Hypothesis test - Example
A real estate company believes that the cost per square foot in a particular
subdivision is $68 or less. A sample of 30 transactions revealed a mean of
$74.8 with a standard deviation of $19.2.
The null and alternative hypotheses are:
H0: mu <= $68
H1: mu > $68
The standardized test statistic is:
z = (74.77 - 68) / (19.2 / 3.5) = 1.93
where 3.5 is the square root of 30 (the number of observations).
The critical value using a significance level of 5% is 1.645. The rejection
region are all the values to the right of 1.645. Given that the test
statistic falls in the rejection region (since 1.94>1.645), the null
hypothesis is rejected.
The result of the test means that sample information shows evidence that the
cost per square foot in this particular subdivision is not less than $68.