Estimation and Confidence Intervals

Chapter 9

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Learning Objectives
LO9-1Compute and interpret a point estimate
of a population mean
LO9-2Compute and interpret a confidence
interval for a population mean
LO9-3Compute and interpret a confidence
interval for a population proportion
LO9-4Calculate the required sample size to
estimate a population proportion or
population mean
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 LO1 Define a point estimate.
Point Estimates

 A point estimate is X → 
a single value (point)
derived from a sample s → 
and used to estimate
a population value. s → 
2 2

p → 

9-3
Point Estimate
 A point estimate is a single value (statistic) used to estimate a
population value (parameter)
POINT ESTIMATE The statistic, computed from sample information,
that estimates a population parameter.

Example
 Suppose the Bureau of Tourism for Barbados wants an
estimate of the mean amount spent by tourists visiting that
country. They randomly select 500 tourists as they depart and
ask these tourists about their spending while there. The mean
amount spent by the sample of 500 tourists serves as an
estimate of the unknown population parameter.

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Confidence Intervals
 A confidence interval is a range of values within which
the population parameter is expected to occur
CONFIDENCE INTERVAL A range of values constructed from sample
data so that the population parameter is likely to occur within that
range at a specified probability. The specified probability is called the
level of confidence.

 The factors that determine the width of a confidence

interval for a mean are
 The number of observations in the sample, n
 The variability in the population, usually estimated by the
sample standard deviation, s
 The desired level of confidence

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 LO2 Define a confidence estimate.
Confidence Interval Estimates

 A confidence interval estimate is a range of

values constructed from sample data so that the
population parameter is likely to occur within
that range at a specified probability.The specified
probability is called the level of confidence.

C.I. = point estimate ± margin of error

9-6
 LO3
Interval Estimates - Interpretation
For a 95% confidence interval about 95% of the similarly constructed intervals
will contain the parameter being estimated. Also 95% of the sample means for
a specified sample size will lie within 1.96 standard deviations of the
hypothesized population

9-7
Level of Confidence, σ Known
 To determine the confidence limits when the population
standard deviation is known, we use the z distribution
 The formula is

x − sample mean
z − z - value for a particular confidence level
σ − the population standard deviation
n − the number of observations in the sample

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Finding a Value of z
 The method for finding z for a 95% confidence interval is
 Divide the confidence interval in half, .9500 ÷ 2 = .4750
 Find the value .4750 in the body of the table
 Identify the row and column and add the values
 The probability of finding a value between 0 and 1.96 is
.4750
 So the probability of finding a value between +/− 1.96 is
.9500

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Level of Confidence, z Example
The American Management Association is studying the income of store
managers in the retail industry. A random sample of 49 managers reveals a
sample mean of $45,420.The standard deviation of the population is $2,050.
1. What is the population mean? What is an estimate of the population
mean?
2. What is a reasonable range of values for the population mean?
3. How do we interpret these results?

1. We do not know the population mean, so we can use the sample mean,
$45,420 as our best estimate. The sample mean is the best point
estimate of the unknown population mean.
2. The AMA decides to use a 95% level of confidence, so use equation (9-1),
σ $2.050
xത ± z = $45,420 ± 1.96 = $45,420 ± $574
n 49
3. The confidence interval is from $44,846 and $45,994, the value $574 is
called the margin of error.
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Example

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Level of Confidence, σ Unknown
 To determine the confidence limits when the population
standard deviation is unknown, we use the t distribution
 The formula is

Example
 The Dean of the Business College wants to estimate the mean
number of hours full-time students work at paying jobs each
week. He randomly selects a sample of 30 students and asks
them how many hours they worked last week. He can
calculate the sample mean, but it is unlikely he would know the
population standard deviation required for formula 9-1.

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Determining when to use the Z or t
distribution

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 LO4
Confidence Interval Estimates for the Mean
Use Z-distribution Use t-distribution
If the population standard If the population standard
deviation is known or the deviation is unknown and
sample is greater than 30. the sample is less than 30.

