Question

An aspiring venture capitalist is interested in studying early-stage companies. She claims that the proportion of new businesses that earn a profit within the first two years of operation is more than 18%. If the venture capitalist chooses a 10% significance level, what is/are the critical value(s) for the hypothesis test

Answer 1

To determine the critical value or values for a one-proportion z-test at the 10% significance level when the hypothesis test is left- or right-tailed, we must use the look-up table for zz0.01. Since this is a right-tailed test, our critical value is positive 1.282.

Answer 2

The critical value is 6.314

Explanation:

Null hypothesis: The proportion of businesses that earn a profit within the first two years of operation is 80%

Alternate hypothesis: The proportion of businesses e earn a profit within the first two years of operation is greater than 18%

The hypothesis test has one critical value because it is a one-tailed test. It is a one-tailed test because the alternate hypothesis is expressed using the inequality, greater than.

n = 2

degree of freedom = n - 1 = 2 - 1 = 1

significance level = 10%

Using the t-distribution table, critical value corresponding to 1 degree of freedom and 10% significance level is 6.314.