LO10-1 Explain the process of testing a hypothesis.

LO10-2 Apply the six-step procedure for testing a hypothesis.

LO10-3 Distinguish between a one-tailed and a two-tailed test of
hypothesis.
LO10-4 Conduct a test of a hypothesis about a population mean.
LO10-5 Compute and interpret a p-value.
LO10-6 Use a t statistic to test a hypothesis.
• Chapter 9 continued the study of statistical inference by
developing a confidence interval.
• A confidence interval is a range of values within which we
expect the population parameter to occur.
• In this chapter, rather than developing a range of values, we
develop a procedure to test the validity of a statement about
a population parameter.
 LO10-1 Explain the process of testing a hypothesis.

HYPOTHESIS A statement about a population parameter subject

to verification.
Examples of Statement:
▪ The mean speed of automobiles passing Khobar-Dammam Highway is
80 KM per hour.
▪ Consumers prefer Coke over all other cola drinks.
▪ Billboard advertising is more effective than advertising in paper-based
media.
▪ The mean time an American family lives in a particular single-family
housing is 11.8 years.
 LO10-2 Apply the six-step procedure for testing a hypothesis

HYPOTHESIS TESTING A procedure based on sample evidence

and probability theory to determine whether the hypothesis
is a reasonable statement.

State null Select a Identify Formulate Take a Interpret

and level of the test a decision sample the result
Step 3

Step 6
Step 1

Step 2

Step 4

Step 5
alternate significance statistic rule arrive at
hypotheses decision
NULL HYPOTHESIS A statement about the value of a
population parameter developed for the purpose of testing
numerical evidence. It is denoted by H0.

ALTERNATE HYPOTHESIS A statement that is accepted if the

sample data provide sufficient evidence that the null
hypothesis is false. It is represented by H1.

10-6
 LO10-2

Type I Error
The significance level of a test:
– It occurs if you reject the null hypothesis H0, when it is true
and should not be rejected.
– This is denoted by the Greek letter “”.
– We set this probability prior to collecting data and testing the
hypothesis.
– A typical value of “” is 0.05.
 LO10-2

Type II Error
Another possible error:
– It occurs if you do not reject the null hypothesis, when it is
false and should be rejected.
– The probability of committing a Type II error is called the β risk.
– We cannot select this probability. It is related to the choice of
, the sample size, and the data collected.
LO10-2
 LO10-2

TEST STATISTIC A value, determined from sample information,

used to determine whether to reject the null hypothesis.

For testing a mean (σ known) For testing a mean (σ unknown)

𝑥ത −𝜇 𝑥ത − 𝜇
𝑧= 𝑡=
𝜎/ 𝑛 𝑠/ 𝑛
To test hypotheses about population means, the z or t-statistic is
used. For hypotheses testing about population variances, the F-
statistic is used. 10-10
 LO10-2

CRITICAL VALUE Based on the selected level of significance, the

critical value divides the normal distribution into regions of
rejection and nonrejection.

If the test statistic value falls in the region of rejection, then

reject the null hypothesis.
10-11
 LO10-2

▪ Identify an unbiased sample

▪ Collect the data on the relevant variables
▪ Calculate test statistics
▪ Compare the test statistic to the critical value
▪ Make a decision, either reject or don’t reject the null hypothesis

10-12
 LO10-2

What does the decision to reject or do not reject the null

hypothesis mean in the context of the study?
Example 1: An investigative reporter for a Colorado newspaper reports
that the mean monthly income of convenience stores in the state is
$130,000. You decide to conduct a test of hypothesis to verify the report.
H0: μ = $130,000 and H1: μ ≠ $130,000
You compute a z-statistic using a sample. The results of the hypothesis
test result in a decision to not reject H0.
How do you interpret the result?
By not rejecting H0, you did not prove the null hypothesis to be true.
Based on the sample data, the difference between 𝑥ത and hypothesized μ
was not large enough to reject H0. 10-13
 LO10-2

Example 2: In a recent speech to students, the dean of the College of Business

reported that the mean credit card debt for college students is $3000. You decide to
conduct a test of the dean’s statement to investigate the statement’s truth.
H0: μ = $3,000 and H1: μ ≠ $3,000
You compute a z-statistic using a sample. The hypothesis test results in a decision to
reject H0.
How do you interpret the result?
The sample evidence doesn’t support the dean’s statement. Based on the sample
data, the mean amount of student credit card debt is different from $3000. You have
disproved H0 with a stated probability of a Type I error, α. That is, there is a small
probability that the decision to reject the null hypothesis was an error due to random
sampling. 10-14
 LO10-3 Distinguish between one-tailed
and two-tailed test of hypothesis.

