Business Statistics, 5th ed.

by Ken Black

Chapter 9
Discrete Distributions

Statistical Inference:
Hypothesis Testing
for Single
Populations

PowerPoint presentations prepared by Lloyd Jaisingh,

Morehead State University
 Learning Objectives
• Understand the logic of hypothesis testing, and know how
to establish null and alternate hypotheses.
• Understand Type I and Type II errors, and know how to
solve for Type II errors.
• Know how to implement the HTAB system to test
hypotheses.
• Test hypotheses about a single population mean when s is
known.
• Test hypotheses about a single population mean when s is
unknown.
• Test hypotheses about a single population proportion.
• Test hypotheses about a single population variance.
 Types of Hypotheses
• Research Hypothesis
– a statement of what the researcher believes will
be the outcome of an experiment or a study
• Statistical Hypotheses
– a formal structure used to scientifically test the
research hypothesis
• Substantive Hypotheses
– a statistically significant difference does not
imply a material, or substantive difference
 Example Research Hypotheses
• Older workers are more loyal to a company.
• Companies with more than $1 billion of
assets spend a higher percentage of their
annual budget on advertising than do
companies with less than $1 billion of
assets.
• The price of scrap metal is a good indicator
of the industrial production index six
months later.
 Statistical Hypotheses
• Two Parts
– a null hypothesis
– an alternative hypothesis
• Null Hypothesis – nothing new is
happening; the null condition exists
• Alternative Hypothesis – something new is
happening
• Notation
– null: H0
– alternative: Ha
 Null and Alternative Hypotheses
• The Null and Alternative Hypotheses are
mutually exclusive. Only one of them can
be true.
• The Null and Alternative Hypotheses are
collectively exhaustive. They are stated to
include all possibilities. (An abbreviated
form of the null hypothesis is often used.)
• The Null Hypothesis is assumed to be true.
• The burden of proof falls on the Alternative
Hypothesis.
 Null and Alternative Hypotheses:
Example
• A manufacturer is filling 40 oz. packages
with flour.
• The company wants the package contents to
average 40 ounces.

H 0 :   40 oz
H a :   40 oz
 Null and Alternative Hypotheses:
Example
• Because of an increase marketing effort,
company officials believe the company’s
market share is now greater than 18%, and
the officials would like to prove it.

H 0 : p  0.18
H a : p  0.18
HTAB System to Test Hypotheses

Task 1: Task 3:
HYPOTHESIZE TAKE STATISTICAL ACTION

Task 2: Task 4:
TEST DETERMINING THE
BUSINESS IMPLICATIONS
 Steps in Testing Hypotheses
1. Establish hypotheses: state the null and
alternative hypotheses.
2. Determine the appropriate statistical test and
sampling distribution.
3. Specify the Type I error rate (
4. State the decision rule.
5. Gather sample data.
6. Calculate the value of the test statistic.
7. State the statistical conclusion.
8. Make a managerial decision.
 HTAB Paradigm – Task 1
Task 1: Hypotheses

Step 1. Establish hypotheses: state the

null and alternative hypotheses.
 HTAB Paradigm – Task 2
Task 2: Test

Step 2. Determine the appropriate

statistical test and sampling
distribution.
Step 3. Specify the Type I error rate (
Step 4. State the decision rule.
Step 5. Gather sample data.
Step 6. Calculate the value of the test
statistic.
 HTAB Paradigm – Task 3
Task 3: Take Statistical Action

Step 7. State the statistical conclusion.

 HTAB Paradigm – Task 4
Task 4: Determine the business
implications

Step 8. Make a managerial decision.

