Testing the ads The company in Exercise 40 contacts 600 people selected at random, and only 133 remember the ad.
a) Should the company renew the contract? Support your recommendation with an appropriate test.
b) Explain what your P-value means in this context.
Exercise 40
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.