In approximate answer to the right problem is worth a good deal more than an exact an _ ver to an approximate problem. ~Join Toxey _ LEARNING OBJECTIVES __ bo Upon completion of this chapter, you will be able to: tions Test the hypothesis forthe dif tion means using the t statistic tion) Understand the concept of st ference between the mean: (matched samples) stcal inference of the Of two related populations STATISTI ICS IN ACTION: JK PAPER LTD Grolp, a leading private sector group in Inc, was founded over 100 years ago, The fouP composed of companys mill nteresis iN dlverse sectors such as automotive 2007 ‘yes and tubes, Paper and pulp, cement of seals, power transmission systems, hybrid | Year (ee woolen texts, reacymade apparels, suger food, day products. and cosmetics, | 5. fc Ther products are estabished brand naires as well as market leaders in diferent | Seoments 1998 4K Paper Lid, incorporated in 1960, is engaged in the manufacture apd sale of | 199g Bo paper paper board, Straw paper. writing and printing paper. and spenalty papers, "Beyond developing new product applications in order to meet the varying needs of | 2000 [J consumers, the company fias mvested in seyeralnnavatne promotional campaigns | 399) 0 communicate the product benefits to its users and channel partners. The company: “2005 apnce premium inthe market ase result ofthese efforts The company’s eacing | 2002 Erends “Jk Copier” and “JK Easy Copier nave ramforced ther postion asthe largest and | 2903 "Second largest selling brands in the cu-size seyment= |, Stessing on the importance of branding the paper industry, HarshpatSinghansa, | 2004 MO, JK Paper Lid Said “Branding allows better penetistion in tie market. With e brand | 2005 there is always 2 quality assurance. We have reaized the mportance of branding ithe Indust and are consciously increasing our sharin the branded segment. At present, | 2008 “branded products snare ranges ftom 60-15%") 2007 | ___ This conscious branc-budiig exercise has ensured sound fnaicalresuls for the ‘Sompany aver the years, Table 11.7 provides the net income of JK Paper Ltd from 1997 TABLE 11.1 Net income of JK Paper Lid from 1997 to Net income (in milion rupe 13660 12792 13460 11687 13386 98326 57056 61519 7060.1 6657.0 7670.1 ‘= Test hypothesis forthe difference in two population propor rence between twa popula- m_ Test hypothesis about two population variances (F distribu- Shae rp (A, Coe Meng Inn ony La Mi Ang 208, paw -epeoduced with permission. >>>“The diteronce fie ean means. Xs is goimaly istrboted for lage samp ‘oth aed. 240, espe: tie of he shes of the pon lation ‘Whe popula Neraieas fe unknorin ane sample sce i letge tn. ane n = 30) samt. ‘le variances Gxt be a goa approemeton of popuiton 344 Business Statistics ee 71.7 INTRODUCTION In the last chapter, we discussed hypothesis-testing procedure for sin business analysts often encounter situations where the tons instead of a single population, For example, a bu ence between the expenditure pattems of two different the analyst has to take two samples from two populations popu. be eng need to test the hypothesis from two popula siness analyst may want to find ot the dy 11.2 HYPOTHESIS TESTING FOR THE DIFFERENCE BETWEEN TWO POPULATION MEANS USING THE z STATISTIC atisfaction fora particular product in two cites, Mumbai and Delhi ty, Sra 19 aecomplish this, the rescarcer collects two diferent samples fom the meno taken in the study, obtain the two sample means, is normally distributed for large sample sizes (both n, and n, > 30) opeltions. Suppose we have two populations with means, and. The lander deci of these pepultions is | and. The size ofthe sample taken fom these two poner a and ny, ‘tespectively. Hence, the = formula can be given as below Formuta for difference between mean values of two populations (x, and 1, > 30) ‘aanees are unknown and the sample size is large (n, and m, > 30), approximation of population variances, The z formula forthe diffe ‘0 populations (n, and n, > Sample variances can be a good mice between the mean values of 30) using sample variances can be presented as below:—“Fwvo consumer durables companies market two brands of electric irons A ‘ormula for the difference between mean values of two populations with unknown ,*and ¢,* orm fo rand 0; (and, , Sis nhere# is the mean of population I,J, the mean of population 2,m, the size of sample 1, n, the size ffsample 2, , the standard deviation of sample 1, and s, the standard deviation of sample snd B, respectively. A researcher has taken a random sample of size 35 fiom the fist company and size 40 from the second company and com- the average life of both the brands in months (average life is shown in Table 11.1(a) and 11.1(6). Is there a significant difference between the average life of the two brands A and B? Take 95% as the confidence level. TABLE 11.102) ‘Average life ofan electric iron in months (orand A oe & 6 @ 2 6 6 62 61 6 2 6 8 BO 2 2 6 | | 62 67 64 61 I | 61 65 65 «2 8 | 4 2 6 68 60 | TABLE 11.116) ‘Average life of an electric iron in months (brand ®) sl 61 65 