Chapter 5

Estimation and
Hypothesis Testing
for Single
Populations
University of Economics
Ho Chi Minh City
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Outline

• Estimation for Single Population

• Introduction To Hypotheses Testing
• Testing Hypotheses About A Population Mean (t Statistic)

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 Estimation for Single Population
Process of Inferential Statistics to Calculate 𝑥
Estimate a Population Mean (μ) to estimate μ

Population Sample
μ 𝑥
(parameter) (statistic)

Select a
random
sample
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 Estimation for Single Population
• A point estimate is a statistic taken from a sample that is used to
estimate a population parameter.

Sample
𝑥1
• An interval estimate 1
𝜇
(confidence interval) is a Point estimate

range of values within Population Sample

𝑥2
which the analyst can 2

declare, with some

confidence, the Sample Interval estimate
𝑥𝑛
population parameter lies. n

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 Estimating the Population Mean Using the t Statistic
(Population Variance is Unknown)
• The t Distribution: is used instead of the z distribution for doing inferential statistics
on the population mean when the population standard deviation is unknown and the
population is normally distributed.
• Characteristics of the t Distribution: Like the standard normal curve, t distributions
are symmetric, unimodal, and a family of curves. The t distributions are flatter in the
middle and have more area in their tails than the standard normal distribution.

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 Estimating the Population Mean Using the t Statistic
(Population Variance is Unknown)

• Reading the t Distribution: To find a value in the t distribution

table requires knowing the degrees of freedom; each different
value of degrees of freedom is associated with a different t
distribution.
• Degrees of freedom: refers to the number of independent
observations for a source of variation minus the number of
independent parameters estimated in computing the variation.
(degree of freedom = n-1).

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 Estimating the Population Mean Using the t Statistic
(Population Variance is Unknown)

• Some of the common levels of confidence used by business

researchers are 90%, 95%, 98%, and 99%.

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Estimating the Population Mean Using the t Statistic
(Population Variance is Unknown)

• Confidence Interval To Estimate Population Mean (μ)

𝑠
𝑥 ± 𝑡𝛼,𝑛−1 𝑜𝑟
2 𝑛
𝑠 𝑠
𝑥 − 𝑡𝛼,𝑛−1 ≤ 𝜇 ≤ 𝑥 + 𝑡𝛼,𝑛−1
2 𝑛 2 𝑛

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 Estimating the Population Mean Using the t Statistic
(Population Variance is Unknown)
Example: A survey was taken of U.S. companies that do business with firms
in India. One of the questions on the survey was: Approximately how many
years has your company been trading with firms in India? A random sample
of 18 responses to this question yielded a mean of 13.56 years. Suppose
the population standard deviation for this question unknown. The sample
standard deviation is 7.8 years. Using this information, construct a 90%
confidence interval for the mean number of years that a company has been
trading in India for the population of U.S. companies trading with firms in
India.
𝑛 = 18, 𝑥 = 13.56, 𝑆 = 7.8, 90% 𝑐𝑜𝑛𝑓𝑖𝑑𝑒𝑛𝑐𝑒 𝑖𝑛𝑡𝑒𝑟𝑣𝑎𝑙 ⇒ 𝑡𝛼,𝑛−1 = 𝑡0.05,17 = 1.740
2
7.8 7.8
13.56 − 1.740 ≤ 𝜇 ≤ 13.45 + 1.740 ⇒ 10.36 ≤ 𝜇 ≤ 16.76
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Introduction To Hypotheses Testing
• In searching for answers to questions and in attempting to
find explanations for business phenomena, business
researchers often develop “hypotheses” that can be studied
and explored.
• Hypotheses: are tentative explanations of a principle
operating in nature.
• Two main types of hypotheses:
-Research hypothesis
-Statistical hypothesis
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 Introduction To Hypotheses Testing
• Research hypothesis: is a statement of what the researcher believes will
be the outcome of an experiment or a study.
Example:
-Older workers are more loyal to a company.
-The implementation of a Six Sigma quality approach in manufacturing
will result in greater productivity.
-Companies with more than $1 billion in assets spend a higher
percentage of their annual budget on advertising than do companies with
less than $1 billion in assets.
-Airline company stock prices are positively correlated with the volume of
OPEC oil production. Dang Van Thac 11/22
 Introduction To Hypotheses Testing
• Statistical Hypotheses: In order to scientifically test research
hypotheses, researchers convert research hypotheses to statistical
hypotheses.
• All statistical hypotheses consist of two parts: a null hypothesis and an
alternative hypothesis.
• Null hypothesis (𝐇𝟎 ): states that the “null” condition exists; that is, there
is nothing new happening, the old theory is still true, the old standard is
correct, and the system is in control.
• Alternative hypothesis (𝐇𝒂 ): states that the new theory is true, there
are new standards, the system is out of control, and/or something is
happening.
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 Introduction To Hypotheses Testing
Example: Suppose a company has held an 18% share of the
market. However, because of an increased marketing effort,
company officials believe the company’s market share is now
greater than 18%, and the officials would like to prove it.
𝐇𝟎 : 𝒑 ≤ 𝟎. 𝟏𝟖
𝐇𝒂 : 𝒑 > 𝟎. 𝟏𝟖 -What the research want to prove is stated in the
alternative hypothesis
-The null and alternative hypotheses are mutually exclusive
(no overlap) and collectively exhaustive (all cases included).

