Business Statistics, 4e

by Ken Black

Chapter 9
Discrete Distributions

Statistical Inference:
Hypothesis Testing
for Single
Populations

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-1
 Learning Objectives
• Understand the logic of hypothesis testing, and know how
to establish null and alternate hypotheses.
• Understand Type I and Type II errors, and know how to
solve for Type II errors.
• Know how to implement the HTAB system to test
hypotheses.
• Test hypotheses about a single population mean when  is
known.
• Test hypotheses about a single population mean when  is
unknown.
• Test hypotheses about a single population proportion.
• Test hypotheses about a single population variance.

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-2
 Types of Hypotheses
• Research Hypothesis
– a statement of what the researcher believes will
be the outcome of an experiment or a study.
• Statistical Hypotheses
– a more formal structure derived from the
research hypothesis.
• Substantive Hypotheses
– a statistically significant difference does not
imply or mean a material, substantive
difference.

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-3
 Example Research Hypotheses
• Older workers are more loyal to a company
• Companies with more than $1 billion of
assets spend a higher percentage of their
annual budget on advertising than do
companies with less than $1 billion of
assets.
• The price of scrap metal is a good indicator
of the industrial production index six
months later.

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-4
 Statistical Hypotheses
• Two Parts
– a null hypothesis
– an alternative hypothesis
• Null Hypothesis – nothing new is
happening
• Alternative Hypothesis – something new is
happening
• Notation
– null: H0
– alternative: Ha
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-5
 Null and Alternative Hypotheses
• The Null and Alternative Hypotheses are
mutually exclusive. Only one of them can
be true.
• The Null and Alternative Hypotheses are
collectively exhaustive. They are stated to
include all possibilities. (An abbreviated
form of the null hypothesis is often used.)
• The Null Hypothesis is assumed to be true.
• The burden of proof falls on the Alternative
Hypothesis.
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-6
Null and Alternative Hypotheses:
Example
• A manufacturer is filling 40 oz. packages
with flour.
• The company wants the package contents to
average 40 ounces.

H 0 :   40 oz
H a :   40 oz

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-7
 One-tailed and Two-tailed Tests
• One-tailed Tests

H 0 :   40 H 0 : p  0.18
H a :   40 H a : p  0.18

• Two-tailed Test

H 0 :   12
H a :   12
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-8
 HTAB System to Test Hypotheses

Task 1: Task 3:
HYPOTHESIZE TAKE STATISTICAL ACTION

Task 2: Task 4:
TEST DETERMINING THE
BUSINESS IMPLICATIONS

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-9
 Steps in Testing Hypotheses
1. Establish hypotheses: state the null and
alternative hypotheses.
2. Determine the appropriate statistical test and
sampling distribution.
3. Specify the Type I error rate (
4. State the decision rule.
5. Gather sample data.
6. Calculate the value of the test statistic.
7. State the statistical conclusion.
8. Make a managerial decision.
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-10
 HTAB Paradigm – Task 1
Task 1: Hypotheses

Step 1. Establish hypotheses: state the

null and alternative hypotheses.

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-11
 HTAB Paradigm – Task 2
Task 2: Test

Step 2. Determine the appropriate

statistical test and sampling
distribution.
Step 3. Specify the Type I error rate (
Step 4. State the decision rule.
Step 5. Gather sample data.
Step 6. Calculate the value of the test
statistic.
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-12
 HTAB Paradigm – Task 3
Task 3: Take Statistical Action

Step 7. State the statistical conclusion.

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-13
 HTAB Paradigm – Task 4
Task 4: Determine the business
implications

Step 8. Make a managerial decision.

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-14
Rejection and Non Rejection Regions

Rejection Region
Rejection Region

Non Rejection Region

=40 oz

Critical Value Critical Value

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-15
 Type I and Type II Errors
• Type I Error
– Rejecting a true null hypothesis
– The probability of committing a Type I error is
called , the level of significance.

• Type II Error
– Failing to reject a false null hypothesis
– The probability of committing a Type II error is
called .

