Consider an Engine Parts Supplier and Suppose the Supplier Has

question 56

Short Answer

Consider an engine parts supplier and suppose the supplier has determined that the mean and variance of the population of all cylindrical engine part outside diameters produced by the current machine are, respectively, 2.5 inches and .00075. To reduce this variance, a new machine is designed. A random sample of 20 outside diameters produced by this new machine has a sample mean of 2.5 inches and a variance of s² = .0002 (normal distribution). In order for a cylindrical engine part to give an engine long life, the outside diameter must be between 2.43 and 2.57 inches. If σ² denotes the variance of the population of all outside diameters that would be produced by the new machine, test H₀: σ² = .00075 versus H_a: σ² < .00075 by setting α = .05.

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Definitions:

Net Marginal Revenue

The additional revenue gained from selling one more unit of a product, after accounting for the marginal cost of producing that unit.

Intermediate Input

Goods or services used in the production process of another good or service which is itself not a final product.

Marginal Profit

The additional profit gained from producing or selling one more unit of a good or service.

Vertically Integrated

A business strategy where a company controls multiple stages of production within the same industry.