CHAPTER TWO

STATISTICAL ESTIMATION

Introduction

The sampling distribution of the mean shows how far sample means could be from a known
population mean. Similarly, the sampling distribution of the proportion shows how far sample
proportions could be from a known population proportion. In estimation, our aim is to determine
how far an unknown population mean could be from the mean of a simple random sample
selected from that population; or how far an unknown population proportion could be from a
sample proportion. Those are the concerns of statistical inference, in which a statement about an
unknown population parameter is derived from information contained in a random sample
selected from the population.

2.1. Basic concepts:

Estimation: is the process of using statistics as estimates of parameters. It is any procedure
where sample information is used to estimate/ predict the numerical value of some
population measure (called a parameter).
Estimator- refers to any sample statistic that is used to estimate a population parameter.
E.g. x for  , p for p.
Estimate- is a specific numerical value of our estimator. E.g. x  9, 2, 5

x, p, s 2 , s ……………. Estimators
 , p, 2 , ………………… items being estimated
1, 0.5, 9, 3 …………………... Estimates

Four Important Properties of Estimators

A number of different estimators are possible for the same population parameter, but some
estimators are better than others. To understand how, we need to look at four important
properties of estimators: unbiasedness, efficiency, consistency, and sufficiency.

Unbiasedness: An estimator exhibits unbiasedness when the mean of the sampling estimator is
equal to the population parameter: E (ө) = Ө.

In general, unbiasedness is a desirable property for an estimator. The sample mean is an unbiased
estimator of the population mean. Similarly, the sample variance is an unbiased point estimator
the population variance because the mean of the sampling distribution of the sample variance is
equal to the population variance. And the sample proportion is an unbiased estimator of the
population proportion. However, because standard deviation is a nonlinear function of variance,
the sample standard deviation is not an unbiased estimator of population standard deviation. The
bias of a point estimator is: Bias = E (ө) = Ө. If there are a number of unbiased estimators to
choose from, there are three other criteria that could be used to select an estimator.

1
Efficiency: Efficiency is another standard that can be used to evaluate estimators. Efficiency
refers to the size of the standard error of the statistics. The most efficient estimator is the one
with the smallest variance. Thus, if there are two estimators for Ө with var (ө1) and var (ө2), then
the first estimator ө1 is said to be more efficient than the second estimator ө2, if var(ө1) < var (ө2)
although E(ө1) = E(ө2) = Ө.

Consistency: A third property of estimators, consistency, is related to their behavior as the

sample gets large. A statistic is a consistent estimator of a population parameter if, as the sample
size increases, it becomes almost certain that the value of the statistic comes very close to the
value of the population parameter.

An unbiased estimator is a consistent estimator if the variance approaches 0 as n increases. For

example, the sample mean is an unbiased and a consistent estimator of population mean.
Although the sample standard deviation is not an unbiased estimator of population standard
deviation, it is a consistent estimator of population standard deviation.

Sufficiency: The last property of a good estimator is sufficiency. A sufficient statistic is an

estimator that utilizes all the information a sample contains about the parameter to be estimated.
For example, the sample mean is a sufficient estimator of the population mean. This means that
no other estimator of the population mean from the same sample data, such as the sample
median, can add any further information about the parameter (population mean) that is being
estimated.

Types of Estimates:
We can make two types of estimates about a population: a point estimate and an interval
estimate.

2.2. Point Estimator of the Mean and Proportion

A point estimate: - is a single number that is used to estimate an unknown population parameter.
It is a single value that is measured from a sample and used as an estimate of the corresponding
population parameter.
The most important point estimates (given that they are single values) are:


o Sample mean x for population mean   ;
o Sample proportion p for population proportion  p  ;

 
o Sample variance s 2 for population variance  2 and 
o Sample standard deviation s  for population standard deviation  

An interval estimate - is a range of values used to estimate a population parameter. It describes

the range of values with in which a parameter might lie. Stated differently, an interval estimate is
a range of values with in which the analyst can declare with some confidence that the population
parameter will fall.

