Inferential Statistics

Chapter 9
Estimation and Confidence Intervals

By: Dr. Abdul Sattar Al-Azzawi

Ch 9 : Learning Objectives

LO9-1 Compute and interpret a point estimate of a population mean

LO9-2 Compute and interpret a confidence interval for a population mean
LO9-4 Calculate the required sample size to estimate a population proportion or
population mean.

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Ch 9 : Estimation and Confidence Intervals

In Chapter 8 we assume that information about the population, such as the mean, the
standard deviation, or the shape of the population, is known.

In most business situations, such information is not available. In fact, one purpose of
sampling is to estimate some of these values.
For example, you select a sample from a population and use the mean of the sample to
estimate the mean of the population.

We begin by studying point estimates.

Ch 9 : Point Estimate

A point estimate is a single value (statistic) used to estimate a population value (parameter)

POINT ESTIMATE The statistic, computed from sample information, that estimates a population parameter.

Example
• Suppose the Bureau of Tourism for Barbados wants an estimate of the mean amount spent
by tourists visiting that country. They randomly select 500 tourists as they depart and ask
these tourists about their spending while there. The mean amount spent by the sample of
500 tourists serves as an estimate of the unknown population parameter.

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Ch 9 : Confidence Intervals

A confidence interval is a range of values within which the population parameter is expected
to occur.

CONFIDENCE INTERVAL A range of values constructed from sample data so that the population
parameter is likely to occur within that range at a specified probability. The specified probability is called
the level of confidence.

• The factors that determine the width of a confidence interval for a mean are
• The number of observations in the sample, n
• The variability in the population, usually estimated by the sample standard deviation, s
• The desired level of confidence

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Ch 9 : Confidence Intervals

• A point estimate is a single number - tells only part of the story. While we expect the
point estimate to be close to the population parameter, we would like to measure how
close it really is. A confidence interval serves this purpose.
• A confidence interval provides additional information about variability

Lower Upper
Confidence Confidence
Limit
Point Estimate Limit

Width of
confidence interval
Ch 9 : Level of Confidence, σ Known or σ Unknown

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Ch 9 : Level of Confidence, σ Known

• To determine the confidence limits when the population standard deviation is known, we
use the z distribution.
• The formula is

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

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Ch 9 : Finding a Value of z

The method for finding z for a 95% confidence interval is:

• Divide the confidence interval in half, 0.9500 ÷ 2 = 0.4750

• Find the value 0.4750 in the body of the table
• Identify the row and column and add the values
• The probability of finding a value between 0 and 1.96 is 0.4750
• So the probability of finding a value between +/− 1.96 is 0.9500

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 Ch 9 : Level of Confidence, z - Example

The American Management Association is studying the income of store managers in the retail
industry. A random sample of 49 managers reveals a sample mean of $45,420. The standard
deviation of the population is $2,050.

1. What is the population mean?

2. What is a reasonable range of values for the population mean with 95% level of
confidence?

1. We do not know the population mean, so we can use the sample mean, $45,420 as our best estimate.
σ $2.050
2. തx ± z n = $45,420 ± 1.96 = $45,420 ± $574 (from previous slide)
49

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Ch 9 : Level of Confidence, σ Unknown

To determine the confidence limits when the population standard deviation is unknown, we
use the t distribution.
• The formula is

Example
• The Dean of the Business College wants to estimate the mean number of hours full-time
students work at paying jobs each week. He randomly selects a sample of 29 students and
asks them how many hours they worked last week. He can calculate the sample mean, but
it is unlikely he would know the population standard deviation required.

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Ch 9 : Characteristics of the t Distribution

• The t distribution is a continuous distribution.

• It is mound-shaped and symmetrical.
• It is flatter, or more spread out, than the standard normal distribution.
• There is a family of t distributions, depending on the number of degrees of freedom.
• The t value depends on degrees of freedom (d.f.)

d.f. = n - 1

• Number of observations that are free to vary after

sample mean has been calculated.

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Ch 9 : Degrees of Freedom

The meaning of degrees of freedom: Assume that the mean of four numbers is known to be 5.
The four numbers are 7, 4, 1, and 8.

The deviations of these numbers from the mean must total 0. The deviations of +2, −1, −4, and
+3 do total 0. If the deviations of +2, −1, and −4 are known, then the value of +3 is fixed
(restricted) to satisfy the condition that the sum of the deviations must equal 0.

Thus, 1 degree of freedom is lost in a sampling problem involving the standard deviation of the
sample because one number (the arithmetic mean) is known.

For a 95% level of confidence and 9 degrees of freedom, we select the row with 9 degrees of
freedom. The value of t is 2.262.
Ch 9 : Finding a Value of t

• First assume the population is normal

• Using Appendix B.5 table in the book, move across the columns identified for confidence
intervals
• In the next example, we want to use the 95% level of confidence, so move to that column
• Then find df, the degrees of freedom, n-1

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Ch 9 : t table

• The t is a family of distributions.

• Using Appendix B.5 table in the book, move
across the columns identified for confidence
intervals
Ch 9 : Level of Confidence, t Example

A tire manufacturer wishes to investigate the tread life of its tires. A sample of 10 tires driven
50,000 miles revealed a sample mean of 0.32 inch of tread remaining with a standard deviation
of 0.09 inch. Construct a 95% confidence interval for the population mean.

Answer:

s 0.09
xത ± t = 0.32 ± 2.262 = 0.32 ± 0.064
n 10

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Ch 9 : Determining Sample Size for Means

• There are three factors that determine the sample size when we wish to estimate the
mean
• The margin of error, E
• The desired level of confidence, for example 95%
• The variation in the population
• The formula to determine the sample size for the mean is

• The result is not always a whole number; the usual practice is to round up any fractional
result to the next whole number.

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Ch 9 : Sample Size to Estimate a Population Mean - Example

A student in public administration wants to estimate the mean monthly earnings of city
council members in large cities. She can tolerate a margin of error of $100 in estimating the
mean. She would also prefer to report the interval estimate with a 95% level of confidence.
The student found a report by the Department of Labor that reported a standard deviation
of $1,000. What is the required sample size?

Answer:

𝑧𝜎 2 (1.96)($1,000) 2 2
n= = = 19.6 = 384.16
𝐸 $100

The computed value of 384.16 is rounded up to 385. A sample size of 385 is required to meet the
specifications.

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Questions ?

End of Chapter 9