CH09 2020 3

Statistics for Business and Economics (13e)
Statistics for
Slides by
Business
Johnand Economics (13e)
Loucks
Anderson, Sweeney, Williams, Camm, Cochran
St. Edward’s
© 2017 Cengage Learning
University
Slides by John Loucks

St. Edwards University
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
1
Chapter 9
Hypothesis Testing
• Developing Null and Alternative Hypotheses
• Type I and Type II Errors
• Population Mean: s Known
• Population Mean: s Unknown
• Population Proportion
2
Hypothesis Testing
• Hypothesis testing can be used to determine whether a statement about the
value of a population parameter should or should not be rejected.
• The null hypothesis, denoted by H0 , is a tentative assumption about a
population parameter.
• The alternative hypothesis, denoted by Ha, is the opposite of what is stated in
the null hypothesis.
• The hypothesis testing procedure uses data from a sample to test the two
competing statements indicated by H0 and Ha.
3
What is a Hypothesis?
DCOVA
• A hypothesis is a claim
(assertion) about a
population parameter:
• population mean
Example: The mean monthly cell phone bill in this city is μ
= $42
• population proportion
Example: The proportion of adults in this city with cell

phones is π = 0.68
Developing Null and Alternative Hypotheses

• It is not always obvious how the null and alternative hypotheses should be
formulated.
• Care must be taken to structure the hypotheses appropriately so that the test
conclusion provides the information the researcher wants.
• The context of the situation is very important in determining how the
hypotheses should be stated.
• In some cases it is easier to identify the alternative hypothesis first. In other
cases the null is easier.
• Correct hypothesis formulation will take practice.
5

• Alternative Hypothesis as a Research Hypothesis
• Many applications of hypothesis testing involve an attempt to gather

evidence in support of a research hypothesis.
• In such cases, it is often best to begin with the alternative hypothesis and
make it the conclusion that the researcher hopes to support.
• The conclusion that the research hypothesis is true is made if the sample
data provides sufficient evidence to show that the null hypothesis can be
rejected.
6
The Null Hypothesis, H0

DCOVA
• States the claim or assertion to be tested
Example: The mean diameter of a manufactured bolt is 30mm (
) H 0 : μ 30
• Is always about a population parameter, not about a sample
statistic
H 0 : μ 30 H 0 : X 30
The Null Hypothesis, H0
DCOVA
(continued)
• Begin with the assumption that the null hypothesis is true

• Similar to the notion of innocent until
proven guilty
• Refers to the status quo or historical value

• Always contains “=“, or “≤”, or “≥” sign
• May or may not be rejected

• Example:
A new teaching method is developed that is believed to be better than
the current method.
• Alternative Hypothesis:
The new teaching method is better.
• Null Hypothesis:
The new method is no better than the old method.
9
The Alternative Hypothesis, H1

DCOVA
• Is the opposite of the null hypothesis
• e.g., The average diameter of a manufactured bolt is not equal to 30mm
( H1: μ ≠ 30 )
• Challenges the status quo
• Never contains the “=“, or “≤”, or “≥” sign
• May or may not be proven
• Is generally the hypothesis that the researcher is trying to prove

• Example:
A new sales force bonus plan is developed in an attempt to increase sales.
The new bonus plan will increase sales.
The new bonus plan will not increase sales.
11

• Example:
A new drug is developed with the goal of lowering blood pressure more
than the existing drug.
The new drug lowers blood pressure more than the existing drug.
The new drug does not lower blood pressure more than the existing
drug.
12

• Null Hypothesis as an Assumption to be Challenged
• We might begin with a belief or assumption that a statement about the
value of a population parameter is true.
• We then use a hypothesis test to challenge the assumption and determine

if there is statistical evidence to conclude that the assumption is incorrect.
• In these situations, it is helpful to develop the null hypothesis first.
13

• Null Hypothesis as an Assumption to be Challenged
• Example:
The label on a soft drink bottle states that it contains 67.6 fluid ounces.
The label is correct. m > 67.6 ounces.
The label is incorrect. m < 67.6 ounces.
14
Summary of Forms for Null and Alternative Hypotheses

