Points and Interval Estimates

Example: AS Part of the budgeting process for next year, the

manager of the Far Point electric generating plant must
estimate the coal he will need for this year. Last year the plant
almost ran out, so he is reluctant to budget for the same
amount again. The plant manager however does feel that the
past usage data will help him estimate that the number of coal
to order. A random sample of 10 plant operating weeks chosen
over the last 5 years yielded a mean usage of 11,400 tons a
week, a sample sd of 700 tons a week. The plant manager can
make a sensible estimate of the amount to order this year
including some idea of the accuracy of the estimate he has
made. Developed by Prof. U.K. 1
Bhattacharya, IIM Indore
 Points and Interval Estimates

1. Inferences from a Sample

2. Estimation and Confidence Interval
3. Statistical Significance
4. t-statistics
5. Sample Size
6. Finite Population Multiplier

Developed by Prof. U.K. 2

Bhattacharya, IIM Indore
Point Estimate:

A point estimate of the parameter  is a single number that can be regarded as a

sensible value for  . A point estimate is obtained by selecting a suitable statistic and
computing its value from the given sample data. The selected statistic is called the
point estimator of .

Properties of a Good Estimator

 Unbiasedness
 Minimum variance

Developed by Prof. U.K. 3

Bhattacharya, IIM Indore
 Unbiasedness

An estimator is said to be unbiased if the

expected value of the estimator is equal to
the population parameter being estimated. If
 is the parameter being estimated and ˆ is

an unbiased estimator of , then
. E (ˆ)  

. Developed by Prof. U.K. 4

Bhattacharya, IIM Indore
Example: For example sample mean is an unbiased estimator of the
population mean.


.Let x , x ,..., x be a random sample from a distribution with mean 

1 2 n

and variance  . Then the estimator ˆ  S  

2 (X  X ) 2
2 2

n 1

is an unbiased estimator of  2

Estimators with Minimum Variance

Suppose ˆ and ˆ are two estimators of  that are both unbiased. Then,
1 2

although the distribution of each estimator is centered at the true

value of  , the spreads of the distributions about the true value
may be different.

Developed by Prof. U.K. 5

Bhattacharya, IIM Indore
 Principle of Minimum Variance Unbiased Estimation: Among all
estimators of  that are unbiased choose the one that has minimum variance. The
resulting ˆ is called the minimum variance unbiased estimator of  .

 The MVUE is, in a certain sense, the most likely among all unbiased
estimators to produce an estimate close to the true  .

Theorem: Let be a sample from a normal distribution with parameters

x1 , x2 ,..., xn

 and  . Then the estimation ̂  x is the MVUE for .

Or for a symmetrical distribution, both the sample mean and sample median are
unbiased estimators of the population mean. But if we consider the criteria of
minimum variance then it can be shown that sample mean is the better estimator of
the population mean.

Developed by Prof. U.K. 6

Bhattacharya, IIM Indore
Interval Estimation

Calculating interval estimate of the mean from large samples

When  known .

Developed by Prof. U.K. 7

Bhattacharya, IIM Indore
 x

n

 z
2

 z  Z  z )  1  
2 2

x
z   z )  1  
2
 2

 
x z    x  z
n 2 n 2

Developed by Prof. U.K. 8

Bhattacharya, IIM Indore
  
2 2

1

 X

Z
Z
2 0 Z 
2

 Above formula is used for

when the sample sizes are large, population distribution may be of any shape.
When the population distribution is normal then the sample sizes may be smaller.
Developed by Prof. U.K. 9
Bhattacharya, IIM Indore
Z Values for Some of the More Common Levels of Confidence
Confidence
Z Value
Level

90% 1.645

95% 1.96

98% 2.33

99% 2.575

If we want to construct a 95% confidence interval, the level of

confidence is 95% or .95.

Developed by Prof. U.K. 10

Bhattacharya, IIM Indore
When the Population SD is unknown and n is large.
Use the estimate 2of the population standard deviation
(X  X )
ˆ  s 
n 1
So replace  by s.
Confidence interval to estimate when the population standard deviation is
unknown and n is large.

s s
x  z    x  z
2 n 2 n

Developed by Prof. U.K. 11

Bhattacharya, IIM Indore
 Finite population multiplier
When we have the finite population and sample is more than 5% of
the population, then finite population multiplier is to be multiplied to
the standard error.
ˆ N n
ˆ x  
n N 1

Confidence interval to estimate  using the finite correction factor

 N n  N n
x  z    x  z
2 n N 1 2 n N 1

Developed by Prof. U.K. 12

Bhattacharya, IIM Indore
Applications

Exercise Q1
A community health association is interested in estimating the average number of
maternity days woman stay in the local hospital. A random sample is taken of 36
woman who had babies in the hospital during the past one year. The following
number of maternity days each woman was in the hospital are rounded to the
nearest day.
3 3 4 3 2 5 3 1 4 3
4 2 3 5 3 2 4 3 2 4
1 6 3 4 3 3 5 2 3 2
3 5 4 3 5 4
Use these data to construct the 98% confidence interval to estimate the average
maternity stay in the hospital for all women who have babies in this hospital.

Developed by Prof. U.K. 13

Bhattacharya, IIM Indore
Estimating the Mean of a Normal Population: Small n and
Unknown 

•The population has a normal distribution.

