Economic Methods Seminar

Statistics Worksheet 4

Pre-Seminar Questions

9.9. A random sample is obtained from a population with a variance of σ 2 = 400,

and the sample mean is computed to be x̄=70 . Consider the null
hypothesis H0: μ≥80 versus the alternative hypothesis H1: μ<80 . Test
the null hypothesis at the 1% significance level when the:
a) Sample size is n = 25
b) Sample size is n = 16

Solution

a) Reject the null hypothesis if z < -z0.01 = -2.326.

= = -2.50.
Reject the null hypothesis at the 1% significance level.
b) Reject the null hypothesis if z < -z0.01 = -2.326.

= = -2.00.
Fail to reject the null hypothesis at the 1% significance level.

9.10 A random sample of n= 25 is obtained from a population with variance σ 2

and the sample mean is computed to be x̄=70 . Consider the null
hypothesis H0: μ≥80 versus the alternative hypothesis H1: μ<80 . Test
the null hypothesis at the 1% significance level when the:
a) Population variance is σ2 = 225
b) Population variance is σ2 = 900

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Solution

a) = 225. = = -3.33.
p-value = P ( Z <−3 . 33 ) = 1−P ( Z<3. 33 ) = 0.0004
Since 0.0004 < 0.01, reject the null hypothesis at the 1% significance level.

b) = 900. = = -1.67.
p-value = P ( Z <−1 . 67 ) = 1−P ( Z<1. 67 ) = 0.0475
Since 0.0475 > 0.01, fail to reject the null hypothesis at the 1%
significance level.

9.14 Test the hypotheses

H0: μ≤100
H1: μ>100
using a random sample of n = 25, a probability of Type 1 error equal to
0.05, and the following sample statistics.
a) x̄=106 ; s = 15
b) x̄=104 ; s = 10
c) x̄=95 ; s = 10
d) x̄=92 ; s = 18

Solution

a) .
Reject the null hypothesis if t > t24,0.05 = 1.711
x̄−μ0
t = s/√n = = 2.00.
Reject the null hypothesis at the 5% significance level.
b) .
Reject the null hypothesis if t > t24,0.05 = 1.711
x̄−μ0
t = s/√n = = 2.00.
Reject the null hypothesis at the 5% significance level.
c) .
Reject the null hypothesis if t > t24,0.05 = 1.711
x̄−μ0
t = s/√n = = -2.50.
Fail to reject the null hypothesis at the 5% significance level.

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 d) .
Reject the null hypothesis if t > t24,0.05 = 1.711
x̄−μ0
t = s/√n = = -2.22.
Fail to reject the null hypothesis at the 5% significance level.

9.30 In a random sample of 361 owners of small businesses that had gone into
bankruptcy, 105 reported conducting no marketing studies prior to
opening the business. Test the hypothesis that at most 25% of all members
of this population conducted no marketing studies before opening their
businesses. Use α =0 . 05 .

Solution

= 1.79,
p-value = P ( Z >1 .79 ) = 1−P ( Z<1. 79 ) = 1 - 0.9633 = 0.0367
Reject at α = 0.05

10.2 You have been asked to determine if two different production processes
have different mean numbers of units produced per hour. Process 1 has a
mean defined as μ1 and process 2 has a mean defined as μ2. The null and
alternative hypotheses are as follows:
H0: μ1 −μ2 ≥0
H1: μ1 −μ2 < 0
Using a random sample of 25 paired observations, the standard deviation
of the difference is 25. Can you reject the null hypothesis using a
probability of Type I error of α = 0.05 in each case?
a) The sample mean is 56 from process 1 and 50 from process 2.
b) The sample mean is 59 from process 1 and 50 from process 2.

Solution

Let x – Units produced per hour by process 1; y – Units produced per hour
by process 2
a)
Reject if t < -t24, 0.05 = -1.711

= 1.2
Do not reject the null hypothesis at the 5% significance level.

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 b)
Reject if t < -t24, 0.05 = -1.711

= 1.8
Do not reject the null hypothesis at the 5% significance level.

10.7 You have been asked to determine if two different production processes
have different mean numbers of units produced per hour. Process 1 has a
mean defined as μ1 and process 2 has a mean defined as μ2. The null and
alternative hypotheses are as follows:
H0: μ1 −μ2 ≤0
H1: μ1 −μ2 > 0
The process variances are unknown but assumed to be equal. Using
random samples of 25 observations from process 1 and 36 observations
from process 2, the sample means are 56 and 50 for populations 1 and 2,
respectively. Can you reject the null hypothesis using a probability of Type
1 error of α = 0.05 in each case?
a) The sample standard deviation from process 1 is 30 and from process 2 is
28.
b) The sample standard deviation from process 1 is 22 and from process 2 is
33.

