Business Statistics:

A Decision-Making Approach
8th Edition

Chapter 10
Estimation and Hypothesis Testing
for Two Population Parameters

Chapter Goals
After completing this chapter, you should be able to:
Test hypotheses or form interval estimates for
two independent population means
Standard deviations known
Standard deviations unknown
two means from paired samples

the difference between two population proportions

Estimation for Two Populations

Estimating two
population values
Population
means,
independent
samples

Paired
samples

Population
proportions

Same group
before vs.
after
treatment

Proportion 1
vs.
Proportion 2

Examples:

Group 1 vs.
independent
Group 2

Difference Between Two Means

Population means,
independent
samples

Goal: Form a confidence

interval for the difference
between two population means,
1 2

1 and 2 known
1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

The point estimate for

the difference is

x1 x2

Independent Samples
Different data sources

Population means,
independent
samples

1 and 2 known
1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

Unrelated
Independent
Sample selected from

one population has no

effect on the sample
selected from the other
population
Use the difference between
2 sample means
Use z test or pooled
variance t test

1 and 2 known

Assumptions:

Population means,
independent
samples
1 and 2 known
1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

Samples are randomly and

independently drawn

Population distributions

are normal or both sample

sizes are 30
Population standard

deviations are known

1 and 2 known
(continued)

When 1 and 2 are known and

Population means,
independent
samples
1 and 2 known
1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

both populations are normal or

both sample sizes are at least 30,
the test statistic is a z-value
and the standard error of

x1 x2 is

x1 x 2

2
1

n1
n2

1 and 2 known
(continued)

Population means,
independent
samples
1 and 2 known
1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

The confidence interval for

1 2 is:

x 2 z /2

2
1

n1
n2

1 and 2 unknown, large samples

Assumptions:

Population means,
independent
samples

Samples are randomly and

independently drawn
both sample sizes are 30

1 and 2 known
1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

Population standard
deviations are unknown

1 and 2 unknown, large samples

(continued)

Population means,
independent
samples

Forming interval estimates:

use sample standard
deviation s to estimate

1 and 2 known
1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

the test statistic is a z value

1 and 2 unknown, large samples

(continued)

Population means,
independent
samples

The confidence interval for

1 2 is:

1 and 2 known

x
and unknown, *
1

n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

x 2 z/2

2
1

s
s2

n1 n2

1 and 2 unknown, small samples

Population means,
independent
samples

Assumptions:
populations are normally
distributed

1 and 2 known

the populations have equal

variances

1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

samples are independent

1 and 2 unknown, small samples

(continued)

Forming interval estimates:

Population means,
independent
samples

The population variances

are assumed equal, so use
the two sample standard
deviations and pool them to
estimate

1 and 2 known
1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

the test statistic is a t value

with (n1 + n2 2) degrees
of freedom

1 and 2 unknown, small samples

(continued)

Population means,
independent
samples

The pooled standard deviation

is :

1 and 2 known
1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

sp

n1 1s

n2 1s2
n1 n2 2
2
1

1 and 2 unknown, small samples

(continued)

The confidence interval for

1 2 is:

Population means,
independent
samples

1 and 2 known
1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

x 2 t /2 sp

1 1

n1 n2

Where t/2 has (n1 + n2 2)

d.f., and

sp

n1 1s

n2 1s2
n1 n2 2
2
1

Hypothesis Tests for the Difference Between

Two Means
Testing Hypotheses about 1 2
Use the same situations discussed already:

Standard deviations known or unknown

Sample sizes 30 or not 30

Hypothesis Tests for Two Population

Proportions
Two Population Means, Independent Samples

Lower tail test:

Upper tail test:

Two-tailed test:

H0: 1 2
HA: 1 < 2

H0: 1 2
HA: 1 > 2

H0: 1 = 2
HA: 1 2

i.e.,

i.e.,

i.e.,

H0: 1 2 0
HA: 1 2 < 0

H0: 1 2 0
HA: 1 2 > 0

H0: 1 2 = 0
HA: 1 2 0

Hypothesis tests for 1 2

Population means, independent samples

1 and 2 known

Use a z test statistic

1 and 2 unknown,
n1 and n2 30

Use s to estimate unknown

, approximate with a z test
statistic

1 and 2 unknown,
n1 or n2 < 30

Use s to estimate unknown

, use a t test statistic and
pooled standard deviation

1 and 2 known

Population means,
independent
samples
1 and 2 known
1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

The test statistic for

1 2 is:

x
z

x 2 1 2
2
1

n1
n2

1 and 2 unknown, large samples

Population means,
independent
samples

The test statistic for

1 2 is:

