MATHEMATICS FOR BUSINESS

DECISION

SNEHAMOL SABU
MIANZ INTERNATIONAL COLLEGE
 ESTIMATION
AND
CONFIDENCE INTERVALS
LEVEL OF CONFIDENCE, 𝛔 𝐊𝐍𝐎𝐖𝐍

PROBLEMS
Problem:1 A sample of 49 observations is taken from a normal population with a standard deviation of 10. The
sample mean is 55. Determine the 99 percent confidence interval for the population mean.

Solution:
Given, n =49
𝜎 = 10
𝑋ത =55
We want to find the 99 percent confidence interval for the population mean.
Then z =2.85
𝜎
We have Confidence Interval for population mean with 𝛔 known, 𝑋ത ±𝑧 𝑛

10
Then , 55 ± 2.58 49

10
55 ± 2.58×
7

55 ±2.58 × 1.43
55 ±3.67
Then the confidence interval starts from 51.33 to 58.67
Problem:2 A sample of 250 observations is selected from a normal population for which the population standard
deviation is known to be 25. The sample mean is 20.

a. Determine the standard error of the mean.

b. Explain why we can use formula (9–1) to determine the 95 percent confidence interval.
c. Determine the 95 percent confidence interval for the population mean.

Solution:
Given, n=250
𝜎 = 25
𝑋ത =20

𝜎
(a) Standard error of the mean, 𝜎𝑋ത = 𝑛

25 25
= = = 1.58
250 15.81
(b) The given population is normally distributed and the
population standard deviation(𝜎) is known.

© We want to find the 95 percent confidence interval for the population mean.
Then z =1.96
𝜎
We have Confidence Interval for population mean with 𝛔 known, 𝑋ത ±𝑧
𝑛

25
20 ± 1.96
250

25
20± 1.96×
15.81

20 ±1.96 × 1.58
20 ±3.099
Then the confidence interval starts from 16.901 to 23.099 [20-3.099 to 20+3.099]
Problem:3 A research firm conducted a survey to determine the mean amount steady smokers spend on cigarettes
during a week. They found the distribution of amounts spent per week followed the normal distribution
with a population standard deviation of $5. A sample of 49 steady smokers revealed that 𝑋ത =20

a. What is the point estimate of the population mean? Explain what it indicates.
b. Using the 95 percent level of confidence, determine the confidence interval for . Explain what it indicates.

Solution:
Given, n =49
𝜎=5
𝑋ത =20
The point estimate of the population mean, denoted by 𝑋ത , is simply the sample mean. In this case, the
sample mean, 𝑋ത = 20
This indicates that, on average, the steady smokers in the sample spend $20 on cigarettes per week.
However, it’s important to remember that this is just an estimate based on the sample data, and it might
not perfectly represent the true population mean.
(b) We have to the 95 percent level of confidence interval for the population mean.
Then z=1.96
5
We have, 20 ± 1.96 49

5
20± 1.96× 7

20 ±1.96 × 0.714
20 ±1.4
Then the confidence interval starts from 18.6 to 21.4

This interval indicates that we are 95% confident that the true population mean amount spent on
cigarettes per week for all steady smokers lies between $18.601 and $21.399.
In simpler terms, if we were to conduct this survey multiple times and construct confidence intervals
each time, we would expect approximately 95% of those intervals to contain the true population
mean.
1.

2.

3.

4.
LEVEL OF CONFIDENCE, 𝛔 𝐔𝐍𝐊𝐍𝐎𝐖𝐍
PROBLEMS
Problem:1 Use Appendix B.2 to locate the value of t under the following conditions.
a. The sample size is 12 and the level of confidence is 95 percent.
b. The sample size is 20 and the level of confidence is 90 percent.
c. The sample size is 8 and the level of confidence is 99 percent.

Solution:
(a)n=12
Then df = n-1 =12-1 =11
Therefore the value of t =2.201
(b) t value = 1.729
© t value = 3.499
Problem:2
The owner of Britten’s Egg Farm wants to estimate the mean number of eggs laid per
chicken. A sample of 20 chickens shows they laid an average of 20 eggs per month with
a standard deviation of 2 eggs per month.

a. What is the value of the population mean? What is the best estimate of this value?
b. Explain why we need to use the t distribution. What assumption do you need to
make?
c. For a 95 percent confidence interval, what is the value of t?
d. Develop the 95 percent confidence interval for the population mean.
e. Would it be reasonable to conclude that the population mean is 21 eggs? What about 25
eggs?
Solution:
Given, n =20
𝑋ത =20 and
sample standard deviation (s) = 2
(a)The value of the population mean (𝜇) is unknown in this problem. The best estimate of this
value is the sample mean (𝑋ത ), which is 20 eggs per month.
(b)We need to use the t distribution because the population standard deviation (𝜎) is
unknown, and we are using the sample standard deviation (𝑠) to estimate it. The
assumption we need to make is that the sample is drawn from a normally distributed
population.
(c) Now the t value:
Here n = 20. Then df= n-1=20-1 =19
Then for a 95 percent level of confidence and 19 degrees of freedom (df),
the corresponding t-value =2.093
(d) Then the confidence interval is,
𝑠
𝑋ത ±𝑡 𝑛

2
20 ± 2.093 20

2
20± 2.093×
4.472

20 ±2.093 × 0.447
20 ±0.936
Then the confidence interval starts from 19.064 to 20.936.
So, the 95 percent confidence interval is approximately 19.064 to 20.936 eggs per month.
(d) It would not be reasonable to conclude that the population mean is exactly 21 eggs or 25 eggs based
solely on this confidence interval. Since both 21 and 25 fall outside the calculated confidence interval, we
cannot claim with 95 percent confidence that the true population mean lies within these values.
However, it's important to note that these conclusions are based on the specific sample and confidence
interval obtained, and further investigation or sampling might yield different results.
1.