Question

3.       Suppose a new production method will be implemented if a hypothesis test supports the conclusion that the new method reduces the mean operating cost per hour.

A.    State the appropriate null and alternative hypotheses if the mean cost for the current production method is $220 per hour.

B.     What is the Type I error in this situation? What are the consequences of making this error?

C.     What is the Type II error in this situation? What are the consequences of making this error?

Answer 1

A)

$H_0=\$220$ null hypotheses 

$H_1<220$ alternative hypotheses

B) In this situation, an error of the first kind means that the hypothesis of the ineffectiveness of the new method was rejected, despite the fact that it was true. If a mistake is made, then the company implements a new method, incurs costs, but does not benefit from it.

C) An error of the second type means that the new system is considered ineffective, although this is not the case. As a result, the company does not realize profitable modernization without missing out on benefits.