Question

# McFarland Insurance Company knows that the average cost to process a claim for their company is...

1. McFarland Insurance Company knows that the average cost to process a claim for their company is currently \$60. Given the economic conditions they initiated cost-cutting measures. To evaluate the effectiveness of these measures after six months, McFarland selected at random 26 claims and determined the cost to process them. The sample information is as follows:

 \$45 49 62 40 43 61 48 53 67 63 78 64 48 54 51 56 63 69 58 51 58 59 56 57 38 76
1. (3) Calculate the mean and standard deviation of the sample data. You may use Excel for this.
2. (5) Derive a 99% confidence interval for the average cost of processing a claim after the cost cutting measures were implemented.
3. (5) Perform the hypothesis test to determine if the measures reduced the cost of processing the claims from the current level. Use alpha = 0.01.
4. (3) Could you have drawn the conclusion you reached in part c using the information from part b? Explain why or why not. (You will need to think about this one!)
5. (1) What assumption is necessary to conduct these tests?

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