2
Example:
Suppose we have the sample 10,20,30,40 and 50 selected randomly from a population whose
mean  is unknown.

The sample mean, x ,  =

xi 10  20  30  40  50
 30 is a point estimate of  .
n 5

On the other hand, if we state that the mean,  , is between x  10 , the range of values from 20
(30-10) to 40 (30+10) is an interval estimate.

2.3. Interval Estimators of the Mean and the Proportion

Point estimators of population parameters, while useful, do not convey as much information as
interval estimators. Point estimation produces a single value as an estimate of the unknown
population parameter. The estimate may or may not be close to the parameter value; in other
words, the estimate may be incorrect. An interval estimate, on the other hand, is a range of
values that conveys the fact that estimation is an uncertain process. The standard error of the
point estimator is used in creating a range of values; thus a measure of variability is incorporated
into interval estimation. Further, a measure of confidence in the interval estimator is provided;
consequently, interval estimates are also called confidence intervals. For these reasons, interval
estimators are considered more desirable than point estimators.

2.3.1. Interval estimation for population mean, 

As a result of the Central Limit Theorem (discussed in Chapter I) the following Z formula for
sample means can be used when sample sizes are large, regardless of the shape of the population
distribution or for smaller sizes if the population is normally distributed.
X 
Z

n
Rearranging the formula:
  X Z
n
Because the sample mean can be greater than or less than the population mean, z can be positive
or negative. Thus, the preceding expression takes the form:
  X Z
n
The value of the population mean,  , lies somewhere within this range. Rewriting this
expression yields the confidence interval for population mean:
X Z    X Z
n n

The confidence interval for population mean is affected by:

3
 1. The population distribution, i.e., whether the population is normally distributed or not
2. The standard deviation, i.e., whether  is known or not.
3. The sample size, i.e., whether the sample size, n, is large or not.

A. Confidence internal estimate of  - Normal population,  known

A confidence interval estimate for  is an interval estimate together with a statement of how
confident we are that the interval estimate is correct.

When the population distribution is normal and at the same time  is known, we can estimate 
(regardless of the sample size) using the following formula1.

  X  Z / 2 
n
Where:
X = sample mean
Z = value from the standard normal table reflecting confidence level
σ = population standard deviation
n = sample size
α = the proportion of incorrect statements (α = 1 – C)
 = unknown population mean

From the above formula we can learn that an interval estimate is constructed by adding and
subtracting the error term to and from the point estimate. That is, the point estimate is found at
the center of the confidence interval.

To find the interval estimate of population mean,  we have the following steps.
1. Compute the standard error of the mean  x 
2. Compute  2 from the confidence coefficient.
3. Find the Z value for the  2 from the table
4. Construct the confidence interval
5. Interpret the results

Example:
1. The vice president of operations for Ethiopian Tele Communication Corporation (ETC) is in the
process of developing a strategic management plan. He believes that the ability to estimate the
length of the average phone call on the system is important. He takes a random sample of 60
calls from the company records and finds that the mean sample length for a call is 4.26 minutes.

1
This formula works also for problems which involve large sample size (n>30) even though the
n
population is not normally distributed. And if >0.05, finite population correction factor may be used.
N

4
 Past history for these types of calls has shown that the population standard deviation for call
length is about 1.1 minutes. Assuming that the population is normally distributed and he wants
to have a 95% confidence, help him in estimating the population mean.

Solution:
n= 60 calls X = 4.26 minutes σ = 1.1 minutes C= 0.95

iv.   X  Z / 2 
1.1
i. X  = = 0.142
n 60 n
ii. α = 1 – C = 1- 0.95 = 0.05 = 4.26 ± 1.96(0.142)
 2 = 0.05/2 = 0.025 = 4.26 ± 0.28
iii. Z / 2  Z0.025  1.96
3.98 ≤  ≤ 4.54
The vice-president of ETC can be 95% confident that the average length of a call for the
population is between 3.98 and 4.54 minutes.
2. A survey conducted by “Addis Zemen Gazetta” found that the sample mean age of men was 44
years and the sample mean age of women was 47 years. All together, 454 people from Addis
were included in the reader poll –340 women and 114 men. Assume that the population standard
deviation of age for both men and women is 8 years.
a. Develop a 95% confidence interval estimate for the mean age of the population men who
read the gazetta.
b. Develop a 95% confidence interval estimate for the mean age of the population women
who read the gazetta.
c. Compare the widths of the two interval estimates form part (a) & (b) which one has a
better precision? Why?
Solution:
a.
n= 114 men X = 44 years σ = 8 years C= 0.95