•The value of the population standard deviation is unknown.
•The sample size is small, n < 30.
•Z distribution is not appropriate for these conditions
•t distribution is appropriate

Developed by Prof. U.K. 14

Bhattacharya, IIM Indore
Properties of the t Distributions:
A t distribution is governed by only one parameter the df. The possible values of
 are the positive integers 1,2,… each different value of  corresponds to a
different t distribution.

Let t denote the density function of the curve for df.

1. Each t curve is bell shaped and centered at zero.
2. Each t curve is more spreadout than the standard normal (z) curve.
3. As  increases, the spread of the corresponding t curve decreases.
4. As   , the sequence of the t curve approaches the standard normal
curve ( so the z curve is often called the t curve with df=  )

There is a separate t distribution for every sample size or in statistical language “

There is a t distribution for every degrees of freedom” Degrees of freedom is
defined as the number of values we can
Developed choose
by Prof. U.K. freely. 15
Bhattacharya, IIM Indore
Table of Critical Values of t

df t0.100 t0.050 t0.025 t0.010 t0.005

1 3.078 6.314 12.706 31.821 63.656
2 1.886 2.920 4.303 6.965 9.925
3 1.638 2.353 3.182 4.541 5.841
4 1.533 2.132 2.776 3.747 4.604
5 1.476 2.015 2.571 3.365 4.032

23 1.319 1.714 2.069 2.500 2.807

24 1.318 1.711 2.064 2.492 2.797
25 1.316 1.708 2.060 2.485 2.787

29 1.311 1.699 2.045 2.462 2.756
30 1.310 1.697 2.042 2.457 2.750

40 1.303 1.684 2.021 2.423 2.704

60 1.296 1.671 2.000 2.390 2.660
120 1.289 1.658 1.980 2.358 2.617  t
 1.282 1.645 1.960 2.327 2.576

Developed by Prof. U.K. 16

Bhattacharya, IIM Indore
Example-Q2: A Generating plant manager wanted to estimate the
coal needed for this year and took a sample by measuring coal
usuage for 10 weeks. The sample data are
x  11,400tons
n=10 weeks, s  700tons
The plant manager wants an interval estimate of the mean coal
consumption at 95% level.

Developed by Prof. U.K. 17

Bhattacharya, IIM Indore
Exercise Q3
The marketing director of a large department store wants to estimate
the average number of customers who enters the store every 5
minutes. She randomly selects 5- minute intervals and count the
number of arrivals in the store. She obtains the figure 58, 32, 41, 47,
56, 80,45, 29, 32 and 78. The analyst assumes the number of arrivals
is normally distributed. Using these data, the analyst computes a
95% confidence interval to estimate the mean value for all 5 minutes
intervals. What interval values does she get?

Developed by Prof. U.K. 18

Bhattacharya, IIM Indore
Confidence Interval to Estimate the Population Proportion

pq
 pq

p  Z   P  p  Z 
2 n 2 n
where:
p = sample proportion
q = 1 - p
P = population proportion
n = sample size

Developed by Prof. U.K. 19

Bhattacharya, IIM Indore
Exercise Q4.
The highway department wants to estimate the proportion of
vehicle on Interstate 25 between the hours of midnight and 5 am
that are 18 wheel tractor trailers. The estimate will be used to
determine highway repair and construction consideration and in
highway petrol planning. Suppose the researcher for the highway
department counted vehicles at different locations on the
interstate for several nights during this time period. Of the 3,481
vehicles counted, 927 were 18 wheelers .
a. Determine the point estimate for the proportions of vehicles
traveling interstate 25 during this time period that are 18
wheelers.
b. Construct a 99 percent confidence interval for the proportions of
vehicles on interstate 25during this time period that are 18
wheelers.
Developed by Prof. U.K. 20
Bhattacharya, IIM Indore
 Determining Sample Size when Estimating 
•Z formula Z  X  

n

•Error of Estimation (tolerable error) E  X  

•Estimated Sample Size
Z
2
 Z  
2 2

n 2
2  2

E  E 
•Estimated  1
  range
4

Developed by Prof. U.K. 21

Bhattacharya, IIM Indore
Applications:
Exercise: Q5
A bank officer wants to determine the amount of average total
monthly deposits per customer at the bank. He believes an estimate
of this average amount using a confidence interval is sufficient. How
large a sample should he take to be within $200 of the actual average
with 99% confidence? He assumes the standard deviation of total
monthly deposits for all customers is about $1000.

Developed by Prof. U.K. 22

Bhattacharya, IIM Indore
Example Q6. What proportion of secretaries of Fortune 500
companies has a personal computer at his or her workstation? You
want to answer this question by conducting a random survey. How
large a sample should you take if you want to be 95% confident of
the results and you want the error of the confidence interval to be no
more than .05? Assume no one has any idea of what the proportion
actually is.

Developed by Prof. U.K. 23

Bhattacharya, IIM Indore
Determining Sample Size when Estimating P
p  P
•Z formula Z
P Q
n
•Error of Estimation (tolerable error)
E  p  P
•Estimated Sample Size
Z
2
PQ
n
E
2

Developed by Prof. U.K. 24

Bhattacharya, IIM Indore