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-16
 Decision Table
for Hypothesis Testing

Null True Null False

Fail to Correct Type II error

reject null Decision ()

Reject null Type I error Correct Decision

()

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-17
 One-tailed Tests

H 0 :   40 H 0 :   40
H a :   40 H a :   40
Rejection Region Rejection Region

Non Rejection Region Non Rejection Region

=40 oz =40 oz

Critical Value Critical Value

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-18
 Two-tailed Tests

H o0 :   40 Rejection Rejection
Region Region

H aa ::   40 Non Rejection Region

=12 oz

Critical Values

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-19
 CPA Net Income Example:
Two-tailed Test (Part 1)

H 0 :   $74,914 
2
.025

2
.025
Rejection
H a :   $74,914 Rejection
Region
Region

Non Rejection Region

=0

Zc  196
. Zc  196
.

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-20
 CPA Net Income Example:
Two-tailed Test (Part 2)

If z  zc  1.96, reject H 0 .
If z  zc  1.96, do not reject H 0 .

x   78,695  74,914
z   2.75
 14,530
n 112
z = 2.75  zc = 1.96, reject H 0 .

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-21
 CPA Net Income Example:
Critical Value Method (Part 1)
H 0 :   $74,914 Lower

x z
H a :   $74,914
c c
n
14,530
 74,914  1.96
  112
.025 .025
2 2  72,223
Rejection
Rejection Region Upper
Region

Non Rejection Region xc    z c
n
72,223 77,605
14,530
 74,914  1.96
112
Zzcc  196
1..96 0
z=0 zZc c 1196
..96
 77,605
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-22
 CPA Net Income Example:
Critical Value Method (Part 2)
 
.025 .025
2 2
Rejection
Rejection Region
Region
Non Rejection Region

72,223 77,605

Zzcc  196
1..96 0
z=0 zZcc 1196
..96

If x  77,223 or x  77,605, reject H 0 .

If 77,223  x  77,605, do not reject H 0 .

Since x  78,695  xc  77,605, reject Ho.

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-23
 Demonstration Problem 9.1: z Test
(Part 1)

H 0 :   4.30
H a :   4.30
Rejection
Region
=.05

Non Rejection Region

zZcc  1645
1..645 0

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-24
 Demonstration Problem 9.1: z Test
(Part 2)
Rejection x   4.156  4.30
Region zx   1.42
 0.574
=.05 n 32

Non Rejection Region z  1.42  1.645,

0 do not reject H 0 .
Zzcc  1645
1..645

If z  1.645, reject H 0 .
If z  1.645, do not reject H 0 .

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-25
 Demonstration Problem 9.1: Critical
Value (Part 1)

H 0 :   4.30
Rejection
Region
=.05

H a :   4.30 Non Rejection Region

0
zZc c1645
1..645
 xxcc  44.133
.133 4.30
xc    z
n
0.574
 4.30  ( 1.645)
32
 4.133

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-26
 Demonstration Problem 9.1: Critical
Value (Part 2)
Rejection
Region
=.05

Non Rejection Region

0
Zzcc  1645
1..645

4.30
xxcc  44.133
.133

If x  4.133, reject H 0 .
If x  4.133, do not reject H 0 .

x  4.156  4.133, do not reject H 0 .

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-27
 Demonstration Problem 9.1: Using the
p-Value
H 0 :   4.30 Rejection
Region
=.05

H a :   4.30 Non Rejection Region

0
If p - value <  , reject H 0 .
If p - value   , do not reject H 0 .

x   4.156  4.30 Since p - value = .0778 >  = .05,

z   1.42
 0.574 do not reject H 0 .
n 32
p ( z  1.42)  .0778

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-28
Demonstration Problem 9.1: MINITAB

Test of mu = 4.300 vs mu < 4.300

The assumed sigma = 0.574

Variable N MEAN STDEV SE MEAN Z P VALUE

Ratings 32 4.156 0.574 0.101 -1.42 0.078

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-29
 Demonstration Problem 9.1: Excel
(Part 1)

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-30
 Demonstration Problem 9.1: Excel
(Part 2)
H0 :  = 4.3
Ha :  < 4.3

