Question

For a test market, find the sample size needed to estimate the
true proportion of consumers satisfied with a certain new
product within 0.04 at the 90 percent confidence level. Assume
you have no strong feeling about what the proportion is?
Solution
Assume p = q = 0.5
e = 0.04
Z = 1.64


2
2
e
pq z
n =
25 . 420
) 04 . 0 (
) 5 . 0 )( 5 . 0 ( ) 64 . 1 (
2
2
= = n
Food tiger, a local grocery store, sells generic garbage bags
and has received quite a few complaints about the strength of
these bags. It seems that the generic bags are weaker than the
name-brand competitors bags and therefore, break more often.
John C. Tiger, VP in charge of purchasing is interested in
determining the average maximum weight that can put into
one of the generic bags without its breaking. If the standard
deviation of garbage breaking weight is 1.2lb, determine the
number of bags that must be tested in order for Mr. Tiger to be
95 percent confident that the sample average breaking weight
is within 0.5 lb of the true average.
Question
Question
= 1.2
Z= 1.96
e = 0.5
1 . 22
5 . 0
) 2 . 1 )( 96 . 1 (
2
2
2 2
=
(

= =
e
z
n
o
Question
Jill Johnson, product manager for Southern Electrics smoke
alarm, is concerned over recent complaints from consumer
groups about the short life of the device. She has decided to
gather evidence to counteract the complaints by testing a
sample of the alarms. For the test, it costs $4 per unit in the
sample. Precision is desirable for presenting persuasive
statistical evidence to consumer groups, so Johnson figures the
benefits she will receive for various sample sizes are
determined by formula Benefit . If Johnson wants to
increase her sample until the cost equals the benefit, how many
units should she sample? The population standard deviation is
265.
x
o / 249 , 5 $ =
Solution


Cost = Benefit





Thus, she should sample at least 25 detectors.
n
n
n
n
x
81 . 19
265
5249 5249 5249
4 = = = =
o
o
5 . 24 95 . 4 95 . 4
4
81 . 19
= = = n n
7
Example

Suppose a hospital uses large quantities of packaged doses of a
particular drug. The individual dose of this drug is 100 cubic
centimeters (100cc). The action of the drug is such that the
body will harmlessly pass off excessive doses. On the other
hand, insufficient doses do not produce the desired medical
effect and they interfere with patient treatment. The hospital
has purchased this drug from the same manufacturer for a
number of years and known that the population standard
deviation is 2 cc. The hospital inspects 50 doses of this drug at
random from a very large shipment and finds the mean of
these doses to be 99.75 cc. If the hospital sets a 0.10
significance level and asks us whether the dosages in this
shipment are too small, how can we find the answer?
8
Solution
H
0
: = 100 The mean of the shipments dosages is 100cc
H
1
: < 100 The mean is less than 100cc
= 0.10, = 2, n = 50 = 99.75
Critical z 1.28.




So hospital should accept null hypothesis because observed
mean of sample is not significantly lower than our
hypothesized mean of 100 cc. On the basis of this sample of 50
doses, hospital should conclude that the does in the shipment
are sufficient.


x
2829 . 0
07 . 7
2
50
2
= = = =
n
x
o
o
88 . 0
2829 . 0
100 75 . 99
0
=

=
x
H
x
z
o

9
Question
From 1980 until 1985, the mean price per earnings (P/E) ratio
of the approximately 1800 stocks listed on the New York
Stock Exchange was 14.35 and the standard deviation was
9.73. In a sample of 30 randomly chosen NYSE stocks, the
mean P/E ratio in 1985 was 11.77. Does this sample present
sufficient evidence to conclude (at 0.05 level of significance)
that in 1986 the mean P/E ratio for NYSE stocks had changed
from its earlier value?
10
Solution
Ans: = 9.73 n = 30 = 0.025
H
0
: = 14.35, H
1
: 14.35
The limits of the acceptance region are z
CRIT
= 1.96
Since ,


The calculated value of z is less than critical value so null
hypothesis is not rejected.

