SMMD: Practice Problem Set 4

Topics: Hypothesis testing

1. The average purchase amount at a retailer’s online site is $80. The retailer is
evaluating a new design for its website that, it hopes, would encourage shoppers to
spend more. Let μ represent the average amount spent per customer at its
redesigned website. Which of the following is a true statement?

A. The appropriate null hypothesis for testing the profitability of the new design
is H0: μ ≤ 80.
B. If the p-value of the test is less than , then we will always commit a Type II
error.
C. If the p-value of the test is less than , then we will always commit a Type I
error.
D. None of the above

2. An accounting firm is considering offering investment advice in addition to its

current focus on tax planning. Its analysis of the costs and benefits of adding this
service indicates that it will be profitable if 40% or more of its current customer base
use it. The firm plans to survey its customers. Let  denote the proportion of its
customers who will use this service if offered and let p denote the percentage who
say they will use this service in the survey. The firm plans to run a test with the
following hypotheses, H0:  ≤ 0.4; HA:  > 0.4 and  = 5%. Which of the following
statements is true?

A. If H0 is true, then any sample will have a sample proportion (p) less than 0.40.
B. The p-value of the test of the null hypothesis in this example is the probability
that the investment service will be profitable.
C. Both of the above
D. None of the above

3. A pharmaceutical company is testing a newly developed therapy. If the therapy

lowers the blood pressure of patients by more than 10 mm on average, it is deemed
effective. What are the natural hypotheses to test in a clinical study of this new
therapy?
A. H0: μ >= 10 mm and Ha : μ < 10
B. H0: μ <= 10 mm and Ha : μ > 10
C. H0: Xbar <= 10 mm and Ha : Xbar > 10
D. H0: Xbar >= 10 mm and Ha : Xbar < 10

4. The weights of the cereal boxes follow a normal distribution with mean 16.3 oz and
std dev 0.2 oz. Suppose the manager decides to stop the packaging process and
investigate if a cereal box with weight lower than 15.9 oz is observed. What is the
probability of Type I error with this decision rule?
A. 0.0125
B. 0.025
 C. 0.05
D. 0.10

5. In the above question, rather than raise an alarm when a box with weight lower than
the threshold weight is observed, the manager has decided to wait until 2
consecutive boxes have weights lower than the threshold. What is the probability of
a Type I error if this procedure is used? Assume that each weight of each cereal box
is independent of the other.
A. 0.05
B. 0.025
C. 0.0125
D. 0.000625

6. Auditors at a small community bank randomly sample 100 withdrawal transactions

made daily at an ATM machine located near the bank’s main branch. Over the past 2
years, the average withdrawal amount has been $50 with a standard deviation of
$40. Since audit investigations are typically expensive, the auditors decide to not
initiate further investigations if the mean transaction amount of the sample is
between $45 and $55. Suppose that the mean transaction amount of the sample is
found to be $70, and consequently an investigation is held. However, no reasons for
the increase in withdrawal size are uncovered. This means that:
A. The auditors commit a Type I error
B. The auditors commit a Type II error
C. Since no problems are uncovered, there is no error
D. Since the mean transaction amount is higher than $55, there is no error

7. An upcoming holiday weekend increases the mean size of withdrawals. If the

sample average on such a day remains inside the thresholds of $45 and $55 (also
called control limits), then the auditors do not investigate. Thus:
A. Type I error has occurred
B. Type II error has occurred
C. Neither Type I nor Type II error has occurred
D. Both Type I and Type II errors have occurred

8. When everything is proceeding normally, a process produces items having mean

weight of 100 units and standard deviation of 10 units. It is assumed that the process
is operating normally when the items produced are neither too light, nor too heavy.
The manager decides to take a randomly selected sample of items and check whether
the mean weight of the sample is too high, or too low. Because the manager wants to
check process deviations on both sides of the mean, she must set a lower and an
upper threshold. For a type I error probability of 0.27%, determine upper and lower
thresholds for the sample mean if the sample size is 10. Assume that conditions for
applying CLT are satisfied.
A. [85, 115]
B. [86.5, 113.5]
C. [87.75, 112.25]
D. [90.5, 109.5]