A sample of 26 local vendors was selected and their sample mean monthly income and variance was found to be $ 7 600 and $1 250 ($ squared), respectively. a) A representative of the local vendors argues that the local vendors‘ average monthly income is not more than $ 7 500. Conduct a hypothesis test at a 2.5% level of significance to determine the validity of the claim made by the local vendors’ representative?
QUESTION 1
Suppose that a survey was commissioned by the Ministry of Finance in order to determine
the income of local vendors as part of their project aimed at investigating the feasibility of
the presumptive tax. A sample of 26 local vendors was selected and their sample mean
monthly income and variance was found to be $ 7 600 and $1 250 ($ squared), respectively.
a) A representative of the local vendors argues that the local vendors‘ average monthly
income is not more than $ 7 500. Conduct a hypothesis test at a 2.5% level of
significance to determine the validity of the claim made by the local vendors’
representative?
b) If the hypothesis test in (a) was to be conducted at a level of significance greater than
2.5%, what will be the conclusion?
c) Explain the reasons for hypothesis testing using a practical example?
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