The mean P / E ratio in 1986 is not significantly different from
its previous value.
77 . 11 = x
45 . 1
30 / 73 . 9
35 . 14 77 . 11
0
=

=
x
H
x
z
o

11
Question
Before 1973 oil embargo and subsequent increases in the price
of crude oil, gasoline usage in the United States had grown at a
seasonally adjusted rate of 0.57 percent per month, with a
standard deviation of 0.01 percent per month. In 15 randomly
chosen months between 1975 and 1985, gasoline usage grew
at an average rate of only 0.33 percent per month. At a 0.01
level of significance, can you conclude that the growth in the
use of gasoline had decreased as a result of the embargo and
its consequences?
12
Solution
Here n = 15 = 0.10 = 0.01
H
0
: = 0.57 H
1
: < 0.57
Critical z value is 2.33



so we should reject H
0
.
The rate of growth has decreased significantly, and we infer
that was because of the oil embargo and its consequences.
33 . 0 = x
33 . 2 3 . 9
15 / 10 . 0
57 . 0 33 . 0
/
< =

=
n
x
z
o

13
A member of public interest group concerned with
environmental pollution asserts at a public hearing that fewer
than 60 percent of the industrial plants in this area are
complying with air pollution standards Attending this
meeting is an official of the Environmental Protection Agency
who believes that 60 percent of the plants are complying with
the standards: she decides to test that hypothesis at the 0.02
significance level. The official makes a through search of the
records in her office. She samples 60 plants from a population
of over 10000 plants and find that 33 are complying with air
pollution standards. Is the assertion by the member of the
public interest group a valid one?
Question
14
Solution
H
0
: p = 0.6 Proportion of plants complying with the air
pollution standards is 0.6
H
1
: p < 0.6 Proportion complying with the standards is less
than 0.6
= 0.02, p = 0.6 q = 0.4, n = 60 = 33/60 = 0.55
Critical z value is 2.05





Sample proportion lies within acceptable region. Therefore EPA
official should accept the null hypothesis that the true proportion
of complying plants is 0.6




p
0632 . 0 004 . 0
60
) 4 . 0 )( 6 . 0 (
= = = =
n
pq
p
o
79 . 0
0632 . 0
6 . 0 55 . 0
=

=
p
P p
z
o
15
Question
From a total of 10200 loans made by a state employees credit
union in the most recent 5 year period, 350 were sampled to
determine what proportion was made to woman. This sample
showed that 39 percent of the loans were made to woman
employees. A complete census of loans 5 years ago showed
that 41 percent of the borrowers then were woman. At the
significant level of 0.02, can you conclude that the proportion
of loans made to women has changed significantly in the past
five years?
16
Solution
Here n = 350 = 0.02
H
0
: p = 0.41 H
1
: p 0.41
The critical value of z is 2.33





The null hypothesis is not rejected
The proportion of loans made to women has not changed
significantly.
39 . 0 = p
76 . 0
350
) 59 . 0 )( 41 . 0 (
41 . 0 39 . 0
=

=
n
pq
p p
z
17
Question
Some financial theoreticians believe that the stock markets
daily prices constitute a random walk with positive drift. If
this is accurate, then the Dow Jones Industrial Average should
show a gain on more than 50 percent of all trading days. If the
average increased on 101 of 175 randomly chosen days, what
do you think about the suggested theory? Use a 0.01 level of
significance.
18
Solution
Here n = 175, 0.01
H
0
: p = 0.5 H
1
: p> 0.5
The critical value of z is 2.33




so we do not reject H0.
The data do not provide significant support to the theory.
5771 . 0 175 / 101 = = p
04 . 2
175
) 5 . 0 )( 5 . 0 (
5 . 0 5771 . 0
=

=
n
pq
p p
z
19
A personnel specialist of a major corporation is recruiting a
large number of employees for an overseas assignment.
During the testing process, management asks how things are
going and she replies, Fine. I think the average score on the
aptitude test will be around 90. When management reviews
20 of the test results compiled, it finds that the mean score is
84, and the standard deviation of this score is 11. If the
management wants to test her hypothesis at the 0.10 level of
significance, what is the procedure?

Question
20
Solution
Ans: H0: = 90 True population mean score is 90
H1: 90 True population mean score is not 90
= 0.10, n = 20 = 84, s = 11
Critical t value is 1.729.





