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Statistics for Managers

Using Microsoft Excel


Chapter 7
Confidence Interval Estimation:
Single Sample Means and Proportions

© 1999 Prentice-Hall, Inc. Chap. 7 - 1


Chapter Topics
•Confidence Interval Estimation for the Mean
(Known)
•Confidence Interval Estimation for the Mean
(Unknown)
•Confidence Interval Estimation for the
Proportion
•The Situation of Finite Populations
•Sample Size Estimation
© 1999 Prentice-Hall, Inc. Chap. 7 - 2
Estimation Process

Population Random Sample


I am 95%
Mean confident that 
Mean, , is is between 40 &
unknown X = 50
60.

Sample

© 1999 Prentice-Hall, Inc. Chap. 7 - 3


Population Parameters
Estimated
Estimate Population with Sample
Parameter... Statistic
_
Mean  X
Proportion p ps

 2 2
Variance s
_ _
Difference  -  x - x
1 2 1 2

© 1999 Prentice-Hall, Inc. Chap. 7 - 4


Confidence Interval Estimation

• Provides Range of Values


 Based on Observations from 1 Sample
• Gives Information about Closeness
to Unknown Population Parameter
• Stated in terms of Probability
Never 100% Sure

© 1999 Prentice-Hall, Inc. Chap. 7 - 5


Elements of Confidence
Interval Estimation

A Probability That the Population Parameter


Falls Somewhere Within the Interval.
Confidence Interval Sample
Statistic

Confidence Limit Confidence Limit


(Lower) (Upper)

© 1999 Prentice-Hall, Inc. Chap. 7 - 6


Confidence Limits for
Population Mean
Parameter =   X  Error
Statistic ± Its Error
X   = Error =   X

X   Error
Z  
 X  X

Error  Z  x

  X  Z X

© 1984-1994 T/Maker Co.

© 1999 Prentice-Hall, Inc. Chap. 7 - 7


Confidence Intervals

X  Z  X  X  Z 
n x_
_
X
  1.645  x   1.645  x
90% Samples

  1 . 96  x   1 . 96  x
95% Samples

  2 .58 x   2 .58 x
99% Samples
© 1999 Prentice-Hall, Inc. Chap. 7 - 8
Level of Confidence is an
EXPECTED RELATIONSHIP
• Probability that the unknown population
parameter is in the confidence interval in 100
trials.
• Denoted (1 - ) % = level of confidence
e.g. 90%, 95%, 99%

 Is Probability That the Parameter Is Not


Within the Interval in 100 trials (NOT THIS
TRIAL ALONE!)

© 1999 Prentice-Hall, Inc. Chap. 7 - 9


Intervals &
Level of Confidence
Sampling
Distribution of _
x
the Mean /2 1 - /2
_
Intervals X   X
Extend from
(1 - ) % of
X  ZX Intervals
Contain .
to
 % Do Not.
X  ZX
Confidence Intervals
© 1999 Prentice-Hall, Inc. Chap. 7 - 10
Factors Affecting
Interval Width
• Data Variation Intervals Extend from
measured by  X - Z
x
to X + Z 
x
• Sample Size
X  X / n
• Level of Confidence
(1 - )

© 1984-1994 T/Maker Co.

© 1999 Prentice-Hall, Inc. Chap. 7 - 11


Confidence Interval Estimates

Confidence
Intervals

Mean Proportion

Finite
 Known Population

© 1999 Prentice-Hall, Inc. Chap. 7 - 12


Confidence Intervals (Known - this
is hardly ever true)
• Assumptions
 Population Standard Deviation Is Known
 Population Is Normally Distributed
 If Not Normal, use large samples
• Confidence Interval Estimate

    
X  Z / 2  X  Z / 2 
n n

© 1999 Prentice-Hall, Inc. Chap. 7 - 13


Confidence Interval Estimates

Confidence
Intervals

Mean Proportion

Finite
 Known Population

© 1999 Prentice-Hall, Inc. Chap. 7 - 14


Confidence Intervals (Unknown)

• Assumptions
 Population Standard Deviation Is Unknown
 Sample size must be large enough for central
limit theorem or Population Must Be
Normally Distributed
• Use Student’s t Distribution

