Business Statistics

WORKSHOP 6 SOLUTIONS
Q6.1
A manufacturing company produces steel housings for electrical equipment. The main
component of the housing is a steel trough made out of a 2mm steel coil. The width of
the troughs is critical because of weatherproofing in outdoor situations. In W6 Datafile.xls the
widths of a given sample are listed.

a) Use Excel to find the sample mean and sample size.

𝑋̅= 204.209 mm (Excel: =AVERAGE(A:A))
n = 32 (Excel: =COUNT(A:A))

b) Use Excel to calculate the sample standard deviation

s = 1.1407 mm (Excel: =STDEV.S(A:A))

c) Calculate a 95% confidence interval for the mean width of the troughs. Define the variable,
state the distribution and interpret your interval in the context of the question.

Let X = width of troughs (mm)

We can invoke CLT as the sample size (n=32) is sufficiently large (n≥30). The CLT states that
if n>30, then the distribution of the sample mean (𝑋̅) is approximately normally distributed
with
𝜎 2
𝑋̅ ~ 𝑁(𝜇, 𝑛 )

The 95% confidence interval for μ:

𝑠 𝑠
𝑋̅ − 𝑡∝⁄2,𝑛−1 < 𝜇 < 𝑋̅ + 𝑡∝⁄2,𝑛−1
√𝑛 √𝑛

n = 32, 𝑋̅ = 204.209 mm, s = 1.1407mm

𝑡0.05⁄ = 2.040
2,32−1
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Therefore,
1.1407 1.1407
204.209 − 2.040 ∗ < 𝜇 < 204.209 + 2.040 ∗
√32 √32

204.209 − 0.4114 < 𝜇 < 204.209 + 0.4114

203.7976 < 𝜇 < 204.6204

Interpretation:

We are 95% confident that the true mean width of the steel troughs lies between 203.80mm
and 204.62mm.

d) Suppose that the population standard deviation is known to be 1.14mm and the confidence
level is the same, i.e. 95%. Without doing any calculation, explain the intuition behind why
the interval width is narrower in comparison to your answer in (c)?

We expect the width to be only slightly narrower here (the estimate is slightly more precise).
This can be explained as follows:

(1) In this part, sigma is known. Therefore, when calculating the confidence interval, we use
the Z critical value instead of the t critical value. We know from lectures that the t
distribution has fatter tails, i.e. more probability in the tails. This means that the interval
is slightly larger in (c) as compared to (d).

(2) The critical values in both answers are different. In this answer, we obtain a critical value
of 1.96 instead of 2.04 as shown in (c), thereby explaining the difference in the width.

(3) However, the fact that the sample size is not very small / reasonably large, so that the t
Business Statistics

distribution is not very different from the standard normal distribution (the critical value
is 1.96 instead of 2.04). Therefore the difference in width is small.

(4) The population standard deviation happens to be very close to the sample standard
deviation, once again explaining why the difference in width is small.
Video solution for Q6.1

Q6.2
Bags of a certain brand of chips claim to have a net weight of 400 grams. A representative of a
consumer advocacy group wishes to see if there is any evidence that the mean net weight is
less than advertised. For this, the representative randomly selects 50 bags of this brand and
determines the net weight of each. He finds the mean of these selected bags to be 395 grams
and the standard deviation to be 6.8 grams.

a) Use these data to calculate a 90% confidence interval for the true mean. State the formula,
show all working and remember to always interpret your interval in the context of this
question.

Let X = net weight of chips in a bag (grams)

Although the sample us obtained from a non-normal distribution, we can invoke CLT as the
sample size (n=50) is sufficiently large (n≥30). The CLT states that if n>30, then the
distribution of the sample mean ( 𝑋̅ ) is
approximately normally distributed with
𝜎 2
𝑋̅ ~ 𝑁(𝜇, 𝑛 )

The 90% confidence interval for μ:

𝑠 𝑠
𝑋̅ − 𝑡∝⁄2,𝑛−1 < 𝜇 < 𝑋̅ + 𝑡∝⁄2,𝑛−1
√𝑛 √𝑛

n = 50, 𝑋̅ = 395grams; s = 6.8grams;

𝑡0.1⁄ ,50−1 = 1.676

2
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Therefore,
6.8 6.8
395 − 1.676 ∗ < 𝜇 < 395 + 1.676 ∗
√50 √50

395 − 1.676 ∗ 0.9617 < 𝜇 < 395 + 1.676 ∗ 0.9617

393.388 < 𝜇 < 396.612

Interpretation:
We are 90% confident that the true mean weight of tortilla chips in a bag lie between
393.39 grams and 396.62 grams.

b) Do we need to assume that the net weights are normally distributed? Explain your answer.