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 Introduction To Hypotheses Testing
• Two-tailed tests: always use = and ≠ in the statistical
hypotheses.
Example: Suppose flour packaged by a manufacturer is sold by
weight; and a particular size of package is supposed to average
40 ounces. Suppose the manufacturer wants to test to determine
whether their packaging process is out of control as determined
by the weight of the flour packages.

𝐇𝟎 : 𝝁 = 𝟒𝟎
𝐇𝒂 : 𝝁 ≠ 𝟒𝟎

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 Introduction To Hypotheses Testing

• One-tailed tests: are always directional, and the alternative hypothesis

uses either the greater than (>) or the less than (<) sign.
Example: suppose a company has held an 18% share of the market.
However, because of an increased marketing effort, company officials
believe the company’s market share is now greater than 18%, and the
officials would like to prove it.

𝐇𝟎 : 𝒑 ≤ 𝟎. 𝟏𝟖 𝐇𝟎 : 𝒑 = 𝟎. 𝟏𝟖
𝐇𝒂 : 𝒑 > 𝟎. 𝟏𝟖 ⇒ 𝐇𝒂 : 𝒑 > 𝟎. 𝟏𝟖

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Introduction To Hypotheses Testing
• Testing Hypotheses:

Eight-step Approach
Step 1: Establish a null and alternative hypothesis.
Step 2: Determine the appropriate statistical test
Step 3: Set the value of alpha, the Type I error rate.
Step 4: Establish the decision rule.
Step 5: Gather sample data.
Step 6: Analyze the data.
Step 7: Reach a statistical conclusion.
Step 8: Make a business decision.
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 Introduction To Hypotheses Testing
• Critical values are used at the
decision step to determine whether
the null hypothesis is rejected or not.
• Statistical outcomes that result in the
rejection of the null hypothesis lie in
what is termed the rejection region.
• Statistical outcomes that fail to result
in the rejection of the null hypothesis
lie in what is termed the
nonrejection region.

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Testing Hypotheses About A Population Mean
(t Statistic, Population Variance is Unknown)

• t test for single mean:

𝑥−𝜇
𝑡= 𝑑𝑓 = 𝑛 − 1
𝑆/ 𝑛

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 Testing Hypotheses About A Population Mean
(t Statistic, Population Variance is Unknown)
Example: Figures released by the U.S. Department of Agriculture show that
the average size of farms has increased since 1940. In 1940, the mean size
of a farm was 174 acres; by 1997, the average size was 471 acres. Suppose
an agribusiness researcher believes the average size of farms has now
increased from the 1997 mean figure of 471 acres. To test this notion, she
randomly sampled 23 farms across the United States and ascertained the
size of each farm from county records. The data she gathered follow. Use a
5% level of significance to test her hypothesis. Assume that number of acres
per farm is normally distributed in the population.

445 489 474 505 553 477 454 463 466 545 590 560
557 502 449 438 500 466 477 557 433 511 561
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 Testing Hypotheses About A Population Mean
(t Statistic, Population Variance is Unknown)
𝑛 = 23, 𝜇 = 471, 𝑑𝑓 = 23 − 1 = 22, 𝛼 = 0.05

𝑺𝒕𝒆𝒑 𝟏: 𝐻0 : 𝜇 = 471
𝐻𝑎 : 𝜇 > 471
𝑺𝒕𝒆𝒑 𝟐: 𝑡ℎ𝑒 𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐𝑎𝑙 𝑡𝑒𝑠𝑡 𝑖𝑠 𝑎𝑝𝑝𝑟𝑜𝑝𝑟𝑖𝑎𝑡𝑒

𝑺𝒕𝒆𝒑 𝟑: 𝑡ℎ𝑒 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝛼 𝑖𝑠 0.05

𝑺𝒕𝒆𝒑 𝟒: 𝑡0.05,22 = 1.717 𝑟𝑒𝑗𝑒𝑐𝑡 𝐻0 𝑖𝑓 𝑡ℎ𝑒 𝑜𝑏𝑠𝑒𝑟𝑣𝑒𝑑 𝑡 𝑣𝑎𝑙𝑢𝑒 > 1.717

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 Testing Hypotheses About A Population Mean
(t Statistic, Population Variance is Unknown)

𝑺𝒕𝒆𝒑 𝟓: 𝑥 = 498.78, 𝑆 = 46.94

𝑥 − 𝜇 498.78 − 471
𝑺𝒕𝒆𝒑 𝟔: 𝑡 = = = 2.84
𝑆/ 𝑛 46.94/ 23

𝑺𝒕𝒆𝒑 𝟕: 𝑏𝑒𝑐𝑎𝑢𝑠𝑒 𝑡ℎ𝑒 𝑜𝑏𝑠𝑒𝑟𝑣𝑒𝑑 𝑡 = 2.84

> 𝑡ℎ𝑒 𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙 𝑡 𝑣𝑎𝑙𝑢𝑒 1.717
⇒ 𝑟𝑒𝑗𝑒𝑐𝑡 𝐻0
𝑺𝒕𝒆𝒑 𝟖: the average size of farms has now increased from the 1997.
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 Testing Hypotheses About A Population Mean
(t Statistic, Population Variance is Unknown)

• Using the p-Value to Test Hypotheses: The p-value

defines the smallest value of alpha for which the null
hypothesis can be rejected.
For example, if the p-value of a test is 0.038, the null
hypothesis cannot be rejected at = 0.01 because 0.038 is
the smallest value of alpha for which the null hypothesis
can be rejected.

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