The sample mean falls outside the acceptance region.
Therefore management should reject the null hypothesis (the
personal specialists assertion that the true mean score of the
employees being tested is 90).




x
47 . 2
47 . 4
11
20
11
= = = =
n
s
x
o
44 . 2
46 . 2
90 84

=
x
H
x
t
o

21
Question
Realtor Elain Snyderman took a random sample of 12 homes
in a prestigious suburb of Chicago and found the average
appraised market value to be $780000 and the standard
deviation was $49000. Test the hypothesis that for all homes
in the area, the mean appraised value is $825000 against the
alternative that it is less than $825000. Use the 0.05 level of
significance.
22
Solution
Here s = 49000, n= 12, = 0.05
H
0
: = 825000, H
1
: < 825000
The critical t value at 11 degrees of freedom is 1.796



so we should reject H
0
.
The average appraised value of homes in the area is
significantly less than $825000.
780000 = x
181 . 3
12 / 49000
825000 780000
/
=

=
n s
x
t


23
Question
A television documentary on overheating claimed that
Americans are about 10 pounds overweight on average. To test
this claim, eighteen randomly selected individuals were
examined, their average excess weight was found to be 12.4
pounds, and the sample standard deviation was 2.7 pounds. At
the significance level of 0.01, is there any reason to doubt the
validity of the claimed 10 pound value?
24
Solution
Here s = 27, n = 18, = 0.01
H0: = 10, H0: 10
The critical value of t is 2.898



we should reject H0.
The claim does not appear to be valid.
4 . 12 = x
771 . 3
18 / 7 . 2
10 4 . 12
/
=

=
n s
x
t

Question
A sample of 32 money-market mutual funds was chosen on
January, 1996 and the average annual rate of return over the
past 30 days was found to be 3.23 percent, and the sample
standard deviation was 0.51 percent; A year earlier, a sample
of 38 money-market funds showed an average rate of return of
4.36 percent, and the sample standard deviation was 0.84
percent. Is it reasonable to conclude (at = 0.05) that money-
market interest rates declined after 1995?
Solution
Sample 1 (1995): s
1
=0.84, n
1
=38
Sample 2 (1996): s
2
=0.51, n
2
=32
H
0
:
1
=
2
, H
1
:
1
>
2







The critical z value is 1.64
We reject H
0
and conclude that money market rates declined
significantly after 1995
36 . 4
1
= x
23 . 3
2
= x
1634 . 0
32
) 51 . 0 (
38
) 84 . 0 (

2 2
2
2
2
1
2
1
2 1
= + = + =

n
s
n
s
x x
o
92 . 6
1634 . 0
0 ) 23 . 3 36 . 4 (

) ( ) (
2 1
2 1 2 1
=

=

=
x x
x x
z
o

Example: Concerning the sensitivity of a manager at a personal
computer manufacture to the needs of their Spanish speaking
employees. The company has been investigating two education
programmes for increasing the sensitivity of its managers. Original
programme consisted of several informal question answer sessions
with leaders of the Spanish-speaking community. Over past few
years, a programme involving formal classroom contact with
professional psychologists and sociologist has been developed. New
programme is considerably more expensive, and the president wants
to know at the 0.05 level of significance whether this expenditure
has resulted in greater sensitivity. Table contains the data resulting
from a sample of the manager trained in both programme
Data from Sample of Two Sensitivity Programs
Program
sampled
Mean
sensitivity
after this
program
Number of
managers
observed
Estimated standard
deviation of
sensitivity after
this program
Formal 92% 12 15%
Informal 84% 15 19%
H
0
:
1
=
2
there is no difference in sensitivity level achieved
by the two program.
H
1
:
1
>
2
the new program results in higher sensitivity
levels.
At =0.05, the t distribution with 12 + 15 2 = 23 degree of
freedom, the critical value t is 1.708.





Null hypothesis is not rejected implies there is no difference
between the sensitivities achieved by the two programs.
Companys expenditures on formal instructional program have
not produced significantly higher sensitivities among its
managers.