63 62 | 62 61 67 62 64 6) 63 64 65 62 6 65 62 6h 6S 64 64 64 61 62 2 66 65 2 68 61 64 63 66 1 6082 61 S Solution ‘The solution can be presented using the seven steps of hypothesis testing as below: Step 1: Set null and alternative hypotheses The null and alternative hypotheses can be stated as below Hy y= Hy and Hom # ty ‘The above hypotheses can be reffamed as Hye m=O and Hy: m40 ‘Step 2: Determine the appropriate statistical test “The test statistic is Chapter 1 | Statistical inference: Hypothesis Testing for Two Populations 345346 Business Stati ‘Step 3: Set the level of significance has been specified as 0.05, Step 4: Set the decision rule Value of c= 0.05. The critical values of from the = distribution ta ‘Therefore, the hypothesis will be rejected if the observed value of ~1.96 and greater than +1.96, be is, 2 is less Step 5: Collect the sample data ‘The sample data is as follows: Size of sample | =35 Size of sample 2 = 40 $i = Variance of sample 1 = 2.1815 Variance of sample 2 1H, = Mean of the sample 4, = Mean of the sample Step 6: Analyse the data {ine Formula forthe dtfefence between the mean values of tw populations wi Unknown o;? and ¢,* and (sample size n, and n, > 30) is as below B.IB1F, 30765 0 Vas * 40 we have obtained from the sample (difference between two sample means) may be owing to chance. Teeetor; the statistical evidence is not sufcient to accept the hypoth thal there is a significant difference between the average life of electeo hers Produced by the two electric iron companies, 11.2.1 Using MS Excel for Hypothesi: in Means of Two Populations MS Excel ean be effectively used for hypothesis testing with th Data/Data Analysis from the menu bar. The Data Analysi {his Data Analysis dialog box, select 2-Test: Two Sample fo Testi Two Sample for Means dialog box sample in Variable 1 Range and enicr the loca Should be entered in the Hypothesized Mean Difference text bor Feb need in the Variable 1 Variance (known) text bow and the Inewn wn of sam Ple 2 should be entered in the Variable 2 V4 (Figure 11.2). The MS Excel output (for Ex 's Testing with the z Statistic for the Difference atistic for two populations. Select dialog box will appear on the screen. From. or Means and click OK (Figure 11-1), ‘ample 11.1) as shown in Figure 11.3 will appear on the screen, Ne: The = formula for the difference between the mean values of two populece ne also be ma Penal Produce a formula for constructing the confidence intervals forthe fle ny Population means. So, the confidence interval 1o estimate the diffrence in tng, Population means can be presented as follows:‘nays Tools listoram Poving Average anda Nunber Generation Rank and Percent Regression |Samoing (Test: Paired Two Sample For Mesns “wo-Sanple Assuming Equal Variances FIGURE 11.1 MS Excel Data Analysis clalog box Sie oe Veritle 1 Range: (gasitatss ‘Varale 2 Range: “fost segeo Hipatheseedtiem Difernce: (0 orl: tnce owe! iid ‘Variable 2 Variance Gren) ‘3.076923. Obes ‘Aha: 0.05 | ine ore © utpur Range: © New Worksheet By: FIGURE 11.2 Oe erick IMS Excel z-Test Two Sample {or Means dialog box a Eee ae g 7 |zTest. Two Sample for Means 2 ‘ 2 a Using c= 0.01, test the hypothesis to ascertain whether the ; ‘raining has boosted the morale of the employees, 11.5 HYPOTHESIS TESTING FOR THE DIFFERENCE IN Two. POPULATION PROPORTIONS Op se Bese ote ‘imar?; It has already been discussed that in many real life stuatons, researchers a Tecoma ing Eerste: the difference between two population proportions. For example a ecen cher might want to compare Giterence n poping {he market share ofa product in two different markets On the basis of the difference in sample propot= iilerence in population pc Sieg Medel TOM aceuchereacuine eens poplen pepo Tha a operon g eh Ete omecinsimlepporiows BPs nhore fod fae eee true opertorsis Pi sample | and sample 2, respectively Hee A ae 5 sate The difference in sample proportions, 5, - F,, is based on the assumption that the difference Suatied eeeciey | eterno popation pot po orate eum deviation of the ference of proportion is ive by re interested in measuring PX p) _ [axa Al, BAO) . [a ‘This information can be used for developing the = formula forthe difference in population proportions. 360 fusiness Statistics eee see ere SEEEESEEEEEESEFormula forthe difference in population proportions @=B:)- (P= p:) Pea, BX Vuom where is the proportion from the first sample, P: the proportion from the second sample, p, the proportion from the frst population, p, the proportion from the second population, n, the size ofthe firs sample, nthe size ofthe second sample, g, = (1~p,),and g, = (=p) This formula is based on the prior knowledge ofthe values ofp, and p,, Population proportions F are not always known, In this case, we combine two sample proportions and p, to get an unbiased estimate ofthe population proportion using a weighted average to produce p,, Using this concept, the ‘modified = formula can be presented as under: Formula for the difference in population proportions BaP) =P) where “There has been a fundamental shift in Indian