• The equality part of the hypotheses always appears in the null hypothesis.
• In general, a hypothesis test about the value of a population mean  must
take one of the following three forms (where 0 is the hypothesized value of
the population mean).
≥ ≤ =
< > ≠
One-tailed One-tailed Two-tailed

(lower-tail) (upper-tail)
15
The Hypothesis Testing Process

DCOVA
• Claim: The population mean age is 50.
• H0: μ = 50, H1: μ ≠ 50
• Sample the population and find the sample mean.
Population
Sample

(continued) DCOVA
• Suppose the sample mean age was X = 20.
• This is significantly lower than the claimed mean population age of 50.
• If the null hypothesis were true, the probability of getting such a different sample
mean would be very small, so you reject the null hypothesis .
• In other words, getting a sample mean of 20 is so unlikely if the population mean

was 50, you conclude that the population mean must not be 50.
(continued)
DCOVA
Sampling Distribution
of X
X
20 μ = 50
If H0 is true ... then you reject the null
If it is unlikely that you would
hypothesis that μ = 50.
get a sample mean of this value
... ... When in fact this were
the population mean…
The Test Statistic and

Critical Values
DCOVA
• If the sample mean is close to the stated population mean, the null
hypothesis is not rejected.
• If the sample mean is far from the stated population mean, the null
hypothesis is rejected.
• How far is “far enough” to reject H0?
• The critical value of a test statistic creates a “line in the sand” for decision
making -- it answers the question of how far is far enough.
The Test Statistic and
Critical Values
DCOVA
Sampling Distribution of the test statistic
Region of Region of
Rejection Rejection
Region of
Non-Rejection
Critical Values
“Too Far Away” From Mean of Sampling Distribution
Null and Alternative Hypotheses

• Example: Metro EMS
A major west coast city provides one of the most comprehensive
emergency medical services in the world. Operating in a multiple hospital
system with approximately 20 mobile medical units, the service goal is to
respond to medical emergencies with a mean time of 12 minutes or less.
The director of medical services wants to formulate a hypothesis test that
could use a sample of emergency response times to determine whether or
not the service goal of 12 minutes or less is being achieved.
21
Null and Alternative Hypotheses

H0:  < 12 The emergency service is meeting the response goal;
no follow-up action is necessary.
Ha:  > 12 The emergency service is not meeting the response

goal; appropriate follow-up action is necessary.
where:  = mean response time for the population

of medical emergency requests
22
Type I Error
• Because hypothesis tests are based on sample data, we must allow
for the possibility of errors.
• A Type I error is rejecting H0 when it is true.
• The probability of making a Type I error when the null hypothesis is
true as an equality is called the level of significance.
• Applications of hypothesis testing that only control for the Type I error
are often called significance tests.
23
Type II Error
• A Type II error is accepting H0 when it is false.
• It is difficult to control for the probability of making a Type II error.
• Statisticians avoid the risk of making a Type II error by using “do not reject
H0” and not “accept H0”.
24
Possible Errors in Hypothesis Test Decision Making DCOVA

(continued)
Possible Hypothesis Test Outcomes
Actual Situation
Decision H0 True H0 False
Do Not Reject No Error Type II Error

H0 Probability 1 - α Probability β
Reject H0 Type I Error No Error
Probability α Power 1 - β
Possible Errors in Hypothesis Test Decision Making DCOVA
• The confidence coefficient (1-α) is the probability of not rejecting H0

when it is true.
• The confidence level of a hypothesis test is (1-α)*100%.
• The power of a statistical test (1-β) is the probability of rejecting H0

when it is false.
Type I & II Error Relationship

DCOVA
 Type I and Type II errors cannot happen at

the same time
 A Type I error can only occur if H0 is true
 A Type II error can only occur if H0 is false
If Type I error probability () , then

Type II error probability (β)
Factors Affecting Type II Error

DCOVA
• All else equal,
• β when the difference between hypothesized parameter and its
true value
• β when 
• β when σ
• β when n
Type I and Type II Errors

Population Condition
H0 True H0 False
Conclusion (m < 12) (m > 12)
Accept H0 Correct
Type II Error
(Conclude m < 12) Conclusion
Reject H0 Correct
Type I Error Conclusion
(Conclude m > 12)
29
p-Value Approach to One-Tailed Hypothesis Testing