iv.   X  Z / 2 
8
i.  X  = = 0.75
n 114 n
ii. α = 1 – C = 1- 0.95 = 0.05 = 44 ± 1.96(0.75)
 2 = 0.05/2 = 0.025 = 44 ± 1.47
iii. Z / 2  Z0.025  1.96
42.53 ≤  ≤ 45.47
b.
n= 340 women X = 47 years σ = 8 years C= 0.95

iv.   X  Z / 2 
8
i. X  = = 0.434
n 340 n
ii. α = 1 – C = 1- 0.95 = 0.05 = 47 ± 1.96(0.434)
 2 = 0.05/2 = 0.025 = 47 ± 0.85
iii. Z / 2  Z0.025  1.96
46.15 ≤  ≤ 47.85

5
 i. Part b has a better precision because the sample size is larger as compared with part a.

3. Time magazine reports information on the time required for caffeine from products such as
coffee and soft drinks to leave the body after consumption. Assume that the 99% confidence
interval estimate of the population mean time for adults is 5.6 hrs to 6.4 hrs.
a. What is the point estimate of the mean time for caffeine to leave the body after
consumption?
b. If the population standard deviation is 2 hrs, how large a sample was used to provide the
interval estimate?
Solution:
C = 0.99 Confidence interval: 5.6 ≤  ≤6.4
5.6  6.4
a. point estimate =  6 hours
2
Or;
5.6  X  Z / 2 
 n

6.4  X  Z / 2 
 n
12 = 2 X
X = 6 hours

b. 0.99 σ = 2 hours Confidence interval: 5.6 ≤  ≤6.4 n=?

α = 1- C = 1- 0.99 = 0.01 α/2 = 0.005 Z  / 2  Z 0.005  2.57

6.4  X  Z / 2 
n
6.4  6  2.57 2
n
0.4  5.14 ; rearranging the expression
n
5.14
n
0.4
n  12.85 ; squaring both sides
n = 165

We state with 99% confidence that the mean time required for caffeine to leave the body after
consumption lies between 5.6 and 6.4 hrs.

B. Confidence interval estimate of  - Normal population,  unknown, n large

If we know that the population is normal, and we know the population standard deviation,  the
confidence interval for  should be constructed in the manner already shown, i.e.,

6
   X  Z / 2  . If the population standard deviation is unknown, it has to be
n
estimated from the sample; i.e., when  is unknown, we use sample standard
2
( X i  X )
deviation: S  . Then, the standard error of the mean,  X , is estimated by the
n 1
sample standard error of the mean: S X  S .
n

Therefore, the confidence interval to estimate  when population standard deviation is unknown,
population normal and n is large is2
  X  Z / 2 S .
n

Example:
1. Suppose that a car rental firm in Addis wants to estimate the average number of miles traveled
by each of its cars rented. A random sample of 110 cars rented reveals that the sample means
travel distance per day is 85.5 miles, with a sample standard deviation of 19.3 miles. Compute a
99% confidence interval to estimate  .
Solution:
n= 110 rented cars X = 85.5 miles s = 19.3 miles C= 0.99
S 19.3
i. S X  = = 1.84 iv.   X  Z / 2 s
n 110 n
ii. α = 1 – C = 1- 0.99 = 0.01 = 85.5 ± 2.57(1.84)
 2 = 0.01/2 = 0.005 = 85.5 ± 4.73
iii. Z / 2  Z 0.005  2.57
80.77 ≤  ≤ 90.23

We state with 99% confidence that the average distance traveled by rented cars lies between
80.77 and 90.23 miles.
2. A study is being conducted in a company that has 800 engineers. A random sample of 50 of
these engineers reveals that the average sample age is 34.3 years, and the sample standard
deviation is 8 years. Assuming normality, construct a 98% confidence interval to estimate the
average age of all engineers in this company.
Solution:
n= 50 engineers N = 800 engineers X = 34.3 years s = 8 years C= 0.98
S N n 3 8 800  50
i. S X  * = * = 1.10
n N 1 50 800  1

2
This formula also works for large sample size even though the parent population is not normally
distributed.

3
Since the sample size is greater than 5% of the population size, finite population multiplier is used to
calculate the sample standard error of the mean.