economy afer 1991. a (EXample 11.4 tusines sectors ncn the banking sector have been affected bythe Hherliation and prvalization measures of the government, Dc to heavy competition Indian public setor banks have also adopted con. sumer fea polices such os extending service tine for ter custom tis, On one han, changes inttoduced bythe banks enhance the quality | af services; however, on the othehand they at ls responsible for gen | sues emong employees. A recacher wanle eases he sesh | lees of bank employees. The researcher has soected to banks, A & B | fo this purpose The working hours of bank A tre from 10 am fo 3:30 | pinand the working Hour of bank B are fon 8.00 am to 8.00pm. The feseatcer has randomly selected 40 employees fom bank A and 10 of them have indiaiod high ares levee, Te researcher halo randomly | Sclcod 0 employees fom bank Band 22 of thom have indicated high | stress levels. Does this indicate that the stress levels of employees of | bank B are significantly higher. Test the hypothesis by taking 99% as the | confidence level. Solution ‘The seven steps of hypothesis ean be performed as below: ‘Step 1: Set null and alternative hypotheses Sample | is the sample of bank A employees and sample 2is the sample of bank B employees. pis the proportion of bank A employees who have reported high stress levels and p,is the proportion of bank B employees who have reported high stress levels, then the hypotheses for this test are below: Hy: pr =0 Win-P<0 Chapter 11 | Statistical inference: Hypothesis Testing Two Populations 361362 eo Business Statist ‘Step 2: Determine the appropriate statistical test + Formula for the difference in population proportions where Similarly, Hence, p,=%4% -"A*™P, ang 9, ‘Step 3: Set the level of significance aihas been specified as 0.01. Step 4: Set the decision rule Value of o-= 0.01, The tabular = value is 2.575, From the altemative hypothesi, P, 0 Sample 2: 25 ‘where xis the numberof desied characteristics of interestin the sample, 11.6 HYPOTHESIS TESTING ABOUT TWO POPULATION VARIANCES (FDISTRIBUTION) AA decision maker might want to know the difference in two population variances. For example, a deci | sion maker may want to know the vatiances in product quality on account of two different production [> processes or the variances in the product characteristics between products manufactured by two di ferent machines. In the field of finance, variances are used to measure financial risk, The greater the variance in the stock market, the higher the risk. In testing the hypotheses about the difference in two population variances, sample variances are used. The ratio of two sample variances “taken from two _| ‘samples is termed as F value and follows the F distribution. So, F value can be defined as:‘Acceptance region (1~ 0) Rejection region () Rejection resion FIGURE 11.25 ‘Acceptance and rejection regions fora two-taled Ftest Ou Fe Fi F F test for the difference in two population variances wvth df= vm, ~ 1 (for numerator) and df=, =n,—1 (for denominator) ‘where n, isthe size ofthe sample taken from population 1, n, the siz ofthe sample taken from popula tion 2, sf the variance of sample I, ands} the variance of sample 2. 11.6.1 FDistribution F distribution is based on the assumption that the populations from which samples are drawn are normally distributed, It is named in honour of the famous statistician R. A. Fisher and is also termed asthe “variance-ratio distribution." It is not symmetric. In the F distribution, the degrees of freedoms are attached to the numerator and denominator, which decide the shape of the distribution. A typical F «distribution with acceptance and rejection region is shown in Figure 11.25. From Figure 11.25, itis very clear that the F distribution is neither symmetric nor does it have zero mean value, So, the simple procedure of obtaining the upper-tail value and merely placing a ‘minus sign besides the upper-tail value for obtaining the lower tail value is not applicable here. The F ‘value is always positive because itis a ratio of two variances (two squared quantities). The value of the lower tail is obtained by using the reciprocal property of the F distribution. The reciprocal property can be stated as, estin Foot) = ed to Fan) ‘This property helps in determining the lower-ail value of the F distribution. For example, if a= 0.05, then for v,= 10 and », = 8 (for a two-tailed test), the upper F value 8 Fyyuyy = 4:30. 1 1 ‘Thus, the F value for the lower tail is Fh. = en 028 esti Frasen 430 The total area under the F distribution is equal to unity. The F distribution is positively skewed 5 witha range from Oto», because sample variances 3? and 5} are the unbiased estimates of popula tion variances and (s, > s,). Its degree of skewness decreases with the numerator degree of freedom +, and denominator degree of freedom v, Its important to noe that for v, > 30, the F distibution is sec: | sPProximaely normal ct | A plant has installed two machines producing polythene bags. During {EE iit | the installation, the manufacturer ofthe machine has stated thatthe ca- TAs | pacity of the machine is to produce 20 bags in a day. Owing to vari ‘ous factors such as different operators working on these machines, aw two | material, etc. there isa variation in the numberof bags produced atthe end of the day. The company researcher has taken a random sample of ‘bags produced in 10 days for machine 1 and 13 days for machine 2, Chapter 11 | Statistical inference: Hypathesis Testing for Two Populations. «= 365respectively. The following data gives the number of units of an item | produced on a sampled day by the two machines Machine! 