D.

Ortmeyer
GB 210
Fall, 2009
Graded Computer Assignment #3
Yash Vazirani
(Note: The same ground rules apply to this assignment as applied to the others in terms of working
independently. If you need assistance, tell me in writing on the assignment who you worked with and how they
helped. Express answers in your own words).
I. Confidence Intervals (see Megastat tutorial on P.301 of the text)
According to statistics reported on CNBC, a surprising number of motor vehicles are not covered by insurance.
A random sample, consistent with the CNBC report, showed that 46 of 200 vehicles were not covered by
insurance.
a) What is the point estimate of the proportion of vehicles not covered by insurance?
23% of vehicles are not covered
b) Assuming a normal distribution, use Megastat to construct a 95% confidence interval estimate of the
population proportion of cars not covered by insurance.
i) Before you use Megastat, first decide whether to base your confidence interval on the standard normal
distribution (z-values) or the t-distribution (t-values) and explain why you made the choice you did.
Use z because n is more than 30
ii) Write down the confidence interval that Megastat calculates. (don’t just point to it on the printout).
17.2% – 28.8%
c) From the Megastat printout answer the following:
i) Is the proportion, the sample proportion or the population proportion?
Sample proportion
ii) What is meant by “half-width”?
The half-width added to the sample proportion is the upper limit of the confidence interval
proportion and the half-width subtracted from the sample proportion results in the lower limit. The
half-width is also the margin of error.
iii) What is meant by “confidence level”? (i.e. what is the concept of a 95% confidence level).
The confidence level is the level of confidence that the constructed interval around the proportion
will include the population proportion. There is 95% probability that a sample will have a proportion
that is between the confidence intervals. A 95% confidence level means that for every 20 samples,
19 will be within the constructed interval.
II. Hypothesis Testing (you may use Megastat or do this “by hand”)
In 2001, the U.S. Department of Labor reported the average hourly earnings for U.S. production workers to be
$14.32 or less per hour and the population standard deviation, σ = $1.45 (Note: this is “sigma” so you don’t
need to use “s” as a point estimate). In 2003, a sample of 75 production workers showed a sample mean of
$14.68 per hour.
Can we conclude that an increase occurred in the average hourly earnings since 2001?
a) Create Null and Alternative Hypotheses:
Set up the null and alternative hypotheses that would allow you to test if there has been an increase in
the average hourly earnings of production workers since 2001 [Hint: if there hasn’t been an increase, the
average hourly wage in 2003 would be what it was in 2001]. Is this a one-tail, or two-tailed test? Explain
why.

Null: Hourly wage is less than or equal to $14.32

Alternative: Hourly wage is greater than $14.32

This is a one-tailed test because we are only testing for an increase.

b) Figure out the Decision Rule
If the required level of significance (α) is 0.05, what is the critical z-value? What is the decision rule (i.e.
when do you reject the null and when do you accept it?)
z-value = 1.64. Reject the null when the test statistic is higher than the critical value.

c) Conduct the Hypothesis Test (Calculate the test statistic)

A random sample of 75 production workers in 2003 yields the following sample statistic:
Sample mean = $14.68
What is the value of the z-test statistic?
2.15

Do you accept or reject the null hypothesis using the critical value method? Explain your decision
The null hypothesis is rejected using the critical value method because the test statistic is higher than the
critical value. This shows that the hourly wages are higher than $14.32.

d) Using the p-value method, is your decision the same as in (c)? Explain your answer.
The p-value method also results in the same decision.

e) Explain in words what the Type 1 error would be.

The Type 1 error in this case would be rejecting the null hypothesis when in fact it is true. Essentially, it
is like saying that the wages have not increased when they actually have.