Question

Carpetland carpet installers incur an average cost of $300 for each carpet installed. Joan Chin, the firm's vice president, proposes a new procedure for installations, which she hopes will be more efficient. Joan hopes that the results of a trial period will enable her to conclude with a level of significance of 0.05 that the new procedure reduces the average cost to install a carpet. What will be the consequences if she makes a Type I error on her hypothesis test?

Answer 1

Making a Type I error will make the company conclude that the new method is better when in reality it has no real advantage over the old procedure.

Explanation:

A Type I error happens when the null hypothesis is rejected when in fact the null hypothesis is true.

In this case, making a Type I error will make the company conclude that the new method is better when in reality it has no real advantage over the old procedure. If the new procedure is implemented it is expected that it will not show better results.

The way of minimizing the probabilty of a Type I error is making a mor conservative test and lowering the significance level (for example, to 0.01).