Confidence Interval Estimate
S    X t S
X  t / 2 ,n1   / 2 ,n1 
n n
© 1999 Prentice-Hall, Inc. Chap. 7 - 15
Student’s t Distribution

Standard
Normal

Bell-Shaped t (df = 13)


Symmetric
‘Fatter’ Tails t (df = 5)

Z
t
0
© 1999 Prentice-Hall, Inc. Chap. 7 - 16
Degrees of Freedom (df)

• Number of Observations that Are Free


to Vary After Sample Mean Has Been
Calculated
degrees of freedom =
• Example n -1
 Mean of 3 Numbers Is 2 = 3 -1
=2
X1 = 1 (or Any Number)
X2 = 2 (or Any Number)
X3 = 3 (Cannot Vary)
Mean = 2
© 1999 Prentice-Hall, Inc. Chap. 7 - 17
Student’s t Table

/2 Assume: n = 3 df
=n-1=2
Upper Tail Area
 = .10
df .25 .10 .05 /2 =.05

1 1.000 3.078 6.314

2 0.817 1.886 2.920 .05


3 0.765 1.638 2.353
0 t
t Values 2.920
© 1999 Prentice-Hall, Inc. Chap. 7 - 18
Example: Interval Estimation
Unknown
A random sample of n = 25 has X = 50 and
s = 8. Set up a 95% confidence interval
estimate for .
S S
X  t / 2 ,n1     X  t / 2 ,n1 
n n
8 8
50  2 . 0639  50  2 . 0639 
25  25

46 . 69    53 . 30
© 1999 Prentice-Hall, Inc. Chap. 7 - 19
Confidence Interval Estimates

Confidence
Intervals

Mean Proportion

Finite
 Known Population

© 1999 Prentice-Hall, Inc. Chap. 7 - 20


Confidence Interval Estimate
Proportion
• Assumptions
 Two Categorical Outcomes

 Population Follows Binomial Distribution

 Normal Approximation Can Be Used

 n·p 5 & n·(1 - p)  5


• Confidence Interval Estimate
ps ( 1  ps ) ps ( 1  ps )
ps  Z / 2   p ps  Z / 2 
n n

© 1999 Prentice-Hall, Inc. Chap. 7 - 21


Example: Estimating Proportion

A random sample of 400 Voters showed 32


preferred Candidate A. Set up a 95%
confidence interval estimate for p.

ps  Z / 2 
ps ( 1  ps )  p  ps  Z / 2  ps ( 1  ps )
n n
.08( 1  .08 )  p  .08  1.96  .08( 1  .08 )
.08  1.96
400 400
.053  p  .107
© 1999 Prentice-Hall, Inc. Chap. 7 - 22
Sample Size

Too Big: Too Small:


•Requires too •Won’t do
much resources the job

© 1999 Prentice-Hall, Inc. Chap. 7 - 23


Does the CI Contain the True
Mean?
Click to try a couple

© 1999 Prentice-Hall, Inc. Chap. 7 - 24


Example: Sample Size
for Mean

What sample size is needed to be 90%


confident of being correct within ± 5? A
pilot study suggested that the standard
deviation is 45.
2 2
Z 
2 2
1645
. 45
n   219.2  220
2 2
Error 5
Round Up
© 1999 Prentice-Hall, Inc. Chap. 7 - 25
Example: Sample Size
for Proportion
What sample size is needed to be within ± 5 with
90% confidence? Out of a population of 1,000,
we randomly selected 100 of which 30 were
defective.
Z 2 p ( 1  p ) 1 . 645 2 (. 30 )(. 70 )
n 2
 2
 227 . 3
error . 05

 228
Round Up
© 1999 Prentice-Hall, Inc. Chap. 7 - 26
Chapter Summary
•Discussed Confidence Interval Estimation for
the Mean (Known)
•Discussed Confidence Interval Estimation for
the Mean (Unknown)
•Addressed Confidence Interval Estimation for
the Proportion
•Determined Sample Size

© 1999 Prentice-Hall, Inc. Chap. 7 - 27

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