Lecture 5: Hypothesis Testing about

population mean

S. Nakale
University of Namibia
(School of Accounting)

Summer Term 2021

 Learning outcome
At the end of this lecture, you must be able to:

 Understand the concept and use of hypothesis testing in

inferential statistics and its application in the business
world.
 Perform hypothesis tests for population mean.
 Interpret the results of a hypothesis test and translate them
into practical conclusions to guide decision making.

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 Introduction
• Claims or statements made about population parameter values
can be tested statistically.
• On the basis of evidence from sample data, hypothesised/claimed
value of population parameter can be accepted as most likely to
be true or rejected as unlikely to be true.

Examples of claims that can be made about population parameters:

1. A Retailers Association believes that the average amount spent on grocery by students on each
visit to a supermarket is N$ 180.
2. A mobile phone service provider claims that it has at least 25% of the mobile phone market.
3. A quality inspector believes that the variability of the fills of all 500 ml hand sanitisers produced is
at most 5 ml.

• Hypothesis testing is a five step procedure.

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 Step 1: Formulating the Hypotheses
 Hypothesis testing begins with a value being assumed for a given
population parameter.
 The hypothesised value is derived from a claim/assumption or a
research question.
 Two statistical hypotheses, the null 𝐻0 and alternative 𝐻𝑎 hypotheses,
are formulated based on the hypothesised population parameter
value.
 The null hypothesis usually represents the status quo while the
alternative hypothesis is the opposite of the null hypothesis.
 It is not always obvious how the null 𝐻0 and alternative
𝐻𝑎 hypotheses should be formulated.
 The hypotheses must be structured appropriately so that the
hypothesis testing conclusion provides the information the
researcher or decision maker wants.
 Important to understand the context of the situation when
formulating the hypotheses.
 In some cases it is easier to identify the alternative hypothesis first. In
other cases the null hypothesis is easier
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 Step 1: Formulating the Hypotheses
 Hypothesis testing begins with a value being assumed for a given
population parameter.
 The hypothesised value is derived from a claim/assumption or a
research question.
 Two statistical hypotheses, the null 𝐻0 and alternative 𝐻𝑎 hypotheses,
are formulated based on the hypothesised population parameter
value.
 The null hypothesis usually represents the status quo while the
alternative hypothesis is the opposite of the null hypothesis.
 It is not always obvious how the null 𝐻0 and alternative
𝐻𝑎 hypotheses should be formulated.
 The hypotheses must be structured appropriately so that the
hypothesis testing conclusion provides the information the
researcher or decision maker wants.
 Important to understand the context of the situation when
formulating the hypotheses.
 In some cases it is easier to identify the alternative hypothesis first. In
other cases the null hypothesis is easier
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 Step 1: Formulating the Hypotheses
 Three possible forms of hypotheses:

Two tailed test One tailed test

Upper tail test:
𝐻𝑜 : 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑝𝑎𝑟𝑎𝑚𝑒𝑡𝑒𝑟 = ℎ𝑦𝑝𝑜𝑡ℎ𝑒𝑠𝑖𝑠𝑒𝑑 𝑣𝑎𝑙𝑢𝑒 𝐻𝑜 : 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑝𝑎𝑟𝑎𝑚𝑒𝑡𝑒𝑟 ≤ ℎ𝑦𝑝𝑜𝑡ℎ𝑒𝑠𝑖𝑠𝑒𝑑 𝑣𝑎𝑙𝑢𝑒
𝐻𝑎 : 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑝𝑎𝑟𝑎𝑚𝑒𝑡𝑒𝑟 ≠ ℎ𝑦𝑝𝑜𝑡ℎ𝑒𝑠𝑖𝑠𝑒𝑑 𝑣𝑎𝑙𝑢𝑒 𝐻𝑎 : 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑝𝑎𝑟𝑎𝑚𝑒𝑡𝑒𝑟 > ℎ𝑦𝑝𝑜𝑡ℎ𝑒𝑠𝑖𝑠𝑒𝑑 𝑣𝑎𝑙𝑢𝑒

Lower tail test:

𝐻𝑜 : 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑝𝑎𝑟𝑎𝑚𝑒𝑡𝑒𝑟 ≥ ℎ𝑦𝑝𝑜𝑡ℎ𝑒𝑠𝑖𝑠𝑒𝑑 𝑣𝑎𝑙𝑢𝑒
𝐻𝑎 : 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑝𝑎𝑟𝑎𝑚𝑒𝑡𝑒𝑟 < ℎ𝑦𝑝𝑜𝑡ℎ𝑒𝑠𝑖𝑠𝑒𝑑 𝑣𝑎𝑙𝑢𝑒

Note:
• The equality (=, ≤ 𝑜𝑟 ≥)always appears in the null hypothesis.

