3. The average gasoline price of one of the major oil companies has been $1.80 p

Question

3. The average gasoline price of one of the major oil companies has been $1.80 per gallon. Because of cost reduction measures, it is believed that there has been a significant reduction in the average price. In order to test this belief, we randomly selected a sample of 36 of the company’s gas stations and determined that the average price for the stations in the sample was $1.70. Assume that the standard deviation of the population (s) is $0.12.   

a.   State the null and the alternative hypotheses.

b.   Compute the test statistic.

c.   What is the p-value associated with the above sample results?

d.   At 95% confidence, test the company’s claim.

Explanation / Answer

a.) H0: µ1 µ2

Ha: µ1 < µ2

b.) z = (1.8 - 1.7) / (0.12/36)

= 0.1*6/0.12

= 5

c.) p-value = 0.99997

d.) p-value > 0.05.

hence, we cannot reject the null hypothesis  

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