A Pharmaceutical Company Has a Drug They Think Is Better $\left( \mathrm { H } _ { 0 } \right.$

question 7

Multiple Choice

A pharmaceutical company has a drug they think is better at lowering blood pressure than the current medication, but it costs more money for consumers. They conduct a significance test on their clinical study $\left( \mathrm { H } _ { 0 } \right.$ : The new drug works the same as the old drug, $\mathrm { H } _ { \mathrm { A } }$ : The new drug works better than the old drug.) Which statement about errors is correct?

• A) If they fail to reject the null hypothesis, they might be committing a Type I error.
• B) A Type I error means people pay more money for a drug that doesn't work better.
• C) A Type II error would mean that they did not use randomization in their experiment.
• D) A Type I error means people keep using the old drug when a new drug works better.
• E) If they reject the null hypothesis, it is possible that they are rejecting a Type II error.

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Definitions:

Cost-plus Pricing

A pricing method where a fixed percentage is added to the total cost of producing a product or service to determine its selling price.

Return on Investment

A measure of the profitability and efficiency of an investment, calculated as the return (or gain) from an investment relative to its cost.

Markup

An amount added to the cost price of goods to cover overhead and profit.

Absorption Costing

An accounting method that includes all direct costs and an allocated portion of fixed and variable overhead costs in the cost of a product.