18 19 19 18 17 19 18 19 18 19 | Machine2 16 17 17 17 16 18 16 16 17 17 16 | How can he researcher determine whether the variance is rom he vane |poylan (poplaion vanes we xa) cones fo te popultions (eplaton variance a qua? Te one | Feetorsipfenns Solution ‘The seven steps of hypothesis testing can be performed as below: Step 1: Set null and alternative hypotheses The null and alternative hypotheses can be stated as below: Hy =o] Hy:of— a? =0 : Hota" Hoo 20 ‘Step 2: Determine the appropriate statistical test The F test for the difference in two population variances is = 2,~1 (for numerator) and df =v,=n,—1 (for denominator) ‘Step 3: Set the level of significance ‘cas been specified as 0.05, Step 4: Set the decision rule : Value of o& 025. For 44, Ths, the lover F valu 05, We arco» woe x hace, vy "9 and v, = 12, upper F value is F,, 1 een 54g 7929. The mall hypothesis will be accepted if he F observed value of Flies in between 0.29 and 3.44, otherwise it will be rejected. Step 5: Collect the sample data The sample information is as below: Variance forthe fst sample 3? = 0.4888 4230 Size ofthe sample taken from population | = 10 1,» Size of te sample taken fom population 2= 13 Step 6: Analyse the data The Ftest forthe difference in two population variances is given as o4es _ 0.4230 ‘Variance forthe second sample s: Las 10-1 =9 (for numerator) 13-1 = 12 (for denominator) Step 7: Arrive at a statistical conclusion and business implication The observed F value 1.15 lies in between the lower value F, = 0.29 and upper value F, = 3.44. Hence, the null hypothesis is accepted and the alternative hy- Pothesis is rejected, So, it can be concluded that there is no significant difference ‘between the production capacity of the two machines. The results obtained by the sample may be due to chance, 366 Business statisticsFor the 11.6.2 Using MS Excel for Hypothesis Testing About Two Population Variances (FDistribution) | norder to use MS Excel, select Data/Data Analysis. The Data Analysis dialog box will appear on _ she seven. For hypothesis testing about two population variances (F distribution), select, F-Test Two- ~ sample for Variances (Figure 1.26). |The F-Test Two-Sample for Variances dialog box will appeer an the screen (Figure 11.27), Place vo samples in Varlable 1 Range and Variable 2 Range box. For specifying confidence level for the test, place 0.05 besides Alpha and then click OK (Figure 11.27). Ms Exeel will calculate the F value "and p value (for Example 11.5) for the test (shown in Figure 11.28). Here, itis important to note that Ms Excel calculates the p value for one tail. As discussed earlier, for obtaining the p value for a {two-tailed test, this value should be multiplied by 2 and the value obtained must be compared with the yale of a. For Example 11.5, the p value for oneal testis obtained as 0.3985, This value should be uliplied by 2, that is, (0.3985 = 2) = 0.797, which isthe p value fora two-tailed test. This value is greater than the value of = 0.05; hence, null hypothesis is accepted. Minitab has the ability to ealeu- Jat the p value fora two-tailed test directly as 0.797, (see Figure 11.31). Sie [aave:TworFactr Uh Reslcaton “frat Iwo-Facter Whe Repeatin ‘ereaton i 3 fi Tana Ear Teele? [eeroes waar onsets a a 2 te ‘esse, [elprspaeiar — ose TOE Crtical o 279637549, 17.6.3 Using Minitab for Hypothesis Testing About Two Population Variances (FDistribution) In order to use Minitab, select Stat from the menu bar. A pull-down menu will appear on the sereen; from this menu, select Basie Statistics. Another pull-down menu will appear on the screen. For hy- pothesis testing about evo population variances, select “, 2 Varlanees. Chapter 1 | Statstical inference: Hypothesis Testing for Twa Populations FIGURE 11.26 ;C0| Data Analysis dialog FIGURE 11.27 MS Excel FTest TwoSemple far Varances dialog Dox FIGURE 11.28 MS Excel output for Example 11.5 367FIGURE 11.29 Minitab 2 Varian Confidence in box FIGURE 11.30 Minitab 2 Varian dialog box FIGURE 11.31 Minitab output for Example 115, 368 ‘Test and Cl for Two Variances: Machine 1, Machine 2 (echine 1) / Yertence(tachine 2) + ine 1) / Variance Machine 2} not» 1 Alpha = 0.05 Machine 1 19 0.699 0-405 Recto of standard deviation 99% Contidence Inceevels Disteibueton Cr for seDev Variance 2t Data Ratio Retde toreal (0.500, 2.114) (0.3357 4,470) oneimuous (0.603, 31149) [osea, 8 Method DRL Dra statistic Pye F text (normal) Foe oer event's Tear (any continuous) 1 a ius 2228?The 2 Variances (Test