It is one (right) tailed test. It is one (left) tailed test. It is a two-tailed test.
H0: μ ≤ 453 H0: μ ≥ 60000 H0: μ = 65000
H1: μ > 453 H1: μ < 60000 H1: μ ≠ 65000
The inequality sign in H1 If no direction is specified
indicates the region of in H1, it’s a two-tailed
rejection. test.
10-15
 LO10-4 Conduct a test of a hypothesis
about a population mean.

Jamestown Steel Company manufactures and assembles desks and other

office equipment. The weekly production of the Model A325 desk at the
Fredonia Plant follows the normal probability distribution with a mean of
200 and a standard deviation of 16. Recently, new production methods
have been introduced and new employees hired. The mean of sample of
50 weeks production is calculated to be 203.5.
The VP of manufacturing would like to investigate
whether there has been a change in the weekly
production of the Model A325 desk. Is the mean
number of desks produced at the Fredonia Plant
different from 200 at the 0.01 significance level?

10-16
Since population follows the normal distribution and
σ = 16 (known) therefore we use z-statistic.
Step 1: State H0 and H1
The null hypothesis is “The population mean is 200.”
The alternate hypothesis is “The mean is not 200.”
H0: μ = 200
H1: μ ≠ 200
This is a two-tailed test because the alternate hypothesis
does not state a direction. In other words, it does not
state whether the mean production is greater than 200
or less than 200.
Step 2: Select the level of significance
The significance level is given to be 0.01.
This is α, the probability of committing a Type I error.

Step 3: Select the test statistic.

We choose z-statistic since σ is known.
𝑥ത − 𝜇
𝑧=
𝜎/ 𝑛
Step 4: Formulate the decision rule
We formulate the decision rule by first finding the
critical values of z. Because this is a two-tailed test,
half of α (0.01/2= 0.005) is placed in each tail.
Go to z table and see the corresponding value of z
for 0.4950. It is in between 2.57 and 2.58 (2.576).
This is called critical value zα.
Step 5: Make a decision
Computing the z value
𝑥ത − 𝜇 203.5 − 200
𝑧= = = 1.547
𝜎/ 𝑛 16/ 50
Because 1.547 is between [–2.576, 2.576] we decide not
to reject H0.
Step 6: Interpret the result
We did not reject H0, so we have failed to show that μ is
not 200 per week. To put it another way, the difference
between μ = 200 per week and 𝑥ത = 203.5 is not significant
or could be due to chance.
What should we tell the VP? The sample information fails
to indicate that the new production methods resulted in a
change in the 200-desks-per-week production rate.
 LO10-3

• H0 is the null hypothesis; H1 is the alternate hypothesis.

• H0 and H1 are mutually exclusive and collectively exhaustive.
• H0 is always presumed to be true.
• H1 has the burden of proof.
• A random sample (of size n) is used to “reject H0.”
• If we conclude “do not reject H0”, this does not necessarily mean that
the null hypothesis is true, it only suggests that there is not sufficient
evidence to reject H0; rejecting the null hypothesis, suggests that the
alternative hypothesis may be true given the probability of Type I error.
• Equality is always part of H0 (e.g. “=”, “≥”, “≤”).
• Inequality is always part of H1 (e.g. “≠”, “<”, “>”).
 LO10-3

H0: μ = value H0: μ ≥ value H0: μ ≤ value

H1: μ ≠ value H1: μ < value H1: μ > value
Reject H0 if Reject H0 if Reject H0 if
𝑧 >zα/2 z < –zα z > zα
𝑡 >t α/2 t < –tα z > tα
 LO10-4 Conduct a test of a hypothesis
about a population mean.

