Chapter V

Testing of Hypotheses

CHAPTER - V
TESTING OF HYPOTHESES

5.1

ANOVA

5.2

COBB DOUGLAS PRODUCTION FUNCTION

5.3

MULTIPLE REGRESSION ANALYSIS

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CHAPTER V
TESTING OF HYPOTHESES
The processing of data is provided in this chapter. The collected data
have been used to test various hypotheses. The statistical tools like chi-square,
analysis of variance have been employed to test the formulated hypotheses. In
order to know the contribution of various costs in the total costs, CobbDoughless production function has been employed. Similarly the determination
of profit was also studied with the help of multiple regression analysis. Profit
has been taken as dependent variable and many independent variables are
included in this model. The data have been thus processed and tested with the
above statistical tools.

Hypothesis -1
Null Hypothesis: (H0)
There is no significant difference between degree and non-degree
holders towards application of new technology in the business.

Alternative Hypothesis: (Ha)

There is significant difference between degree and non-degree holders
towards application of new technology in the business.
By applying test of significance, the above set hypothesis can be tested.

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Number of degree holders

= 32

Application of new technology in the business = 29

Number of non-degree holders

= 28

Application of new technology in the business = 24

S.E (X1 X2) =

1 1
pq +
n1 n 2
X1 + X 2 29 + 24 53
=
=
= 0.883
n1 + n 2
32 + 28 60

=1p

= 0.883

= 1 0.883

= 0.117

1 1
pq +
n1 n 2

S.E (X1 X2) =

1
1
(0.0883 0.117) +
32 28

0.103 0.66

= 0.873

29
100
32

P1

P1

= 91

P2

P2

= 86

24
100
28

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Difference / S.E

91- 86
5
=
= 5.727
0.873 0.873
Since the calculated value 5.727 is higher than the table value 1.96 at 5
per cent level of significance, we cannot accept the above null hypothesis and it
is concluded that there is significant difference between degree and non-degree
holders, towards application of new technology in the business.

Hypothesis -2
Null Hypothesis: (H0)
There is no significant difference between price of direct sales and price
of sales through association in determining the volume of the profit.

Alternative Hypothesis: (Ha)

There is a significant difference between price of direct sales and the
price of sale through association in determining the volume of the profit.
ANOVA - Results
Table - 5.1
Sources of
Variance
Between
Samples
Within in
Samples

Sum of
Squares

Degrees of
Freedom

Mean
Square

Variance
ratio

31.5

8.52

0.2111

564.3

16

40.3490

Source: Primary Data

For degrees of freedom 4, 16

The table value (at 0.05 level of significance) is 3.0069

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From the above table, it is understood that the sum of squares value of
between samples (31.5) is lesser than the sum of square of within sample
(564.3).This is the same case in mean square value. By dividing mean square of
between samples by the mean square of within sample, the calculated value of
F is derived. So the calculated value is 0.2111 which is lesser than the table
value of F for 0.05 level of significance.
Since the calculated value of F is lesser than the table values, the
hypothesis is accepted. Therefore the null hypothesis is accepted and it is
concluded that there is no significant difference between price of direct sales
and price of sale through association in determining the volume of the profit.

Hypothesis -3
Null Hypothesis: (H0)
There is no significant relationship between availability of raw materials
and demand in affecting the operations of the sago units of different years of
experience.

Alternative Hypothesis: (Ha)

There is significant relationship between availability of raw materials
and demand in affecting the operations of the sago units of different years of
experience.

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Units
Less than 10
years
More than
10 years

Mean
Values

Number

Standard
Deviation

Standard
Errors

48

1.99

0.852

0.0283

12

1.50

0.652

0.4502

S.E (X1 - X2 )

(S.D1 )2 (S.D 2 )2
+
n1
n2

(0.852) 2 (0.652)2
+
48
12

0.015 + 0.035

0.05

= 0.223
t=

Difference
S.E

t=

(1.99 -1.50)
0.223

t = 2.19
Since the difference is less than 2.58 at 1 per cent level of significance,
the null hypothesis is accepted. Therefore, it is concluded that there is no
significant relationship between availability of raw materials affecting the
operations of the sago units of different years of experience.

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Hypothesis - 4
All kinds of tapioca varieties do not yield the same level of output to the
sago units.

Interpretation
Calculated value 1.2
Table value
5 per cent level of significance = 0.05
Degrees of freedom = (R-1) (C-1)
= (2-1) (2-1)
=11
=2
Table value = 3.84

Conclusion
Since the calculated value of Chi-Square is less than the table value of
Chi-Square, the null hypothesis (H0) is accepted and it is concluded that all
kinds of tapioca varieties do not yield the same level of output to the sago units.

Hypothesis -5
There is no significant difference between the amount of profit earned
by the small and large sago units per bag of starch.

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Interpretation
Calculated value 0.7
Table value
5 per cent level of significance = 0.05
Degrees of freedom = (R-1) (C-1)
= (2-1) (2-1)
=11
=2
Table value = 3.84

Conclusion
Since the calculated value of Chi-Square is less than the table value of
Chi-Square, the null hypothesis (H0) is accepted and it is concluded that there is
no significant difference between the amount of profit earned by the small and
large sago units per bag of starch.

