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Example 10:

A company that manufactures plastic chairs has launched a new brand. The company’s sales
through various retail outlets across the country. The management of the company believes that
the average price for the new brand is Rs. 550 in all outlets. A researcher wants to verify this
claim and has taken a random sample of selling price of the new brand from 25 outlets across the
country. The prices are given as follows:

540 555 560 565 563 567 555 552 543 546
560 551 542 558 556 552 550 556 559 554
557 558 556 543 553

Solution:
Step 1: Set null and alternative hypothesis
𝐻0 : 𝜇 = 550 ; 𝐻𝐴 : 𝜇 ≠ 550
Step 2 : Determine the appropriate statistical test
Sample size is less than 30. Hence the required test statistic is given as
𝑥 −𝜇
t= 𝑠
𝑛

Step 3: Set the level of significance

The level of significance, that is, 𝛼 is set as 0.05.
Step 4: Set the decision rule
For degrees of freedom 24 and for a two tailed test, the tabular value of t is 𝑡0.025,24 = 2.064. So,
if the computed t value is outside the ± 2.064 range, the null hypothesis is rejected. Otherwise, it
is accepted.

Step 5: Collect the sample data

Sample information is computed as below:
Sample Standard deviation s = 7.0797
Sample mean (𝑥 ) = 554.04
𝜇 = 550
n = 25
df =25 – 1 = 24

Step 6: Analyze the data

Information obtained from the sample is placed in the t formula given in step 2.
𝒙 −𝝁 𝟓𝟓𝟒.𝟎𝟒−𝟓𝟓𝟎
The t formula for testing hypothesis is t = 𝒔 = 𝟕.𝟎𝟕𝟗𝟕 = 2.85
𝒏 𝟐𝟓
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Step 7: Arrive at a statistical conclusion and business implication

The observed t value is 2.85, which falls under the rejection region. Hence, the null hypothesis is
rejected and alternative hypothesis is accepted.

Example 11:

The music systems (tape recorders/combinations) market is estimated to grow by 26 million

units by 2011-2012. Customers from South India account for 34% sales in the overall market.
Suppose a music system manufacturer wants to open showrooms in different parts of the country
on the basis of the respective market share for that part of the country. The company has taken a
random sample of 110 customers and found that 45 belong to South India. Set null and
alternative hypotheses and use 𝛼 = 0.05 to test the hypothesis.

Solution:

Step I: Set null and alternative hypotheses

The null and alternative hypotheses can be stated as below:

𝐻0 : p = 0.34 ; 𝐻𝐴 : p ≠ 0.34

Step 2: Determination of the appropriate statistical test

The z test for a population proportion for np ≥ 5 and nq ≥ 5 will be the appropriate test. This
is given as:
𝑝− 𝑝
z= 𝑝𝑞
𝑛

Where p is the sample proportion, n the sample size, p the population proportion,

Step 3: Set the level of significance

The level of significance, that is, 𝛼 is set as 0.05.

Step 4: Set the decision rule

The alternative "not equal to" indicates that the hypothesis is for a two-tailed test. This means
that on both sides of the distribution, the rejection region will occupy 0.025% area, that is Z0.025 =
±1.96. If the computed z value is between ±1.96, the null hypothesis is accepted, otherwise it is
rejected.
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Step 5: Collect the sample data

A random sample of 110 purchasers indicates that 45 belong to South India. Hence,
45
𝑝 = Sample proportion = 110 = 0.41

p= Population proportion = 0.34 ; q = 1 – 0.34 = 0.66

Step 6: Analyze the data

The z statistic for a population proportion with np ≥ 5 and nq ≥ 5 can be computed as;
𝑝− 𝑝 𝟎.𝟒𝟏−𝟎.𝟑𝟒
z= 𝑝𝑞
= = 1.53
𝟎.𝟑𝟒𝒙𝟎.𝟔𝟔
𝑛 𝟏𝟏𝟎

Step 7: Arrive at a statistical conclusion and business implication

The observed value of z falls in the acceptance region (1.53 < 1.96), so the hypothesis is
accepted and the alternative hypothesis is rejected. The higher sample proportion obtained in the
test may be due to chance. As per the test, the market share of South India has not been changed.
The company can open showrooms in different parts of the country after factoring in 34% sales
from South India.