7
 ii. α = 1 – C = 1- 0.98 = 0.02
 2 = 0.02/2 = 0.01
iii. Z  / 2  Z 0.01  2.33
N n
iv.   X  Z / 2 s *
n N 1
= 34.3 ± 2.33(1.10)
= 34.3 ± 2.56

31.74 ≤  ≤ 36.86
We state with 98% confidence that the mean age of engineers lies between 31.74 and 36.86
years.

C. Confidence interval for    unknown, n-small, population normal

If the sample size is small (n<30), we can develop an interval estimate of a population mean only
if the population has a normal probability distribution. If the sample standard deviation s is used
as an estimator of the population standard deviation  and if the population has a normal
distribution, interval estimation of the population mean can be based up on a probability
distribution known as t-distribution.

Characteristics of t-distribution

1. The t-distribution is symmetric about its mean (0) and ranges from - ∞ to ∞.
2. The t-distribution is bell-shaped (unimodal) and has approximately the same appearance as
the standard normal distribution (Z- distribution).
3. The t-distribution depends on a parameter ν (Greek Nu)4, called the degrees of freedom of the
distribution. Ν = n -1, where n is sample size. The degree of freedom, ν, refers to the number
of values we can choose freely.
4. The variance of the t-distribution is ν/ (ν-2) for ν>2.
5. The variance of the t-distribution always exceeds 1.
6. As ν increases, the variance of the t-distribution approaches 1 and the shape approaches that
of the standard normal distribution.
7. Because the variance of the t-distribution exceeds 1.0 while the variance of the Z-distribution
equals 1, the t-distribution is slightly flatter in the middle than the Z-distribution and has
thicker tails.

4
What are degrees of freedom? We can define them as the number of values we can choose freely. In
general, the degrees of freedom for a t statistic are the degrees of freedom associated with the sum of
squares used to obtain an estimate of the variance. The variance estimate depends on not only on the
sample size but also on how many parameters must be estimated with the sample:
Degrees of  Number of  Number of parameters that
freedom Observations must be estimated beforehand
Here we calculate sample variance by using n observations and estimating one parameter (the mean).
Thus, there are (n – 1) degrees of freedom.

8
 8. The t-distribution is a family of distributions with a different density function corresponding
to each different value of the parameter ν. That is, there is a separate t-distribution for each
sample size. In proper statistical language, we would say, “There is a different t-distribution
for each of the possible degrees of freedom”.
9. The t formula for sample when  is unknown, the sample size is small, and the population is
normally distributed is: t  X    X   This formula is essentially the same as the z-
SX s
n
formula, but the distribution table values are not.

The confidence interval to estimate  becomes:

  X  t / 2,v s
n

Where: X = sample mean

α=1–C
ν = n – 1 (degrees of freedom)
s = sample standard deviation
n = sample size
 = unknown population mean
Steps:
i. Calculate degrees of freedom (v=n-1) and sample standard error of the mean.
ii. Compute  2

iii. Look up t / 2 ,V
iv. Construct the confidence interval
v. Interpret results

Example:
1. If a random sample of 27 items produces x = 128.4 and s = 20.6. What is the 98% confidence
interval for  ? Assume that x is normally distributed for the population. What is the point
estimate?
Solution:

The point estimate of the population mean is the sample mean, in this case 128.4 is the point
estimate.

n= 27 X = 128.4 s = 20.6 C= 0.98

S 20.6
i. S X  = = 3.96 ν = n – 1 = 27-1 = 26
n 27
ii. α = 1 – C = 1- 0.98 = 0.02
 2 = 0.02/2 = 0.01
iii. t / 2,v t 0.01, 26  2.479

9
 iv.   X  t / 2,v s
n
= 128.4 ± 2.479(3.96)
= 128.4 ± 9.82

118.56 ≤  ≤ 138.22
We state with 98% confidence that the population mean lies between 118.56 and 138.23.