3 4 5 5 4 5 5 4
4 4 4 4 4 4 4 5
4 4 4 3 4 4 4 3
5 4 4 5 4 4 4 5

n= =COUNT(A4:H7)
= 0.05
Mean = =AVERAGE(A4:H7)
S= =STDEV(A4:H7)
Std Error = =B12/SQRT(B9)
Z= =(B11-B1)/B13
p-Value =NORMSDIST(B14)
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-31
Two-tailed Test:  Unknown,  = .05
(Part 1)
Weights in Pounds of a Sample of 20 Plates
22.6 22.2 23.2 27.4 24.5
27.0 26.6 28.1 26.9 24.9
26.2 25.3 23.1 24.2 26.1
25.8 30.4 28.6 23.5 23.6

x  25.51, s = 2.1933, and n = 20

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-32
 Two-tailed Test:
 Unknown,  = .05 (part 2)

Ho0: :2525 Rejection Regions

Haa: : 2525 
.025

2
.025
2
Non Rejection Region
df  n  1  19 t  2.093 t c
 2.093
c

Critical Values

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-33
 Two-tailed Test:
 Unknown,  = .05 (part 3)

Rejection Regions If tt  2.093,

2.093, reject
reject Ho0 .
If t  2.093,
2.093, do not reject
reject H
Ho0..

  Xx  2551
. .51
25 . 25.0
250
.025
.025 2 t   .  1.04
 104
2 Ss 21933
. 2.1933
Non Rejection Region
nn 20 20
t c
 2.093 t c
 2.093

Critical Values Since tt 1104

.04  2.093
093,, do not reject Ho0..

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-34
 MINITAB Computer Printout
for the Machine Plate Example

Test of mu = 25.000 vs mu not = 25.000

Variable N MEAN STDEV SE MEAN T P VALUE

Platewt 20 25.510 2.193 0.490 1.04 0.31

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-35
 Machine Plate Example: Excel
(Part 1)

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-36
 Machine Plate Example: Excel
(Part 2)
A B C D E
1 H0:  = 25
2 Ha :   25
3

4 22.6 22.2 23.2 27.4 24.5

5 27 26.6 28.1 26.9 24.9
6 26.2 25.3 23.1 24.2 26.1
7 25.8 30.4 28.6 23.5 23.6
8

9 n= =COUNT(A4:E7)
10 = 0.05
11 Mean = =AVERAGE(A4:E7)
12 S= =STDEV(A4:E7)
13 Std Error = =B12/SQRT(B9)
14 t= =(B11-B1)/B13
15 p-Value =TDIST(B14,B9-1,2)
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-37
Demonstration Problem 9.2 (Part 1)
Size in Acres of 23 Farms
445 489 474 505 553 477 545
463 466 557 502 449 438 500
466 477 557 433 545 511 590
561 560

x  498.78, s = 46.94, and n = 23

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-38
Demonstration Problem 9.2 (Part 2)

H 0 :   471 Rejection Region

H a :   471
 .05

Non Rejection Region

df  n  1  22
t c
 1717
.

Critical Value

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-39
Demonstration Problem 9.2 (Part 3)

Rejection Region If t  1.717, reject H 0 .

If t  1.717, do not reject H 0 .

 .05 x   498.78  471

t   2.84
s 46.94
Non Rejection Region n 23

t c
 1717
.

Critical Value Since t  2.84  1.717, reject H 0 .

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-40
 z Test of Population Proportion

z
pˆ  p n  p  5, and
pq nq  5
n
where : pˆ  sample proportion
p  population proportion
q  1- p

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-41
 Testing Hypotheses about a
Proportion: Manufacturer Example
(Part 1)
Rejection Regions

H 0 : p  .08 
.05

.05
2 2
H a : p  .08 Z
zc  1645
c
.
Non Rejection Region
Zzc  1645
c
.

