BUS 232

Data and Decisions |

(Business Statistics)
Instructor: Negar Ganjouhaghighi
 Week 9 – Chapter 8
Statistical Inference: Confidence
Intervals from one sample data
 Introduction

Techniques to estimate a population

• Mean
• Proportion
• Or variance
From a sample.
 A point estimate

Suppose that a large mobile phone company hires a business research company to
estimate the average number of text messages used per month by Canadians in the 35-
to-54-year age bracket.

85 randomly sampled Canadians in the 35-to-54-years-of-age category

a mean of 1,300 texts/month  a statistic
used to estimate the population mean a parameter.

If the mobile phone company uses the sample mean of 1,300 texts as an estimate for the
population mean, the same sample mean is used as a point estimate.
 A point estimate vs interval estimate

A point estimate: a statistic taken

from a sample that is used to
estimate a population parameter.

Interval estimate (Confidence

Interval): a range of values within
which the analyst can declare, with
some confidence, the population
parameter lies.
 Confidence Interval

Central Limit Theorem: if sample size is large, regardless of the shape of the
population distribution: (if is known)

Rearranging this:
Confidence Interval
Confidence Interval
 Confidence Interval

Back to mobile phone company example:

• Sample mean:1300 texts/month
• Sample size: 85.
• Calculate a confidence interval within which the analyst is relatively
confident that the actual population mean is located. (assume that the
population SD is known to be 160)
Confidence Interval
Confidence Interval
 Confidence Interval

Example: A survey was taken of companies that do business with firms in

India. One of the questions on the survey was “Approximately how many
years has your company been trading with firms in India?” A random sample
of 44 responses to this question yielded a mean of 10.455 years. Suppose the
population standard deviation for this question is 7.7 years. Using this
information, construct a 90% confidence interval for the mean number of years
that a company has been trading in India for the population of companies
trading with firms in India.
 Finite correction factor

Review: if the sample size is more than 5% of the population:

 Finite correction factor

Example: A study is conducted in a company that employs 800 engineers. A

random sample of 50 engineers reveals that the average sample age is 34.3 years.
Historically, the population standard deviation of the age of the company’s
engineers is approximately 8 years. Construct a 98% confidence interval to
estimate the average age of all the engineers in this company.
• A finite population (N=800, n=50)
• , z for 98% confidence interval is 2.33.

Without the correction factor:

Small Sample size

If the sample size is small (<30)

and the population is normally
distributed and SD is known, the
z formula can still be used to
calculate the confidence interval.
Let’s solve problem 8.1
Let’s solve problem 8.4
Let’s solve problem 8.9
 What if we don’t know the SD?

• In most cases, if we don’t know the mean of the population and want to
estimate it, we don’t know the standard deviation of the population either.
• So, the sample standard deviation should be used instead.
• The z formulas are inappropriate when SD of the population is unknown
• T test: developed by a British statistician, William S. Gosset.
• Sample size is too small; n < 30
• No standard deviation
• Flatter and wider confidence level for same value
• Shape of T-distribution is based on degrees of freedom
 The t distribution

• Used when Population SD is unknown and the population is normally

distributed:
• Symmetrical and unimodal
• Flatter in the middle
• More areas in the tails
• Approaches the standard normal distribution curve as n becomes larger
• Used when the population SD is unknown regardless of the sample size
• Degrees of freedom: n-1.
 Reading the table

• Uses the area in the tail

of the distribution:
• Example: if 90% CI is
computed:
• Total area in 2 tails:
0.1
• Area in one tail: 0.05
• If the DOF=7
• Then t value: 1.895
 CI using the t statistic

• The t formula:
 Let’s solve problem 8.13

• Point estimate = 45.62

• 95% confidence interval
• n = 13 < 30: use t-test/t-distribution
• S = 5.694
• Degrees of freedom = 12
• t0.025
• T-value = 2.179
Let’s solve problem 8.16

• Sample mean = 2.364

• Sample variance = 0.81
• Confidence interval = 90%
• Sample size; n = 15 < 30
• Degrees of freedom = 14
• t0.05
• T-value = 1.761
 Estimating the population proportion

• If p.n and q.n are both greater than 5:

• p in the numerator and denominator  complicates the formula

• For confidence interval calculations and large samples, we instead use:
Estimating the population proportion
Let’s solve problem 8.26
 Estimating the population variance

• Chi square distribution: captures the relationship between the sample

variance and the population variance
• Not symmetrical
• Shape will vary based on DOF
Estimating the population variance
Reading the Chi square values

90% CI
Let’s solve problem 8.35
 8.35 Solution

a) n=12, , 99% C.I.

• df=12-1=11,
• 2.995,11 = 2.60320
• 2.005,11 = 26.7569
 8.35 Solution, Chi-square table part a

• a) n=12, , 99% C.I.

• df=12-1=11
• 2.995,11 = 2.60320
• 2.005,11 = 26.7569
 8.35 Solution

a) n=12, , 99% C.I.

• df=12-1=11,
• 2.995,11 = 2.60320
• 2.005,11 = 26.7569
 8.35 Solution

b) n=7, , 95% C.I.

• df=7-1=6,
• 2.975,6 = 2.60320
• 2.025,6 = 26.7569
 8.35 Solution, Chi-square table part b

• a) n=12, , 99% C.I.

• df=12-1=11
• 2.995,11 = 2.60320
• 2.005,11 = 26.7569
 8.35 Solution

b) n=7, , 95% C.I.

• df=7-1=6,
• 2.975,6 = 1.24
• 2.025,6 = 14.45
Sample Size
 Sample Size

• Estimate the size of sample necessary to accomplish the purposes of the

study
• Based on the margin of error of estimation resulting from the sampling
process
• When population variance is unknown: estimate it with
 Sample Size

• Suppose an analyst wants to estimate the average monthly expenditure on

bread by a family in Montreal. She wants to be 90% confident of her
results. Suppose she wants the estimate to be within $1.00 of the actual
figure, and the standard deviation of average monthly bread purchases is
$4.00.
• What is the sample-size estimation for this problem?
• The value of z for a 90% level of confidence is 1.645.
 Sample Size

• Suppose an analyst wants to estimate the average monthly expenditure on

bread by a family in Montreal. She wants to be 90% confident of her
results. Suppose she wants the estimate to be within $1.00 of the actual
figure, and the standard deviation of average monthly bread purchases is
$4.00.
• What is the sample-size estimation for this problem?
• The value of z for a 90% level at of confidence
least is 1.645.
n = 43.3 must be sampled randomly to attain a
90% level of confidence and produce an error within
$1.00 for a standard deviation of $4.00. Sampling
43.3 units is impossible, so this result should be
rounded up to n = 44 units.
Sample Size

If p is unknown, use 0.5 as

an estimate of p. This
selection results in the
largest sample size that
could be determined from
the formula for a given z
value and a given error
value.
Let’s solve problem 8.40
Let’s solve problem 8.40

Sample=200

Sample=114

E=10, Range=500-80=420, Range/4=105

Sample=299

Sample=57
Let’s solve problem 8.41
Let’s solve problem 8.41

Sample=2522

Sample=601

Sample=268

Sample=16577