A health insurer has determined that the \"reasonable and customary\" fee for a

Question

A health insurer has determined that the "reasonable and customary" fee for a certain medical procedure is $1200. They suspect that the average fee charged by one particular clinic for this procedure is higher than $1200. The insurer wants to perform a significance test to determine whether their suspicion is correct. The hypotheses are: H0: = $1200 Ha: > $1200 Suppose that the results of the sample lead to rejection of the null hypothesis. Classify that conclusion as a Type I error, a Type II error, or a correct decision, if in fact the average fee charged by the clinic is $1200 .

Explanation / Answer

Rejection of a true null hypothesis indicates Type I error. Here, as determined by a health insurer the reasonable and customary fee for a certain medical procedure is $1200, and insurer rejects the null hypothesis (when it is actually true) leads to Type I error.

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