• The p-value is the probability, computed using the test statistic, that
measures the support (or lack of support) provided by the sample for the
null hypothesis.
• If the p-value is less than or equal to the level of significance , the value of the
test statistic is in the rejection region.
• Reject H0 if the p-value <  .
30
Suggested Guidelines for Interpreting p-Values

• Less than .01
Overwhelming evidence to conclude Ha is true.
• Between .01 and .05
Strong evidence to conclude Ha is true.
• Between .05 and .10

Weak evidence to conclude Ha is true.
• Greater than .10
Insufficient evidence to conclude Ha is true.
31
Lower-Tailed Test About a Population Mean: s Known

• p-Value Approach
Sampling
a = .10 Distribution of
𝑥 −𝜇 0
𝑧=
𝜎 / √𝑛
p-value
= .0721
p-Value < a ,
so reject H0. z
z= za = 0
-1.46 -1.28
32
Upper-Tailed Test About a Population Mean: s Known

Sampling
Distribution of a = .04
𝑥 −𝜇 0
𝑧=
𝜎 / √𝑛
p-Value (p-Value < a ,
 .011 so reject H0.)
z
0 za = z=
1.75 2.29
33
Critical Value Approach to One-Tailed Hypothesis Testing

• The test statistic z has a standard normal probability distribution.
• We can use the standard normal probability distribution table to find the z-
value with an area of a in the lower (or upper) tail of the distribution.
• The value of the test statistic that established the boundary of the rejection
region is called the critical value for the test.
• The rejection rule is:
• Lower tail: Reject H if z < -z
0 
• Upper tail: Reject H if z > z
0 
34
Lower-Tailed Test About a Population Mean: s Known

• Critical Value Approach
Sampling
Distribution of
𝑥 −𝜇 0
𝑧=
Reject H0 𝜎 / √𝑛
a 1
Do Not Reject H0
z
-za = -1.28 0
35
Upper-Tailed Test About a Population Mean: s Known

Sampling
Distribution of
𝑥 −𝜇 0
𝑧=
𝜎 / √𝑛 Reject H0
= .05
Do Not Reject H0
z
0 za = 1.645
36
Steps of Hypothesis Testing

Step 1. Develop the null and alternative hypotheses.
Step 2. Specify the level of significance .
Step 3. Collect the sample data and compute the value of the test statistic.
p-Value Approach
Step 4 Use the value of the test statistic to compute the p-value.
Step 5. Reject H0 if p-value < a.
Critical Value Approach
Step 4. Use the level of significance a to determine the critical value and the
rejection rule.
Step 5. Use the value of the test statistic and the rejection rule to determine whether
to reject H0.
Step 6. Interpret the statistical conclusion in the context of the application.
37
Steps of Hypothesis Testing

Critical Value Approach
Step 4. Use the level of significance a to determine the critical value and the
rejection rule.
Step 5. Use the value of the test statistic and the rejection rule to determine
whether to reject H0.
38
39
Step 5. Reject H0 if p-value < a.

So, reject H0.
40
Step 5. Reject H0 if -2.67 < Za =-2.33.

So, reject H0.
41
42
One-Tailed Tests About a Population Mean: s Known

• Example: Metro EMS
The response times for a random sample of 40 medical emergencies were
tabulated. The sample mean is 13.25 minutes. The population standard
deviation is believed to be 3.2 minutes.
The EMS director wants to perform a hypothesis test, with a .05 level of
significance, to determine whether the service goal of 12 minutes or less is
being achieved.
43

• p -Value and Critical Value Approaches
1. Develop the hypotheses. H0:  < 12

Ha:  > 12
2. Specify the level of significance. a = .05
3. Compute the value of the test statistic.
= 2.47
44

• p –Value Approach
4. Compute the p –value.

For z = 2.47, cumulative probability = .9932.
p-value = 1 - .9932 = .0068
5. Determine whether to reject H0.

