Louis Katz, a cost accountant at Papalote Plastics, Inc. (PPI), is analyzing the manufacturing costs of a molded plastic telephone handset produced by PPI. Louis's independent variable is production lot size (in 1,000's of units), and his dependent variable is the total cost of the lot (in $100's). Regression analysis of the data yielded the following tables: Using α = 0.05, Louis should ___. A) increase the sample size B) suspend judgment C) not reject H₀: β₁ = 0 D) reject H₀: β₁ = 0 E) do not reject H₀: β₁ = 0

Question

Quizplus · Accepted Answer

Louis should reject H₀: β₁ = 0 as the p-value (0.001) is less than the significance level (0.05). This means that there is a significant linear relationship between production lot size and total cost of the lot. No information suggests any issues related to increasing the sample size or suspending judgment. Therefore, option A and B are not the correct choice. The correct null hypothesis is β₁ = 0 and not β₁ ≠ 0, which nullifies option E. Hence, option D is the best choice.

Louis Katz, a Cost Accountant at Papalote Plastics, Inc