and Confidence Interval) dialog box will appear on From Data, select Samples in different columns, and select and place the frst column besides First and the second column besides Second. Click Options. The 2 Variances ~ Options dialog box will ‘on the screen (Figure 11.30). For specifying confidence level for the the sereen (Figure 11.29) test, besides Confidence level, place 95.0. In this dialog box select Variance 1/Variance 2 against Hypothesized ratio, Against ‘Value box place 1. From Alternative select not equal and click OK. The 2 Varianees (Test and ~ Confidence Interval) dialog box will reappear on the sereen. Click OK. Mi and p values (for Example 11.5) forthe test (shown in Figure 11.31). SELF-PRACTICE PROBLEMS® 1261, Test the hypotheses mentioned below: Hyio=o2 Higgs; Use of = 0.05 and the folowing information related to samples Samples 9-10 sf =8s 16, Sample 2: n,=13 82 =165 Assume that te populations are normally distributed. 12E2, Test the hypotheses mentioned below: Ayo = Hoc ‘Plant S152 52 52 53 54 53 49 48 49 Plant? 49 48 47 51 52 53 54 49 48 51 ‘A researcher wants to know the difference in the saving pattern of peo- ple from two cities: one metro and the other non-metro, The researcher randomly selected government employees after the implementation of ‘6th pay commission recommendations. He collected the data related to ‘amount saved by different government employees monthly in both the cit- ies. The researcher took a random sample of size 35 from both the cities ‘The data collected by the researcher ate given below: ‘Sample from the metro city (in thousand rupees) i 2 2 1 2 10 8 22 9 9 uu ww 10 0 3 9 227 5 28 10 Sample from the non-metro city (in thousand rupees) is eetepee ype (6 e194 WBOB Wo mo nis 4 7 B 18 16 ie ieneisee see aaia 4 1s 16 18 6 1S 17 Is Use er= 0.05 to determine whether there is a significant difference in te saving pattern of randomly selected government employees in metro and non-metro cities after the implementation ofthe recommendations of “the 6th pay commission, Chapter 11 | Statistical initab will calculate the F Use c= 0.10 and the following information related to samples Sample 1: »,=9 Sample 2 Assume thatthe populations are normally distributed, Two botle filing plants are supposed to fil 5 lites of water in each bottle. A researcher has taken a random sample of 10 bottles from Plant 1 and 15 bottles from Plant 2.The data collected are provided in the table below: How can the researcher determine whether the variance is from the same population (population variances are equal) ort comes from different populations (population variances ate not equal)? Take a= 0,05 as the confidence level 52.48 49 51 §2 Inference: Hypothesis Testing for Two Populations 369)370 aa Business Statist Solution The seven steps of hypothesis testing can be performed as below: Step 1: Set null and alternative hypotheses The null and alternative hypotheses can be stated as below: He m= oy and Him en, ‘These hypotheses can be rewritten as Hg Hy m,=0 and Hy 4,4, #0 Step 2: Determin The test statist ‘the appropriate statistical test G-%) (a=) Step 3: Set the level of significance has been specified as 0.05. ‘Step 4: Set the decision rule Nalue of c= 0.05. The value of = from the = distribution table is 1.96, The null. hypothesis will be rejected ifthe observed value o Step 5: The sample data are as follows: n= Size of sample 1 = 35, n= Size of sample 2= 35, Variance of sample t = 4.3025, ‘ollect the sample data = Variance of sample 2 = 2.6336, = Sample mean for sample 1 = 9.8571, and ample mean for sample 1 = 15.1142. Step 6: Analyse the data The = formula for difference between mean values of two populations with un known o7 and 03, sample size n, and n, > 30 is as below: (i — ¥) — (a4 - mt.) Step 7: Arrive at a statistical conclusion and business implication At 95% confidence level, the critical value obtained from the table is 1.96. The bserved value of zis calculated as 11.81, which falls in the rejection region, Hence, the null hypothesis is rejected and the alternative hypothesis is accepted ‘The researcher can conclude that at 95% confidence level there is a signifi cant difference in saving patterns of government employees in metro and nom ‘metro cities after the implementation the 6th pay commission recommendations Figure 11.32 in the MS Excel output exhibiting the computation of» statistic for Example 11.6al zone, = AL a iG f-Test. Two Sample for Means Variabiet Variable 2 Mean 9857142857, 15.11426571 Known Variance 43025 2.6536 Observations 5 % lHypothesized Mean Difference oO z -11,80936364 P(Z<=2) one-tail Q 2 Critical one-tail 1644853627 IP(Z<=2) two-tail a Critical two-tail 1, 959963985 _— EE A firm that used to enjoy monopoly in the market is now concerned about the brand loyalty for its products among customers after the entry of new players. The firm has decided to ascertain the brand loyalty for its prod- ucts in two different sales zones: south sales zone and north sales zone. ‘The firm’s research wing has prepared a questionnaire consisting of 10 questions rated