No we don’t. This is because the sample size is sufficiently large. Even if the net weights
are non-normally distributed, since n=50, we can invoke the CLT and assume that the
distribution of the sample mean is approximately normal.

Video solution for Q6.2

Q6.3
Suppose that, in a survey of 600 employers, 126 indicate that they have used a recruitment
service within the past two months to find new staff.

a) Construct and interpret a 95% confidence interval for the population proportion of
employers who have used a recruitment service within the past two months to find new
staff.

Let X = number of employers who have used a recruitment service within the past two
months to find new staff
n = 600, x = 126, 𝛼 = 0.05
𝑥 126
𝑝= = = 0.21
𝑛 600
Checks for normality:
𝑛 × 𝑝 = 600 × 0.21 = 126 and 𝑛 × (1 − 𝑝) = 600 × (1 − 0.21) = 474
Since both value are greater than 5, the assumption of normality is valid.
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The 95% confidence interval for π:

𝑝(1 − 𝑝) 𝑝(1 − 𝑝)
𝑝 − 𝑍∝⁄2 √ < 𝜋 < 𝑝 + 𝑍∝⁄2 √
𝑛 𝑛

𝑍∝⁄2 = 𝑍0.05⁄ = 𝑍0.025 = 1.96

2

0.21(1 − 0.21) 0.21(1 − 0.21)

= 0.21 − 1.96 ∗ √ < 𝜋 < 0.21 + 1.96 ∗ √
600 600

= 0.21 − 0.03 < 𝜋 < 0.21 + 0.03

= 0.18 < 𝜋 < 0.24

Interpretation:
We are 95% confident that the population proportion of employers who have used a
recruitment service within the past two months to find new staff is between 0.18 and
0.24.

b) Discuss the effect on the confidence interval estimate when you increase the level of
confidence, assuming all other factors remain unchanged.

When the level of confidence increases, the confidence interval becomes wider. This
results in a loss of precision, which is the price you have to pay to achieve a higher level of
confidence.

Video solution for Q6.3

Further practice (independent practice for students):

Q6.4

This question is an extension of Q6.3. Construct and interpret a 99% confidence interval for
the population proportion of employers who have used a recruitment service within the
past two months to find new staff. Compare your answer with that of Q6.3 (a). Are the
findings consistent with your discussion in Q6.3 (b)?
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Let X = number of employers who have used a recruitment service within the past two
months to find new staff
n = 600, x = 126, 𝛼 = 0.01
𝑥 126
𝑝= = = 0.21
𝑛 600

Checks for normality:

𝑛 × 𝑝 = 600 × 0.21 = 126 and 𝑛 × (1 − 𝑝) = 600 × (1 − 0.21) = 474
Since both value are greater than 5, the assumption of normality is valid.

The 99% confidence interval for π:

𝑝(1 − 𝑝) 𝑝(1 − 𝑝)
𝑝 − 𝑍∝⁄2 √ < 𝜋 < 𝑝 + 𝑍∝⁄2 √
𝑛 𝑛

𝑍∝⁄2 = 𝑍0.01⁄ = 𝑍0.005 = 2.576

2

0.21(1 − 0.21) 0.21(1 − 0.21)

= 0.21 − 2.576 ∗ √ < 𝜋 < 0.21 + 2.576 ∗ √
600 600

= 0.21 − 0.04 < 𝜋 < 0.21 + 0.04

= 0.17 < 𝜋 < 0.25

Interpretation:
We are 99% confident that the population proportion of employers who have used a
recruitment service within the past two months to find new staff is between 0.17 and
0.25.

Yes, my answer is consistent with the discussion in Q6.3 (b). When the level of confidence
increases from 95% to 99%, the confidence interval becomes wider.