• All possibilities must be exhausted by the null and alternative

hypotheses.

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 Step 1: Formulating the Hypotheses
 Null hypothesis as a claim or an assumption to be challenged:

• We might begin with a belief or assumption that a statement

about the value of a population parameter is true.

• We then use a hypothesis test to challenge the assumption and

determine if there is statistical evidence to conclude that the
assumption is incorrect.

Example: The label on a soft drink bottle states that it contains 330 ml.

Hypotheses to be tested:
𝐻𝑜 : 𝑡ℎ𝑒 𝑙𝑎𝑏𝑒𝑙 𝑖𝑠 𝑐𝑜𝑟𝑟𝑒𝑐𝑡.
𝐻𝑎 : 𝑡ℎ𝑒 𝑙𝑎𝑏𝑒𝑙 𝑖𝑠 𝑖𝑛𝑐𝑜𝑟𝑟𝑒𝑐𝑡.

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 Step 1: Formulating the Hypotheses
 Alternative hypothesis as a research question/objective:

• Many applications of hypothesis testing involve an attempt to

gather evidence in support of a research question.

• In such cases, it is often best to begin with the alternative

hypothesis and make it the conclusion that the researcher hopes
to support.

• The conclusion that the research hypothesis is true is made if the

sample data provide sufficient evidence to show that the null
hypothesis can be rejected.
Example : A new sales force bonus plan is developed in an attempt to increase sales.
Hypotheses to be tested:

𝐻𝑜 : 𝑡ℎ𝑒 𝑛𝑒𝑤 𝑏𝑜𝑛𝑢𝑠 𝑝𝑙𝑎𝑛 𝑑𝑜𝑒𝑠 𝒏𝒐𝒕 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑠𝑎𝑙𝑒𝑠.

𝐻𝑎 : 𝑡ℎ𝑒 𝑛𝑒𝑤 𝑏𝑜𝑛𝑢𝑠 𝑝𝑙𝑎𝑛 𝑑𝑜𝑒𝑠 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑠𝑎𝑙𝑒𝑠.
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Step 2: Specify the level of significance (𝜶)
 Because hypothesis tests are based on sample data, we must allow for
the possibility of errors.
 A Type I error is rejecting the null hypothesis when it is true.
 A Type II error is not rejecting the null hypothesis when it is false.

 The probability of making a Type I error when the null hypothesis is true
is called the level of significance denoted by 𝛼.

 Applications of hypothesis testing that only control the Type I error are
often called significance tests.
Note: Common choices for 𝛼 are 0.01, 0.05 and 0.1

• The level of significance is the area/probability in the tails of a sampling

distribution and this is where the rejection region is located.
• In a two tailed test, 𝛼 is split between the lower and upper regions of
𝛼
rejection and each tail contains 2 .
• For a lower tailed test, 𝛼 is contained in the lower tail of the sampling
distribution while for an upper tailed distribution, 𝛼 is contained in the
upper tail of the sampling distribution.
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 Step 3: Calculate the Sample Test Statistic
• Sample data is used to calculate a sample statistic that provides the
evidence to test the validity of the null hypothesis.

• The sample statistic must be expressed in standardised unit of

measure as the critical limits of the region of non-rejection.

• Formulas to calculate sample test statistics are available depending

on the type of hypotheses test.

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 Step 4: Compare the Sample Test Statistic to the Critical values/limits of
the region of non-rejection
• The critical limits/values of the region of non-rejection (of the null
hypothesis) depends on the sampling distribution and the level of
significance defined in step 2.

• The sample statistic either lies within the region of non-rejection or it

lies in the rejection region of the null hypothesis.