Solution
54 . 6
15
) 19 (
12
) 15 (

2 2
2
2
2
1
2
1
2 1
= + = + =

n
s
n
s
x x
o
19 . 1
54 . 6
0 ) 84 90 (

) ( ) (
2 1
0
2 1 2 1
=

=

=
x x
H
x x
t
o

Question
A sample of 30 year conventional mortgage rates at 11
randomly chosen banks in California yielded a mean rate of
7.61 percent and a standard deviation of 0.39 percent. A similar
sample taken at 8 randomly chosen banks in Pennsylvania had
a mean rate of 7.43 percent, and a standard deviation of 0.56
percent. Do these samples provide evidence to conclude (at =
0.10) that conventional mortgage rates in California and
Pennsylvania come from populations with different means?
Solution
Sample 1 (California): s
c
=0.39, n
c
=11,
Sample 2 (Pennsylvania): s
p
=0.56, n
p
=8,
H
0
:
c
=
p
H
1
:
c

p

=0.01
Critical t value at 17 degrees of freedom is 1.7401






Do not reject H0. The California and Pennsylvania mean
mortgage rates are not significantly different.








61 . 7 =
c
x
43 . 7 =
p
x
8286 . 0
23 . 0
0 ) 43 . 7 61 . 7 (

) ( ) (
2 1
2 1 2 1
=

=

=
x x
x x
t
o

23 . 0
8
) 56 . 0 (
11
) 39 . 0 (

2 2
2
2
2
1
2
1
2 1
= + = + =

n
s
n
s
x x
o
Question
A health spa has advertised a weight reducing program and has
claimed that the average participant in the program loses more
than 17 pounds. A somewhat overweight executive is interested in
the program but skeptical about the claims and asks for some hard
evidence. The spa allows him to select randomly the records of 10
participants and record their weights before and after the program.
These data are recorded in the table.
Weights Before and After a Reducing Program
Bf 189 202 220 207 194 177 193 202 208 233
Af 170 179 203 192 172 161 174 187 186 204
The overweight executive wants to test at the 5 percent significant
level the claimed average weight loss of more than 17 pounds.
H
0
:
1
-
2
=17 average weight loss is only 17 pound.
H
1
:
1
-
2
>17 average weight loss exceeds 17 pound.
H
0
:
d
=17 H
1
:
d
>17
Difference weight is 19, 23, 17, 15, 22, 16, 19, 15, 12, 29
At = 0.05 and 9 degree of freedom the critical t value is 1.833




So executive can reject the null hypothesis and conclude that the
claimed weight loss in the program is legitimate.


Solution
39 . 1
10
40 . 4
= = =
n
s
x
o
7 . 19
10
197
= = =

n
x
x
40 . 4
1 - n
) (x
s
2
=

=

94 . 1
39 . 1
17 7 . 19

0
=

=
x
H
x
t
o

Question
Donna Rose is a production supervisor on the disk-drive
assembly line at Winchester Technologies. Winchester
recently subscribed to an easy listening music service at its
factory, hoping that this would relax the workers and lead to
greater productivity. Donna is skeptical about this hypothesis
and fears the music will be distracting, leading to lower
productivity. She sampled weekly production for the same six
workers before the music was installed and after it was
installed. Her data are given below. At = 0.02, has the
average production changed at all?

Employee 1 2 3 4 5 6
Week without music 219 205 226 198 209 216
Week with music 235 186 240 203 221 205
Solution
Employee 1 2 3 4 5 6
Week without music 219 205 226 198 209 216
Week with music 235 186 240 203 221 205
Changes in product (x) 16 -19 14 5 12 -11



H
0
:
AFTER
=
BEFORE
and H
1
:
AFTER

BEFORE
At = 0.02 and 5 degrees of freedom, critical value of t is
3.365

Do not reject H
0
. The music does not have significant effect on
productivity.









