For the following, a) Indicate whether this is a one-tail or two-tail test, and
ID: 3128905 • Letter: F
Question
For the following, a) Indicate whether this is a one-tail or two-tail test, and why. Sketch the problem. b) State your hypotheses c) Identify the level of significance (with justification) d) State the ramifications of the two types of errors, specific to this business.
Your original contact at the firm was the Senior Vice President (Sr. VP) for business development. She has never been to the Upstate New York, and was skeptical the new restaurants would do well compared to the Southwestern locations. After all the weather was hotter in the Southwest, winters were shorter, and Southwestern cities tended to have better economies overall. If the regional expansion went forward based on your analysis, and then didn’t pan out, the ice cream company would lose a major portion of its investment. The senior vice president was not pushing for this project, but rather was resisting a push from the CEO to move forward. The senior vice president was so sure the new stores would be inferior that he asked you to gather data from the new stores in the test markets, and statistically test for a pattern of inferior sales as compared to the Southern store base. The vice president confided in you that if your test proved him right, he could shelve the project now before the second phase of investment was committed.
Explanation / Answer
One tailed test because the project would do well or not do well.
Ho : The new stores would do well
H1 : The new stores would be inferior
The level of significance is 0.01 as there would then be a 1% chance that the ice cream company would lose its investment.
Probability of type 1 error is that you suggest that the company would not do well when it would.
Probability of type 2 error will be when you suggest that the company would do. Well when it wouldn't.
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