• General Rejection rules:

Lower tail: Reject 𝐻0 𝑖𝑓 𝑠𝑎𝑚𝑝𝑙𝑒 𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 ≤ 𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙 𝑣𝑎𝑙𝑢𝑒

Upper tail: Reject 𝐻0 𝑖𝑓 𝑠𝑎𝑚𝑝𝑙𝑒 𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 ≥ 𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙 𝑣𝑎𝑙𝑢𝑒

Two-tailed: Reject 𝐻0 𝑖𝑓 𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 ≤ 𝑠𝑚𝑎𝑙𝑙𝑒𝑠𝑡 𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 or

𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 ≥ 𝑙𝑎𝑟𝑔𝑒𝑠𝑡 𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙 𝑣𝑎𝑙𝑢𝑒

NB: A two tailed test always has two critical values.

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 Step 5: Draw Statistical and practical conclusions
Statistical conclusion:
• Depending on the outcome of the comparison in Step 4, the null hypothesis is
either rejected or not rejected at the given level of significance. This conclusion is
based on the sample evidence and level of significance for the test.

Practical conclusion:
• This considers the claim, assumption or research question to be answered. A
practical interpretation of the statistical conclusion above should be given i.e. if
the null hypothesis is rejected, what does it mean in terms of the claim,
assumption or research question given the available sample evidence ?

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 The p-value Approach to Hypothesis Testing
• p-value approach : making use of probabilities to determine
whether the null hypothesis can be rejected or not (STEP 4).
• A p-value is the probability of observing the sample statistic or a
more extreme value if the hypotheised parameter value is assumed
to be true.
– A small p-value i.e. close to zero indicates a low probability of observing the
sample statistic if the null hypothesis were true and this provides strong evidence
to reject 𝐻0 .
– A large p-value i.e. close to one indicates a high probability of observing the
sample statistic if the null hypothesis were true and this provides strong evidence
not to reject 𝐻0 .
• For a lower tailed test, the p-value is the area/probability in the
lower tail of a sampling distribution from the sample statistic.
• For an upper tailed test, the p-value is the area/probability in the
upper tail of a sampling distribution from the sample statistic.
• For a two tailed test, the p-value is the combined area/probability
in the lower and upper tails of the sampling distribution.

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 Hypothesis Testing about Population Mean
σ known:
Critical value approach
𝑥−𝜇0
• Test statistic: 𝑧 = 𝜎 has a standard normal probability distribution.
𝑛
• For a lower tail test: the standard normal probability distribution table
can be used to find the critical value −𝑧𝛼 , a z –value with an area of 𝛼
in the lower tail.
• For an upper tail test: the standard normal probability distribution
table can be used to find the critical value 𝑧𝛼 , a z –value with an area
of 𝛼 in the upper tail.
• For a two tailed test: the standard normal probability distribution table
can be used to find the critical values −𝑧𝛼/2 𝑎𝑛𝑑𝑧𝛼/2 , z –values with an
area of 𝛼/2 in the lower tail and upper tail, respectively.
• Rejection rule:
Lower tail: Reject 𝐻0 𝑖𝑓 𝑧 𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 ≤ − 𝑧𝛼

Upper tail: Reject 𝐻0 𝑖𝑓 𝑧 𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 ≥ 𝑧𝛼

Two-tailed: Reject 𝐻0 𝑖𝑓 𝑧 𝑡𝑒𝑠𝑡𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 ≤ − 𝑧𝛼/2 or 𝑧 𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 ≥ 𝑧𝛼/2

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 Hypothesis Testing about Population Mean
σ known
p-value approach
𝑥−𝜇0
• Test statistic = 𝜎 has a standard normal probability distribution.
𝑛

• For a lower tail test: 𝑝 − 𝑣𝑎𝑙𝑢𝑒 = 𝑃(𝑧 𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 < 𝑧)

• For an upper tail test: 𝑝 − 𝑣𝑎𝑙𝑢𝑒 = 𝑃(𝑧 𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 > 𝑧)
• For a two tailed test: 𝑝 − 𝑣𝑎𝑙𝑢𝑒 = 2(𝑃 𝑧 𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 > 𝑧 )

