Determine the null and alternative hypotheses, (b) explain what it would mean to

Question

Determine the null and alternative hypotheses, (b) explain what it would mean to make a type I error, and (c) explain what it would mean to make a type II error. Three years ago, the mean price of a single-family home was $243, 749. A real estate broker believes that the mean price has increased since then. (a) Which of the following is the hypothesis test to be conducted? A. H_0: mu = $243, 749; H_1: mu > $243, 749 B. H_0: mu = $243, 749; H_1: mu notequalto $243, 749 c. H_0: mu = $243, 749; H_1: mu

Explanation / Answer

a. As the broker wants to test whether the price as INCREASED or not, the alternate hypothesis will involve a greater than (>) sign.

Answer: Option A.

b. Type I error is the probability of rejecting the null hypothesis when it is actually true. In this case, it involves rejecting the hypothesis that the mean price is 243,749, when it is the true mean cost.

Answer: Option A.

c. Type II error is the probability of failing to reject the null hypothesis when it is actually false. In this case, it involves failing to reject the hypothesis that the mean price is 243,749, when the true mean cost is greater than 243,749.

Answer: Option C.

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