1 and 2 known
1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

x
z

x 2 1 2
2
1

s
s2

n1 n2

1 and 2 unknown, small samples

The test statistic for
1 2 is:

Population means,
independent
samples

x
t

1 and 2 known
1 and 2 unknown,
n1 and n2 30

1 and 2 unknown,
n1 or n2 < 30

x 2 1 2
1 1
sp

n1 n 2

Where t/2 has (n1 + n2 2) d.f.,

and
sp

n1 1s12 n2 1s22
n1 n2 2

Hypothesis tests for 1 2

Two Population Means, Independent Samples
Lower tail test:

Upper tail test:

Two-tailed test:

H0: 1 2 0
HA: 1 2 < 0

H0: 1 2 0
HA: 1 2 > 0

H0: 1 2 = 0
HA: 1 2 0

-za
Reject H0 if z < -za

za
Reject H0 if z > za

a/2

-za/2

a/2

za/2

Reject H0 if z < -za/2

or z > za/2

Pooled sp t Test: Example

Youre a financial analyst for a brokerage firm. Is there a
difference in dividend yield between stocks listed on the
NYSE & NASDAQ? You collect the following data:
NYSE
NASDAQ
Number
21
25
Sample mean
3.27
2.53
Sample std dev
1.30
1.16

Assuming equal variances, is

there a difference in average
yield ( = 0.05)?

Calculating the Test Statistic

The test statistic is:

x x 3.27 2.53 0
t

2.040
1

sp

sp

1 1

n1 n 2

n1 1s12 n2 1s22
n1 n2 2

1 1
1.2256

21 25

21 11.302 25 11.162
21 25 2

1.2256

Solution
H0: 1 - 2 = 0 i.e. (1 = 2)
HA: 1 - 2 0 i.e. (1 2)
= 0.05
df = 21 + 25 - 2 = 44
Critical Values: t = 2.0154

Test Statistic:
3.27 2.53
t
2.040
1 1
1.2256

21 25

Reject H0

Reject H0

.025

-2.0154

.025

0 2.0154

2.040

Decision:
Reject H0 at a = 0.05
Conclusion:
There is evidence of a
difference in means.

Paired Samples

Paired
samples

Tests Means of 2 Related Populations

Paired or matched samples

Repeated measures (before/after)

Use difference between paired values:

d = x1 - x2
Eliminates Variation Among Subjects
Assumptions:
Both Populations Are Normally Distributed

Or, if Not Normal, use large samples

Paired Differences
The ith paired difference is di , where
Paired
samples

di = x1i - x2i
The point estimate for
the population mean
paired difference is d :

The sample standard

deviation is
n is the number of pairs in the paired sample

d
i 1

n
n

sd

2
(d

d
)
i
i1

n 1

Paired Differences
(continued)

Paired
samples

The confidence interval for d is :

d t /2

sd
n
n

Where t/2 has

n - 1 d.f. and sd is:
n is the number of pairs in the paired sample

sd

2
(d

d
)
i
i1

n 1

Hypothesis Testing for Paired Samples

Paired
samples

n is the
number
of pairs
in the
paired
sample

The test statistic for d is :

d d
t
sd
n
n

Where t/2 has n - 1 d.f.

and sd is:

sd

2
(d

d
)
i
i1

n 1

Hypothesis Testing for Paired Samples

(continued)

Paired Samples
Lower tail test:

Upper tail test:

Two-tailed test:

H0: d 0
H A: d < 0

H0: d 0
H A: d > 0

H0: d = 0
H A: d 0

a
-ta

Reject H0 if t < -ta

ta
Reject H0 if t > ta
Where t has n - 1 d.f.

a/2
-ta/2

a/2
ta/2

Reject H0 if t < -ta/2

or t > ta/2

Paired Samples Example

Assume you send your sales people to a customer service

training workshop. Is the training effective? You collect the

following data:
Number of Complaints:
Sales person Before (1)
After (2)
C.B.
T.F.
M.H.
R.K.
M.O.

6
20
3
0
4

4
6
2
0
0

(2) - (1)
Difference, di
- 2
-14
- 1
0
- 4
-21

d =

di
n

= -4.2

sd

2
(d

d
)
i

5.67

n 1

Paired Samples: Solution

Has the training made a difference in the number of complaints

(at the 0.01 level)?

H0: d = 0
HA: d 0
d = - 4.2
= .01
Critical Value = 4.604
d.f. = n - 1 = 4
Test Statistic:

d d 4.2 0
t

1.66
sd / n 5.67/ 5

Reject

Reject
/2

/2
- 4.604
- 1.66

4.604

Decision: Do not reject H0

(t stat is not in the reject
region)
Conclusion: There is not a
significant change in the
number of complaints.