Rejection and Nonrejection Regions
• Using the critical values established at
Step 4 of the hypothesis testing process, the
possible statistical outcomes of a study can
be divided into two groups:
• Those that cause the rejection of the null
hypothesis
• Those that do not cause the rejection of the
null hypothesis
Rejection and Nonrejection Regions
• Conceptually and graphically, statistical
outcomes that result in the rejection of the
null hypothesis lie in what is termed the
rejection region.
• Statistical outcomes that fail to result in the
rejection of the null hypothesis lie in what is
termed the nonrejection region.
 Possible Rejection and Nonrejection
Regions -
• There are three possibilities which can be
stipulated in the alternative hypothesis.
• The three possibilities are: >, <, or .
• The rejection regions for these possibilities,
if a standard normal distribution is used for
the test statistic, are shown on the next
slide.
Possible Rejection and Nonrejection
Regions -
Rejection region
for hypothesis
which involve the
standard normal
distribution and
the > symbol
(right –tailed test)
Possible Rejection and Nonrejection
Regions -
Rejection region
for hypothesis
which involve the
standard normal
distribution and
the < symbol
(left –tailed test)
Possible Rejection and Nonrejection
Regions -
Rejection region
for hypothesis
which involve the
standard normal
distribution and
the  symbol
(two –tailed test)
 Type I and Type II Errors
• Type I Error
– Rejecting a true null hypothesis
– The probability of committing a Type I error is
called , the level of significance.

• Type II Error
– Failing to reject a false null hypothesis
– The probability of committing a Type II error is
called .
 Decision Table
for Hypothesis Testing

Null True Null False

Fail to Correct Type II error

reject null Decision ( )

Reject null Type I error Correct Decision

()
Testing Hypotheses about a Population
Mean Using the z Statistic (s Known)
• Example: A survey, done 10 years ago, of
CPAs in the U.S. found that their average
salary was $74,914. An accounting
researcher would like to test whether this
average has changed over the years. A
sample of 112 CPAs produced a mean
salary of $78,695. Assume that the
population standard deviation of salaries
s = $14,530.
Testing Hypotheses about a Population
Mean Using the z Statistic (s Known)
• Step 1: Hypothesize
H 0 :   $74,914
H a :   $74,914

• Step 2: Test
z X  
s/ n
Testing Hypotheses about a Population
Mean Using the z Statistic (s Known)
• Step 3: Specify the Type I error rate-
•  = 0.05  z/2 = 1.96

• Step 4: Establish the decision rule-

• Reject H0 if the test statistic < -1.96 or it the
test statistic > 1.96.
Testing Hypotheses about a Population
Mean Using the z Statistic (s Known)
• Step 5: Gather sample data-
• x-bar = $78,695, n = 112, s = $14,530,
hypothesized  = $74,914.

• Step 6: Compute the test statistic.

z  78,695 74,914  2.75

14,530/ 112
Testing Hypotheses about a Population
Mean Using the z Statistic (s Known)
• Step 7: Reach a statistical conclusion-
• Since z = 2.75 > 1.96, reject H0.
• Step 8: Business decision-
• Statistically, the researcher has enough
evidence to reject the figure of $74,914 as
the true average salary for CPAs. In
addition, based on the evidence gathered, it
may suggest that the average has increased
over the 10-year period.
Testing Hypotheses about a Population
Mean Using the z Statistic (s Known)
from a Finite Population
• Test statistic:

z X 
s N n
n N 1
 Using the p-Value to Test Hypotheses

• Another way to reach a statistical

conclusion in hypothesis testing problems is
by using the p-value, sometimes referred to
as the observed significance level.
• p-value <   reject H0
• p-value    do not reject H0
 Using the p-Value to Test Hypotheses
• One should be careful when using p-values
from statistical software outputs.
• Both MINITAB and EXCEL report the
actual p-values for hypothesis tests.
• MINITAB doubles the p-value for a two-
tailed test so you can compare with .
• EXCEL does not double the p-value for a
two-tailed test. So when using the p-value
from EXCEL, you may multiply the value
by 2 and then compare with .
Demonstration Problem: MINITAB
Using the p-Value to Test Hypotheses
Critical Value Method to Test Hypotheses

