Question

An entrepreneur is considering the purchase of a coin-operated laundry. The current owner claims that over the past 5 years, the average daily revenue was $675 with a standard deviation of $75. A sample of 30 days reveals a daily average revenue of $625. If you were to test the null hypothesis that the daily average revenue was $675 with a level of significance level of 0.01. Which test would you use and why?

a. Z-test of a population mean.
b. T-test of population mean.
c. Z-test of population proportion.
d. t-test of a population proportion

Answer 1

a. Z-test of a population mean.

Explanation:

The current owner claims that over the past 5 years, the average daily revenue was $675 with a standard deviation of $75.

This means that we have a large sample, which means that we can consider this to be the standard deviation for the population, which eliminates the t-test, leaving options a and c.

Population mean or proportion?

Mean, as a proportion is a value between 0 and 1, while average revenue may have lots of possible values. So the answer is given by option A.