Business Statistics, 4e

by Ken Black
Chapter 9
Discrete Distributions

Statistical Inference:
Hypothesis Testing
for Single
Populations

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-1

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 is
known.
Test hypotheses about a single population mean when is
unknown.
Test hypotheses about a single population proportion.
Test hypotheses about a single population variance.

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-2

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 more formal structure derived from the
research hypothesis.

Substantive Hypotheses
a statistically significant difference does not
imply or mean a material, substantive
difference.
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-3

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.
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-4

Statistical Hypotheses
Two Parts
a null hypothesis
an alternative hypothesis

Null Hypothesis nothing new is

happening
Alternative Hypothesis something new is
happening
Notation
null: H0
alternative: Ha
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-5

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.
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-6

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
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-7

One-tailed and Two-tailed Tests

One-tailed Tests

H 0 : 40

H 0 : p 0.18

H a : 40

H a : p 0.18

Two-tailed Test

H 0 : 12
H a : 12
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-8

HTAB System to Test Hypotheses

Task 1:
HYPOTHESIZE

Task 3:
TAKE STATISTICAL ACTION

Task 2:
TEST

Task 4:
DETERMINING THE
BUSINESS IMPLICATIONS

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-9

Steps in Testing Hypotheses

1. Establish hypotheses: state the null and
2.
3.
4.
5.
6.
7.
8.

alternative hypotheses.
Determine the appropriate statistical test and
sampling distribution.
Specify the Type I error rate (
State the decision rule.
Gather sample data.
Calculate the value of the test statistic.
State the statistical conclusion.
Make a managerial decision.

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-10

HTAB Paradigm Task 1

Task 1: Hypotheses
Step 1. Establish hypotheses: state the
null and alternative hypotheses.

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-11

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.
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-12

HTAB Paradigm Task 3

Task 3: Take Statistical Action
Step 7. State the statistical conclusion.

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-13

HTAB Paradigm Task 4

Task 4: Determine the business
implications
Step 8. Make a managerial decision.

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-14

Rejection and Non Rejection Regions

Rejection Region

Rejection Region

Non Rejection Region

=40 oz
Critical Value

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

Critical Value

9-15

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 .
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-16

Decision Table
for Hypothesis Testing
Null True

Null False

Fail to
reject null

Correct
Decision

Type II error
()

Reject null

Type I error
()

Correct Decision

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-17

One-tailed Tests
H 0 : 40

H 0 : 40

H a : 40

H a : 40

Rejection Region
Non Rejection Region
=40 oz
Critical Value

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

Rejection Region
Non Rejection Region
=40 oz
Critical Value

9-18

Two-tailed Tests

H o0 : 40
H aa :: 40

Rejection
Region

Rejection
Region

Non Rejection Region

=12 oz
Critical Values

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-19

CPA Net Income Example:

Two-tailed Test (Part 1)

H 0 : $74,914
H a : $74,914

.025
2

.025
2

Rejection
Region

Rejection
Region
Non Rejection Region
=0

Zc 196
.

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

Zc 196
.

9-20

CPA Net Income Example:

Two-tailed Test (Part 2)
If z zc 1.96, reject H 0 .
If z zc 1.96, do not reject H 0 .

x 78,695 74,914
z

2.75

14,530
n
112
z = 2.75 zc = 1.96, reject H 0 .

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-21

CPA Net Income Example:

Critical Value Method (Part 1)
Lower
H 0 : $74,914

x z
n
H a : $74,914
14,530
c

.025
2

.025
2

Rejection
Region

Rejection
Region
Non Rejection Region
72,223

Zzcc 196
1..96

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

74,914 1.96

zZc c 1196
..96

112

72,223
Upper
xc z c

77,605

z=0
0

74,914 1.96

14,530
112

77,605
9-22

CPA Net Income Example:

Critical Value Method (Part 2)

.025
2

.025
2

Rejection
Region

Rejection
Region
Non Rejection Region
72,223

Zzcc 196
1..96

77,605

z=0
0

zZcc 1196
..96

If x 77,223 or x 77,605, reject H 0 .

If 77,223 x 77,605, do not reject H 0 .

Since x 78,695 xc 77,605, reject Ho.

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-23

Demonstration Problem 9.1: z Test

(Part 1)

H 0 : 4.30
H a : 4.30
Rejection
Region
=.05
Non Rejection Region

zZcc 1645
1..645
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-24

Demonstration Problem 9.1: z Test

(Part 2)
Rejection
Region

zx

=.05
Non Rejection Region

Zzcc 1645
1..645

x 4.156 4.30

1.42

0.574
n
32

z 1.42 1.645,
do not reject H 0 .

