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If the rejection of the null hypothesis of a particular test would cause your firm to go out of business, would you want ato be small or large? Explain

Short Answer

Expert verified

The firm would want a to be small.

Step by step solution

01

Given information

The rejection of the null hypothesis of a particular test would cause a firm to go out of business.

02

State level of significance

Significance level (a):

The level of significance is the size of the type I error. In other words, rejecting the null hypothesis when it is true.

i.e.,a=P(rejectH0/H0istrue)

03

Explain about the a, is small or large

If a null hypothesis rejection resulted in a farm going out of business, that firm would put in significant effort ensuring that it does not falsely identify a null hypothesis as correct. So, which is a type I error. Since, a symbolizes this type I error.

Hence, the firm would want a to be small.

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