Because p-value = .0068 < a = .05, we reject H0.
There is sufficient statistical evidence to infer that Metro EMS is not
meeting the response goal of 12 minutes.
45

Sampling
Distribution of
a = .05
𝑥 −𝜇 0
𝑧=
𝜎 / √𝑛
p-value (p-Value < a,
 so reject H0.)
z
0 za = z=
1.645 2.47
46

4. Determine the critical value and rejection rule.

For a = .05, z.05 = 1.645
Reject H0 if z > 1.645
Because 2.47 > 1.645, we reject H0.
There is sufficient statistical evidence to infer that Metro
EMS is not meeting the response goal of 12 minutes.
47
p-Value Approach to Two-Tailed Hypothesis Testing

• Compute the p-value using the following three steps:
1. Compute the value of the test statistic z.
2. If z is in the upper tail (z > 0), compute the probability that z is greater
than or equal to the value of the test statistic. If z is in the lower tail
(z < 0), compute the probability that z is less than or equal to the value
of the test statistic.
3. Double the tail area obtained in step 2 to obtain the p-value.
• The rejection rule: Reject H0 if the p-value <  .
48
Critical Value Approach to Two-Tailed Hypothesis Testing

• The critical values will occur in both the lower and upper tails of the standard
normal curve.
• Use the standard normal probability distribution table to find z/2 (the z-value
with an area of a/2 in the upper tail of the distribution).
• The rejection rule is: Reject H0 if z < -z/2 or z > z/2.
Confidence Interval Approach to Two-Tailed Hypothesis Testing

• Develop the confidence interval for the population mean
• If the confidence interval contains the hypothesized value , do not reject H0.
Otherwise,
reject H0.
49
=
≠ , =297.6
50
Step 5. Reject H0 if p-value < a. Since 0.1260> a (0.05), = 1.53

so we do not reject H0.
51
Step 5. Reject H0 if Z Za (-1.96) or ).

Since Z =1.53 < 1.96, so we do not reject H0.
52
Confidence Interval Approach to

Two-Tailed Tests About a Population Mean
• The 95% confidence interval for  is
𝜎
𝑥 ± 𝑧 𝛼/ 2 =29706 ± 1.96 ( 12/ √ 5 0 ) =297 . 6 ± 3 . 3
√𝑛
or 294.3 to 300.9
• Because the hypothesized value for the population mean, 0 = 295, is in
this interval, the hypothesis-testing conclusion is that the null hypothesis,
H0:  = 295, can not be rejected.
53
54
Two-Tailed Tests About a Population Mean: s Known

• Example: Glow Toothpaste
The production line for Glow toothpaste is designed to fill tubes with a
mean weight of 6 oz. Periodically, a sample of 30 tubes will be selected in
order to check the filling process.
Quality assurance procedures call for the continuation of the filling
process if the sample results are consistent with the assumption that the
mean filling weight for the population of toothpaste tubes is 6 oz.; otherwise
the process will be adjusted.
55

• Example: Glow Toothpaste
Assume that a sample of 30 toothpaste tubes provides a sample mean of
6.1 oz. The population standard deviation is believed to be 0.2 oz.
Perform a hypothesis test, at the .03 level of significance, to help
determine whether the filling process should continue operating or be
stopped and corrected.
56

• p –Value and Critical Value Approaches
1. Determine the hypotheses. =

≠

= 2.74
57

For z = 2.74, cumulative probability = .9969
p-value = 2(1 - .9969) = .0062

Because p-value = .0062 < a = .03, we reject H0.
There is sufficient statistical evidence to infer that the alternative hypothesis

is true (i.e. the mean filling weight is not 6 ounces).
58

1/2 1/2
p-value p-value
= .0031 = .0031
a/2 = a/2 =
.015 .015
z
z = -2.74 0 z = 2.74
-za/2 = -2.17 za/2 = 2.17
59


For a/2 = .03/2 = .015, z.015 = 2.17
Reject H0 if z < -2.17 or z > 2.17

Because 2.74 > 2.17, we reject H0.
There is sufficient statistical evidence to infer that the alternative
hypothesis is true (i.e. the mean filling weight is not 6 ounces).
60

Sampling
Distribution of
𝑥 −𝜇 0
𝑧=
𝜎 / √𝑛
Reject H0 Reject H0
a/2 = .015 a/2 = .015
Do Not Reject H0
z
-2.17 0 2.17
61