8333 . 2
6
17
= = =

n
x
x
9297 . 5 6 / 5247 . 14 /

= = = n s
x
o
5247 . 14
1 - n
) (x
s
2
=

=

365 . 3 478 . 0
9297 . 5
0 8333 . 2

< =

=
x
x
t
o

Example
Consider the case of a pharmaceutical manufacturing company
testing two new compounds intended to reduce blood pressure
levels. The compounds are administered to two different sets
of laboratory animals. In group one, 71 of 100 animals tested
respond to drug 1 with lower blood pressure levels. In group
two, 58 of 90 animals tested respond to drugs 2 with lower
blood pressure levels. The company wants to test at the 0.05
level whether there is a difference between the efficacies of
these two drugs. How should we proceed with this problem?
Solution
n
1
= 100
n
2
= 90

H
0
: p
1
=p
2
no difference between two drugs
H
1
: p
1
p
2
difference between them
At = 0.05, the critical value of z is 1.96.





The null hypothesis accepted and conclude that these two new
compounds produce effects on blood pressure that are not
significantly different.

71 . 0 100 / 71
1
= = p
29 . 0 100 / 29
1
= = q
644 . 0 90 / 58
2
= = p 356 . 0 90 / 42
2
= = q
0679 . 0
90
) 36 . 0 )( 64 . 0 (
100
) 29 . 0 )( 71 . 0 (

2
2 2
1
1 1
2 1
= + = + =

n
q p
n
q p
p p
o
973 . 0
0678 . 0
0 ) 644 . 0 71 . 0 (

) ( ) (
2 1
0
2 1 2 1
=

=

=
p p
H
p p p p
z
o
Question
Suppose that for tax purposes, a city government has been
using two methods of listing property. The first requires the
properties owner to appear in person before a tax lister, but the
second permits the property owner to mail in a tax form. The
city manager thinks the personal appearance method produces
far fewer mistakes than the mail in listings. Ten percent of the
personal appearance forms contain errors, whereas the mail-in
forms contain error is 13.3 percent. Sample size of personal
appearance forms is 50 and Sample size of mail-in forms is 75.
Level of significance for hypothesis testing is 0.15
n
1
= 5 n
2
= 75
H
0
: p
1
= p
2
and H
1
: p
1
< p
2

At = 0.15 the critical value of z is 1.04.





Null hypothesis is not rejected implies there is no difference
between the two methods of tax listing.
Therefore if mailed in listing is considerably less expensive to
the city, the city manager should consider increasing the use of
this method.

10 . 0
1
= p 90 . 0
1
= q 133 . 0
2
= p 867 . 0
2
= q
0593 . 0
75
) 867 . 0 )( 133 . 0 (
50
) 90 . 0 )( 10 . 0 (

2
2 2
1
1 1
2 1
= + = + =

n
q p
n
q p
p p
o
0.556
0.0593
0 0.133) (0.10

) p (p ) p p (
z
2 1
0
p p
H 2 1 2 1
=

=

=

Solution
Question
Mr. George Mc Mohan, president of National General Health Insurance
Company, is opposed to national health insurance. He argues that it would be too
costly to implement, particularly since the existence of such a system would
among other effects, tend to encourage people to spend more time in hospitals.
George believe that the length of stays in hospitals are dependent on the types of
health insurance that people have. He asked Donna McClish, his staff
statistician, to check the matter. Donna collected data on a random sample of
660 hospital stays and summarized them in Table. (Test at 0.01 significance
level)
Hospital stay by types of insurance coverage & length of stay
length of stay < 5 days 5 10 > 10 days Total
Fraction of
cost covered
insurance

<25% 40 75 65 180
25-50% 30 45 75 150
>50% 40 100 190 330
Total 110 220 330 660
Calculation of Expected Frequencies and Chi-Square
Row Column fo fe (= (RT X CT)/n) fo - fe (fo - fe)2 (fo - fe)2 / fe
1 1 40 30 (180 x 110)/660 10 100 3.333
1 2 75 60 (180 x 220)/660 15 225 3.750
1 3 65 90 (180 x 330)/660 -25 625 6.944
2 1 30 25 (150 x 110)/660 5 25 1.000
2 2 45 50 (150 x 220)/660 -5 25 0.500
2 3 75 75 (150 x 330)/660 0 0 0.000
3 1 40 55 (330 x 110)/660 -15 225 4.091
3 2 100 110 (330 x 220)/660 -10 100 0.909
3 3 190 165 (330 x 330)/660 25 625 3.788
Chi-Square 24.316
Chi-square value of 24.315 is not within acceptable region as chi-square is 13.277
(0.01 significant level with 4 degrees of freedom).
Thus Donna must inform Mr. McMahan that the evidence supports his belief that
length of hospital stay and insurance coverage are dependent on each other.
Solution

