Describe a possible application of hypothesis testing to a business setting. The application you describe need not be a real one (one that has actually occurred), it can be an application that you invent. You should describe a) what the business setting is b) what data you would use c) what null hypothesis you would test and what the alternative hypothesis is. d) what type of test you would use e) You should explain what level of significance you would use and why. f) You should explain how to interpret the outcome of the test: what does it tell you if you could reject or could not reject the null hypothesis? g) Finally, you should explain the possible advantages of using hypothesis testing in this application and its possible downsides dangers (when how using a hypothesis test could lead to mistaken inferences or erroneous decisions).

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Macsen Nixon · Accepted Answer

Part a:  Suppose we have a company manufacturing certain products and there are two machines involved in the manufacturing process Machine A and Machine B.  We want to check whether the average number of products manufactured by both the machines is same or not.  Part b:  The data required for the above problem could be collected from the both the machines for a period of 15 days.  We will collect the number of products manufactured by both the machines Machine A and Machine B for a period of 15 days. Thus, we will have 15 days data from Machine A and Machine B respectively for the number of products manufactured.  Part c:  The null hypothesis that we would test is the average number of products manufactured by both the machines is same against the alternative hypothesis as the average number of products manufactured by both the machines is not same.  Part d:  We would utilize the t-test for comparing the means of two groups.  Part e:  The level of significance is subjective in nature as it depends from person to person. But, we mostly prefer the level of significance to be 0.05 which is most widely used for hypothesis testing.  Part f:  We would compute the t-test statistic and also the t-critical value with 0.05 level of significance. We reject the null hypothesis if t-value &amp;gt; t-critical value and fail to eject the null hypothesis if t-value &amp;lt; t-critical value.  Part g:  In a business problem above it would be an advantage as we can be more confidence about our claim after doing a hypothesis test.  Sometimes, it might be misleading too as we can use a larger level of significance to prove our claim.

Describe a possible application of hypothesis testing to a business setting.

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