• Select a simple random sample from the population and use the value of
the sample meanto develop the confidence interval for the population
mean . (Confidence intervals are covered in Chapter 8.)
• If the confidence interval contains the hypothesized value 0, do not
reject H0. Otherwise, reject H0. (Actually, H0 should be rejected if 0
happens to be equal to one of the end points of the confidence
interval.)
62

• The 97% confidence interval for  is
𝜎
𝑥 ± 𝑧 𝛼/ 2 =6.1 ± 2.17 ( .2 √ 30 ) =6.1 ± .07924
√𝑛
or 6.02076 to 6.17924
• Because the hypothesized value for the population mean, 0 = 6, is not in
this interval, the hypothesis-testing conclusion is that the null hypothesis,
H0:  = 6, can be rejected.
63
Tests About a Population Mean: s Unknown

• Test Statistic: 𝑥 −𝜇 0
𝑡=
𝑠/√𝑛
• This test statistic has a t distribution with n - 1 degrees of freedom.
64
Tests About a Population Mean: s Unknown

• Rejection Rule: p -Value Approach
Reject H0 if p –value < a
• Rejection Rule: Critical Value Approach
H0:  > 0 Reject H0 if t < -t
H0:  < 0 Reject H0 if t > t
H0:  = 0 Reject H0 if t < - t/2 or t > t/2
65
p -Values and the t Distribution

• The format of the t distribution table provided in most statistics textbooks does
not have sufficient detail to determine the exact p-value for a hypothesis test.
• However, we can still use the t distribution table to identify a range for the p-
value.
• An advantage of computer software packages is that the computer output will
provide the p-value for the t distribution.
66
67
Example: Highway Patrol

• One-Tailed Test About a Population Mean: s Unknown
A State Highway Patrol periodically samples vehicle speeds at various
locations on a particular roadway. The sample of vehicle speeds is used to
test the hypothesis H0: m < 7.
The locations where H0 is rejected are deemed the best locations for radar
traps. At Location F, a sample of 60 vehicles shows a mean speed of 7.25 mph
with a standard deviation of 1.052 mph. Use a = .05 to test the hypothesis.
68
One-Tailed Test About a Population Mean: s Unknown

1. Determine the hypotheses. H0 :  < 7

Ha: m > 7
= 1.84
69

For t = 1.84, the p-value must be less than .05
(for t = 1.671) and greater than .025 (for t = 2.001).
.025 < p–value < .05

Because p-value < a = .05, we reject H0.
We are at least 95% confident that the mean speed of vehicles at
Location F is greater than 7.
70

For a = .05 and d.f. = 60 – 1 = 59, t.05 = 1.671
Reject H0 if t > 1.671
Because 1.84> 1.671, we reject H0.
We are at least 95% confident that the mean speed of vehicles at
Location F is greater than 65 mph. Location F is a good candidate
for a radar trap.
71
Reject H0
()
Do Not Reject H0 p-value (p-Value < a ,

< .025 so reject H0.)
t
0 ta = t=
1.671 1.84
72
A Summary of Forms for Null and Alternative Hypotheses

About a Population Proportion
• The equality part of the hypotheses always appears in the null hypothesis.
• In general, a hypothesis test about the value of a population proportion p
must take one of the following three forms (where p0 is the hypothesized
value of the population proportion).
≥ ≤ =
< > ≠
One-tailed One-tailed Two-tailed

(lower tail) (upper tail)
73
Tests About a Population Proportion

𝑝 − 𝑝0
• Test Statistic: 𝑧 =
𝜎𝑝
where: 𝜎 𝑝=
assuming np > 5 and n(1 – p) > 5

√ 𝑝0 ( 1 −𝑝 0 )
𝑛
74
Tests About a Population Proportion

• Rejection Rule: p –Value Approach
Reject H0 if p –value < a
• Rejection Rule: Critical Value Approach

H 0 : p < p0 Reject H0 if z > z
H 0 : p > p0 Reject H0 if z < -z
H 0 : p = p0 Reject H0 if z < -z/2 or z > z/2
75
76
Two-Tailed Test About a Population Proportion

