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Q112S

Expert-verifiedFound in: Page 442

Book edition
13th

Author(s)
James T. McClave, P. George Benson, Terry Sincich

Pages
888 pages

ISBN
9780134506593

**If the rejection of the null hypothesis of a particular test would cause your firm to go out of business, would you want ${\mathit{a}}$ to be small or large? Explain**

The firm would want $a$ to be small.

The rejection of the null hypothesis of a particular test would cause a firm to go out of business.

Significance level $\left(a\right)$:

The level of significance is the size of the type I error. In other words, rejecting the null hypothesis when it is true.

i.e., $a=P(reject{H}_{0}/{H}_{0}istrue)$

If a null hypothesis rejection resulted in a farm going out of business, that firm would put in significant effort ensuring that it does not falsely identify a null hypothesis as correct. So, which is a type I error. Since, $a$ symbolizes this type I error.

Hence, the firm would want $a$ to be small.

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