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Accounting

Radio ads

A company is willing to renew its advertising contract with a local radio station only if the station can prove that more than 20% of the residents of the city have heard the ad and recognize the company's product. The radio station conducts a random phone survey of 400 people.

a) What are the hypotheses?

b) The station plans to conduct this test using a 10% level of significance, but the company wants the significance level lowered to 5%. Why?

c) What is meant by the power of this test?

d) For which level of significance will the power of this test be higher? Why?

e) They finally agree to use a = 0.05, but the company proposes that the station call 600 people instead of the 400 initially proposed. Will that make the risk of Type II error higher or lower? Explain.

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