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Hypothesis Test: Null and Alternatives; Type I and Type II Errors

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The average gasoline price of one of the major oil companies has been $1.25 per gallon. Recently, the company has undertaken several efficiency measures in order to reduce prices. Management is interested in determining whether their efficiency measures have actually reduced prices. Answer the following questions for a hypothesis test that could be used to test the claim of management.

a. Develop the appropriate null and alternative hypotheses.
b. What is the Type I error in this situation?
c. What is the Type II error in this situation?

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Solution Summary

This solution provides answers to various questions involving hypothesis tests.

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Null hypothesis: the average price per gallon is $1.25 (u=1.25)
Alternative hypothesis: the average price per gallon is less than $1.25 (u<1.25)

Type I error: is a false positive. ...

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