1 The marketing team of a company desires to test whether the average

monthly sales is 30 lakhs (as was targeted) or less than 30 lakhs. One
person from the team collects a sample of same size 10. A second person
from the team selects another sample of the same size. The first person
rejects the null if her sample mean is less than K , and the second person
rejects the null if her sample mean is less than L. The team leader finds
that K > L.
a) Who is testing at a lower significance level? Why?
b) Who has a higher chance of committing type II error? Why?
c) What should the person, testing with a higher significance level, do to
reduce her significance level to that of the other keeping the decision
rule same? Why?
d) Suppose α =0.05 . If type I error occurs, the company spends 5 lakhs per
month on advertisement for increasing the average sales. On the other
hand, if type II error occurs with maximum probability, the company
loses ₹ 100,000. Which type of error is more important for the company?
Why?
2 Rahul, a young IT professional, is considering the possibility of
establishing an Educational Portal for prospective MBA aspirants and
wishes to conduct a survey. Based upon the cost of setting up such a
portal and the profits that may be generated, he has arrived at the
following conclusion: if there is evidence that the average revenue per
candidate is more than Rs.2500, then the portal will be established;
otherwise, the portal will not be established. Based on past experience of
several other such portals, the standard deviation of revenue is estimated
to be Rs.500. Rahul wants to be 99% certain of not committing an error
of establishing the portal when the actual average revenue is at most
Rs.2500 per candidate.

a. If Rahul wishes to have a 2.5% chance of not establishing the portal when
the actual average revenue is Rs.3000, what sample size should be selected?
b. If Rahul decides that a random sample of 20 candidates should be
surveyed, compute the probability of establishing the portal when the
actual average revenue is Rs.3000 per candidate.
c. Discuss the difference in your results in a) and b).
d. A sample of 25 candidates is actually surveyed yielding a sample average
revenue of Rs.2825 with a sample standard deviation of Rs.675. Construct a
95% confidence interval for i. The population average revenue, ii. The
population standard deviation of revenue.

e. Assuming the population standard deviation to be Rs.500, at 1% level of

significance, determine whether there is evidence that the population average
revenue anticipated exceeds Rs.2500.

3. The current government of a nation claims that during its rule over the last
few years, the percentage of people below poverty line (BPL) has declined
from 25% - which is what it was when they assumed office. In order to
contest the government’s, claim the opposition parties came on a debate.
Government realised that they have to decide on a suitable sample size, and
also find an objective (i.e., keep the errors as small as possible) decision rule
to reject the opponent’s claim. Can you help the government? Give, in
details including graphs, the reasons for your answers.

4. Many public polling agencies conduct surveys to determine the current

consumer sentiment concerning the state of the economy. One such
agency randomly sampled 484 consumers and found that 257 were
optimistic about the state of the economy. Based on the above, is it
possible to conclude that the majority of the consumers are optimistic
about the state of the economy?

5. Integrated Circuits India Ltd. recently introduced a Quality Improvement

Programme (QIP) because the management felt that too much of re-working was
being done on the ICs. It was found that 26 ICs out of a random sample of 200
required re-working prior to the QIP. Following the introduction of QIP and
using Pareto Charts and other approaches to identify significant problems, it was
felt that considerable improvements were made. Out of a sample of 100 ICs
taken after introduction of QIP, only 10 required re-working.

a. Calculate a 95% confidence interval for the true difference in the

proportion of ICs requiring re-work, before and after QIP.
b. Test, at 5% significance level, whether there was really an improvement in
terms proportion of ICs requiring re-work after the introduction of QIP.
(Clearly state your Null and Alternate Hypotheses)

6. An automobile company wishes to compare the mean performance of two

types of shock absorbers: brand A and brand B. Of interest was whether
brand B lasted at least 500 km more than brand A, on the average. A test
was conducted using independent samples of 13 each of each type of shock
absorber. The sample from brand A showed a mean of 25,200 km and a
variance of 80,000 km2 whereas the sample from brand B showed a mean
of 25,875 km and a standard deviation of 40,000 km2.

a. State the null and alternate hypotheses.

b. Test the hypotheses at the 5% significance level.