3/8/2020

Lecture 6: Estimation and

Confidence Intervals

North South University Slide 1 of 33 School of Business

Outline
• Define a point estimate
• Define level of confidence
• Construct a confidence interval for the population mean
when the population standard deviation is known
• Construct a confidence interval for a population mean
when the population standard deviation is unknown
• Construct a confidence interval for a p
population
p
proportion
• Determine the sample size for attribute and variable
sampling

North South University Slide 2 of 33 School of Business

1
 3/8/2020

Point and Interval Estimates

• A p
point estimate is the statistic ((single
g value),
),
computed from sample information, which is used to
estimate the population parameter.
• A confidence interval estimate is a range of values
constructed from sample data so that the population
parameter is likely to occur within that range at a
specified probability.
probability The specified probability is
called the level of confidence.

North South University Slide 3 of 33 School of Business

Factors Affecting Confidence

Interval Estimates
The factors that determine the width of a
confidence interval are:
1.The sample size, n.
2.The variability in the population σ, usually
estimated by s.
3.The desired level of confidence.

North South University Slide 4 of 33 School of Business

2
 3/8/2020

Finding z-value for 95%

Confidence Interval

The area between

Z = -1.96 and z= +1.96
is 0.95

North South University Slide 5 of 33 School of Business

Interval Estimates - Interpretation

For a 95% confidence interval, about 95% of the similarly constructed
intervals will contain the parameter being estimated.

North South University Slide 6 of 33 School of Business

3
 3/8/2020

Point Estimates and Confidence

Intervals for a Mean – σ Known

x  sample mean
z  z - value for a particular confidence level
σ  the population standard deviation
n  the number of observations in the sample

North South University Slide 7 of 33 School of Business

Example 1: Confidence Interval

for a Mean – σ Known
The American Management Association wishes to have
information on the mean income of middle managers in the retail
industry. A random sample of 256 managers reveals a sample
mean of $45,420. The standard deviation of this population is
$2,050. The association would like answers to the following
questions:

1. What is the population mean? What is a reasonable value to

use as an estimate of the population mean?

2. What is a reasonable range of values for the population

mean?

3. What do these results mean?

North South University Slide 8 of 33 School of Business

4
 3/8/2020

Example 1: Confidence Interval

for a Mean – σ Known

1. What is the p
population
p mean? What is a reasonable value to
use as an estimate of the population mean?

In this case, we do not know. We do know the sample mean is

$45,420. Hence, our best estimate of the unknown population
value is the corresponding sample statistic.

The sample mean of $45,420 is a point estimate of the unknown

population
l ti mean.

North South University Slide 9 of 33 School of Business

Example 1: Confidence Interval

for a Mean – σ Known
2. What is a reasonable range of values for the population mean?

Suppose the association decides to use the 95 percent level of

confidence:

Th confidence
The fid li it are $45,169
limits $45 169 and
d $45,671
$45 671

North South University Slide 10 of 33 School of Business

5
 3/8/2020

Example: Confidence Interval for

a Mean – σ Known

3. What do these results mean, i.e. what is the interpretation of

the confidence limits $45,169 and $45,671?

If we select many samples of 256 managers, and for each

sample we compute the mean and then construct a 95 percent
confidence interval, we could expect about 95 percent of these
confidence intervals to contain the population mean. Conversely,
about 5 percent of the intervals would not contain the population
mean annuall income,
i µ.

North South University Slide 11 of 33 School of Business

Population Standard Deviation (σ)

Unknown: The t-distribution
1. It is, like the z distribution, a continuous
distribution.
2. It is, like the z distribution, bell-shaped and
symmetrical.
3. There is not one t distribution, but rather a
family of t distributions. All t distributions
have a mean of 0, but their standard
deviations differ according to the sample
size, n.
4. The t distribution is more spread out and
flatter at the center than the standard
normal distribution. As the sample size
increases, however, the t distribution
approaches the standard normal
distribution.
North South University Slide 12 of 33 School of Business

6
 3/8/2020

Comparing the z and t Distributions

when n is small, 95% Confidence
Level

North South University Slide 13 of 33 School of Business

Confidence Interval Estimates for the

Mean
Use Z-distribution Use t-distribution
If the population If the population
standard deviation is standard deviation is
known or the sample is unknown and the
at least 30. sample is less than 30.

