Question

1. The August Brothers Oil Company is an oil delivery company based out of East Boston. The company has been in business for over 15 years. The company delivers home heating oil and does oil burner repairs. The company has an opportunity to invest its profits into either increasing it's oil delivery business or oil burner repair business. Last year the company made a profit on average of 21 cents for every gallon of heating oil it sold, and $150.00 profit on every burner it repaired. How can you use hypothesis testing to test these two disparate operations and decide where to invest the company’s profit?

Answer 1

We follow the below steps to do the hypothesis testing.

• First we need to calculate week/month wise profits for both home heating oil (Group 1) and oil burner repairs (Group 2)

• Then we calculate Mean, Standard Deviations of the samples of both Groups.

• We define alpha.
• Then we formulate hypothesis

Eg:

Null and Alternate Hypothesis

H₀: µ₁ = µ₂ (Same Profit for Both Groups)

H_a: µ₁ <> µ₂ or µ₁ > µ₂ or µ₁ < µ₂

• Calculate Test Statistic
• Calculate p-value
• Make Conclusion based on p-value