Two Population Proportions

Population
proportions

Goal : Form a confidence interval for or test a

hypothesis about the difference between two
population proportions, p1 p2

Assumptions:

n1p1 5 , n1(1-p1) 5
n2p2 5 , n2(1-p2) 5

The point estimate for

the difference is

p1 p2

Confidence Interval for Two Population

Proportions

Population
proportions

The confidence interval for

p1 p2 is:

p p z
1

/2

p1(1 p1 ) p2 (1 p2 )

n1
n2

Hypothesis Tests for Two Population

Proportions
Population proportions

Lower tail test:

Upper tail test:

Two-tailed test:

H0: p1 p2
HA: p 1 < p 2

H0: p1 p2
H A : p1 > p 2

H0: p1 = p2
HA: p 1 p 2

i.e.,

i.e.,

i.e.,

H0: p1 p2 0
HA: p 1 p 2 < 0

H0: p1 p2 0
HA: p 1 p 2 > 0

H0: p1 p2 = 0
HA: p 1 p 2 0

Two Population Proportions

Population
proportions

Since we begin by assuming the null

hypothesis is true, we assume p1 = p2 and
pool the two p estimates
The pooled estimate for the overall
proportion is:

n1p1 n2 p2 x1 x 2
p

n1 n2
n1 n2
where x1 and x2 are the numbers from
samples 1 and 2 with the characteristic of interest

Two Population Proportions

(continued)

Population
proportions

The test statistic for

p1 p2 is:

p
z

p 2 p1 p 2

1 1
p (1 p)
n1 n2

Hypothesis Tests for Two Population

Proportions
Population proportions
Lower tail test:

Upper tail test:

Two-tailed test:

H0: p1 p2 0
HA: p 1 p 2 < 0

H0: p1 p2 0
HA: p 1 p 2 > 0

H0: p1 p2 = 0
HA: p 1 p 2 0

-za
Reject H0 if z < -za

za
Reject H0 if z > za

a/2

-za/2

a/2

za/2

Reject H0 if z < -za/2

or z > za/2

Example: Two population Proportions

Is there a significant difference between

the proportion of men and the proportion of
women who will vote Yes on Proposition A?
In a random sample, 36 of 72 men and 31 of 50 women

indicated they would vote Yes

Test at the .05 level of significance

Example: Two population Proportions

The hypothesis test is:

(continued)

H0: p1 p2 = 0 (the two proportions are equal)

HA: p1 p2 0 (there is a significant difference between
proportions)

The sample proportions are:

Men:

p1 = 36/72 = .50

Women:

p2 = 31/50 = .62

The pooled estimate for the overall proportion is:

x1 x 2 36 31 67
p

.549
n1 n2 72 50 122

Example: Two population Proportions

(continued)
Reject H0

The test statistic for p1 p2 is:

z

p 2 p1 p2

1 1
p (1 p)
n1 n2

.50 .62 0
1
1
.549 (1 .549)

72 50

Critical Values = 1.96

For = .05

.025

-1.96
-1.31

1.31

Reject H0

.025

1.96

Decision: Do not reject H0

Conclusion: There is not
significant evidence of a
difference in proportions who
will vote yes between men and
women.

Two Sample Tests in EXCEL

For independent samples:
Independent sample Z test with variances known:
Tools | data analysis | z-test: two sample for means
Independent sample Z test with large sample
Tools | data analysis | z-test: two sample for means
If the population variances are unknown, use sample
variances
For paired samples (t test):
Tools | data analysis | t-test: paired two sample for
means

Chapter Summary

Compared two independent samples

Formed confidence intervals for the differences between two

means
Performed Z test for the differences in two means
Performed t test for the differences in two means

Compared two related samples (paired samples)

Formed confidence intervals for the paired difference

Performed paired sample t tests for the mean difference

Compared two population proportions

Formed confidence intervals for the difference between two

population proportions
Performed Z-test for two population proportions

Hypothesis Tests for

One and Two Population
Variances

Chapter Goals
After completing this chapter, you should be able to:
Formulate and complete hypothesis tests for a

single population variance

Find critical chi-square distribution values from

the chi-square table

Formulate and complete hypothesis tests for the

difference between two population variances

Use the F table to find critical F values

Hypothesis Tests for Variances

Hypothesis Tests
for Variances

Tests for a Single

Population Variances

Tests for Two

Population Variances

Chi-Square test statistic

F test statistic

Single Population
Hypothesis Tests for Variances

Tests for a Single

Population Variances

Chi-Square test statistic

H0: 2 = 02
HA: 2 02

Two tailed test

H0: 2 02
HA: 2 < 02

Lower tail test

H0: 2 02
HA: 2 > 02

Upper tail test

Chi-Square Test Statistic

Hypothesis Tests for Variances

The chi-squared test statistic for

a Single Population Variance is:

