STATISTICS FOR BUSINESS - CHAP07 - Hypothesis Testing PDF

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STATISTICS FOR BUSINESS
CHAPTER 07
HYPOTHESIS TESTING

PART I
INTRODUCTION TO HYPOTHESIS TESTING
A statistical hypothesis is an assumption about a population parameter. This assumption may or may not be true.
The best way to determine whether a statistical hypothesis is true would be to examine the entire population. Since that is
often impractical, researchers typically examine a random sample from the population. If sample data are not consistent
with the statistical hypothesis, the hypothesis is rejected.
There are two types of statistical hypotheses.
Null hypothesis. A null hypothesis, denoted by E
0
, is an assertion about the value of a population parameter. It is
an assertion that we hold as true unless we have sufficient statistical evidence to conclude otherwise.
Alternative hypothesis. The alternative hypothesis, denoted by E
1
, is the negative of the null hypothesis.


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PART II
THE HYPOTHESIS TESTING
Types of Hypothesis Tests
We now consider the three common types of hypothesis tests:
Tests of hypotheses about population means.
Tests of hypotheses about population proportions.
Tests of hypotheses about population variances.

One Tailed And Two Tailed Tests
Types of Hypothesis Tests
Two tailed Testing Right tailed Testing Left tailed Testing

About Population Means
E
0
: p =p
0

E
1
: p p
0

E
0
: p p
0

E
1
: p >p
0

E
0
: p p
0

E
1
: p <p
0

About Population
Proportions
E
0
: p =p
0

E
1
: p p
0

E
0
: p p
E
1
: p >p
0

E
0
: p p
0

E
1
: p <p
0

About Population Variances
E
0
:o
2
=o
0
2

E
1
: o
2
o
0
2

E
0
:o
2
o
0
2

E
1
: o
2
>o
0
2

E
0
: o
2
o
0
2

E
1
:o
2
<o
0
2


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Hypothesis Testing Process
Step 01 The population is normally distributed

Step 02 Determine the null and alternative hypotheses (E
0
onJ E
1
)
Step 03 Compute the test statistic value and the critical value(s)
Step 04 Make the decision (reject or not reject the null hypothesis E
0
)

THE HYPOTHESIS TESTING FOR POPULATION MEAN
HYPOTHESIS TESTING
PROCESS

Step 01
The population is normally
distributed

Step 02
Determine the null and
alternative hypotheses
E
0
: p =p
0

E
1
: p p
0

E
0
: p p
0

E
1
: p >p
0

E
0
: p p
0

E
1
: p <p
0


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Step 03
Compute the test statistic
value (z
1
/ t
1
) and the
critical value(s) (z
C
/ t
C
)
Situation I: When o is known (for all n), we use z Jistribution and S =o/ n
The test statistic value:
z
1
=
x p
0
o
n

The critical value(s):
z
C
=z
u/ 2
z
C
=z
u
z
C
=z
u

Situation II: When o is unknown and n <30, we use t Jistribution and S =s/ n
t
1
=
x p
0
s
n

t
C
=t
d],u/ 2
t
C
=t
d],u
t
C
=t
d],u

Situation III: When o is unknown and n 30, we use z Jistribution and S =s/ n
z
1
=
x p
0
s
n

z
C
=z
u/ 2
z
C
=z
u
z
C
=z
u

Step 04
Make the decision
With the level of significance (o)
Situation I: We can reject E
0
when
z
1
[z
C
,z
C
] z
1
>z
C
z
1
<z
C

t
1
[t
C
,t
C
] t
1
>t
C
t
1
<t
C


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Situation II: We cannot reject E
0
when
z
1
[z
C
,z
C
] z
1
<z
C
z
1
>z
C

t
1
[t
C
,t
C
] t
1
<t
C
t
1
>t
C

Sample:
PROBLEM 7.1:
(Situation I)
Average soap consumption in a certain country is believed to be 2.5 bars per person per month. The standard
deviation of the population is known to be o =0.8. While the standard deviation is not believed to have changed
(and this may be substantiated by several studies), the mean consumption may have changed either upward or
downward. A survey is therefore undertaken to test the null hypothesis that average soap consumption is still 2.5
bars per person per month versus the alternative that it is not. A sample of size n =20 is collected and gives x =
2.3. The population is assumed to be normally distributed. What is the appropriate test statistic in this case?
Conduct the test and state your conclusion. Use =0.05. Does the choice of level of signicance change your
conclusion? Explain.