9-15
Characteristics of the t Distribution
 The t distribution is a continuous distribution
 It is bell-shaped and symmetrical
 It is flatter, or more spread out, than the standard normal
distribution
 There is a family of t distributions, depending on the number
of degrees of freedom; the degrees of freedom are based on
the sample size, n.

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Comparing the z and t Distributions when nLO4
is small, 95% Confidence Level

9-17
Finding a Value of t
 First assume the population is normal
 Using Appendix B.5, move across the columns identified
for confidence intervals
 In the next example, we want to use the 95% level of
confidence, so move to that column
 Then find df, the
degrees of freedom, n-1

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Level of Confidence, t Example

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 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?

s 0.09
xത ± t = 0.32 ± 2.262 = 0.32 ± 0.064
n 10

The endpoints of the confidence interval are 0.256 and 0.384. The margin of
error is 0.064. 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 very likely that the mean of the
population is 0.30

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Easy way to get Z-value

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Easy way to get Z-value

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Easy way to get Z-value

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Confidence Intervals for Proportions
PROPORTION The fraction, ratio, or percent indicating the part of the
sample or the population having a particular trait of interest.

 A sample proportion, p, is found by x, the number of successes,

divided by n, the number of observations

Examples
 Southern Tech career services reports that 80% of its
graduates enter the job market in a position related to their
field of study
 A recent study of married men between the ages 35 and 50
found that 63% felt that both partners should earn a living

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 LO5 Compute a confidence interval
for a population proportion.

A Confidence Interval for a Proportion (π)

The examples below illustrate the nominal scale of measurement.
1. The career services director at Southern Technical Institute
reports that 80 percent of its graduates enter the job market in a
position related to their field of study.
2. A company representative claims that 45 percent of Burger King
sales are made at the drive-through window.
3. A survey of homes in the Chicago area indicated that 85 percent of
the new construction had central air conditioning.
4. A recent survey of married men between the ages of 35 and 50
found that 63 percent felt that both partners should earn a living.

9-30
Using the Normal Distribution to LO5
Approximate the Binomial Distribution
To develop a confidence interval for a proportion, we need to meet the
following assumptions.

1. The binomial conditions, discussed in Chapter 6, have been met. Briefly,

these conditions are:
a. The sample data is the result of counts.
b. There are only two possible outcomes.
c. The probability of a success remains the same from one trial to the next.
d. The trials are independent. This means the outcome on one trial does
not affect the outcome on another.

2. The values nπ and n(1-π) should both be greater than or equal to 5.

This condition allows us to invoke the central limit theorem and employ
the standard normal distribution, that is, z, to complete a confidence
interval.

9-31
Confidence Intervals for Proportions (2 of 2)
 A population proportion is identified by π
 Two requirements
 The binomial conditions have been met
 The values nπ and n(1- π) should both be greater than
or equal to 5
 We construct a confidence interval for a population
proportion with the following formula

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Confidence Interval, π Example
The union representing the Bottle Blowers of America (BBA) is considering a
proposal to merge with the Teamsters Union. According to BBA union bylaws, at
least three-fourths of the union membership must approve any merger. A random
sample of 2,000 current BBA members reveals 1,600 plan to vote for the merger
proposal. What is the estimate of the population proportion? Develop a 95%
confidence interval for the population proportion. Basing your decision on this
sample information, can you conclude that the necessary proportion of BBA
members favor the merger? Why?
x 1,600
First, calculate the sample proportion, p = = = .80
n 2,000

Next, use formula (9-4) to determine the 95% confidence interval,

p(1−p) .80(1−.80)
p±z = .80 ± 1.96 = .80 ± .018
n 2,000
The endpoints of the confidence interval are .782 and .818, so we conclude the
merger will likely pass because the interval estimate includes values greater than
75% of the union membership.
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Example

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Determining Sample Size for Means
 There are three factors that determine the sample size
when we wish to estimate the mean
 The margin of error, E the researcher will tolerate
 The desired level of confidence, for example 95%
 The variation or dispersion of the population being studied
 The formula to determine the sample size for the mean is

 The result is not always a whole number; the usual

practice is to round up any fractional result to the next
whole number.

