CH 6-Interval Estimate

Statistics for Business and Economics (13e)
Statistics for
Slides by
Johnand Economics (13e)

Business
Loucks
Anderson, Sweeney, Williams, Camm, Cochran
St. Edward’s
© 2017 Cengage Learning
University
Slides by John Loucks

St. Edwards University
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
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1
Chapter 8
Interval Estimation
• Population Mean: σ Known
• Population Mean: σ Unknown
• Determining the Sample Size
• Population Proportion
2
Confidence Interval
• What about if we can say that the sample mean is 450?
3
Confidence Interval
What about if we can say that we are 99% confident that population mean will lie
between 451 and 551?
4
Confidence Interval
What about if we can say that we are 90% confident that population mean will lie
between 400 and 600?
5
Margin of error and the Interval Estimate

• A point estimator cannot be expected to provide the exact value of the
population parameter.
6
Confidence Interval
• A confidence interval is a range of numbers believed to include an unknown

population parameter.
• Associated with the interval is a measure of the confidence we have that the
interval does indeed contain the parameter of interest
• The sampling distribution of the statistic gives a probability associated with a

range of values the statistic may take. After the sampling has taken place and a
particular estimate has been obtained, this probability is transformed to a level
of confidence for a range of values that may contain the unknown population
parameter
7
Margin of error and the Interval Estimate
• An interval estimate can be computed by adding and subtracting a margin of

error to the point estimate.

• The purpose of an interval estimate is to provide information about how
close the point estimate, is to the value of the parameter.
8
Margin of Error and the Interval Estimate

• The general form of an interval estimate of a population mean is
9
Interval Estimate of a Population Mean: σ Known

• In order to develop an interval estimate of a population mean, the margin of
error must be computed using either:
• the population standard deviation σ , or
• the sample standard deviation s
• σ is rarely known exactly. But often a good estimate can be obtained based on
historical data or other information.
• We refer to such cases as the σ known case.
10
• Before the sampling: Using Central Limit Theorem,
•. Large Sample(n>=30)/ Normal Population:

• RV Sample mean will have a normal distribution mean with µ and standard
deviation
11
• Before the sampling:
What
• . is “a” such that given mean µ and standard deviation , will lie in the interval
, with .95 probability?
12
Post Sampling
• A particular is obtained.
• It may lie in the interval or not.
• Since we do not know the population
Mean, we can not check also.
• Since the random sampling has already
taken place and a particular has been
computed, we no longer have a random
variable and may no longer talk
about probabilities.
14
Post Sampling
• We know Before the sampling:
• Probability that with mean µ and

standard deviation will lie in the interval
, is .95.
• About 95% of the values obtained in
a large number of repeated
samplings will fall within the interval.
15
Post Sampling
• We may say,
• We are 95% confident that will lie

Within the interval
, .
16
Post Sampling: Once an is obtained for a sample,
σ σ
µ − 1.96 < 𝑥< µ+1.96
√n √n
if and only if ?
17
Interval estimate
• In a large number of repeated trials, this would happen about 95% of the time.
• We therefore call the interval (), a 95% confidence interval for the unknown
population mean .
18
Interval Estimate
Before Sampling After Sampling
Probability that We are 95% confident that the interval
, will capture is .95 ,
c
We cannot say that there is .95 probability

that interval contains as sampling is
already done and is no more a RV.
19
Meaning of Confidence
• We say that this interval has been established at the 95% confidence level.
• The value .95 is referred to as the confidence coefficient.

• Margin of error for the point estimate sample mean is
20

• Example: Discount Sounds
Discount Sounds has 260 retail outlets throughout the United States. The
firm is evaluating a potential location for a new outlet, based in part, on the
mean annual income of the individuals in the marketing area of the new
location.
A sample of size n = 36 was taken; the sample mean income is $41,100.
The population is not believed to be highly skewed. The population standard
deviation is estimated to be $4,500, and the confidence coefficient to be used
in the interval estimate is .95. What is the relevant confidence interval where
the population mean may lie?
21


Thus at 95% confidence, the margin of error is $1,470.
22

Interval estimate of μ is:
$41,100 + $1,470
or
$39,630 to $42,570
We are 95% confident that the interval contains the population mean.
23
• Comcast, the computer services company, is planning to invest heavily in online

television. As part of the decision, the company wants to estimate the average
number of online shows a family of four would watch per day. A random
sample of n =100 families is obtained, and in this sample the average number
of shows viewed per day is 6.5 and the population standard deviation is known
to be 3.2. Comcast can be 95% confident that the average family of four within
its population of subscribers will watch an average daily number of online
television shows between about _ and_?
24