SOLUTION: o =0.8,x =2.3,n =20,o =0.05
E
0
: p =2.5
E
1
: p 2.5
z
1
=
x p
0
o
n
=
2.3 2.5
0.8
20
1.1180
z
C
= z
u/ 2
=1.96

Thus, at 0.05 level of significance, we cannot reject E
0
because z
1
[z
C
,z
C
]. It means that we do not have
significant evidence to prove that the average soap consumption is still 2.5 bars per month or not.


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And, p :oluc = P(Z <1.1180) 2 0.2636. With 0.01 o 0.1, we cannot reject the null hypothesis.
For this instance, the choice of level of significance does not change our conclusion.

PROBLEM 7.2:
(Situation II)
A new chemical process is introduced by Duracell in the production of lithium-ion batteries. For batteries
produced by the old process, the average life of a battery is 102.5 hours. To determine whether the new process
affects the average life of the batteries, the manufacturer collects a random sample of 25 batteries produced by
the new process and uses them until they run out. The sample mean life is found to be 107 hours, and the sample
standard deviation is found to be 10 hours. Are these results signicant at the =0.05 level? Are they signicant
at the =0.01 level? Explain. Draw your conclusion.

SOLUTION: n =25, x =107, s =10, o =0.05
We assume that the population is normally distributed
E
0
: p =102.5
E
1
: p 102.5
t
1
=
x p
0
s
n
=
107102.5
10
25
=2.25
t
C
= t
d],u/ 2
=t
24,0.025
=2.064

Thus, at 0.05 level of significance, we can reject E
0
because t
1
[t
C
,t
C
]. It means that based on the hypothesis
testing we have enough evidence to prove that these results are significant. New process affects the average life
of the batteries.

And, with o =0.01, the critical value(s):
t
C
= t
d],u/ 2
=t
24,0.005
=2.797

Hence, at 0.01 level of significance, we cannot reject E
0
because t
1
[t
C
,t
C
]. It means that the results are
non-significant at o =0.01.


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PROBLEM 7.3:
(Situation III)
An automobile manufacturer substitutes a different engine in cars that were known to have an average miles-
per-gallon rating of 31.5 on the highway. The manufacturer wants to test whether the new engine changes the
miles-per-gallon rating of the automobile model. A random sample of 100 trial runs gives x =29.8 miles per
gallon and s =6.6 miles per gallon. Using the 0.05 level of signicance, is the average miles-per-gallon rating on
the highway for cars using the new engine different from the rating for cars using the old engine?

SOLUTION: n =100, x =29.8, s =6.6, o =0.05
E
0
: p =31.5
E
1
: p 31.5
z
1
=
x p
0
o
n
=
29.8 31.5
6.6
100
2.576
z
C
= z
u/ 2
=1.96

Thus, at 0.05 level of significance, we can reject E
0
because z
1
[z
C
,z
C
]. It means that based on the hypothesis
testing we have significant evidence to prove that the average miles-per-gallon rating on the highway for cars
using the new engine is different from the rating for cars using the old engine.


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THE HYPOTHESIS TESTING FOR POPULATION PROPORTION
HYPOTHESIS TESTING
PROCESS

Step 01
The population is
normally distributed

Step 02
E
0
: p =p
0

E
1
: p p
0

E
0
: p p
E
1
: p >p
0

E
0
: p p
0

E
1
: p <p
0

Step 03
Compute the test
statistic value (z
1
) and
the critical value(s) (z
C
)
For all instances, we always use z Jistribution and S =[p
0
(1p
0
)] n
z
1
=
p p
0
_
p
0
(1p
0
)
n

z
C
=z
u/ 2
z
C
=z
u
z
C
=z
u

Step 04
Make the decision
0
when
z
1
[z
C
,z
C
] z
1
>z
C
z
1
<z
C

0
when
z
1
[z
C
,z
C
] z
1
<z
C
z
1
>z
C


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Sample:
PROBLEM 7.4:
(Hypothesis
Testing for
Population
Proportion)

Suppose that the Goodyear Tire Company has historically held 42%of the market for automobile tires in the
United States. Recent changes in company operations, especially its diversication to other areas of business, as
well as changes in competing rms operations, prompt the rm to test the validity of the assumption that it still
controls 42%of the market. A random sample of 550 automobiles on the road shows that 219 of them have
Goodyear tires. Conduct the test at =0.01.