If z 1.645, reject H 0 .
If z 1.645, do not reject H 0 .

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-25

Demonstration Problem 9.1: Critical

Value (Part 1)

H 0 : 4.30
H a : 4.30
xc z

4.30 ( 1.645)

Rejection
Region
=.05
Non Rejection Region

zZc c 1645
1..645

xxcc 44.133
.133

4.30

0.574
32

4.133

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-26

Demonstration Problem 9.1: Critical

Value (Part 2)
Rejection
Region
=.05
Non Rejection Region

Zzcc 1645
1..645

.133
xxcc 44.133

4.30

If x 4.133, reject H 0 .
If x 4.133, do not reject H 0 .

x 4.156 4.133, do not reject H 0 .

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-27

Demonstration Problem 9.1: Using the

p-Value

H 0 : 4.30

H a : 4.30

Rejection
Region
=.05
Non Rejection Region
0

If p - value < , reject H 0 .

If p - value , do not reject H 0 .
x 4.156 4.30
z

1.42

0.574
n
32
p ( z 1.42) .0778
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

Since p - value = .0778 > = .05,

do not reject H 0 .

9-28

Demonstration Problem 9.1: MINITAB

Test of mu = 4.300 vs mu < 4.300
The assumed sigma = 0.574
Variable
Ratings

N MEAN
32
4.156

STDEV SE MEAN
Z P VALUE
0.574
0.101 -1.42
0.078

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-29

Demonstration Problem 9.1: Excel

(Part 1)

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-30

Demonstration Problem 9.1: Excel

(Part 2)
H0: =

4.3

Ha: <

4.3

n=

=COUNT(A4:H7)

0.05

Mean =
S=
Std Error =
Z=
p-Value

=AVERAGE(A4:H7)
=STDEV(A4:H7)
=B12/SQRT(B9)
=(B11-B1)/B13
=NORMSDIST(B14)

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-31

Two-tailed Test: Unknown, = .05

(Part 1)
Weights in Pounds of a Sample of 20 Plates
22.6
27.0
26.2
25.8

22.2
26.6
25.3
30.4

23.2
28.1
23.1
28.6

27.4 24.5
26.9 24.9
24.2 26.1
23.5 23.6

x 25.51, s = 2.1933, and n = 20

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-32

Two-tailed Test:
Unknown, = .05 (part 2)

Ho0: :2525
Haa: : 2525
df n 1 19

Rejection Regions

.025
2

.025
2

Non Rejection Region

2.093

2.093

Critical Values
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-33

Two-tailed Test:
Unknown, = .05 (part 3)
If tt 2.093,
2.093, reject
reject Ho0 .

Rejection Regions

If t 2.093,
reject H
Ho0..
2.093, do not reject

.025
2

.025
2
Non Rejection Region

2.093

2.093

Critical Values
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

Xx 2551
. .51
25.025.0
25
t

104
. 1.04
Ss
2.1933
2.1933
nn
20 20
Since tt 1104
.04 2.093
093,, do not reject H
Ho0..
9-34

MINITAB Computer Printout

for the Machine Plate Example
Test of mu = 25.000 vs mu not = 25.000
Variable
Platewt

N MEAN STDEV
20 25.510 2.193

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

SE MEAN
0.490

T
1.04

P VALUE
0.31

9-35

Machine Plate Example: Excel

(Part 1)

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-36

Machine Plate Example: Excel

(Part 2)
A

H0 : =

25

Ha :

25

22.6

22.2

23.2

27.4

24.5

27

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

n=

=COUNT(A4:E7)

10

0.05

11

Mean =

12

S=

=STDEV(A4:E7)

13

Std Error =

=B12/SQRT(B9)

14

t=

15

p-Value

=AVERAGE(A4:E7)

=(B11-B1)/B13
=TDIST(B14,B9-1,2)

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-37

Demonstration Problem 9.2 (Part 1)

Size in Acres of 23 Farms
445
463
466
561

489474505
466557502
477557433
560

553477545
449438500
545511590

x 498.78, s = 46.94, and n = 23

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-38

Demonstration Problem 9.2 (Part 2)

H 0 : 471

Rejection Region

H a : 471
.05

df n 1 22

Non Rejection Region

1717
.

Critical Value

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-39

Demonstration Problem 9.2 (Part 3)

If t 1.717, reject H 0 .

Rejection Region

If t 1.717, do not reject H 0 .

.05
Non Rejection Region

t
Critical Value

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

x 498.78 471
t

2.84
s
46.94
n
23

1717
.