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Sample Size to Estimate a Population Mean
Example

A student in public administration wants to estimate the mean monthly earnings of

city council members in large cities. She can tolerate a margin of error of $100 in
estimating the mean. She would also prefer to report the interval estimate with a
95% level of confidence. The student found a report by the Department of Labor
that reported a standard deviation of $1,000.What is the required sample size?

𝑧𝜎 2 (1.96)($1,000) 2
n= = = 19.6 2 = 384.16
𝐸 $100

The computed value of 384.16 is rounded up to 385. A sample size of 385 is

required to meet the specifications.

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Example

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Determining Sample Size for Proportions
 There are three factors that determine the sample size
when we wish to estimate a proportion
 The margin of error, E
 The desired level of confidence
 The variation or dispersion of the population being studied.
The formula to determine the sample size for a proportion is:

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Sample Size for the Population Proportion
Example

The student in the previous example also wants to estimate the proportion
of cities that have private refuse collectors. The student wants to estimate
the population proportion with a margin of error of .10, prefers a level of
confidence of 90%, and has no estimate for the population proportion.
What is the required sample size?

1.645
n = (.50)(1-.50) 2 = 67.65
.10

The student needs a random sample of 68 cities.

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 Chapter 9 Practice Problems

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Question 5 LO9-1

A research firm surveyed 49 randomly selected Americans

to determine the mean amount spent on coffee during 1
week. The sample mean was $20 per week. The population
distribution is normal with a standard deviation of $5.

a. What is the point estimate of the population mean?

Explain what it indicates.
b. Using the 95% level of confidence, determine the
confidence interval for μ. Explain what it indicates.

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Question 5 LO9-1

 a. $20. It is our best estimate of the population mean.

 b. $18.60 and $21.40, found by $20 ± 1.96($5∕ √49).
About 95% of the intervals similarly constructed will
include the population mean.

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Question 11 LO9-2

The owner of Britten’s Egg Farm wants to estimate the mean number
of eggs produced per chicken. A sample of 20 chickens shows they
produced an average of 20 eggs per month with a standard deviation
of 2 eggs per month.

a. What is the value of the population mean? What is the best

estimate of this value?
b. Explain why we need to use the t distribution. What assumption
do you need to make?
c. For a 95% confidence interval, what is the value of t?
d. What is the margin of error?
e. Develop the 95% confidence interval for the population mean.
f. Would it be reasonable to conclude that the population mean is
21 eggs? What about 25 eggs?

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Question 11 LO9-2

 a. The population mean is unknown, but the best

estimate is 20, the sample mean.
 b. Use the t-distribution since the standard deviation
is unknown. However, assume the population is
normally distributed.
 c. 2.093
 d. Margin of error = 2.093(2/√20) = 0.94
 e. Between 19.06 and 20.94, found by 20 ±
2.093(2∕√20)
 f. Neither value is reasonable because they are not
inside the interval.

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Question 19 LO9-4

A population’s standard deviation is 10. We want to

estimate the population mean with a margin of error of 2,
with a 95% level of confidence. How large a sample is
required?

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Question 19 LO9-4

97, found by n = ((1.96 × 10) / 2)^2 = 96.04

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Question 25 LO9-4

Suppose the U.S. president wants to estimate the

proportion of the population that supports his current
policy toward revisions in the health care system. The
president wants the margin of error to be 0.04. Assume a
95% level of confidence. The president’s political advisors
found a similar survey from 2 years ago that reported that
60% of people supported health care revisions.

a. How large of a sample is required?

b. How large of a sample would be necessary if no
estimate were available for the proportion supporting
current policy?

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Question 25 LO9-4

 a. 577, found by n = 0.60(0.40)(1.96/0.04)^2 = 576.24

 b. 601, found by n = 0.50(0.50)(1.96/0.04)^2 = 600.25

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