Hypothesis Testing

A process of testing hypotheses about

parameters by setting up null and
alternative hypotheses, gathering
sample data, computing statistics from
the samples, and using statistical
techniques to reach conclusions about
the hypotheses.

Slide 9-1
 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.
Slide 9-2
 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.

Slide 9-3
 Null and Alternative
Hypotheses: Example
• A soft drink company is filling 12 oz. cans
with cola.
• The company hopes that the cans are
averaging 12 ounces.

Ho:  12 oz
Ha:  12 oz

Slide 9-4
Rejection and Nonrejection Regions

Rejection Region Rejection Region

Nonrejection Region
=12 oz

Critical Value Critical Value

Slide 9-5
 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 .
– Power is the probability of rejecting a false
null hypothesis, and equal to 1- 
Slide 9-6
 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

() (Power)

Slide 9-7
 One-tailed and Two-tailed Tests
• One-tailed Tests

Ho:  12 Ho:  12

Ha:   12 Ha:   12

• Two-tailed Test

Ho:  12
Ha:  12
Slide 9-8
 One-tailed Tests
Ho:  12 Ho:  12
Ha:   12 Ha:   12

Rejection Region Rejection Region

Nonrejection Region Nonrejection Region

=12 oz =12 oz

Critical Value Critical Value

© 2002 Thomson / South-Western Slide 9-9

 Two-tailed Tests

Ho:  12 Rejection

Region
Rejection
Region

Ha:  12 Nonrejection Region

=12 oz

Critical Values

Slide 9-10
 CPA
CPA Net
Net Income
Income Example:
Example:
Two-tailed
Two-tailed Test
Test
Ho :  $74,914 If Z  Zc 196
. , reject Ho.
If Z Zc 196
. , do not reject Ho.
Ha :  $74,914
 
.025 .025 X  78, 646  74, 914
2 2 Z  2.75
Rejection  14,530
Rejection Region n 112
Region
Nonrejection Region
=0 Z = 2.75  Zc = 1.96, reject Ho

Zc  196
. Zc 196
.
Slide 9-11
 CPA Net Income Example:
Critical Value Method (Part 1)
Ho:  $74,914 Lower

X   Z n
Ha:  $74,914
c c

14,530
74,914  1.96
 112
 .025
.025 2 72,223
2
Rejection
Rejection Region Upper
Region
Nonrejection Region 
X   Z c
c
n
72,223 77,605
14,530
74,914  1.96
112
Zc  196
. =0 Zc 196
. 77,605
Slide 9-12
 CPA Net Income Example:
Critical Value Method (Part 2)
 
.025 .025
2 2
Rejection
Rejection Region
Region
Nonrejection Region

72,223 77,605

Zc  196
. =0 Zc 196
.

If X  77,223 or X  77,605, reject Ho.

If 77,223 X 77,605, do not reject Ho.

Since X 78,646  X c
77,605, reject Ho.
Slide 9-13
 Demonstration Problem 9.1 (Part 1)

Ho :  4.30
Rejection
Region
=.05

Ha :   4.30 Nonrejection Region

0
Zc  1645
.

If Z   1.645, reject H0. X   4.156  4.30

Z   1.42
s 0.574
If Z  1.645, do not reject H0.
n 32

Z  1.42  1.645,
do not reject H0.
© 2002 Thomson / South-Western Slide 9-14
 Demonstration Problem 9.1 (Part 2)

Ho:  4.30 Rejection

Region
=.05

Ha:   4.30 Nonrejection Region

0
Zc  1645
.
s
X c   Z n 4.30
4.30  (  1.645)
0.574 xc 4.133
32
4.133

If X  4.133, reject H0. X 4.156 4.133, do not reject H0.

If X 4.133, do not reject H0.
Slide 9-15
 Demonstration Problem 9.1 (Part 3)
Ho:  4.30 Rejection
Region
=.05

Ha:   4.30 Nonrejection Region

0
If p - value <  , reject Ho.
If p - value   , do not reject Ho.

X   4.156  4.30 Since p - value = .0778 >  = .05,

Z   1.42
s 0.574
do not reject Ho.
n 32
P ( Z   142
. ) .0778

Slide 9-16
Two-tailed Test: Small Sample,
 Unknown,  = .05 (Part 1)
Weights in Pounds of a Sample of 20 Plates
22.622.2 23.2 27.4 24.5
27.026.6 28.1 26.9 24.9
26.225.3 23.1 24.2 26.1
25.830.4 28.6 23.5 23.6

X 25.51, S = 2.1933, and n = 20

Slide 9-17
 Two-tailed Test: Small Sample,
 Unknown,  = .05 (Part 2)

Ho:  25 Rejection Regions

Ha:  25 
.025

2
.025
2
Nonrejection Region
df n  1 19 t  2.093 t c
2.093
c

Critical Values

Slide 9-18
 Two-tailed Test: Small Sample,
 Unknown,  = .05 (Part 3)
Rejection Regions If t  2.093, reject Ho.
If t 2.093, do not reject Ho.

  X   2551
.  25.0
.025 .025
2 t  104
.
2 S 2.1933
Non Rejection Region
n 20
t c
 2.093 t c
2.093

Critical Values Since t 104

. 2.093, do not reject Ho.

© 2002 Thomson / South-Western Slide 9-19

Demonstration Problem 9.2 (Part 1)
Size in Acres of 23 Farms
445 489474505 553 477 545
463 466557502 449 438 500
466 477557433 545 511 590
561 560

X 498.78, S = 46.94, and n = 23

Slide 9-20
Demonstration Problem 9.2 (Part 2)

Ho :  471 Rejection Region

Ha :   471
 .05

Nonrejection Region
df n  1 22
t c
1717
.

Critical Value

Slide 9-21
Demonstration Problem 9.2 (Part 3)

Rejection Region If t  1717

. , reject Ho.
If t 1717
. , do not reject Ho.

 .05 X   498.78  471

t  2.84
S 46.94
Nonrejection Region
n 23
t 1717
c
.
Since t 2.84  1.717, reject Ho.
Critical Value

Slide 9-22
Z Test of Population Proportion

p  P n P 5, and
Z
P Q n Q 5
n
where: p = sample proportion
P = population proportion
Q = 1 -P

Slide 9-23
 Testing Hypotheses about a
Proportion: Manufacturer Example
(Part 1)
Rejection Regions

Ho : P .08 
.05

.05
2 2
Ha : P .08 Z c
 1645
.
Nonrejection Region
Z c
1645
.

Critical Values

Slide 9-24
 Testing Hypotheses about a
Proportion: Manufacturer Example
(Part 2)
Rejection Regions If Z  1645
. , reject Ho.
If Z 1645
. , do not reject Ho.

33
  p  .165
2
.05 .05 200
2
Nonrejection Region p  P .165 .08
Z  1645
. Z 1645
. Z  4.43
c c P Q (.08)(.92)
Critical Values n 200

Since Z 4.43  1645

. , reject Ho.

© 2002 Thomson / South-Western Slide 9-25

Demonstration Problem 9.3 (Part 1)

Ho: P .17 Rejection Region

Ha: P .17  .05

Nonrejection Region
Z c
1645
.

Critical Value

Slide 9-26
Demonstration Problem 9.3 (Part 2)
If Z  1645
. , reject Ho.
Rejection Region If Z 1645
. , do not reject Ho.

115
 .05 p  .209
550
p  P .209  .17
Nonrejection Region Z  2.44
P Q (.17)(.83)
Z c
1645
.
n 550
Critical Value
Since Z = 2.44  1645
. , reject Ho.

Slide 9-27
Thank You

Slide 9-28