2. A sample of 20 cab fares in Bahir Dar city shows a sample mean of Br 2.50 and a sample
standard deviation of Br. 0.50. Develop a 90% confidence interval estimate of the mean cab
fares in Bahir Dar city. Assume the population of cab fares has a normal distribution.

n= 20 X = Birr 2.50 s = Birr 0.50 C= 0.90

S 0.5
i. S X  = = 0.112 ν = n – 1 = 20-1 = 19
n 20
ii. α = 1 – C = 1- 0.90 = 0.10
 2 = 0.10/2 = 0.05
iii. t / 2,v t 0.05,19  1.729
iv.   X  t / 2,v s
n
= 2.50 ± 1.729(0.112)
= 2.50 ± 0.194
2.31 ≤  ≤ 2.69
We state with 90% confidence that the mean of cab fares in Bahir Dar city lies between Birr 2.31
and 2.69.

3. Sales personnel for X Company are required to submit weekly reports listing customer contacts
made during the week. A sample of 61 weekly contact reports showed a mean of 22.4 customer
contacts per week for the sales personnel. The sample standard deviation was 5 contacts.

a. Develop a 95% confidence interval estimate for the mean number of weekly customer
contacts for the population of sales personnel.
b. Assume that the population of weekly contact data has a normal distribution. Use the t
distribution to develop a 95% confidence interval for the mean number of weekly
customer contacts.
c. Compare your answer for parts (a) and (b). What do you conclude from your results?

Solution:
a.
n= 61 weekly contact reports5 X = 22.4 contacts s = 5 contacts C= 0.95
S 5
i. S X  = = 0.64
n 61

5
Since the sample size is large, we use the Z-distribution to construct the confidence interval.

10
 ii. α = 1 – C = 1- 0.95 = 0.05
 2 = 0.05/2 = 0.025
iii. Z / 2  Z 0.025  1.96
iv.   X  Z / 2 s
n
= 22.4 ± 1.96(0.64)
= 22.4 ± 1.25

21.15 ≤  ≤ 23.65

I state with 95% confidence that the mean weekly contact lies between 21.15 and 23.65 contacts.

b.
n= 61 weekly contact reports X = 22.4 contacts s = 5 contacts C= 0.95
S 5
i. S X  = = 0.64 ν = n – 1 = 61 – 1 = 60
n 61
ii. α = 1 – C = 1- 0.95 = 0.05
 2 = 0.05/2 = 0.025
iii. t / 2,v t 0.025,60  2.00
iv.   X  t / 2,v s
n
= 22.4 ± 2.00 (0.64)
= 22.4 ± 1.28

21.12 ≤  ≤ 23.68

I state with 95% confidence that the mean weekly contact lies between 21.12 and 23.68 contacts.

c. As the sample size increases, the t-distribution and z (normal) distribution approximate to be
equal.

2.3.2. Interval Estimation of the Population Proportion

We know that a sample proportion, p , is an unbiased estimator of a population proportion P and

if the sample size is large then, the sampling distribution of p is normal with
PP PP
Z  .
p Pq
n

11
 PP
However, here p is unknown and we want to estimate p by p and hence z becomes Z  .
pq
n

That is,  p is substituted by S p  pq

n

Solving for P results in P  p  Z p q and since Z can assume both positive and negative
n

values, it becomes P  p  Z p q .
n

P  p  Z / 2 pq
Since Z represents the confidence level we write it as n
 p  Z / 2 S p
Where: p = sample proportion
q =1- p
α=1–C
n = sample size
P = unknown population proportion
Example:
1. Recently, a study of 87 randomly selected companies with telemarketing operation was
completed. The study revealed that 39% of the sampled companies had used telemarketing to
assist them in order processing. Using this information estimate the population proportion of
telemarketing companies who use their telemarketing operation to assist them in order
processing taking a 95% confidence level.
Solution:
n= 87 p = 0.39 q = 0.61 C = 0.95

i. S p  pq = 0.61 * 0.39 = 0.0523

n 87
ii. α = 1 – C = 1- 0.95 = 0.05
 2 = 0.05/2 = 0.025
iii. Z / 2  Z 0.025  1.96
iv. P  p  Z / 2 S p
= 0.39 ± 1.96(0.0523)
= 0.39 ± 0.1025

0.2875 ≤ P ≤ 0.4925
We state with 95% confidence that the proportion of companies which use telemarketing to assist
order processing lies between 0.2875 and

2. A fast food restaurant took a random sample of 400 customers to determine the proportion of
customers who are female. A confidence interval of .73 to .87 was reported.