• The critical value method determines the

critical mean value required for z to be in
the rejection region and uses it to test the
hypotheses.

x
zc  s
c  
n
Critical Value Method to Test Hypotheses

• For the previous example,

1.96  xc  74,914
14,530
112

or xc  74,914 1.9614,530  74,914  2,691

112
lower xc  72,223 and upper xc  77,605
Critical Value Method to Test Hypotheses

• Thus, a sample mean greater than $77,605

or less than $72,223 will result in the
rejection of the null hypothesis.
• This method is particularly attractive in
industrial settings where standards can be
set ahead of time and then quality control
technicians can gather data and compare
actual measurements of products to
specifications.
Testing Hypotheses about a Population
Mean Using the t Statistic (s Unknown)

• In this case, the test statistic will be

t X  
s/ n
df  n 1
Two-tailed Test: s Unknown,  = .05
(Part 1)
Example: Weights in Pounds of a Sample
of 20 Plates
22.6 22.2 23.2 27.4 24.5
27.0 26.6 28.1 26.9 24.9
26.2 25.3 23.1 24.2 26.1
25.8 30.4 28.6 23.5 23.6
MINITAB Computer Printout
for the Machine Plate Example
H0:  = 25 Do not reject the null hypothesis
since P-value = 0.311 >  = 0.05.
Ha:   25
Machine Plate Example: Excel
(Part 1)

Do not reject the

null hypothesis
since
P-value = 0.3114 >  = 0.05.
Machine Plate Example: Excel
(Part 2)
A B C D E
1 H0:  = 25
2 Ha:   25
3

4 22.6 22.2 23.2 27.4 24.5

5 27 26.6 28.1 26.9 24.9
6 26.2 25.3 23.1 24.2 26.1
7 25.8 30.4 28.6 23.5 23.6
8

9 n= =COUNT(A4:E7)
10 = 0.05
11 Mean = =AVERAGE(A4:E7)
12 S= =STDEV(A4:E7)
13 Std Error = =B12/SQRT(B9)
14 t= =(B11-B1)/B13
15 p-Value =TDIST(B14,B9-1,2)
z Test of Population Proportion

z
pˆ  p n  p  5, and
pq nq  5
n
where : pˆ  sample proportion
p  population proportion
q  1- p
 z Test of Population Proportion
• A manufacturer believes exactly 8% of its
products contain at least one minor flaw.
Suppose the company wants to test this
belief. A sample of 200 products resulted in
33 items have at least one minor flaw. Use
a probability of a Type I error of 0.10.

H0: p = 0.08
Ha: p  0.08
 Testing Hypotheses about a
Proportion: Manufacturer Example
(Part 2)
Rejection Regions If Zz  11645
. 645,, reject Ho..
0

If Zz  1.645,
1645
. , do not reject Ho.. 0

33
33
  pˆ  .165
.165
.05 .05 200
200
2 2
pˆ  Pp 165.08
.165 .08
Non Rejection Region
zZ    4.43
4.43
Zzc  1645
c
. zZcc  1645
.
Pp Q
q (.(.08
08)(.)(.9292
))
Critical Values
n 200
200

Since zZ  44..43  11645

. 645,, reject H
Ho0..
MINITAB Computer Printout
for the Minor Flaw Example
H0: p = 0.08 Reject the null hypothesis
since P-value = 0.000 <  = 0.1.
Ha: p  0.08
 Using the Critical Value Method
pˆ c  p
z / 2  H0: p = 0.08
pq
n
Ha: p  0.08
pˆ c  0.08
1.645 
(0.08)(0.92) Since the sample
200 proportion of
0.165
or pˆ c  0.08 1.645 (0.08)(0.92)  0.08  0.032 falls outside the
200
interval, the null
lower pˆ c  0.048 and upper pˆ c  0.112 hypothesis
is rejected
Testing Hypotheses About a Variance
• The test statistic for this test is

