Explore BrainMass

Maximum Likelihood Estimation - Hypothesis Testing of Mean

You work in the corporate office for a nationwide convenience store franchise that operates nearly 10,000 stores. The per-store daily customer count has been steady, at 900, for some time (i.e., the mean number of customers in a store in one day is 900). To increase the customer count, the franchise is considering cutting coffee prices by approximately half. The 12-ounce size will now be $0.59 instead of $0.99, and the 16-ounce size will be $0.69 instead of $1.19. Even with this reduction in price, the franchise will have a 40% gross margin on coffee. To test the new initiative, the franchise has reduced coffee prices in a sample of 34 stores, where customer counts have been running almost exactly at the national average of 900. After four weeks, the sample stores stabilize at a mean customer count of 974 and a standard deviation of 96. This increase seems like a substantial amount to you, but it also seems like a pretty small sample. Is there some way to get a feel for what the mean per-store count in all the stores will be if you cut coffee prices nationwide? Do you think reducing coffee prices is a good strategy for increasing the mean customer count?

Solution Summary

The solution provides step by step method for the calculation of testing of hypothesis. Formula for the calculation and Interpretations of the results are also included.