To illustrate a one-tailed test, let’s change the problem. Suppose the vice
president wants to know whether there has been an increase in the
number of units assembled. To put it another way, can we conclude,
because of the improved production methods, that the mean number of
desks assembled in the last 50 weeks was more than 200?
What is the difference in previous and this example?
In the previous example, we wanted to know
whether there was a difference in the mean
number assembled, but now we want to know
whether there has been an increase. Since we
investigate a different question, we will set our
hypothesis differently.
10-24
Recall: σ = 16, n = 200, α = 0.01
Step 1: State H0 and H1
The null hypothesis is “The population mean is 200.” The
alternate hypothesis is “The mean has increased from 200.”
H0: μ ≤ 200
H1: μ > 200
This is a one-tailed test.
Step 2: Select the level of significance
The significance level was given to be 0.01.
Step 3: Select the test statistic.
𝑥ത − 𝜇
We chose z-statistic since σ is known. 𝑧 =
𝜎/ 𝑛
Step 4: Formulate the decision rule
In previous example we split significance level in two
tails. But in a one-tailed test, we put all the rejection
region in one tail. The critical value of z is
zα = 2.326 (See normal table or last row of t-table)

Decision rule: Reject H0 if

z > 2.326
Step 5: Make a decision
Computing the z value
𝑥ത −𝜇 200 −5 .203
𝑧= = = 1.547 < 2.326
𝜎/ 𝑛 16/ 50
Because z = 1.547 is less than the critical value zα =
2.326, we decide not to reject H0.
Step 6: Interpret the result
We did not reject H0, so we have failed to show that μ
has increased from 200 per week. Based on the
evidence, we cannot conclude that the average
number of desks assembled increased in the last 50
weeks.
 LO10-4 Conduct a test of a hypothesis
about a population mean.

Heinz, a manufacturer of ketchup, uses a particular machine to dispense 16 ounces

of its ketchup into containers. From many years of experience with the particular
dispensing machine, Heinz knows the amount of product in each container follows
a normal distribution with a mean of 16 ounces and a standard deviation of 0.15
ounce. A sample of 50 containers filled last hour revealed the mean amount per
container was 16.017 ounces. Does this evidence suggest that the mean amount
dispensed is different from 16 ounces? Use the 0.05 significance level.
a) State the null hypothesis and the alternate hypothesis.
b) What is the probability of a Type I error?
c) Give the formula for the test statistic.
d) State the decision rule.
e) Determine the value of the test statistic.
f) What is your decision regarding the null hypothesis?
g) Interpret, in a sentence, the result of the statistical test.
10-28
a) State H0 and H1
H0: μ = 16
H1: μ ≠ 16 (two-tailed test)
b) The level of significance
The significance level is given to be α = 0.05.
c) Select the test statistic.
We chose z statistic since σ is known.
𝑥ത − 𝜇
𝑧=
d) Formulate the decision rule
𝜎 / 𝑛

Critical value zα = 1.96

Reject H0 if z < -1.96 or z > 1.96, means the null
hypothesis will not be rejected if z value falls in
[–1.96, 1.96].
e) The value of the test statistic
μ = 16, σ = 0.15, 𝑥ത = 16.017, n =50
𝑥ത − 𝜇 16.017 − 16
𝑧= = = 0.80
𝜎/ 𝑛 0.15/ 50
f) Decision
Do not reject H0.
g) Interpretation
We cannot conclude the mean amount dispensed is
different from 16 ounces.
 LO10-5 Compute and interpret a p-value.