Hypothesis - 6
There are no significant differences among the amount of profit in all
the years.

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Interpretation
Calculated value 3.92
Table value
5 per cent level of significance = 0.05
Degrees of freedom = (R-1) (C-1)
= (2-1) (2-1)
=11
=2
Table value = 3.84

Conclusion
Since the calculated value of Chi-Square is greater than the table value
of Chi-Square, the null hypothesis (H0) is rejected and it is concluded that there
is significant difference among the amount of profit in all the years.

Hypothesis -7
There is no significant difference among the amount of costs incurred
for the large and small sago units per bag of starch.

Interpretation
Calculated value 0.0174
Table value
5 per cent level of significance = 0.05

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Degrees of freedom = (R-1) (C-1)

= (2-1) (2-1)
=11
=2
Table value = 3.84

Conclusion
Since the calculated value of Chi-Square is less than the table value of
Chi-Square, the null hypothesis (H0) is accepted and it is concluded that there is
no significant difference among the amount of costs incurred for the large and
small sago units for per bag of starch.

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APPLICATION OF COBB - DOUGLAS PRODUCTION

FUNCTION AND TESTING OF HYPOTHESIS
5.2. COBB- DOUGLAS PRODUCTION FUNCTION
The Cobb-Douglas production function is a linearly homogeneous
production function and we can apply this in any kind of production activities.
In this study, the researcher applied Cobb-Douglas production function in order
to find out the share of various costs in the total cost.
The following equation is used to fit the Cobb-Douglas production function:
Log Y =

Log 0 + Log 1 X 1 + Log 2 X2 + Log 3 X3 +

Log 4 X4 + Log 5X5 + Log 6 X6

where,

X1 Cost of raw materials

X2 Cost of labour
X3 Transport cost
X4 Electricity
X5 Cost of packaging
X6 Miscellaneous costs

The result of Cobb-Douglas production function

Log Y =

Log 0 + Log 1 0.33 X1 + Log 2 0.22X2 +

Log 3 0.15 X3 + Log 4 0.15 X4 + Log 50.10 X5 + Log 6 0.05 X6

The above equation shows the cobb-Douglas production functions. It is

a linearly homogenous production function.

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From the above equation, the dependent factor is the total cost. It is
represented by Y. There are six independent variables (cost items) like cost
of raw materials, cost of labour, transport cost, electricity, cost of packaging
and miscellaneous costs. They are represented by X1, X2, X3, X4, X5 and X6.
Out of total cost, the share of raw materials cost and labour cost are 33
per cent and 22 per cent respectively. Next to this, 15 per cent each is caused
by the transport cost and the cost of electricity. Packaging cost is accounted for
10 per cent in the total cost and other costs contribution in the total cost is 5
per cent.
It is found that the cost of raw materials and labour cost are ranked at the
first two places followed by transport and electricity.

5.3. MULTIPLE REGRESSION ANALYSIS

Multiple regressions are a logical extension of two variable regression
analyses. Instead of a single independent variable two or more independent
variables are used to estimate the values of dependent variable.
In this study, the amount of profit is determined by many independent
variables. Let us consider the following equation:
Y = a + b1X1 + b2X2 + b3X3 + b4X4 + b4X5 + b6X6 + b7X7 + b8X8 + u
Where,
Y

Amount of profit

a, b1 and b2 . b8 = Partial Regression Co-efficient.

X1 = Price

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X2 = Cost of labour
X3 = Delivery
X4 = Labour Productivity
X5 = Technology
X6 = Brand Name
X7 = Packaging
X8 = Quality
u

Disturbance Term

Table - 5.2
Results of Multiple Regressions
Variables
Constant
Price
Cost of labour
Delivery
Labour Productivity
Technology
Brand Name
Quality
R2 = 0.95

Coefficient

Standard
Error

T-Statistics

1.290
0.564
3.498
0.823
2.652
1.287
- 0.454
0.421

0.854
0.290
0.513
0.046
0.052
0.119
0.215
0.214

4.315
3.038
1.153
1.554
0.583
0.310
2.653
3.214

Dependent Variables: Amount of Profit

Independent Variables: Price, Cost of labour, delivery, labour productivity,
technology, brand name, packaging and quality.
The above table presents the multiple regression models which show the
determinants of various factors affecting the amount of profit.

The main

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purpose of using this model is the nature independent factors and their
influence on the amount of profit
There are so many independent variables that have been included in this
model as stated above. Among them, cost of labour is the main factor which
influences the amount of profit heavily when compared to the other
independent variables (Co-efficient 3.498). This is followed by the labour
productivity which has a co-efficient value of 2.652. Both these two factors
greatly affect the amount of profit than other independent factors. Next to this
technology is another important independent variable which creates influence
on the amount of profit. It has a co-efficient value of 1.287 and proper delivery
of the sago products to the customers comes next. It has a co-efficient value of
0.823.
Price and brand name of the sago products taken under this study are
creating influence on the amount of profit more or less equally. They have
their co-efficient values of 0.564 and 0.454 respectively. The only independent
variable in this model which has negative relationship with the amount of profit
is quality of the products.
There may be some other independent variables that do not include in
this model affecting the amount of profit.

This is termed as disturbance

variables represented by u which is placed in the last part of the above

equation.