on a 1 to 5 rating scale, with | being “strongly disagree” and 5 being “strongly agree.” The research wing has administered this questionnaire to 40 randomly selected respondents of two sales zones, ‘The total scores collected from the respondents are given below: Scores obtained from south sales zone 40 42 414342 40 38 37 an 40 41 39 37 40 41 42 45 3937 40 41 38 37 41 39 4143 Scores obtained from north sales zone 29 32 M32 ad 3S 29 28 Ey ey ry 29 28 26 25 29 28 2 30 31 32 2 oN 7 2 324 31230 1 Use = 0.10 to determine whether there isa significant difference between the scores obtained from the south sales zone and the north sales Solution The seven step of hypotheses testing can be performed as below: Step 1: Set null and alternative hypotheses ‘The null and alternative hypotheses can be sttedas below: Fi By Hy=0 Hem me0 Step 2: Determine the appropriate statistical test The test statistic =i given as |Example 11.7 FIGURE 11.32 MS Excel output exhibiting computation of statistic for Example 16 Chapter 11 | Statticl inference: Hypothesis Testing for Two Populations «3711FIGURE 11.33 Miitab output exnisiting Computation oft stat Exampie 118 372 Business Statistics Step 3: Set the level of ignificance | ‘thas been specified as 0.10. ‘Step 4: Set the decision rule i For a= 0, 10, value of: ftom the = distribution table i esis will be rejected if the compute Step 5: Collect the sample data The sample data is as follows: |= Size of sample 1 = 40, ize of sample 2 = 40, 645. The nall hypoth. ed value of = is outside 1.645, Variance of the sample 1 = 3.4461, Variance of the sample 2 = 6.1634, ‘Sample mean for sample 403, and Sample mean for sample 2 = 31,125, Step 6: Analyse the data ‘The = formula for the difference between mean values of two Populations with unknown oj and n, 2 30 is given as below: Vv 40 40 Arrive at a statistical conclusion and by usiness implication ined from the table is 1.685. The ‘ejection region. Hence, the null hypothesis is ejected and the altemative hypothes ie accepted, ‘Therefore, the research wing of the firm can cond 5 of south sales zone and north s these two sales zones must be treated diferently with ax Ms Excel calculation of the confidence level the critical value obtai calculated value of. is +18.72 which falls in the spect to brand loyalty. The + value is shown in Figure 11.33. ‘TWe-SampleTTest and Ct Company 8, Company 8 ‘No-smaple T for Company A ve Company B 1 hm soe 2 tee Como 4 10 39.50 1.58 00 Gafjer 8 12 2.57 206 sp Ditterence = wu (Coapeny A) = seins tor attference: 384 C for atts THleac of dieterence «0 mu (Coupany 8) 6.693 (5.17, 649g) TaleSolution “Jseancerned that a sizeable number of its customers may shift to Compa B because of an aggressive advertisement campaign launched by it In _ fede to assess the anticipated brand shi fave prepared & questionntire to measure customer satisfaction and have inistered itto customers. The questionnaire consisted of 10 questions = aasive-point rating scale with I rated as “strongly disagree” and S rated gs “stronoly agree.” The questionnaire has been administered to 10 ran- danly selected customers of company A and 12 randomly selected cus- toners of company B. The scores obtained from these customers are given | the following table. Taking c= 0.05, test whether there isa difference jnmeaa scores obtained from customers inthe population. Assume equal sariace in the population. the researchers at Company A. ‘Scores obtained fram the randomly selected customers of | company A and company B | Customer Company Company B number | 1 40, Pane | 2 2 31 | 3 30 2 4 38 4 5 4a 35 6 37 32 7 38 30 8 39 34 9 40 35 10 41 36 n = 2 Rb ‘The seven steps of hypothesis testing can be performed as below: Stept: Set null and alternative hypotheses ‘The null and alternative hypotheses for the test are as below: ‘Step 2: Determine the appropriate statistical test ‘We have discussed that under the assumption of equal variance, the formula can be stated as: =F) = U4 = fh) Ta Vn can be estimated by pooling two sample variances and computing @ pooled [si -D+8,—0 V mtn, -2 standard deviation as. P= Spas Step 3: Set the level of significance has been specified as 0.05, that is, Chapter 11 | Statistica Inference: Hypothesis Testing for Two Populations 373‘Step 4: Set the decision rule Alpha, has been specified as 0.05. For a = 0.05 and degroes of freedom 10 2 © 2= 20, the value of «from the ¢ distribution table ist... = £2,086. The ull !hypothesis will be rejected ifthe observed value of 1 is outside 42.086, Step 5: Collect the sample data From the table, the sample mean and sample variance are computed as below: First Sample (Company A) Sample mean 3, = 39.5, sample size n, = 10, sample variance 5; ‘Second Sample (Company B) Sample mean =, Step By substituting all the values in formula for pooled standard deviation, we gt 25x Os Gana xa o mos = (23 (ORES OFT 2.6666, sample size n,= 12, sample variance 5! nalyse the data =1859 1+12-2 f By substituting the value of pooled standard deviation in zformula, we get al conclusion and business implication ee Computed