I am deciding on whether to invest 400,000 CAD to open a convenience store in pa

Question

I am deciding on whether to invest 400,000 CAD to open a convenience store in particular spot in Ottawa. I know that the business will be profitable, with income of 70,000 CAD per year, if the store will have in average = 60 or more customers per day. If I am convinced that the business will be profitable then I will go ahead and open the store otherwise I won’t. Hence I am dealing with this hypothesis testing problem. H0 : = 60 vs Ha : < 60 (A) [1] Explain what Type I error means in the context of this problem. (B) [1] What is the consequence of Type I error. (C) [1] Explain what Type II error means in this context. (D) [1] What is the consequence of Type II error in the context of this problem. (E) [1] Which error is more expensive in your opinion. Explain.

Explanation / Answer

H0 : = 60 (investment is safe) vs

Ha : < 60 (investment is not safe)

answer (A) [1] type I error is reject H0 when it is true. it menas in this context that there are 60 customers per day but we donot accept that there are average 60 customer per day.

answer (B)[1]Falsely rejecting the null hypothesis when it is in fact true (Type I error) would have no great consequences for the investment

answer (C) [1] type II error is Accept H1 when it is false. it menas in this context that there are lessthan 60 customers per day but we accept that there are average 60 customer per day.

answer (D)[1]Falsely accepting alternate hypoghesis Ha (Type I error) would have negative consequences for the investment

answer (E)[1] In this case in my opinion type II error is more expensive.

as If it is concluded that   = 60 i.e invest ment is safe and we reject it then investment may be stopped and there wouldnot be any loss. Type I error is not serious

but we falsly accept < 60 i.e. investment is not safe even then we make investment .Type II error is serious

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