North South University Slide 14 of 33 School of Business

7
 3/8/2020

When to Use the z or t Distribution for

Confidence Interval Computation

North South University Slide 15 of 33 School of Business

t-distribution table

North South University Slide 16 of 33 School of Business

8
 3/8/2020

Example 2: Confidence Interval for

the Mean–using the t-distribution
A tire manufacturer wishes to
investigate the tread life of its
tires. A sample of 10 tires driven Given in the problem :
50,000 miles revealed a sample n  10
mean of 0.32 inch of tread
remaining with a standard x  0.32
deviation of 0.09 inch. Construct a s  0.09
95 percent confidence interval for
the population mean. Would it be
reasonable for the manufacturer Compute
p the C.I. usingg the
to conclude that after 50,000 t - dist. (since  is unknown)
miles the population mean
s
amount of tread remaining is 0.30 X  t / 2,n 1
inch? n

North South University Slide 17 of 33 School of Business

Example 2 (Cont’d)

North South University Slide 18 of 33 School of Business

9
 3/8/2020

Confidence Interval Estimates

for the Mean – Using Minitab
The manager of the Inlet Square Mall, near Ft. Myers,
Florida, wants to estimate the mean amount spent
p per
p
shopping visit by customers. A sample of 20
customers reveals the following amounts spent.

What is the best estimate of the population

mean? Determine a 95% confidence
interval. Interpret the result. Would it be
reasonable to conclude that the population
mean is $50? What about $60?
North South University Slide 19 of 33 School of Business

Confidence Interval Estimates for

the Mean – By Formula
Compute the C.I.
dist (since  is unknown)
using the t - dist.
s
X  t / 2,n 1
n
s
 X  t.05 / 2, 201
n
9.01
 49.35  t.025,19
20
9.01
 49.35  2.093
20
 49.35  4.22
The endpoints of the confidence interval are $45.13 and $53.57
Conclude : It is reasonable that the population mean could be $50.
The value of $60 is not in the confidence interval. Hence, we
conclude that the population mean is unlikely to be $60.

North South University Slide 20 of 33 School of Business

10
 3/8/2020

Confidence Interval Estimates for

the Mean – Using Minitab

North South University Slide 21 of 33 School of Business

Confidence Interval Estimates for

the Mean – Using Excel

North South University Slide 22 of 33 School of Business

11
 3/8/2020

A Confidence Interval for a

Proportion (π)
Proportion  The fraction, ratio, or percent indicating the part of the
sample or the population having a particular trait of interest.

To develop a confidence interval for a proportion, we need to meet the

following assumptions.
1. The binomial conditions, discussed in Lecture 4, have been met. These
conditions are:
a. The sample data is the result of counts.
b. There are only two possible outcomes.
c. The probability of a success remains the same from one trial to the next.
d. The trials are independent.
2. The values nπ and n(1-π) > 5. This condition allows us to invoke the central
limit theorem and employ the standard normal distribution, to compute a
confidence interval.

North South University Slide 23 of 33 School of Business

Confidence Interval for a

Population Proportion

The confidence interval for a population

proportion is estimated by:

p(1  p)
pz
n

p1-p
Standarderror
X
Sample proportion, p  of the sample ,  p 
n proportion n

North South University Slide 24 of 33 School of Business

12
 3/8/2020

Example 3: Confidence Interval for

a Population Proportion
The union representing the Bottle First, compute the sample proportion :
Blowers of America (BBA) is x 1,600
consideringgap proposal
p to merge
g with p   0.80
n 2000
the Teamsters Union. According to
BBA union bylaws, at least three-
fourths of the union membership must Compute the 95% C.I.
approve any merger. A random p (1  p )
C.I.  p  z / 2
sample of 2,000 current BBA n
members reveals 1,600 plan to vote .80(1  .80)
for the merger proposal. What is the  0.80  1.96  .80  .018
2,000
estimate of the population proportion?
 (0.782,0.818)
D
Develop
l a 959 percent confidence
fid
interval for the population proportion.
Basing your decision on this sample Conclude : The merger proposal will likely pass
information, can you conclude that because the interval estimate includes values greater
the necessary proportion of BBA than 75 percent of the union membership.
members favor the merger? Why?

