Experience in investigating insurance claims shows that the average cost to process a claim is approximately normally distributed with a mean of 80 dollars. New cost-cutting measures were started and a sample of 25 claims was tested. The sample mean of the costs to process these claims was %76 and the sample standard deviation of the costs was $10. We would like to test whether the cost-cutting measures seem to be working at the 5% significance level. Find the critical value for this test.

Question

Experience in investigating insurance claims shows that the average cost to process a claim is approximately normally distributed with a mean of 80 dollars. New cost-cutting measures were started and a sample of 25 claims was tested. The sample mean of the costs to process these claims was %76 and the sample standard deviation of the costs was $10. We would like to test whether the cost-cutting measures seem to be working at the 5% significance level. Find the critical value for this test.

Answer 1

Z = (score-mean)/SEm

SEm = SD/√n

Find table in the back of your statistics text labeled something like "areas under normal distribution" to find the proportion/probability related to the Z score. Is it less than .05?