12
 a. Find the number of females and the sample proportion
b. Find the level of confidence of this interval
Solution:
a.
n= 400 0.73 ≤ P ≤ 0.87 p =? Number of females=?
0.73  0.87
Point estimate =  0.80
2
Or;
0.73  p  Z / 2 s p


0.87  p  Z / 2 s p

1.60 = 2 p
p = 0.8
Number of females (X) = n* p = 400*0.8 = 320
b.
P  p  Z / 2 S p
0.87 = 0.8+ Z / 2 S p

0.07 = Z / 2 0.8 * 0.2

400
0.07 = Z  / 2 * 0.02
3.50 = Z  / 2
(P/Z=3.5) = 0.49977
C = 0.49977*2
= 99.954%
3. A random sample of 400 faculty members at AAU contained 120 people who believed that the
University should improve its library service. On the basis of this sample information, an analyst
calculated the confidence interval (.25, .35) for the population proportion of faculty members
favoring improvement. What is the level of confidence of this interval?
Solution:
n= 400 X = 120 p = 0.30 Interval estimate 0.25 ≤ P ≤ 0.30 C =?
P  p  Z / 2 S p
0.25 = 0.30 - Z / 2 S p

0.05 = Z / 2 0.7 * 0.3

400
0.05 = Z  / 2 * 0.023
2.17 = Z  / 2
(P/Z=2.17) = 0.485
C = 0.485*2
= 97%

13
 2.4. Interval Estimation of the Difference between two independent Means
It is clear that the unbiased point estimate of the difference between the means of two

populations 1  2  is the difference between two sample means x1  x2 , where each sample 
is a random sample taken from the respective target population. The confidence interval is
constructed by adding the relevant standard error value which is called standard error of the
difference between means and the confidence level desired.

Interval Estimation of 1  2 - population normal,  known

If the two parent populations are normal, then the sampling distribution of the difference
between two means will be normally distributed regardless of n (sample size). And we can
estimate 1  2 (regardless of n1 & n2 using the following formula; given that  1 &  2 are known.

 1   2  X 1  X 2  Z  / 2 X  X 6
1 2

 12  22
X   X2   X2  
1X2 1 2
n1 n2
When  1 and  2 are not known, the standard error between two sample means  x1  x2 is  
estimated by the sample standard error of the difference between two sample means,
S12 S 22
SX  S 2
S 2
  , and the interval estimation takes the following form:
1X2 X1 X2
n1 n2

1   2  X 1  X 2  Z / 2 S X  X 1 2
, given that the sample sizes are large.

Example:
1. In a sex discrimination case, an employee alleged that a large corporation paid men more than
women for comparable work. Let population 1 represent all male employees performing certain
jobs and population 2 represent all female employees performing comparable jobs at the
corporation. Independent samples are taken of n1  100 males and n2  100 females; the sample
means are x1  Birr 20,600 and x 2  Birr 19,700 , and the sample standard deviations are
s1  Birr 3,000 and s 2  Birr 2,500 . Construct a 95% confidence interval for 1  2 . What do
you conclude from this?
Solution:
Male employees Female employees
n1  100 males n2  100 females C= 0.95
x1  Birr 20,600 x 2  Birr 19,700
s1  Birr 3,000 s 2  Birr 2,500
Steps:
i. Calculate the (sample) standard error of the difference between two means

6
This formula works also for problems which involve large sample sizes n1 & n2  30 even though the
parent population may not be normally distributed.

