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5 Step Hypothesis Test

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Test the hypothesis that the population average income is greater than $55,000 using 5-step hypothesis test.

Given:
Sample Mean = $55,450, Sample Standard Deviation = $2,500
Sample Size =121, Significance Level, alpha = 5%

State your conclusion in statistical terms and in conversational English. Compute the p-value What effect might a different alpha value have?
Discuss the type I and type II errors and what they mean in this situation.

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Solution Summary

The solution provides step-by-step method of performing a 5-step hypothesis test for the given data. All the steps of hypothesis testing (formulation of null and alternate hypotheses, selection of significance level, choosing the appropriate test-statistic, decision rule, calculation of test-statistic and conclusion) have been explained and the statistical analysis has been shown in details. The calculations have also been shown in EXCEL for better understanding.

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5 Step Hypothesis Test
Step1: State the Null and Alternate Hypothesis:
Null Hypothesis: The population average income in the area is smaller than or equal to $55,000.

Alternate Hypothesis: The population average income in the area is greater than $55,000.

Step2: Analysis Plan:
The data has been measured in ratio scale and the sample size is large. Hence, the distribution can be assumed to follow a normal distribution. ...

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