It is hypothesized that the market share of a corporation should vary more in an industry with active price competition than in one with duopoly and tacit collusion. Suppose that in a study of the steam turbine generator industry, it was found that in 4 years of active price competition, the variance of General Electric's market share was . In the following 7 years, in which there was duopoly and tacit collusion, this variance was . Assume that the data can be regarded as an independent random sample from two normal distributions. Test the null hypothesis that the two population variances are equal against the alternative that the variance of market share is higher in years of active price competition. Answer the following, rounding off your answers to two decimal places.

(a) What is the test statistic?

(b) With a 5 % significance level, what is the critical value?

(c) What is the p-value for the test?

(d) With a 5% significance level, what decision do you make?

A. Do not reject the null hypothesis.
B. Reject the null hypothesis.

To make a decision, two approaches can be used: compare the test statistic with the critical value or interpret the p-value. You can check that both approaches give the same conclusion.