Question

A newspaper publisher, trying to pinpoint his markets characteristics, wondered
whether newspaper readership in the community is related to readers educational
achievement. A survey questioned adults in the area on their level of education
and their frequency readership. The results are shown in the following table.
Level of educational achievement
Frequency of
Readership
Professional
or PG
College
graduate
High
school
Bellow high
school Total
Never 10 17 11 21 59
Sometime 12 23 8 5 48
Morning or
evening 35 38 16 7 96
Both editions 28 19 6 13 66
Total 85 97 41 46 269
At 0.10 significance level, does frequency of newspaper readership in the
community differ according to readers level of education?

Solution
Row Column fo fe fo - fe (fo - fe)2 (fo - fe)2 / fe
1 1 10 18.643 -8.643 74.70357 4.007
1 2 17 21.275 -4.275 18.27642 0.859
1 3 11 8.993 2.007 4.029795 0.448
1 4 21 10.089 10.911 119.0451 11.799
2 1 12 15.167 -3.167 10.0317 0.661
2 2 23 17.309 5.691 32.3926 1.871
2 3 8 7.316 0.684 0.467876 0.064
2 4 5 8.208 -3.208 10.29241 1.254
3 1 35 30.335 4.665 21.76621 0.718
3 2 38 34.617 3.383 11.44401 0.331
3 3 16 14.632 1.368 1.871505 0.128
3 4 7 16.416 -9.416 88.66778 5.401
4 1 28 20.855 7.145 51.05076 2.448
4 2 19 23.799 -4.799 23.03286 0.968
4 3 6 10.059 -4.059 16.47937 1.638
4 4 13 11.286 1.714 2.936955 0.260
32.856
Critical Chi-square is 14.648, reject null hypothesis . So frequency of
readership differs according to education
Question
As the head of a department of a consumer research
organization you have the responsibility for testing and
comparing the life time of four brands of electric bulbs.
Suppose you test the life time of three electric bulbs of each of
the four brands. The data is shown below, each entry
representing the life time of an electric bulb, measure in
hundred of hours. Can we infer that the mean lifetimes of the
four brands of electric bulbs are equal. Take 95% as the
confidence level

Brand
A B C D
20 25 24 23
19 23 20 20
21 21 22 20
Solution
Null and alternative hypothesis is given bellow:
H
0
:
A
=
B
=
C
=
D
H
1
:
A

B

C

D













n
A
= n
B
= n
C
= n
D
= 3



20 =
A
x 23 =
B
x 22 =
C
x 21 =
D
x
Brand
A B C D
20 25 24 23
19 23 20 20
21 21 22 20
5 . 21 4 / ) ( = + + + =
D C B A
x x x x x
Solution
SSC (sum of squares between columns) =

= 3 (20-21.5)
2
+ 3 (23-21.5)
2
+ 3 (22 21.5)
2
+ 3 (21-21.5)
2
= 15

SSE (sum of squares within columns) =

= (20-20)
2
+ (19-20)
2
+ (21-20)
2
+ (25-23)
2
+ (23-23)
2
+ (21-23)
2
+
(24-22)
2
+ (20-22)
2
+ (22-22)
2
+ (23-21)
2
+ (20-21)
2
+ (21-21)
2
= 24

MSC (mean square) =

MSE (mean square) =
At 95% confidence level, the critical value obtained from the F table
is F
0.05,3,8
= 4.07. Calculated value of F is 1.67 which is lesser than
critical value i.e. 4.07, so the null hypothesis is not rejected.

=

k
j
j j
x x n
1
2
) (

= =

n
i
k
j
j ij
x x
1 1
2
) (
5
1 4
15
1
=

=
k
SSC
3
4 12
24
=

=
k n
SSE
67 . 1
3
5
= = =
MSE
MSC
F