2  (n1) s 2

s2
Testing Hypotheses About a Variance:
Demonstration Problem 9.4
• Step 1:
H0: s2 = 25
Ha: s2  25

• Step 2: Test statistic

2  (n1) s 2

s2
Testing Hypotheses About a Variance:
Demonstration Problem 9.4
• Step 3: Because this is a two-tailed test,
 = 0.10 and /2 = 0.05.
• Step 4: The degrees of freedom are 16 – 1 =
15. The two critical chi-square values are 2(1
– 0.05), 15 =  2
0.95, 15 = 7.26093 and  2
0.05,
15 = 24.9958.
• Step 5: The data are listed in the text.
• Step 6: The sample variance is s2 = 28.1. The
observed chi-square value is calculated as
2 = 16.86.
Testing Hypotheses About a Variance:
Demonstration Problem 9.4
• Step 7: The observed chi-square value is in
the nonrejection region because 2 0.95, 15 =
7.26093 < 2observed = 16.86 < 2 0.05), 15 =
24.9958.
• Step 8: This result indicates to the company
managers that the variance of weekly
overtime hours is about what they expected.
 Solving for Type II Errors

• When the null hypothesis is not rejected, then

either a correct decision is made or an
incorrect decision is made.
• If an incorrect decision is made, that is, if the
null hypothesis is not rejected when it is false,
then a Type II error has occurred.
• Finding the probability of a Type II error is
more complex than finding the probability of
Type I error.
• A Type II error, , varies with possible
values of the alternative parameter.
Solving for Type II Errors (Soft Drink)

• Suppose a test is conducted on the following

hypotheses: H0: = 12 ounces vs. Ha: < 12
ounces when the sample size is 60 with mean
of 11.985.
• The first step in determining the probability
of a Type II error is to calculate a critical
value for the sample mean (in this case).
• For an  =0.05, then the critical value for the
sample mean is (given on next slide).
Solving for Type II Errors (Soft Drink)

In testing the null hypothesis

xc  
zc  by the critical value method,
s/ n this value is used as the cutoff
for the nonrejection region.
xc 12 For any sample mean
1.645  obtained that is less than
0.10 / 60 11.979, the null hypothesis is
rejected. Any sample mean
xc  11.979 greater than 11.979, the null
hypothesis is not rejected.
Solving for Type II Errors (Soft Drink)

• Since a Type II error, , varies with possible

values of the alternative parameter, then for
an alternative mean of 11.99 (< 12) the
corresponding z-value is
xc  
z1  1
s/ n

11.979 11.99
z1 
0.10 / 60

z1  0.85
Solving for Type II Errors (Soft Drink)

• INSERT FIGURE 9.20

Solving for Type II Errors (Soft Drink)
• The value of z yields an area of 0.3023.
• The probability of committing a Type II error
is equal to the area to the right of the critical
value of the sample mean of 11.979.
• This area is = 0.3023 + 0.5000 = 0.8023.
• Thus, there is an 80.23% chance of
committing a Type II error if the alternative
mean is 11.99.
• Note: equivalent problems can be solved for
sample proportions (See Demonstration
Problem 9.6).
 Operating Characteristic and Power
Curve
• Because the probability of committing a Type
II error changes for each different value of
the alternative parameter, it is best to examine
a series of possible alternative values.
• The power of a test is the probability of
rejecting the null hypothesis when it is false.
• Power = 1 - .
Operating Characteristic and Power
Curve (Soft Drink)
Operating Characteristic and Power
Curve (Soft Drink)

0.9

0.8

0.7

0.6
Type II Error

0.5

0.4

0.3

0.2

0.1

0.0

11.95 11.96 11.97 11.98 11.99 12.00

Alternative Means
Operating Characteristic and Power
Curve (Soft Drink)
1.0

0.8

0.6
Power

0.4

0.2

0.0
11.95 11.96 11.97 11.98 11.99 12.00
Alternative Means
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