• A p-value is the probability of getting a test statistic equal to or more extreme than
the sample result, given that the null hypothesis, H0, is true.
• The p-value is also known as the observed level of significance.
• P can take any value between 0 and 1. Values close to 0 indicate that the
observed difference is unlikely to be due to chance, whereas a P value close to 1
suggests no difference between the groups other than due to chance.
• We compare the p-value to the significance level ().
• If the p-value is smaller than , H0 is rejected. If it is greater than or equal to , H0
is not rejected.
Reject H0 if p-value < 
Do not reject H0 if p-value ≥ 
 LO10-5

Recall the problem (on slide 16) where the hypothesis and decision
rules were set up as:
H0:  = 200 (The decision was to not reject H0)
H1:  ≠ 200
To compute 2-Tailed p-value
We know z = 1.55 and z = 2.576.
P(z > 1.55) = 0.5 – 0.4394 = 0.0606
2-Tailed p-valued = 2 × 0.0606 = 0.1212 > 0.01
Since p-value > 
Conclude: Fail to reject H0.
 LO10-5

Recall the last problem (slide # 20) where the hypothesis and
decision rules were set up as:
H0:  ≤ 200
H1:  > 200
To compute 1-Tailed p-value z = 1.55
We know z = 1.55 and z = 2.33.
p-value =P(z > 1.55) = 0.5 – 0.4394 = 0.0606 > 0.01
Since p-value > 
Conclude: Fail to reject H0.
 LO10-5

• If p-value is close to 0.10, we have some evidence that H0 is not true.

• If p-value is close to 0.05, we have strong evidence that H0 is not true.

• If p-value in the order of 0.01, we have very strong evidence that H0 is

not true.

• If p-value i n t h e o r d e r o f 0.001, we have extremely strong

evidence that H0 is not true.
 LO10-5

Refer to Self-Review 10–1.

a) Suppose we have this statement: Does this evidence suggest that
the mean amount dispensed is more than 16 ounces? State the null
hypothesis and the alternate hypothesis under these conditions.
b) What is the decision rule under the new conditions stated in part (a)?
c) A second sample of 50 filled containers revealed the mean to be 16.040
ounces. What is the value of the test statistic for this sample?
d) What is your decision regarding the null hypothesis?
e) Interpret, in a single sentence, the result of the statistical test.
f) What is the p-value? What is your decision regarding the null hypothesis
based on the p-value? Is this the same conclusion reached in part (d)?
a) H0: μ ≤ 16
H1: μ > 16
b) Decision Rule: Critical value is zα = 1.645. Reject H0 if
z > 1.645.
c) The value of z statistics is
𝑥ഥ − 𝜇 16.04 − 16.0
𝑧= = = 1.89
𝜎/ 𝑛 0.15/ 50
d) The decision is to reject H0
e) Interpretation
The mean amount dispensed is more than 16 ounces.
f) p-Value
P(z > 1.89) = 0.5 – 0.4706 = 0.0294
Since p-value < α (0.05), so H0 is rejected.
It is the same conclusion as in part (d).
Question No.
4, 5, 6, 7, 8, 25, 27, 28
 LO10-6 Use a t statistic to test a hypothesis.

• When the population standard deviation (σ) is unknown, the

sample standard deviation (s) is used in its place
• The t-distribution is used as the test statistic, which is computed
using the formula:
𝑥ത −𝜇
𝑡=
𝑠/ 𝑛
 LO10-6

The McFarland Insurance Company Claims Department reports the mean

cost to process a claim is $60. An industry comparison showed this
amount to be larger than most other insurance companies, so the
company instituted cost-cutting measures. To evaluate the effect of the
cost-cutting measures, the Supervisor of the Claims Department selected
a random sample of 26 claims processed last month. The sample
information is reported below:
45 49 62 40 43 61 48 53 67
63 78 64 48 54 51 56 63 69
58 51 58 59 56 57 38 76
At the 0.01 significance level, is it reasonable to conclude that a claim is
now less than $60?
10-39
Go to Stat > 1 sample t

10-40
Go to Data > Data analysis > t-test: two-
sample assuming unequal variances

