La Quinta Motor Inns has developed a computer model to predict the profitability of potential new hotel locations. If the model predicts a high return, La Quinta buys the plot and builds a new hotel. If, on the other hand, the model predicts a small or average return, La Quinta will not buy the plot. The decision-making procedure can be described as a statistical test in such a way that in the null hypothesis the location is evaluated as unprofitable and in the alternative hypothesis as profitable.

a) Explain the practical risks associated with making a Type I error in this situation (the so-called -risk). b) Explain the practical risks associated with making a type II error in this situation (so-called -risk). c) Which type of error do you think the management of La Quinta Motor Inns is trying to avoid? Why? d) How does changing the rejection criterion affect the probabilities of type I and type II errors? e) How are the concepts risk level, significance level and confidence level related to each other?