North South University Slide 25 of 33 School of Business

Selecting a Sample Size (n)

There are 3 factors that determine the size of a sample,
none of which has anyy direct relationship
p to the size of the
population. They are:
• The degree of confidence selected.
• The maximum allowable error.
• The variation in the population.

North South University Slide 26 of 33 School of Business

13
 3/8/2020

Sample Size Determination for a

Variable
• To find the sample size for a variable:
 z  
2

n 
 E 

where :
E - the allowable error
z - the z - value corresponding to the selected
level of confidence
 - the population standard deviation ( use s, sample standard deviation
from pilot sample, if  is unknown )

North South University Slide 27 of 33 School of Business

Example 4: Sample Size

Determination for a Variable

 z  
A student in public administration wants to 2
determine the mean amount members of
city councils in large cities earn per month n 
 E 
as remuneration for being a council
member. The error in estimating the mean
is to be less than $100 with a 95 percent
level of confidence. The student found a
report by the Department of Labor that
estimated standard deviation to be $1,000.
2
What is the required sample size?  (1.96)($1,000) 
 
 
Given in the problem:
•E, the maximum allowable error, is $100 $100
•The value of z for a 95 percent level of
confidence is 1.96,
•The estimate of the standard deviation is  (19.6) 2
$1,000.
 384.16
 385
North South University Slide 28 of 33 School of Business

14
 3/8/2020

Example 5: Sample Size

Determination for a Variable
 z  
A student in public administration wants to 2
determine the mean amount members of
city councils in large cities earn per month n 
as remuneration for being a council
member. The error in estimating the mean  E 
is to be less than $100 with a 99 percent
level of confidence. The student found a
report by the Department of Labor that
estimated standard deviation to be $1,000. 2
 (2.58)($1,000) 
What is the required sample size?
 
Given in the problem:
•E, the maximum allowable error, is $100
 $100 
•The value of z for a 99 percent level of
confidence is 2.58,
•The estimate of the standard deviation is
 (25.8)2
 665.64
$1,000.

 666

North South University Slide 29 of 33 School of Business

Sample Size for Proportions

• The formula for determining the sample
size in the case of a proportion is:
2
Z
n  p (1  p ) 
E

where :
p is estimate from a pilot study or some source,
source
otherwise, 0.50 is used
z - the z - value for the desired confidence level
E - the maximum allowable error

North South University Slide 30 of 33 School of Business

15
 3/8/2020

Example 6

The American Kennel Club wanted to estimate the

proportion of children that have a dog as a pet. If the club
wanted the estimate to be within 3% of the population
proportion, how many children would they need to
contact? Assume a 95% level of confidence and that the
club estimated that 30% of the children have a dog as a
pet.

2
 1.96 
n  (.30)(.70)   897
 .03 

North South University Slide 31 of 33 School of Business

Example 7

A study needs to estimate the

proportion of cities that have
private refuse collectors. The
investigator wants the margin of 2
 1.65 
error to be within .10 of the n  (.5)(1 .5)   68.0625
population proportion, the desired  .10 
level of confidence is 90 percent,
and no estimate is available for n  69 cities
the population proportion.

What is the required sample size?

North South University Slide 32 of 33 School of Business

16
 3/8/2020

Practice Problems

• Problems 1, 3, 5 (Page 305)

• Problem 11 (Page 312)
• Problem 15 (Page 316)
• Problems 23, 25 (Page 320)

North South University Slide 33 of 33 School of Business

17