For the given significance test, explain the meaning of a Type I error, a Type II error, or a correct decision as specified. A health insurer has determined that the "reasonable and customary" fee for a certain medical procedure is $1200. They suspect that the average fee charged by one particular clinic for this procedure is higher than $1200. The insurer performs a significance test to determine whether their suspicion is correct using α = 0.05. The hypotheses are:
H0: μ = $1200
Ha: μ > $1200
If the Pvalue is 0.09 and a decision error is made, what type of error is it? Explain.







Answer: Type II error. We conclude that the average fee charged for the procedure is not higher than $1200 when it actually is higher.
Explanation: The Type II error is accepting null hypothesis when it is false. The pvalue is 0.09. This pvalue is greater than 0.05. Hence we accept null hypothesis and conclude that the average fee charged for the procedure is not higher than $1200. But the actually the average fee charged for the procedure is higher than $1200. Hence the Type – II error is made.
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