Name recognition An advertising agency won’t sign an athlete to do product endorsements unless it is sure the person is known to more than 25% of its target audience. The agency always conducts a poll of 500 people to investigate the athlete’s name recognition before offering a contract. Then it tests H0:p = 0.25 against HA:p>0.25 at a 5% level of significance.

1. Why does the company use upper-tail tests in this situation?

2. Explain what Type I and Type II errors would represent in this context, and describe the risk that each error poses to the company.

3. The company is thinking of changing its test to use a 10% level of significance. How would this change the company’s exposure to each type of risk?