value ofthe ¢ statistic (8.58) is greater than the critical value of {he ¢ statistic (+2.086). Hence, the aull hypothesis is rejected and the alternative hypothesis is accepted, {Company A is 952% confident that the massive advertisement campaign laun- id by Company B his not affected the satisfaction levels ofits customers, In fact, the sample clearly indicates (at 95% confidence level) that customer ste {action i higher for Company A when compared with Company B. Figure L134) 's the Minitab output exhibiting computation ofr statistic for Example 11 8 ‘Two-Sample T-Test and Cl: Company A, Company B ‘Two-sauple T for Company Avs Company mean seoey SE teen Company A 10 39.50 ise Orso Company B 12 32.67 2.06 0.89 Datference = au (Company A) - au (Company 8) Figure 11.34 Estinate for ditterence: 6.63999 Minitab outbut exhibiing 988 CT for ditterence: (5.17237, 8.49430) Computation oft statistic for soe eet tittatence = 0 Ive not’): T-Value = 8.58 Value = 0,000 DF « 20 Example 11.8 Both use Fooled stdev = 12597 Sa Example 11.9 |” harmaccuicl company wans to diversify int he hospitality ln ~ [tex The company as notion thatthe average dally ote a | different in Delhi and Mumbai. The company has taken a random sample 915 hotels fom Dethi and 17 hotels from Mumbai for testing ie seo The daly hotel room rates of 15 hotels in Delhi and 17 hole a Me cnt ae provided below. Taking c= 0.10, test whether there fea diiron inthe average duly hotel room rates of thew ees ake forte es Assume equal vavance inthe poplaton, i 374 Business statistics een1500 1600 1350 1570 1700 1800 1380 1450 1430 1590 1460 1510 1550 1600 1650 “Dal foe room rates in Del in ree) 1200 - a | ae Ea oo Hg a= 0 (8) = Ue = ty) ohn 6 can be estimated by pooling two sample variances and computing @ pooled J, =D + 804 =), tn Step 3: Set the level of ‘has been specified as 0.10, that is, «= 0.10 standard deviation as Step 4: Set the decision rule Alpha has been specified as 0.10. For «= 0.10 and the degrees of freedom 15, + 17~2= 30, the value of f from the f distribution table is fy. 9 = #1.697. The null hypothesis will be rejected if the observed value of is outside 1,697. Step $: Collect the sample data ‘The sample mean and sample variance is computed as below: First sample (Delhi) Sample mean ¥, sf = 8735.2380 572,666, sample size n, = 15, sample variance Chapter 11 {Statistical Inference: Hypothesis Testing for Two Populations 375Figure 11.35 Mintab output exnesting ‘Computation of statistic for Example 11:10 376 Business Statistics RPE Example 19.40) ths besstine Second Sample (Mumbal) Sample mean ¥, 61264705 1782941, sample sie 1, = 17, sample vvnigg Step 6: Analyse the data {Se t30, the formula for computing the pooled standard ‘oned. By substcuting all the vate in his formula, we get 0% Spy, =, | STSEBIO) 30) & Confidence interval to estimate the difference in two population means, ©, sample size nand 9,2 30 when n, and, are large and 0? and oF are unknown £ Statist forthe difference between to population means (case of a small random sample, 1, <30, is unknown, assuming equal variances) 386 Business Statistics Ri ‘when population standard deviwindfen, +n,-2 Statistic for the difference between two population means (case ofa small random sample, n,.11,<30, when population standard deviation fsunknoven, assuming unequal variances) GB -m) i=) V m+n 2 GH +1 2 ‘The confidence interval formula for the stastcal inference about the difference between the means of two related populations (matched samples) “oem sd orp In Ve Formula for the difference in population proportions ARP) b) [pxay Pea Yun + Formula for the difference in population proportions without prior knowledge ofthe values ofp, and p, (B=P)-(-P) renal Confidence interval for the difference in population proportions a + PE stp) SR“ B+2| Test forthe difference in two population variances OP, with and df 2,1 (for mmeraion) > | (fordenominator) Chapter 11 | Statistical inference: Hypothesis Testing for Two Populations 3Brent CASE STUDY | Case 11: Crompton Greaves Ltd: Global Enterprise Introduction The history of Crompton Greaves Ltd goes back to the year 1878 when RE, B. Crompton founded R.E. B. Crompton & Company. The com- pany merged with EA Parkinson to form Crompton Parkinson Lid in 1927. In 1937, Crompton Parkinson Ltd, established its wholly-owned Indian subsidiary, namely Crompton Parkinson Works Ltd in Bombay, slong with a sales organization, Greaves Cotton & Crompton Parkinson Lic in collaboration with GCC: The company was taken over by an emi- nent Indian industrialist, Lala Karamchand Thapar, in 1947. ‘The company is organized ino three business groups, namely, pow= ersystems, industrial systems, and consumer products, I offers @ wide "rmge of produes such as power and industrial transformers, HT ercuit breakers, LT and HT motors, DC motors, traction motors, alternators! generators, railway signaling equipment, lighting products, fans, pumps ‘and public switching, transmission, and access products. It also under- takes turkey projects rem concep to commissioning. Becoming