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1. A sample of 20 insurance claims for automobile accidents (in $1000) gives the following values:
Construct a 0.95 confidence interval on the mean value of claims. Comment on the usefulness of this estimate.
2. An advertisement for a headache remedy claims that 90% or more of headache sufferers get relief if they use the remedy. A truth in advertising agency is considering a suit for false advertising and obtains a sample of 100 individuals, which shows that 88 indicate that the remedy gave them relief.
(a) Using α = 0.10 can the suit be justified?
(b) Comment on the implications of a type I or a type II error in this problem.
(c) Suppose that the company manufacturing the remedy wants to conduct a promotion campaign that claims over 90% of the remedy users get relief from headaches. What would change in the hypotheses statements used in part (a)?
(d) What about the implications discussed in part (b)?
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