Note: Excel doesn’t have

option of one sample
hypothesis testing. Therefore,
introduce a dummy variable
with two entries 0 and 0. 10-41
Step 1: State H0 and H1
H0: μ ≥ 60
H1: μ < 60
This is a one-tailed test because we want to determine
whether there has been a reduction in the cost.
Step 2: Select the level of significance
The significance level is given to be 0.01.
Step 3: Select the test statistic.
Since σ is unknown we chose t-statistic with n – 1 (26 – 1
= 25) degrees of freedom.
𝑥ഥ −𝜇
𝑡=
𝑠/ 𝑛
Step 4: Formulate the decision rule
Because this is a one-sided test and the rejection
region is in the left tail, the critical value is negative
( tα = – 2.485).
The decision rule is to reject H0 if t < –2.485.
Step 5: Make a decision
Calculating the mean and standard deviation of the given sample,
we get, 𝑥ഥ = 56.423 and s = 10.041.
Computing the t value
𝑥ഥ − 𝜇 56.423 − 60
𝑡= = = −1.816 ≮ −2.485
/
𝑠 𝑛 10.041/ 26
Because –1.816 lies in the region to the right of the critical value
of –2.485, we decide to not reject H0.
Step 6: Interpret the result
We have not disproved the null hypothesis. The sample of claims
could have been selected from a population with a mean cost of
$60 per claim. To put it another way, the difference of $3.577
($56.423 – $60.00) between the sample mean and the population
mean could be due to sampling error. The test results do not
allow the claims department manager to conclude that the cost-
cutting measures have been effective.
 LO10-6

The Myrtle Beach International Airport provides a parking lot where

people can wait for a message to pick up arriving passengers. To
decide if the lot has enough parking places, the manager of airport
parking needs to know if the mean time in the lot is more than 15
minutes. A sample of 12 recent customers showed they were in the
lot the following lengths of time, in minutes.
30 24 28 22 14 2 39 23 23 28 12 31

At the .05 significance level, is it reasonable to conclude that the

mean time in the lot is more than 15 minutes?
Descriptive Statistics
N Mean StDev SE Mean 95% Lower Bound
for μ
12 23.00 9.84 2.84 17.90
μ: mean of Minutes

Test
Null hypothesis H₀: μ = 15
Alternative hypothesis H₁: μ > 15 P- value < α = 0.05
T-Value P-Value We reject H0
2.82 0.008
Step 1: State H0 and H1
H0: μ ≤ 15
H1: μ > 15
This is a one-tailed test.
Step 2: Select the level of significance
The significance level is given to be 0.05.
Step 3: Select the test statistic.
Since σ is unknown we chose t-statistic with n – 1
(12 – 1 = 11) degrees of freedom.
𝑥ത −𝜇
𝑡=
𝑠/ 𝑛
Step 4: Formulate the decision rule
This is a one-tailed test, and the rejection region is in the
right tail, the critical value is tα = 1.796.
The decision rule is to reject H0 if t > 1.796.

Step 5: Make a decision

𝑥ത = 23 and s = 9.835
𝑥ഥ − 𝜇 23 − 15
𝑡= = = 2.818 > 1.796
𝑠/ 𝑛 9.835/ 12
The null hypothesis that the population mean is less than
or equal to 15 minutes is rejected.
Step 6: Interpret the result
We conclude that the time customers spend in the lot
is more than 15 minutes. This result indicates that the
airport may need to add more parking places.
 LO10-6

The mean life of a battery used in a digital clock is 305 days. The lives
of the batteries follow the normal distribution. The battery was
recently modified to last longer. A sample of 20 of the modified
batteries had a mean life of 311 days with a standard deviation of 12
days. Did the modification increase the mean life of the battery?
a) State the null hypothesis and the alternate hypothesis.
b) Show the decision rule graphically. Use the .05 significance level.
c) Compute the value of t. What is your decision regarding the null
hypothesis? Briefly summarize your results.
a) State H0 and H1
H0: μ ≤ 305
H1: μ > 305
This is a one-tailed test.
b) Decision rule graphically
d.f. = n − 1 = 20 − 1 = 19
The decision rule is to reject H0 if t > 1.729.
c) t-value and decision and summary of results
𝑥ഥ − 𝜇 311 − 305
𝑡= = = 2.236 > 1.729
𝑠/ 𝑛 12/ 20

Reject null hypothesis. The modification increased the

mean battery life to more than 305 days.
Question No.
11, 12, 13, 29, 30, 31, 32, 46,
50, 51