Global Through Major Acquisitions (Crompton Greaves acquired the Belgium based Pauwels group, acompa- ‘ny intemationally known for its transformer manufacturing and service capabilities in 2005, In is continuous quest for expansion, the company also acquired Ganz Transelektro Villamossagi Zt and it associate come pany, Transverticum KA, in Hungary in 2006-2007 for an enterprise val. ue of approximately Euro 35 milion, In May 2007, Crompton Greaves purchased the shares of Microsol Holding Ltd for an enterprise value of| Euro 10.5 million. The company has adopted a deliberate “transform tional policy” since 2000-2001 in tree stages. These were: (1) turing around the company’s fortunes through operational excellence, (2) le= ‘eraging the guns from operational excellence to generate significantly greater alearound growth in revenues and profits, and (3) building on ‘ntemational acquisitions to achieve global leadership? ‘The company has clearly laid down its goal: tobe global leader in the power transmission and distribution business; to lead most of Asia~ Pacific in motors and drives; and tobe the South-Asian leader in consum- ex electical products and appliances. The third phase ofits transforma tion story has just begun In order to judge the company’s performance it ‘would be better to analyse some ofits financial parameters such as sales ‘and profit after tax from 1997-2007 (exhibited in Table 11.01), ‘The company has recovered fiom its negative financial performance in 1999-2000 and 2000-2001 when its sales dropped down and profit afer tax became negative. I is now inthe third stage of reconstruction and making successful interational acquisitions in order to achieve its ‘goal of becoming a global leader, TABLE 11.01 Sales and profit ater tax rom 1997-2007 Year Sales (in millon rupees) Profit afer tax 1997153518 3076 1998 16064.5 2152 1999165577 2312 2000 16680.6 1465.7 BBB Business Statistics Sowee: Prowess (V 3.1), Cente for Motoring Indian Ezonomy Pt Li, i bhi accessed August 208, epodused with permission, : Year Sales (in million rupees) Profit after tax 200 4048.8 B16 2002175946 a3 2003169783 2317 2004 187086 7083 200s 225465 11479 2006 28021.1 16305 2007 370067 19037 The management believes that customer satisfaction is eri 10 Crompton’ success. Suppose customer satisiction str were undertaken in 2004 and 2006, random sample of 3§ cui. mers was used forthe survey in 2004, while a random sanpis of 40 customers was used in 2006. The same question: naire consisting of one question on a rating seale of | to 5 way used in both the surveys. The following table exhibits the Scores obtained by customers in two years, that i, in 2004 a in 2006, Analyse the data relating to the to years and submit g report to the company management on the besis of your findings. Year 2004 Year 2006 2 3 204 4 ‘Crompton Greaves plaves great emphasis on employee stisTae tion. Suppose the company conducted a survey in 2003 to mes sure the job satisfaction level of its employees. It used a rendom sample of 25 employees and administered a questionnaire based ‘on a seven-point rating scale. The average score obtained by the employees was 32.10. Sample standard deviation for the first sample is computed as 325. In order to measite | the degree of job satisfaction of employees after the company’s spate of acquisitions, it conducted another survey in 2006 wi the same questionnaire and with a sample size of 28, The svt age score obitined by the employees was 41.20. Sample standard deviation forthe second sample is computed ar 241, The out ‘generated by Minitab assuming unequal variance is given belt. ‘On the basis ofthis output, how would you interpret the data?‘Two-Sample T-Test and cl Semple Neen StDev SE Kean Lo" as szao aes ones 2 a azo 2a Olas Dieterence = au (1) = au (2) Estinate for aitterence: 958 CF for ditterence: ‘THTest of diteerence 19000 0 (ve noe =) 43. Suppose Crompton Greaves uses iron plates produced by thirdparty vendor to manufacture its water pumps. The vendor makes these plates in two different shifts. The company's qual. ity control department has noticed some variation in the dam. eter of iron plates. For verifying this, company has taken a tan “i dom sample of & iton plates from the first shift and a random 7 sample of 12 ironplates fiom the second shift The diameter of > the plates is given inthe table below: : Diameter in shift (nem) Diameter in shift 2 fn om) 3 5.25 51 520 312 521 495 5.26 497 $27 Ae san NOTES | 1. wwweglonline comioverviewhtm, accessed August 2008, 2. Prowess (V. 3.1), Centre for Monitoring Indian Economy Chapter 11 | Statistica (10270061, -7.49999) ‘T¥alue = 11.47 P-value = 0,000 DF = 43 Diameter in shift I (in em) 498 498 502 Diameier in shift 2 fn em) 5.26 329 5.24 322 523 5.26 527 Conduct an appropriate test to determine the diference in the variance of plates in two populations. On the basis of the test, present a report to the management, stating full interpretation of the software output, Pvt. Lid, Mumbai, August 2008, reproduced with ermis- 389 Hypothesis Testing for Two Populations