold daily is 1,500. An employee wants to test the accuracy of his bosss claim. A random sample of 36 days shows that the mean daily sales were 1,450 cakes. Using a level of significance of = 0.01 and assuming = 120 cakes, what should the employee conclude? H0: = 1500 H1: 1500 2. = 0.01 3. n = 36 > 30 and = 120 (known) z-distribution 4. Z 2 = 2.575 Reject H0 if TS < -2.575 or TS > 2.575. x 0 x 0 1450 1500 5. TS = = = = 2.5 x / n 120 / 36 6. TS = -2.5 is not less than 2.575 Cannot reject H0. Conclusion: There is not sufficient evidence to show that the population mean number of cakes sold daily is not 1500. 1.

Example.

Solution:

The p-Value Approach to Hypothesis Testing The p-value is the probability of obtaining a test statistic equal to or more extreme than the result obtained from the sample data, given that the null hypothesis is true. Criteria for Rejecting or Not Rejecting a Null Hypothesis by Using p-Values: If p-value < , then reject H0. If p-Value , then do not reject H0. In the previous example, p-value = 2 P(z 2.5) = 2 0.0062 = 0.0124. p-value = 0.0124 which is not less than (0.01), the null hypothesis is not rejected.

1. 2. 3. 4.

If H1: > 0, then p-value = the area on the right-hand side of TS under the testing distribution curve. If H1: < 0, then p-value = the area on the left-hand side of TS under the testing distribution curve. If H1: 0 and TS is positive, then p-value = 2 the area on the right-hand side of TS under the testing distribution curve. If H1: 0 and TS is negative, then p-value = 2 the area on the left-hand side of TS under the testing distribution curve.

A Connection Between Confidence Interval Estimation and Hypothesis Testing Confidence interval estimation and hypothesis testing are considered as two major components of statistical inference. They are based on the same set of concepts but we used them for different purposes. Confidence intervals are used to estimate population parameters. Hypothesis testing is used for making decisions about specified values of population parameters. Instead of testing the null hypothesis that = 0, we can also reach the conclusion by obtaining a confidence interval estimate of . If the hypothesized value 0 falls into the interval, the null hypothesis is not rejected. That is, the value 0 would not be considered unusual for the data observed. On the other hand, if the hypothesized value does not fall into the interval, the null hypothesis is rejected, because 0 is then considered an unusual value. In the previous example, the 99% confidence interval of is: 120 120 1450 2.575 1450 + 2.575 36 36 1398.5 1501.5 The hypothesized value 1500 falls within the 99% confidence interval and therefore the null hypothesis is not rejected at the 0.01 significance level.
1. If H1: 0, then reject H0 if 0 is not in the confidence interval a b. (a is found by x z / 2 x or x t / 2 x , b is found by x + z / 2 x or x

+ t / 2 x )

2.

If H1: > 0, then reject H0 if 0 is not in the one-sided confidence interval a. (a is found by x z x or x t x ) If H1: < 0, then reject H0 if 0 is not in the one-sided confidence interval b. (b is found by x + z x or x + t x )

3.

Example.

A certain type of seed has always grown to a mean height of 8.5 inches. A sample of 100 seeds grown under new conditions has a mean height of 8.8 inches and a standard deviation of 1 inch. At the 1% significance level, test the hypothesis that the new conditions grow more better plants.

Solution:

p-value approach: p-value = which is less than Example.

, the null hypothesis is

A machine has been producing rods cut off at 10.5 inches. A random sample of 10 items shows a mean of 10.82 inches with a standard deviation of 0.25 inches. Is the machine out of control? Test the hypothesis at 0.01 significance level.

Solution:

Example.

The manager of a firm has advertised that 90% of the firms customers are satisfied with the companys services. A customer activist feels that this is an exaggerated statement that might require legal action. In a random sample of 150 of the companys clients, 132 said they were satisfied. What should be concluded if a test is conducted at the 0.05 level of significance?

Solution:

Type I and Type II Errors Reject True Hypothesis H0 H1 H0 Type I Error No Error H1 No Error Type II Error

P(Type I Error) = P(Reject H0 | H0) = P(Type II Error) = P(Reject H1 | H1) = P(Not rejecting H0 | H1) = Example. A company manufactures rope whose breaking strengths have a mean of 300 pounds and standard deviation 24 pounds. It is believed that by a newly developed process the mean breaking strength can be increased. a) b) Design a decision rule for rejecting the old process at a 0.01 level of significance if it is agreed to test 64 ropes. Under the decision rule adopted in part (a), what is the probability of accepting the old process when in fact the new process has increased the mean breaking strength to 310 pounds? Assume the population standard deviation is still 24 pounds.

Solution:

a)

1. H0: 300 H1: > 300 2. = 0.01 3. n = 64 > 30 and = 24 (known) z-distribution 4. Reject H0 if TS > 2.33 x 0 Reject H0 if > 2.33

+ 0 n 24 Reject H0 if x > 2.33 + 300 64 Reject H0 if x > 307 lbs. (ans.)

Reject H0 if x > 2.33 b) = 310 = 24 n = 64 P(not rejecting the old process | new process) = P(not rejecting = 300 | = 310) = P(not rejecting H0 | H1) = = P ( x 307 = 310 )

x 307 310 = P 24 / 64 x = P(z 1) = P(z > 1) = 0.1587 (ans.)

Note. will be reduced if: 1. n is increased. 2. is increased. 3. the difference between the true value of under H1 and the value of specified under H0 increases.