α/2 α/2

μ

25

α/2 α/2

μ

interval interval
does not includes μ
include μ
26

• Interval Estimate of μ
27

• Values of zα/2 for the Most Commonly Used Confidence Levels
Confidence Table
Level α α/2 Look-up Area zα/2
90% .10 .05 .9500 1.645
95% .05 .025 .9750 1.960
99% .01 .005 .9950 2.576
28
Meaning of Confidence

• We say that this interval has been established at the 90% confidence level.
• The value .90 is referred to as the confidence coefficient.
29

Confidence Margin
level of error Interval estimate
90% 1,234 39,866 to 42,334
95% 1,470 39,630 to 42,570
99% 1,932 39,168 to 43,032
In order to have a higher degree of confidence, the margin of error

and thus the width of the confidence interval must be larger.
30

• Adequate Sample Size

• If the population distribution is highly skewed or contains outliers, a

sample size of 50 or more is recommended.
31

• Adequate Sample Size (continued)
• If the population is not normally distributed but is roughly symmetric, a
sample size as small as 15 will suffice.
• If the population is believed to be at least approximately normal, a
sample size of less than 15 can be used.
32
Interval Estimate of a Population Mean: σ Unknown

• If an estimate of the population standard deviation σ cannot be developed
prior to sampling, we use the sample standard deviation s to estimate σ .
• This is the σ unknown case.
• In this case, the interval estimate for μ is based on the t distribution.
• (We’ll assume for now that the population is normally distributed.)
33
t Distribution
• William Gosset, writing under the name “Student”, is the founder of the t
distribution.
• Gosset was an Oxford graduate in mathematics and worked for the
Guinness Brewery in Dublin.
• He developed the t distribution while working on small-scale materials
and temperature experiments./
34
t Distribution
• The t distribution is a family of similar probability distributions.
• A specific t distribution depends on a parameter known as the degrees of
freedom.
• Degrees of freedom refer to the number of independent pieces of
information that go into the computation of s.
35
t Distribution
• A t distribution with more degrees of freedom has less dispersion.
• As the degrees of freedom increases, the difference between the t
distribution and the standard normal probability distribution becomes
smaller and smaller.
36
t Distribution
Standard t distribution
normal (20 degrees
distribution of freedom)
t distribution
(10 degrees
of freedom)
z, t
0
37
t Distribution
• For more than 100 degrees of freedom, the standard normal z value
provides a good approximation to the t value.

38
t Distribution
Degrees Area in Upper Tail
of Freedom .20 .10 .05 .025 .01 .005
. . . . . . .
50 .84 1.29 1.67 2.00 2.40 2.67
60 9
.84 9
1.29 6
1.67 9
2.00 3
2.39 8
2.66
80 8
.84 6
1.29 1
1.66 0
1.99 0
2.37 0
2.63
100 6
.84 2
1.29 4
1.66 0
1.98 4
2.36 9
2.62
5
.84 0
1.28 0
1.64 4
1.96 4
2.32 6
2.57
2 2 5 0 6 6
(bottom row is standard normal z values)
39

• Interval Estimate

40

• Example: Apartment Rents
A reporter for a student newspaper is writing an article on the cost of off-
campus housing. A sample of 16 one-bedroom apartments within a half-mile
of campus resulted in a sample mean of $750 per month and a sample
standard deviation of $55.
Let us provide a 95% confidence interval estimate of the mean rent per
month for the population of one-bedroom apartments within a half-mile of
campus. We will assume this population to be normally distributed.
41

• At 95% confidence, α = .05, and α/2 = .025.
• t.025 is based on n - 1 = 16 - 1 = 15 degrees of freedom.
Degrees Area in Upper Tail

of Freedom .20 .10 .05 .025 .01 .005
15 .86 1.34 1.75 2.13 2.60 2.94

16 6
.86 1
1.33 3
1.74 1
2.12 2
2.58 7
2.92
17 5
.86 7
1.33 6
1.74 0
2.11 3
2.56 1
2.89
18 3
.86 3
1.33 0
1.73 0
2.10 7
2.52 8
2.87
19 2
.86 0
1.32 4
1.72 1
2.09 0
2.53 8
2.86
. 1 . 8 . 9 . 3 . 9 . 1 .
42


We are 95% confident that the mean rent per month

for the population of one-bedroom apartments within
a half-mile of campus is between $720.70 and $779.30.
43

• Adequate Sample Size

• If the population distribution is highly skewed or contains outliers,

a sample size of 50 or more is recommended.
44

• Adequate Sample Size (continued)
• If the population is not normally distributed but is roughly symmetric, a
sample size as small as 15 will suffice.
• If the population is believed to be at least approximately normal, a
sample size of less than 15 can be used.
45
Summary of Interval Estimation Procedures

for a Population Mean Can the
Yes population standard No
deviation σ be
assumed
known ?
Use the sample
standard deviation
s to estimate σ
Use Use
σ Known σ Unknown

