Question: Having a baby in a U.S. hospital costs $2528, on average. Active management of labor (AML) is a group of interventions designed to help reduce the length of labor and the rate of cesarean deliveries. Physicians from the Department of Obstetrics and Gynecology at a particular university health services center were interested in determining whether AML would also translate into a reduced cost for delivery. They conducted a study. In it, they generated a sample of 100 AML deliveries and found that the mean cost was $2476 with a standard deviation of $766. At the 5% level of significance, do the data provide sufficient evidence to conclude that, on average, AML reduces the cost of having a baby in a U.S. hospital?

(a) Formulate the appropriate null and alternative hypotheses.

(b) Provide the critical value(s) and clearly present the rejection and nonrejection regions.
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(c) Compute the value of the appropriate test statistic.

(d) Combine your results in (b) and (c) to make a decision. I’d like you to provide

a graphic representation of your results. Also, state specifically what your decision is. Provide the mathematical reason for making this decision.

(e) At the 5% level of significance, what is your conclusion about AML on baby-delivery costs?

(f) Calculate the p-value(s). You may find that your answer is an approximation. Make the appropriate comparison. Then, make a decision.

(g) A colleague is concerned that the statistical analysis could be invalid because

individual costs may not be normally distributed. How do you respond?