A manager is trying to make a decision on investing in advertising based on whet

Question

A manager is trying to make a decision on investing in advertising based on whether they have a market share of at least 50%. A test of hypothesis is done as given below:

H0: p <= 0.5

H1: p > 0.5

where p is the proportion of the customers who use the company's product (that is, p is the market share of the company). The analyst proposes using a significance level of 0.05, but the manager wants to use 0.01. Which of the following statements is NOT correct:

A) when H0 is right, using 0.01 instead of 0.05 reduces the error of rejecting H0

B) using 0.05 instead of 0.01 increases type I error probability

C) Using 0.01 instead of 0.05 decreases the type II error probability

Explanation / Answer

B) using 0.05 instead of 0.01 increases type I error probability

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