• Rejection rule:
Lower tail: Reject 𝐻0 𝑖𝑓 𝑝 − 𝑣𝑎𝑙𝑢𝑒 ≤ 𝛼

Upper tail: Reject 𝐻0 𝑖𝑓 𝑝 − 𝑣𝑎𝑙𝑢𝑒 ≤ 𝛼

Two-tailed: Reject 𝐻0 𝑖𝑓 𝑝 − 𝑣𝑎𝑙𝑢𝑒 ≤ 𝛼

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 Hypothesis Testing about Population Mean
σ Unknown:
Critical value approach
𝑥−𝜇0
• Test statistic: 𝑡 = 𝑠 has a t distribution with n-1 degrees of freedom.
𝑛
• For a lower tail test: the t distribution table can be used to find the
critical value −𝑡𝛼 , a t –value with an area of 𝛼 in the lower tail.
• For an upper tail test: the t distribution table can be used to find the
critical value 𝑡𝛼 , a t –value with an area of 𝛼 in the upper tail.
• For a two tailed test: the t distribution table can be used to find the
critical values −𝑡𝛼/2 𝑎𝑛𝑑 𝑡𝛼/2 , t –values with an area of 𝛼/2 in the lower
tail and upper tail, respectively.
• Rejection rule:
Lower tail: Reject 𝐻0 𝑖𝑓 𝑡 𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 ≤ − 𝑡𝛼

Upper tail: Reject 𝐻0 𝑖𝑓 𝑡 𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 ≥ 𝑡𝛼

Two-tailed: Reject 𝐻0 𝑖𝑓 𝑡 𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 ≤ − 𝑡𝛼/2 or 𝑡 𝑡𝑒𝑠𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐 ≥ 𝑡𝛼/2

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Exercise 15
The average amount spent on groceries by students at a local university
is believed to be N$ 1800. To test this belief, a market research is
conducted among a random sample of 100 students at the local
university.

Based on the survey, the average value of grocery purchase was found
to be N$ 1810.

Assume that the population of grocery purchase values is normally

distributed with a variance of 4624 (N$ squared).

Required:
a) What can be concluded about the average amount spent by
students on grocery per month? Conduct a hypothesis test at a 1%
level of significance and use the critical value approach.
b) Repeat the hypothesis in a) using the p-value approach.

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Exercise 16
A local restaurant, operating on a take-away basis due to Covid-19
regulations, claims that it takes less than 45 minutes, on average, to
deliver their orders.

To test this claim, 25 delivery times are randomly selected and their
delivery times (in minutes) are given below. The sample mean and
standard deviations are 50 minutes 10 minutes, respectively.

Required:

What can be concluded about the average delivery times of the

restaurant Conduct a hypothesis test at a 5% level of significance and
use the critical value approach.

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Exercise 17 (Past Exam)

Samuel has been operating as a street vendor in Okuryangava for the

past ten years. Historically, his average daily income has been N$ 500.
He reported recently that due to Covid-19 regulations, his daily income
declined significantly. A random sample of his income for six days
during the first month of lockdown is given in the table below:

N$ 700 N$ 650 N$ 400 N$ 350 N$ 200 N$ 100

Required:
Use the critical value approach and test at a 10% level of significance if
there is evidence to support Samuel’s claim. Show all the hypothesis test
steps.

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Exercise 18 (Past Exam)
There has been a complaint by customers that chocolate bars are
under filled i.e. their weight is significantly less than the 100 grams.
Suppose you are given a task to investigate the weights of 100 grams
chocolate bars to see if chocolate bars are under filled i.e. customers
not getting full value of their money.

Assume the weights are normally distributed with a variance of 0.25

(grams squared). A sample of 49 candy bars are randomly selected
and weighed and their average weigh is 99.95 grams.

Required:

a) Use the p-value approach and test at a 2.5% level of significance if

the chocolate bars are filled correctly. Show all hypothesis test
steps.
b) Repeat a) using the critical value approach.

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 Reference
 Anderson D.R, Sweeney D.J and Williams T.A, 2011.
Statistics for Business and Economics, eleventh edition.

 Wegner T, 2016. Applied Business Statistics: Methods

and Excel-Based Applications, fourth edition.

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