Tests for a Single

Population Variances

Chi-Square test statistic

(n 1)s

2

where
2 = standardized chi-square variable
n = sample size
s2 = sample variance
2 = hypothesized variance

The Chi-square Distribution

The chi-square distribution is a family of distributions,

depending on degrees of freedom:

d.f. = n - 1

0 4 8 12 16 20 24 28

d.f. = 1

0 4 8 12 16 20 24 28

d.f. = 5

0 4 8 12 16 20 24 28

d.f. = 15

Finding the Critical Value

The critical value, , is found from the chi-square table

Upper tail test:

H0: 2 02
HA: 2 > 02

Upper Tail
Chi-square
Tests

2
Do not reject H0

Reject H0

Example
A commercial freezer must hold the selected

temperature with little variation. Specifications call for

a standard deviation of no more than 4 degrees (or
variance of 16 degrees2). A sample of 16 freezers is
tested and
yields a sample variance
of s2 = 24. Test to see
whether the standard
deviation specification
is exceeded. Use
= .05

Finding the Critical Value

The the chi-square table to find the critical value:

2 = 24.9958 ( = .05 and 16 1 = 15 d.f.)

The test statistic is:

2
(n

1)s
(16 1)24
2

22.5
2

16

Since 22.5 < 24.9958, do

not reject H0
There is not significant
evidence at the = .05 level
that the standard deviation
specification is exceeded

= .05

2
Do not reject H0

Reject H0

= 24.9958

Lower Tail or Two Tailed Chi-square Tests

Lower tail test:

Two tail test:

H0: 2 02
HA: 2 < 02

H0: 2 = 02
HA: 2 02
/2

/2

2
Reject

Do not reject H0
1-

2
Reject

Do not
reject H0

21/2

Reject

2/2

F Test for Difference in Two Population

Variances
Hypothesis Tests for Variances

H0: 12 22 = 0
HA: 12 22 0

*
Two tailed test

H0: 12 22 0
HA: 12 22 < 0

Lower tail test

H0: 12 22 0
HA: 12 22 > 0

Upper tail test

Tests for Two

Population Variances

F test statistic

F Test for Difference in Two Population

Variances
Hypothesis Tests for Variances
The F test statistic is:
(Place the
larger sample
variance in the
numerator)

2
1
2
2

s
F
s

Tests for Two

Population Variances

s12 = Variance of Sample 1

n1 - 1 = numerator degrees of freedom
s 22
= Variance of Sample 2

n2 - 1 = denominator degrees of freedom

F test statistic

The F Distribution

The F critical value is found from the F table

The are two appropriate degrees of freedom: numerator

and denominator

s12
F 2
s2

where df1 = n1 1 ; df2 = n2 1

In the F table,

numerator degrees of freedom determine the row

denominator degrees of freedom determine the

column

Finding the Critical Value

H0: 12 22 0
HA: 12 22 < 0

H0: 12 22 = 0
HA: 12 22 0

H0: 12 22 0
HA: 12 22 > 0
/2

Do not
reject H0

Reject H0

rejection region for

a one-tail test is

s12
F 2 F
s2

Do not
reject H0

Reject H0

F/2

rejection region for a

two-tailed test is

s12
F 2 F / 2
s2

(when the larger sample variance in the numerator)

F Test: An Example
You are a financial analyst for a brokerage firm. You want
to compare dividend yields between stocks listed on the
NYSE & NASDAQ. You collect the following data:
NYSE
NASDAQ
Number
21
25
Mean
3.27
2.53
Std dev
1.30
1.16

Is there a difference in the

variances between the NYSE
& NASDAQ at the = 0.05 level?

F Test: Example Solution

Form the hypothesis test:

H0: 21 22 = 0 (there is no difference between variances)

HA: 21 22 0 (there is a difference between variances)

Find the F critical value for = .05:

Numerator:
df1 = n1 1 = 21 1 = 20
Denominator:
df2 = n2 1 = 25 1 = 24
F.05/2, 20, 24 = 2.327

F Test: Example Solution

(continued)

The test statistic is:

H0: 12 22 = 0
HA: 12 22 0

s12 1.302
F 2
1.256
2
s2 1.16

F = 1.256 is not greater than

the critical F value of 2.327, so
we do not reject H0

/2 = .025

Do not
reject H0

Conclusion: There is no evidence of a

difference in variances at = .05

Reject H0

F/2
=2.327

Chapter Summary
Performed chi-square tests for the variance
Used the chi-square table to find chi-square critical

values
Performed F tests for the difference between two

population variances
Used the F table to find F critical values