Critical Values

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-42
 Testing Hypotheses about a
Proportion: Manufacturer Example
(Part 2)
Rejection Regions If Zz  11645
. 645,, reject Ho..
0

If Zz  1.645,
1645
. , do not reject Ho.. 0

33
33
  pˆ  .165
.165
.05 .05 200
200
2 2
Non Rejection Region pˆ  Pp 165.08
.165 .08
zZ    4.43
4.43
Zzc  1645
c
. zZcc  1645
.
Pp Q
q (.(.08
08)(.)(.9292
))
Critical Values n 200
200
Since zZ  44..43  11645
.645,, reject
reject H
Ho0..

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-43
Demonstration Problem 9.3 (Part 1)

H0o:: Pp  .17
H 17 Rejection Region

Haa::Pp  ..17
H 17  .05

Non Rejection Region

zZcc  1645
.

Critical Value

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-44
Demonstration Problem 9.3 (Part 2)
If Zz 1645
If 1..645, ,reject
rejectHHo.0 .
Rejection Region If Zz  1645
If 1..645, ,do
donot
notreject
rejectHHo.0 .

115
115
 .05 ppˆ  .209
.209
550
550
ppˆ Pp .209
.209  .17
.17
Non Rejection Region Zz    2.442.44
PpQq (.17
(.17 )(.)83)
)(.83
Zzc  1645
c
.
nn 550
550
Critical Value
Since
Since Z
z = 22.44  11645
.44  ..645,, reject
reject H
Ho0..

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-45
 Hypothesis Test for 2:
Demonstration Problem 9.4 (Part 1)

Ho0::   2525
22 df = 15
H
Ha0::   2525
22 .05
H .95

.05
0

7.26094 24.9958

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-46
 Hypothesis Test for 2:
Demonstration Problem 9.4 (Part 2)
IfIf  77..26094
2 or   24.9958
2
2 2
df = 15 26094 or 9958,, reject
reject H
Ho.0 .

  24
2
2
7.26094  
IfIf7.26094 24.9958
.9958, ,do
donot
notreject
rejectHHo. 0.
.05
.95 
( n
n 11) sS22
(  15)( 28
15 1)
28..1
 
2
2
 
 16..86
16 86

2
2 25
25
.05

Since  1616.86
.86  
 .05 ,15 2424.9958
0 2 2 2
Since .9958
, ,
7.26094 24.9958 .05,15

dodo
notnotreject
rejectHH0o..

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-47
 Solving for Type II Errors:
The Beverage Example

Ho0: :12
12 xc zZ
Xc

c c
nn
Haa: 
: 1212  1212(( 11645
.645
0010
.10
. ))
60
Rejectio  11.979
11979
.
n
=.05
Region
If x  11
If X ..979,, reject
11979 rejectHHo.0 .
Non Rejection Region
=0 If x  11
If X ..979,, do
11979 do not
not reject
rejectHHo.0 .
zZcc  1.645

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-48
Type II Error for Beverage Example
with =11.99 oz
Reject Ho Do Not Reject Ho
Type I Correct
Error Decision
95%
=.05
Ho is True   z00
Z

Ho is False

Correct =.8023 Type II

Decision 19.77% Error


z11
Z



Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.  
xX
9-49
 Type II Error for Demonstration
Problem 9.5, with =11.96 oz
Reject Ho Do Not Reject Ho
Type I Correct
Error 95% Decision
=.05
Ho is True   zZ00
Ho is False
Correct =.0708 Type II
Decision 92.92% Error
zZ11


  
x
X
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-50
  Values and Power Values
for the Soft-Drink Example

 Power

11.999 .94 .06

11.995 .89 .11
11.990 .80 .20
11.980 .53 .47
11.970 .24 .76
11.960 .07 .93
11.950 .01 .99

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-51
 Operating Characteristic Curve
for the Soft-Drink Example
1
0.9
0.8
0.7
0.6
Probability

0.5
0.4
0.3
0.2
0.1
0
11.95 11.96 11.97 11.98 11.99 12


Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-52
 Power Curve
for the Soft-Drink Example
1
0.9
0.8
0.7
Probability

0.6
0.5
0.4
0.3
0.2
0.1
0
11.95 11.96 11.97 11.98 11.99 12


Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons. 9-53