SOLUTION: p =x n =219 550 , n =550, o =0.01
E
0
: p =0.42
E
1
: p 0.42
z
1
=
p p
0
_
p
0
(1p
0
)
n
=
(219/ 550) 0.42
_
0.42(1 0.42)
550
1.0367
z
C
= z
u/ 2
=2.576

0
because z
1
[z
C
,z
C
]. It means that we do not have
significant evidence to prove that the average appreciation for all real estate sold in the five years ending May
2007 was 12.4 %per year or not.


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THE HYPOTHESIS TESTING FOR POPULATION VARIANCE
HYPOTHESIS TESTING
PROCESS

Step 01
The population is
normally distributed

Step 02
E
0
:o
2
=o
0
2

E
1
: o
2
o
0
2

E
0
:o
2
o
0
2

E
1
: o
2
>o
0
2

E
0
:o
2
o
0
2

E
1
: o
2
<o
0
2

Step 03
Compute the test
statistic value (X
1
2
) and
the critical value(s) (X
C
2
)
For all instances, we always use ci squorc Jistribution (X
2
)
X
1
2
=
(n 1)s
2
o
0
2

X
C(1-
u
2
)
2
=X
(d],1-
u
2
)
2

X
C(
u
2
)
2
=X
(d],
u
2
)
2

X
C
2
=X
(d],u)
2
X
C
2
=X
(d],1-u)
2


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Step 04
Make the decision
0
when
X
1
2
_X
C(1-
u
2
)
2
,X
C(
u
2
)
2
_
X
1
2
>X
C(u)
2
X
1
2
<X
C(1-u)
2

0
when
X
1
2
_X
C(1-
u
2
)
2
,X
C(
u
2
)
2
_
X
1
2
<X
C(u)
2
X
1
2
>X
C(1-u)
2

Sample:
PROBLEM 7.5:
(Hypothesis
Testing for
Population
Variance)

At Armcos steel plant in Middletown, Ohio, statistical quality-control methods have been used very successfully in
controlling slab width on continuous casting units. The company claims that a large reduction in the steel slab
width variance resulted from the use of these methods. Suppose that the variance of steel slab widths is expected
to be 156 (squared units). A test is carried out to determine whether the variance is above the required level, with
the intention to take corrective action if it is concluded that the variance is greater than 156. A random sample of
25 slabs gives a sample variance of 175. Using =0.05, should corrective action be taken?

SOLUTION: n =25, s
2
=175, o =0.05
We assume that the population is normally distributed
E
0
: o
2
156
E
1
: o
2
>156
X
1
2
=
(n 1)s
2
o
0
2
=
(251)175
156
26.9231
X
C
2
=X
(d],u)
2
=X
(24,0.05)
2
=36.4151

0
because X
1
2
<X
C
2
. It means that we do not have significant
evidence to prove that the variance is above the required level or not, so the corrective action should not be
taken.

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P VALUE
Given a null hypothesis and sample evidence with sample size n, the p ua|ue is the probability of getting a sample
evidence that is equally or more unfavorable to the null hypothesis while the null hypothesis is actually true. The
p :oluc is calculated giving the null hypothesis the maximum benefit of doubt.
Computing p value for z - distribution
Note: With your pocket-calculator or TABLE 2 Areas of the Standard Normal Distribution (Appendix C), you can
just compute the p value for z distribution. And to compute the p value of t distribution and chi-square
distribution, you have to use the statistic program on your computer, such as templates, SPSS, MINITAB
And, it is necessary for you to review an important part of chapter 4 (the normal distribution), finding the probability with
the given value. The given value will be considered as the test statistic value (z
1
). And the probability will be
considered as the p value.


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ONE-TAILED/ TWO-TAILED TESTING P - VALUE CALCULATOR INSTRUCTION
Right-tailed Testing
p :oluc =P(X >z
1
)
Step 01:
MODE 3 : STAT [ AC ]
Step 02:
SHIFT +1 [STAT] 7 : DISTR 3 : R (z
T
)

Left-tailed Testing
p :oluc =P(X <z
1
)
Step 01:
Step 02:
SHIFT +1 [STAT] 7 : DISTR 3 : P (z
T
)

Two-tailed Testing

If z
1
<0,
p :oluc =P(X <z
1
) 2
Step 01:
Step 02:
SHIFT +1 [STAT] 7 : DISTR 3 : P (z
T
) 2

If z
1
>0,
p :oluc =P(X >z
1
) 2
Step 01:
Step 02:
SHIFT +1 [STAT] 7 : DISTR 3 : R (z
T
) 2

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