Solution

Let x –Units produced per hour by process 1; y – Units produced per hour
by process 2

a) Reject if .
t n +n −2, α =t 59, 0 .05 =1. 671
For the given data, x y .
(n x −1)s 2x +(n y −1)s 2y (24 )(30 ) +(35)(28 )2
2
s2p = = =831 . 19
( nx +n y −2 ) (25+36−2 )

Do not reject at alpha of 0.05.

b) Reject if .
t n +n −2, α =t 59, 0 .05 =1. 671
For the given data, x y .

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 (n x −1)s 2x +(n y −1)s 2y (24 )(22 )2 +(35)(33 )2
s2p = = =842 . 90
( nx +n y −2 ) (25+36−2 )

Do not reject at alpha of 0.05.

Seminar Questions

9.11 A manufacturer of detergent claims that the contents of boxes sold weigh
on average at least 16 ounces. The distribution of weight is known to be
normal, with a standard deviation of 0.4 ounces. A random sample of 16
boxes yielded a sample mean of 15.84 ounces. Test at the 10% significance
level the null hypothesis that the population mean weight is at least 16
ounces.

Solution

; ;
Reject if z < -z0.10 = -1.28
15 . 84−16
z=
. 4 / √16 = -1.6
Reject at the 10% significance level.

9.27 In contract negotiations a company claims that a new incentive scheme has
resulted in average weekly earnings of at least $400 for all customer
services workers. A union representative takes a random sample of 15
workers and finds that their weekly earnings have an average of $381.35
and a standard deviation of $48.60. Assume a normal distribution.
a) Test the company’s claim at  = 0.10 and  = 0.05.
b) If the same sample results had been obtained from a random sample of 50
employees, could the company’s claim be rejected at a lower significance
level than those used in part a?

Solution

a)
For a 10% significance level, reject if t < -t14,0.10= -1.345.
For a 5% significance level, reject if t < -t14,0.05= -1.761.

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 = -1.486
Reject at the 10% significance level but not at the 5% significance
level.
b) Yes, with a larger sample size, the standard error would be smaller and
the test statistic would be larger (in absolute value). In addition, for a
given level of α, the critical value will be smaller (in absolute value).
381 .35−400
t=
Specifically, when n = 50, 48. 6 / √50 = -2.713 and we can reject
at the 5% significance level (since –t 49,0.05= -1.677) and also at the 1%
significance level (since –t49,0.01= -2.405).

9.31 In a random sample of 360 export managers in the UK, 69 of the sample
members indicated some measure of disagreement with this statement:
The most important export market for UK manufacturers in 10 years’ time
will be the continent of Asia. Test, at the 5% level, the hypothesis that at
least 25% of all members of the population would disagree with this
statement.

Solution

. 192−. 25
z=
√ ( .25 )( . 75 ) /360 = -2.55
p-value = 1 – P ( Z <2 .55 ) = 1 – 0.9946 = 0.0054
Since 0.0054 < 0.05, reject at the 5% significance level.

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10.3 In a study comparing banks in Germany and Great Britain, a sample of 145
matched pairs of banks was formed. Each pair contained one bank from
Germany and one from Great Britain. The pairings were made in such a way
that the two members were as similar as possible in regard to such factors
as size and age. The ratio of total loans outstanding to total assets was
calculated for each of the banks. For this ratio, the sample mean difference
(German – Great Britain) was 0.0518 and the sample standard deviation of
the difference was 0.3055. Test, against a two sided alternative, the null
hypothesis that the two population means are equal at the 5% significance
level.

Solution

Let x – German Bank and y – Great Britain Bank

Reject if |t| > t144, 0.025 = 1.977.

= 2.04
Reject at the 5% significance level.

10.19 Of a random sample of 381 high-quality investment equity options, 191

had less than 30% debt. Of an independent random sample of 166 high-risk
investment equity options, 145 had less than 30% debt. Test, against a two-
sided alternative, the null hypothesis that the two population proportions
are equal at the 10%, 5% and 1% significance levels.

Solution

Let x – high-quality investment equity options had less than 30% debt; y –
high-risk investment equity options had less than 30% debt

For a 10% significance level, reject if |z| > z0.05 = 1.645.

For a 5% significance level, reject if |z| > z0.025 = 1.960.
For a 1% significance level, reject if |z| > z0.005 = 2.576.

= 0.614

= -8.216.
Reject at the 10%, 5% and 1% significance levels.