Since t 2.84 1.717, reject H 0 .

9-40

z Test of Population Proportion

p p
z
pq
n
where : p sample proportion

n p 5, and
nq 5

p population proportion
q 1- p

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-41

Testing Hypotheses about a

Proportion: Manufacturer Example
(Part 1)
Rejection Regions

H 0 : p .08
H a : p .08

.05
2
Non Rejection Region

.05
2

.
Zzc 1645

.
Z
zc 1645
c

Critical Values

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-42

Testing Hypotheses about a

Proportion: Manufacturer Example
(Part 2)
If Zz 11645
. 645,, reject Ho..

Rejection Regions

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

.05
2

.05
2

Non Rejection Region

.
.
zZcc 1645
Zzcc 1645
Critical Values

33
33
.165
.165
200
200
p Pp
.165
165.08
.08
zZ

4.43
4.43
q
08)(.)(.9292
Pp Q
(.(.08
))
200
n
200
p

reject H
Ho0..
Since zZ 44..43 11645
. 645,, reject
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-43

Demonstration Problem 9.3 (Part 1)

H
H0o:: Pp .17
17

Rejection Region

H
17
Haa::Pp ..17

.05
Non Rejection Region
.
zZ c 1645
c

Critical Value

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-44

Demonstration Problem 9.3 (Part 2)

Rejection Region

.05
Non Rejection Region
.
Zzcc 1645
Critical Value

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

If Zz 1645
1..645, ,reject
rejectHHo.0 .
If
If Zz 1645
1..645, ,do
donot
notreject
rejectHHo.0 .
If

115
115
.209
pp
.209
550
550
.209
.17
pp Pp
.209
.17
Zz

2.442.44
(.17
)(.)83)
PpQq
(.17
)(.83
550
nn
550
Since
11645
..645,, reject
reject H
Since Z
z = 22.44
.44
Ho0..

9-45

Hypothesis Test for 2:

Demonstration Problem 9.4 (Part 1)

Ho0:: 2525
H
22

df = 15

H
Ha0:: 2525

.05

22

.95
.05
0

7.26094
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

24.9958
9-46

Hypothesis Test for 2:

Demonstration Problem 9.4 (Part 2)
df = 15

2
2
2
2
26094 or
or 24.9958
IfIf 77..26094
9958,, reject
reject H
Ho.0 .
2
2
7.26094
IfIf7.26094
24.9958
.9958, ,do
donot
notreject
rejectHHo. 0.
24

.05
.95

22

15)( 28
n

1
28..1
1)
S
(
n

1
)
s
(
15
2

16..86
2

16
86
25
2
2

.05
0

Since
.05 ,15 2424.9958
.9958
,
Since 1616.86
.86
,
.05,15
2

7.26094

24.9958

25

dodo
notnotreject
rejectHH0o..
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-47

Solving for Type II Errors:

The Beverage Example
Ho0: :12
12
Haa:
: 1212
Rejectio
n
Region
=.05
Non Rejection Region
=0

xc zZ
c c
Xc
nn
1212(( 11645
.645
. ))

0010
.10
60

11979
.
11.979

If X
x 11
reject HHo.0 .
If
11979
..979,, reject
If X
x 11
do not
not reject
rejectHHo.0 .
If
11979
..979,, do

zZcc 1.645
Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

9-48

Type II Error for Beverage Example

with =11.99 oz
Reject Ho Do Not Reject Ho
Type I
Error

95%

=.05
Ho is True

Correct
Decision

Z
z00

Ho is False
Correct
Decision

19.77%

=.8023

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

Type II
Error

z11
Z

xX

9-49

Type II Error for Demonstration

Problem 9.5, with =11.96 oz
Reject Ho Do Not Reject Ho
Type I
Error

95%
=.05

Ho is True
Ho is False
Correct
Decision

92.92%

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

=.0708

Correct
Decision

zZ00
Type II
Error

zZ11

x
X
9-50

 Values and Power Values

for the Soft-Drink Example

11.999
11.995
11.990
11.980
11.970
11.960
11.950

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

Power
.94
.89
.80
.53
.24
.07
.01

.06
.11
.20
.47
.76
.93
.99

9-51

Probability

Operating Characteristic Curve

for the Soft-Drink Example
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
11.95

11.96

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

11.97

11.98

11.99

12

9-52

Probability

Power Curve
for the Soft-Drink Example
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
11.95

11.96

Business Statistics, 4e, by Ken Black. 2003 John Wiley & Sons.

11.97

11.98

11.99

12

9-53