Case Case
46
Sample Size for an Interval Estimate of a Population Mean

• Let E = the desired margin of error.
• E is the amount added to and subtracted from the point estimate to obtain
an interval estimate.
• If a desired margin of error is selected prior to sampling, the sample size
necessary to satisfy the margin of error can be determined.
47

• Margin of error

• Necessary Sample Size

48

• The Necessary Sample Size equation requires a value for the population
standard deviation σ .
• If σ is unknown, a preliminary or planning value for σ can be used in the
equation.
1. Use the estimate of the population standard deviation computed in a
previous study.
2. Use a pilot study to select a preliminary sample and use the sample
standard deviation from the study.
3. Use judgment or a “best guess” for the value of σ.
49

Recall that Discount Sounds is evaluating a potential location for a new
retail outlet, based in part, on the mean annual income of the individuals in
the marketing area of the new location.
Suppose that Discount Sounds’ management team wants an estimate of
the population mean such that there is a .95 probability that the sampling
error is $500 or less.
How large a sample size is needed to meet the required precision?
50

At 95% confidence, z.025 = 1.96. Recall that σ = 4,500.

A sample of size 312 is needed to reach a desired

precision of + $500 at 95% confidence.
51
Interval Estimate of a Population Proportion

• The general form of an interval estimate of a population proportion is:
52

53

α /2 α /2

p

54


55

• Example: Political Science, Inc.
Political Science Inc. (PSI) specializes in voter polls and surveys designed
to keep political office seekers informed of their position in a race.
Using telephone surveys, PSI interviewers ask registered voters who they
would vote for if the election were held that day.
56

• Example: Political Science Inc.
In a current election campaign, PSI has just found that 220
registered voters, out of 500 contacted, favor a particular candidate.
PSI wants to develop a 95% confidence interval estimate for the
proportion of the population of registered voters that favor the
candidate.
57

PSI is 95% confident that the proportion of all voters

that favor the candidate is between .3965 and .4835.
58
End of Chapter 8
59

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Statistics for Business and Economics (13e)

Johnand Economics (13e)

Slides by John Loucks

• What about if we can say that the sample mean is 450?

Margin of error and the Interval Estimate

• A confidence interval is a range of numbers believed to include an unknown

• The sampling distribution of the statistic gives a probability associated with a

Margin of error and the Interval Estimate

• An interval estimate can be computed by adding and subtracting a margin of

Margin of Error and the Interval Estimate

Interval Estimate of a Population Mean: σ Known

Interval Estimate of a Population Mean: σ Known

• Before the sampling: Using Central Limit Theorem,

•. Large Sample(n>=30)/ Normal Population:

Interval Estimate of a Population Mean: σ Known

• Before the sampling:

• Probability that with mean µ and

• We are 95% confident that will lie

Post Sampling: Once an is obtained for a sample,

We cannot say that there is .95 probability

• The value .95 is referred to as the confidence coefficient.

Interval Estimate of a Population Mean: σ Known

Interval Estimate of a Population Mean: σ Known

Thus at 95% confidence, the margin of error is $1,470.

Interval Estimate of a Population Mean: σ Known

• Comcast, the computer services company, is planning to invest heavily in online

Interval Estimate of a Population Mean: σ Known

Interval Estimate of a Population Mean: σ Known

Interval Estimate of a Population Mean: σ Known

Interval Estimate of a Population Mean: σ Known

Interval Estimate of a Population Mean: σ Known

In order to have a higher degree of confidence, the margin of error

Interval Estimate of a Population Mean: σ Known

• If the population distribution is highly skewed or contains outliers, a

Interval Estimate of a Population Mean: σ Known

Interval Estimate of a Population Mean: σ Unknown

Interval Estimate of a Population Mean: σ Unknown

Interval Estimate of a Population Mean: σ Unknown

Interval Estimate of a Population Mean: σ Unknown

Degrees Area in Upper Tail

15 .86 1.34 1.75 2.13 2.60 2.94

Interval Estimate of a Population Mean: σ Unknown

We are 95% confident that the mean rent per month

Interval Estimate of a Population Mean: σ Unknown

• If the population distribution is highly skewed or contains outliers,

Interval Estimate of a Population Mean: σ Unknown

Summary of Interval Estimation Procedures

Sample Size for an Interval Estimate of a Population Mean

Sample Size for an Interval Estimate of a Population Mean

• Necessary Sample Size

Sample Size for an Interval Estimate of a Population Mean

Sample Size for an Interval Estimate of a Population Mean

Sample Size for an Interval Estimate of a Population Mean

At 95% confidence, z.025 = 1.96. Recall that σ = 4,500.

A sample of size 312 is needed to reach a desired

Interval Estimate of a Population Proportion

Interval Estimate of a Population Proportion

Interval Estimate of a Population Proportion