Manag., July-2018 – Q42

0. Following statements are given for plant location strategies:
Statement (I): White goods manufacturing companies have separate plants for colour TVs, washing machines, microwave ovens, etc.; for avoiding confusion and bringing about economies of scale.
Statement (II): Pepsi and Coke have bottling plants scattered all over the country which cater to different regions to avoid confusion at the main manufacturing set-up rather than reducing overall transportation costs and the lead time for supplying goods in the markets.
Find the correct code of the above statements being correct or incorrect.

Answer
Comment
Array

Option : C
Explanation : Two types of errors in Hypothesis Testing It is necessary to know that when a hypothesis is tested, there are four possibilities:
1. The hypothesis is true but our test leads to its rejection.
2. The hypothesis is false but our test leads to its acceptance.
3. The hypothesis is true and our test leads to its acceptance.
4. The hypothesis is false and our test leads to its rejection. Of these four possibilities, the first two lead to an erroneous decisions. The first possibility leads to a Type I error and the second possibility leads to a Type II error. This can be shown as follows:
Table: Types of Errors in Hypothesis Testing
State of nature
Decision H0 is true (S1) H0 is false (S2)
Accept H0(A1) Correct decision Type II error (β)
Reject H0(A2) Type I error (α) Correct decision
Table indicates that one of the two conditions (states of nature) exists in the population, i.e., either the null hypothesis is true or it is false. Similarly, there are two decision alternatives: Accept the null hypothesis or reject the null hypothesis. Thus, two decisions and two states of nature result into four possibilities.
If any hypothesis testing the researcher runs the risk of committing Type I and Type II errors. In case we are interested in reducingthe risk of committing a Type I error, then we should reduce the size of the rejection region or level of significance, indicated in Table.

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