LECTURE 7

ESTIMATION AND CONFIDENCE INTERVALS

OBJECTIVES AND OUTCOMES
• Objectives
• Find Confidence intervals of a population mean when 𝜎 is unknown
• Outcomes- When you have completed this lecture, you will be
able to:
• Compute and interpret a confidence interval for a population mean
when 𝜎 is unknown.
EXAMPLE V – CONFIDENCE INTERVAL WHEN 𝜎 IS KNOWN
The Bun-and-Run is a franchise fast-food restaurant located in the Northeast specializing
in half-pound hamburgers, fish sandwiches, and chicken sandwiches.
The marketing department of Bun-and-Run Inc. reports that the distribution of daily
sales for their restaurants follows the normal distribution and that the population
standard deviation is $3,000.
A sample of 40 franchises showed the mean daily sales to be $20,000.
a. What is the population mean of daily sales for Bun-and-Run franchises?
Unknown. This is the value we wish to estimate.
b. What is the best estimate of the population mean? What is this value called?
The sample mean of $20,000 is the point estimate of the population mean daily
franchise sales.
EXAMPLE V – CONFIDENCE INTERVAL WHEN 𝜎 IS KNOWN
c. Develop a 95% confidence interval for the population mean of
daily sales.
$3,000
$20,000 ± 1.960 = $20,000 ± $930
40
d. Interpret the confidence interval.
The estimate of the population mean daily sales for the Bun-
and-Run franchises is between $19,070 and $20,930. About
95% of all possible samples of 40 Bun-and-Run franchises
would include the population mean.
POPULATION STANDARD DEVIATION, 𝜎 UNKNOWN
• The Dean of the Business College wants to estimate the mean
number of hours fulltime students work at paying jobs each week.
• He selects a sample of 30 students, contacts each student, and asks
them how many hours they worked last week.
• From the sample information, he can calculate the sample mean,
but it is not likely he would know or be able to find the population
standard deviation (σ) required in formula
𝜎
𝑥ҧ ± 𝑧
𝑛
T DISTRIBUTION/ STUDENT’S DISTRIBUTION
• We can use the sample standard deviation to estimate the
population standard deviation.
• s, the sample standard deviation, estimates σ, the population
standard deviation.
• Replace the z distribution with the t distribution.
• William Gosset, an English brewmaster, was the first to study the t
distribution given by the formula
𝑥ҧ − 𝜇
𝑡 =
𝑠/ 𝑛
• For a given 𝑥,ҧ we can find the respective t-value just like the z-value.
• The following example will illustrate a confidence interval for a
population mean when the population standard deviation is
unknown and how to find the appropriate value of t in a table.
FLOW CHART
DEGREES OF FREEDOM
• To illustrate 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.
EXAMPLE I
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 sample standard deviation
of 0.09 inch.
Construct a 95% confidence interval for the population mean.
Would it be reasonable for the manufacturer to conclude that
after 50,000 miles the population mean amount of tread
remaining is 0.30 inch?
• To begin, we assume the
population distribution is
normal.
• In this case, we don’t have
a lot of evidence, but the
assumption is probably
reasonable.
• 𝑥ҧ = 0.32, 𝑠 =
0.09, and 𝑛 = 10.
• Find t for the required
confidence level of 95%
from the t-table. 𝑠 0.09
• The left column is 𝑑𝑓 = 𝑥ҧ ± 𝑡 = 0.32 ± 2.262
𝑛 10
𝑛 − 1 = 9, in this case. (df = 0.32 ± 0.064
stands for degree of
freedom) The endpoints of the confidence interval
are 0.256 and 0.384.
INTERPRETATION
• If we repeated this study 200 times, calculating the 95% confidence
interval with each sample’s mean and the standard deviation, we
expect 190 of the intervals would include the population mean.
• Ten of the intervals would not include the population mean. This is
the effect of sampling error.
• The manufacturer can be reasonably sure (95% confident) that the
mean remaining tread depth is between 0.256 and 0.384 inch.
• Because the value of 0.30 is in this interval, it is possible that the
mean of the population is 0.30.
EXAMPLE II
The manager of the Inlet Square Mall, Florida, wants to estimate the mean
amount spent per shopping visit by customers. A sample of 20 customers
reveals the following amounts spent.
$48.16 $42.22 $46.82 $51.45 $23.78 $41.86
$54.86 37.92 52.64 48.59 50.82 46.94
61.83 61.69 49.17 61.46 51.35 52.68
58.84 43.88
a. What is the best estimate of the population mean?
b. Determine a 95% confidence interval.
c. Interpret the result.
d. Would it be reasonable to conclude that the population mean is $50?
What about $60?
SOLUTION
• The population standard deviation is not known. Hence, it is appropriate
to use the t distribution and formula to find the confidence interval.
• What is the best estimate of the population mean?
• The sample mean is $49.348 is the best estimate
• Determine a 95% confidence interval.
• Here 𝑑𝑓 = 𝑛 − 1 = 20 − 1 = 19.
σ 𝑥𝑖 −𝑥ҧ 2
• Standard deviation 𝑠 = = $9.012
𝑛−1
𝑠 $9.012
• 𝑥ҧ ± 𝑡 = $49.348 ± 2.093 = $49.348 ± $4.21
𝑛 20
INTERPRETATION
• Interpret the result.
The endpoints of the confidence interval are $45.130 and
$53.566. It is reasonable to conclude that the population mean is
in that interval.
• Would it be reasonable to conclude that the population mean is
$50? What about $60?
It is reasonable that the population mean could be $50. The value
of $60 is not in the confidence interval. Hence, we conclude
that the population mean is unlikely to be $60.
ACTIVITY
1. A ________ is a single value computed from sample information
used to estimate a population parameter.
2. A ________ is a range of values within which the population
parameter is likely to occur.
3. Assuming the same sample size and the same standard deviation, a
90% confidence interval will be __________a 95% confidence
interval. (equal to, wider than, narrower than, can’t tell)
4. For a 95% level of confidence, approximately __________percent
of the similarly constructed intervals will include the population
parameter being estimated.
 ACTIVITY
5. To construct a confidence interval for a mean, the z distribution is used
only when the ________ is known. (population mean, population
standard deviation, sample size, population size)
6. As the degrees of freedom increase, the t distribution _________.
(approaches the binomial distribution, exceeds the normal distribution,
approaches the z distribution, becomes more positively skewed)
7. The _________has no effect on the size of the sample. (level of
confidence, margin of error, population median, variability in the
population)
8. To locate the appropriate t value, which is not necessary? (degrees of
freedom, level of confidence, population mean)
SOLUTION TO ACTIVITY
1. Point estimate
2. Confidence interval
3. Narrower
4. 95
5. Standard deviation
6. z distribution
7. Population median
8. Population mean