14
 S12 S 22 (3,000) 2 (2,500) 2
SX      142,500  390.51
1X2
n1 n2 100 100
ii. Compute  2
α = 1-C = 1- 0.95 = 0.05
α/2 = 0.05/2 = 0.025
iii. Look up Z  / 2  Z 0.025  1.96
iv. Construct the confidence interval
1   2  X 1  X 2  Z / 2 S X  X
1 2

1   2  (20,600  19,700)  1.96(390.51) = 900

± 765.40
134.60 ≤ 1  2 ≤ 1,665.40
We state with 95% confidence that the mean salary difference between the male and female
workers lies between Birr 134.60 and Birr 1665.40

Because this interval contains only positive values, we can be quite confident that 1  2  > 0.
Thus, it reasonable to assume that the mean salary for males exceeds the mean salary for
females.

2. A farmer wants to determine if different types of feed can influence the mean member of eggs
that hens lay per month. In a random sample of 100 hens that ate feed 1, the average member of
eggs per month was x1  15.2 with variance 4. In a random sample of 100 hens that ate feed2,
the average number of eggs per month was x2  14 with variance 4. Construct a 95% confidence
interval for 1  2 . What do you conclude?
Solution:
Feed 1 Feed 2
n1  100 hens n2  100 hens C= 0.95
x1 15.2 eggs x 2  14 eggs
s  4 eggs
2
1 s 22  4 eggs
Steps:
i. Calculate the (sample) standard error of the difference between two means
S12 S 22 4 4
SX      0.08  0.283
1X2
n1 n2 100 100
ii. Compute  2
α = 1-C = 1- 0.95 = 0.05
α/2 = 0.05/2 = 0.025
iii. Look up Z  / 2  Z 0.025  1.96
iv. Construct the confidence interval
1   2  X 1  X 2  Z / 2 S X  X
1 2

1  2  (15.2  14)  1.96(0.283)

= 1.2 ± 0.5547
15
 0.6453 ≤ 1  2 ≤ 1.7547

We state with 95% confidence that the mean number of eggs laid by hens which ate the two type
of feeds lies between 0.6543 eggs and 1.7547 eggs.

Since the interval contains only positive values, then those hens which ate feed type 1 are more
productive than those hens that ate feed type 2.

2.5. Determination of Sample Size

The reason for taking a sample from a population is that it would be too costly to gather data for
the whole population. But collecting sample data also costs money; and the larger the sample,
the higher the cost. To hold cost down, we want to use as small a sample as possible. On the
other hand, we want a sample to be large enough to provide “good” approximation/estimates of
population parameters. Consequently, the question is “How large should the sample be?”

The answer depends on three factors:

1) How precise (narrow) do we want a confidence interval to be?
2) How confident do we want to be that the interval estimate is correct?
3) How variable is the population being sampled?

2.4.1. Sample size for estimating population mean, 

The confidence interval for  is   X  Z / 2  .
n

From the above expression Z  / 2 is called error of estimation (e). That is, the difference
n
between x and  which results from the sampling process. So

e = Z / 2
n
2 Z 2 / 2 2
Squaring both sides results in e 2  Z 2 / 2 . Solving for n results in, n 
n e2

2
Z
n    / 2 
 e 
Example:
1. A gasoline service station shows a standard deviation of Birr 6.25 for the changes made by the
credit card customers. Assume that the station’s management would like to estimate the
population mean gasoline bill for its credit card customers to be with in ± Birr 1.00. For a 95%
confidence level, how large a sample would be necessary?
Solution:
e = Birr 1.00 σ = Birr 6.25 C = 0.95 Z  / 2  Z 0.025  1.96

16
 Z  
2

n    / 2 
 e 
2
 1.96 * 6.25 
n    7
 1 
150.06  151

2. The National Travel and Tour Organization (NTO) would like to estimate the mean amount of
money spent by a tourist to be with in Birr 100 with 95% confidence. If the amount of money
spent by tourist is considered to be normally distributed with a standard deviation of Br 200,
what sample size would be necessary for the NTO to meet their objective in estimating this mean
amount?
Solution:
e = Birr 100 σ = Birr 200 C = 0.95 Z  / 2  Z 0.025  1.96
Z  
2

n    / 2 
 e 
2
 1.96 * 200 
n   
 100 
15.37  16

If population standard deviation,  , is unknown we have to make an educated guess or take a

pilot sample and estimate it.
H L
- The rough approximation is   because 95.4% of the total population falls with
4
in  2 .
  1 4 range
Relationship between the error term and sample size
Reducing error term in estimation of an interval estimate to 1/a of the original amount, while
holding the confidence level constant requires a sample size of a2 times the original sample size.

