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BidNow Auction Price Analysis

The document presents a hypothesis test to determine if auctions on BidNow pay less than the price of a new item on BuyNow. The null hypothesis is that the average sale price on BidNow is equal to or greater than the new item price on BuyNow. The alternative hypothesis is that the average sale price on BidNow is less than the new item price. Based on a sample of 52 auctions with a mean of $44.17 and standard deviation of $4.15 from BidNow, and a new item price of $46.99 on BuyNow, the t-statistic is calculated to be -4.90. Comparing this to the critical value of -2.402 at a 1% significance level

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685 views1 page

BidNow Auction Price Analysis

The document presents a hypothesis test to determine if auctions on BidNow pay less than the price of a new item on BuyNow. The null hypothesis is that the average sale price on BidNow is equal to or greater than the new item price on BuyNow. The alternative hypothesis is that the average sale price on BidNow is less than the new item price. Based on a sample of 52 auctions with a mean of $44.17 and standard deviation of $4.15 from BidNow, and a new item price of $46.99 on BuyNow, the t-statistic is calculated to be -4.90. Comparing this to the critical value of -2.402 at a 1% significance level

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गरुड़ प्रकाश पांडे
Copyright
© © All Rights Reserved
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4.2.

An auction website “BidNow” might be interested in showing that buyers on its site tend to
pay less than they would for the corresponding new item on a competitor website "BuyNow" for
a particular product. One particular product was a video game. During the early launch,
BuyNow sold this game for $46.99.
The average sale price of the 52 BidNow auctions for the product was $44.17 with a standard
deviation of $4.15. Does this provide sufficient evidence to accept the claim that auctions on
Bidnow pay less than the new item cost on BuyNow at a 1% significance level?
Support your claim with a hypothesis and use the critical value approach.
Answer:
Steps:
1. State the null and alternative hypotheses. The null hypothesis is that the mean sale price of
BidNow auctions is equal to the new item cost on BuyNow, and the alternative hypothesis is that
the mean sale price of BidNow auctions is less than the new item cost on BuyNow.
We can write:
H0: mu >= $ 46.99
HA: mu < $ 46.99
2. State the level of significance and the critical value. The level of significance is given as 1%,
which means that the probability of making a type I error (rejecting the null hypothesis when it is
true) is 0.01. The critical value is the value of the test statistic that separates the rejection region
from the non-rejection region. Since we have a left-tailed test, the rejection region is on the left of
the critical value. To find the critical value, we need to use a t-table 5, since we do not know the
population standard deviation and the sample size is small (n = 52). We look for the row that
corresponds to the degrees of freedom (n - 1 = 51) and the column that corresponds to the
significance level (0.01). The critical value is -2.402.
3. Compute the test statistic. The test statistic is a measure of how far the sample mean is from the
hypothesized population mean, in terms of standard errors. We use the t-statistic formula:
t^* = frac{bar{x} - mu}{s/sqrt{n}}
where bar{x} is the sample mean, mu is the hypothesized population mean, s is the sample standard
deviation, and n is the sample size. Putting in the given values, we get:
t^* = frac{44.17 - 46.99}{4.15/sqrt{52}} => approx.. -4.90

4. State a conclusion. We compare the test statistic to the critical value. If the test statistic is more
extreme (i.e., smaller) than the critical value, we reject the null hypothesis. If the test statistic is
less extreme (i.e., larger) than the critical value, we fail to reject the null hypothesis. In this case,
the test statistic (-4.90) is more extreme than the critical value (-2.402), so we reject the null
hypothesis. This means that we have sufficient evidence to accept the claim that auctions on
BidNow pay less than the new item cost on BuyNow at a 1% significance level.

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