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The average cost of tuition plus room and board for a small private liberal arts college...

The average cost of tuition plus room and board for a small private liberal arts college is reported to be $8,500 per term, but a financial administrator believes that the average cost is higher. A study conducted using 350 small liberal arts colleges showed that the average cost per term is $8,745. The population standard deviation is $1,200. Let α = 0.01. What is the critical z-value for this test?

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Answer #1

For the given details and based on the financial administrator claim the hypotheses are:

Based on the hypothesis the test will be a right-tailed test.

Critical score:

Since the population standard deviation is known hence Z-distribution is applicable for hypothesis testing, thus the critical Z-score Zcrictical  can be calculated using excel formula for normal distribution which is =NORM.S.INV(1-), now since the significance level given is = 0.01.

The formula used is =NORM.S.INV(1-0.01) , Thus Zcrictical computed as 2.326.

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