• Example: National Safety Council (NSC)
For a Christmas and New Year’s week, the National Safety Council
estimated that 500 people would be killed and 25,000 injured on the nation’s
roads. The NSC claimed that 50% of the accidents would be caused by drunk
driving.
A sample of 120 accidents showed that 67 were caused by drunk driving.
Use these data to test the NSC’s claim with a = .05.
77

1. Determine the hypotheses. =

= .045644
= 1.28
78

4. Compute the p -value.
p-value = 2(1 - .8997) = .2006

Because p-value = .2006 > a = .05,
we cannot reject H0.
79

4. Determine the critical values and rejection rule.
For a/2 = .05/2 = .025, z.025 = 1.96
Reject H0 if z < -1.96 or z > 1.96

Because 1.278 > -1.96 and < 1.96,
we cannot reject H0.
80
One-Tailed Test About a Population Proportion

1. Determine the hypotheses. 𝐻 0 : 𝑝 ≤.2∧𝐻 𝑎 : 𝑝 > . 2

= .02
= 2.5
81

4. Compute the p -value.
p-value = 1 - .9938 = .0062
Because p-value = .0062 <a = .05,

we reject H0.
82

4. Determine the critical values and rejection rule.
For a = .05 , z.05 = 1.645
Reject H0 if z > 1.645

Because 2.5 > 1.645,
we reject H0.
83
End of Chapter 9
84

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Statistics for Business and Economics (13e)

Slides by John Loucks

Example: The proportion of adults in this city with cell

Developing Null and Alternative Hypotheses

Developing Null and Alternative Hypotheses

• Many applications of hypothesis testing involve an attempt to gather

The Null Hypothesis, H0

• Begin with the assumption that the null hypothesis is true

• Refers to the status quo or historical value

Developing Null and Alternative Hypotheses

The Alternative Hypothesis, H1

Developing Null and Alternative Hypotheses

Developing Null and Alternative Hypotheses

Developing Null and Alternative Hypotheses

• We then use a hypothesis test to challenge the assumption and determine

• In these situations, it is helpful to develop the null hypothesis first.

Developing Null and Alternative Hypotheses

Summary of Forms for Null and Alternative Hypotheses

One-tailed One-tailed Two-tailed

The Hypothesis Testing Process

The Hypothesis Testing Process

• In other words, getting a sample mean of 20 is so unlikely if the population mean

The Test Statistic and

• How far is “far enough” to reject H0?

“Too Far Away” From Mean of Sampling Distribution

Null and Alternative Hypotheses

Null and Alternative Hypotheses

Ha:  > 12 The emergency service is not meeting the response

where:  = mean response time for the population

Possible Errors in Hypothesis Test Decision Making DCOVA

Possible Hypothesis Test Outcomes

Decision H0 True H0 False

Do Not Reject No Error Type II Error

Possible Errors in Hypothesis Test Decision Making DCOVA

• The confidence coefficient (1-α) is the probability of not rejecting H0

• The confidence level of a hypothesis test is (1-α)*100%.

• The power of a statistical test (1-β) is the probability of rejecting H0

Type I & II Error Relationship

 Type I and Type II errors cannot happen at

If Type I error probability () , then

Factors Affecting Type II Error

Type I and Type II Errors

p-Value Approach to One-Tailed Hypothesis Testing

Suggested Guidelines for Interpreting p-Values

• Between .05 and .10

Lower-Tailed Test About a Population Mean: s Known

Upper-Tailed Test About a Population Mean: s Known

Critical Value Approach to One-Tailed Hypothesis Testing

Lower-Tailed Test About a Population Mean: s Known

Upper-Tailed Test About a Population Mean: s Known

Steps of Hypothesis Testing

Steps of Hypothesis Testing

Step 5. Reject H0 if p-value < a.

Step 5. Reject H0 if -2.67 < Za =-2.33.

One-Tailed Tests About a Population Mean: s Known

One-Tailed Tests About a Population Mean: s Known

1. Develop the hypotheses. H0:  < 12

2. Specify the level of significance. a = .05

3. Compute the value of the test statistic.