2.4.2. Sample size for estimating population proportion, p.

pq pq
The confidence interval for p is P  p  Z  / 2 . The expression Z  / 2 is called the error
n n
term (e). That is,
pq
e  Z / 2 , squaring both sides
n

7
It a procedure for determining sample size produces a non-integer value, always round to the next
larger integer.

17
 pq
e 2  Z 2 / 2 , solving for n
n
Z 2 / 2 p q
np 
e2
Since we are trying to determine n, we can not have p and q . Instead, we should have p and q.
2
 Z / 2 
n 
so it becomes p   pq
 e 
Example
1. Suppose that a production facility purchases a particular component parts in large lots from a
supplier. The production manager wants to estimate the proportion of defective parts received
from this supplier. She believes that the proportion of defects is no more than 0.2 and wants to
be with in 0.02 of the true proportion of defects with a 90% level of confidence. How large a
sample should she take?
Solution:
e = 0.02 p = 0.2 q =0.8 C = 0.90 Z  / 2  Z 0.05  1.64
2
Z 
n p    / 2  pq
 e 
2
 1.64 
np    0.2 * 0.8
 0.02 
 1075.84  1076

2. What is the largest sample size that would be needed in estimating a population proportion to
with in ± 0.02, with a confidence coefficient of 0.95?
Solution:
e = 0.02 C = 0.95 Z  / 2  Z 0.025  1.96

The largest sample size would be obtained when p = 0.5. So,

2
Z 
n p    / 2  pq
 e 
2
 1.96 
np    0.5 * 0.5
 0.02 
 2401
If p is unknown and there is no possibility of estimating it, use 0.5 as the value of p because it
will generate the greatest possible sample size as compared with other values.

2.4.3. Determining Sample Size When Estimating 1  2

When taking two random samples and using the difference in sample means to estimate the
difference in population means, a researcher should have an idea of how large the sample sizes

18
 need to be solving for n form the formula Z 
X 1 
 X 2   1   2 
does not look promising,
 12  22

n1 n2
because the equation has nine variables including two different values of n. However making
some assumptions can generate a workable sample size formula.
1. Variances of the two populations are the same: 1   2   2
2 2

2. The sample size for each sample is the same: n1  n2  n

 
The difference between x1  x 2 and 1  2 is the error of estimation. Or e  x1  x 2  1  2 .

Incorporating these assumptions into the z-formula yields

e e e e
Z = = =
2 2 2 2 2 2

2


n n n n n

Solving for n produces the sample size:

2 * Z 2 / 2 2 Z  
2

n  2  / 2 
e2  e 
The above formula suggests that the necessary sample sizes for comparing two sample means are
each twice as large as the required sample size for estimating single sample means. It is clear
that the larger the sample, the more it costs. Thus sample size formulas can be effective aids in
ensuring that a research project’s goals are met and that the cost of sampling is minimized.

Example:
1. A college admissions officer wants to estimate the difference in the average GMAT scores of
men and women. She plans to take a random sample of men and women who have taken the
GMAT at the same time. She wants to be with in 10 points of the true difference in the mean
scores of men and women and 95% confident of her results. Past GMAT test results indicate that
the standard deviation of GMAT test scores is about 105 points. How large the sample sizes be?
Solution:
e = 10 points σ = 105 points C = 0.95 Z  / 2  Z 0.025  1.96 n=?
Z  
2

n  2  / 2 
 e 
2
 1.96 *105 
n  2 
 10 
 2( 421.54)
 847.10  848

2. A researcher wants to estimate the difference between the average price of a 21-inch black and
white TV and the average price of a 21-inch color TV set. He believes that the standard
19
deviation of the price of a 21-inch TV set is about Birr 100. He wants to be 99% confident of his
results and with in Birr 20 of the true difference. How large a sample should he take for each
type of television set?
Solution:
e = Birr 20 σ = Birr 100 C = 0.99 Z  / 2  Z 0.005  2.57 n=?
Z  
2

n  2  / 2 
 e 
2
 2.57 *100 
n  2 
 20 
 2(165.12)
 330.24.10  331

20