Statistics for

Business and Economics

6th Edition

Chapter 9

Estimation: Additional Topics

Statistics for Business and Economics, 6e 2007 Pearson Education, Inc. Chap 9-1
 Chapter Goals
After completing this chapter, you should be able to:
Form confidence intervals for the mean difference from dependent
samples
Form confidence intervals for the difference between two
independent population means (standard deviations known or
unknown)
Compute confidence interval limits for the difference between two
independent population proportions
Create confidence intervals for a population variance
Find chi-square values from the chi-square distribution table
Determine the required sample size to estimate a mean or
proportion within a specified margin of error
Statistics for Business and
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-2
 Estimation: Additional Topics

Chapter Topics

Population Population
Means, Means, Population Population
Dependent Independent Proportions Variance
Samples Samples
Examples:
Same group Group 1 vs. Proportion 1 vs. Variance of a
before vs. after independent Proportion 2 normal distribution
Statistics
treatmentfor Business and2
Group
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-3
 Dependent Samples
Tests Means of 2 Related Populations
Dependent Paired or matched samples
samples Repeated measures (before/after)
Use difference between paired values:

di = xi - yi

Eliminates Variation Among Subjects

Assumptions:

Both Populations Are Normally Distributed

Statistics for Business and
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-4
 Mean Difference
The ith paired difference is di , where
Dependent
samples
di = x i - y i
n
The point estimate for
the population mean d i

paired difference is d : d i 1
n
n
The sample
standard (di d) 2

deviation is: S d i1
n 1
Statistics for Business and
Economics, 6e n2007 is the Pearson
number of matched pairs in the sample
Education, Inc. Chap 9-5
 Confidence Interval for
Mean Difference
The confidence interval for difference
Dependent between population means, d , is
samples

Sd Sd
d t n1,/2 d d t n1,/2
n n
Where
n = the sample size
(number of matched pairs in the paired sample)

Statistics for Business and

Economics, 6e 2007 Pearson
Education, Inc. Chap 9-6
 Confidence Interval for
Mean Difference
(continued)

Dependent
The margin of error is
samples
sd
ME t n1,/2
n

tn-1,/2 is the value from the Students t

distribution with (n 1) degrees of freedom
for which

P(t n1 t n1,/2 )
Statistics for Business and 2
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-7
 Paired Samples Example
Six people sign up for a weight loss program. You
collect the following data:

Weight: di
Person Before (x) After (y) Difference, di d = n
1 136 125 11 = 7.0
2 205 195 10
3 157 150 7
4 138 140 -2
Sd
i
(d d) 2

5 175 165 10 n 1
6 166 160 6
Statistics for Business and 42 4.82
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-8
 Paired Samples Example
(continued)

For a 95% confidence level, the appropriate t value is

tn-1,/2 = t5,.025 = 2.571
The 95% confidence interval for the difference between
means, d , is
Sd S
d t n1,/2 d d t n1,/2 d
n n
4.82 4.82
7 (2.571) d 7 (2.571)
6 6
1.94 d 12.06

Sincefor
Statistics thisBusiness
interval contains
andzero, we cannot be 95% confident, given this
limited data, that the weight loss program helps people lose weight
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-9
 Difference Between Two Means

Population means, Goal: Form a confidence interval

independent for the difference between two
samples population means, x y
Different data sources
Unrelated

Independent

Sample selected from one population has no effect on the

sample selected from the other population
The point estimate is the difference between the two
sampleformeans:
Statistics Business and
Economics, 6e 2007 Pearsonxy
Education, Inc. Chap 9-10
 Difference Between Two Means
(continued)

Population means,
independent
samples

x2 and y2 known Confidence interval uses z/2

x2 and y2 unknown

x2 and y2
assumed equal Confidence interval uses a value
Statistics for Business
2 2
and from the Students t distribution
x and y
Economics, 6e 2007 Pearson
assumed unequal
Education, Inc. Chap 9-11
 x2 and y2 Known

Population means, Assumptions:

independent
samples Samples are randomly and
independently drawn
x2 and y2 known
* both population distributions
x2 and y2 unknown are normal

Population variances are

known
Statistics for Business and
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-12
 x2 and y2 Known
(continued)

When x and y are known and

Population means,
independent both populations are normal, the
samples variance of X Y is
2 2
x y
2X Y
x2 and y2 known
* nx ny

x2 and y2 unknown and the random variable

(x y) (X Y )
Z
2
2x y

nX nY
Statistics for Business and
Economics, 6e 2007 Pearson
has a standard normal distribution
Education, Inc. Chap 9-13
 Confidence Interval,
x2 and y2 Known

Population means,
independent
samples

x2 and y2 known
* The confidence
is:
x y
interval for

x2 and y2 unknown

2X 2Y 2X 2Y
(x y) z /2 X Y (x y) z /2
Statistics for Business
nx ny and nx ny
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-14
 x2 and y2 Unknown,
Assumed Equal

Population means, Assumptions:

independent Samples are randomly and
samples
independently drawn

x2 and y2 known Populations are normally

distributed
x2 and y2 unknown
Population variances are
x2 and y2
assumed equal
Statistics for Business
*
and
unknown but assumed equal

2 2
x and y
Economics, 6e 2007 Pearson
assumed unequal
Education, Inc. Chap 9-15
 x2 and y2 Unknown,
Assumed Equal
(continued)

Population means, Forming interval

independent estimates:
samples
The population variances
x2 and y2 known are assumed equal, so use
the two sample standard
deviations and pool them to
x2 and y2 unknown
estimate
x2 and y2
assumed equal
Statistics for Business
*
and
use a t value with
(nx + ny 2) degrees of
x2 and y2
Economics, 6e 2007 Pearson freedom
assumed unequal
Education, Inc. Chap 9-16
 x2 and y2 Unknown,
Assumed Equal
(continued)

Population means,
independent
samples
The pooled variance is
x and known
2
y
2

x2 and y2 unknown (nx 1)s2x (ny 1)s2y

sp2
nx ny 2
x2 and y2
assumed equal
Statistics for Business
*
and
2 2
x and y
Economics, 6e 2007 Pearson
assumed unequal
Education, Inc. Chap 9-17
 Confidence Interval,
x2 and y2 Unknown, Equal

x2 and y2 unknown

x2 and y2
assumed equal * The confidence interval for
x2 and y2
1 2 is:
assumed unequal

sp2 sp2 sp2 sp2

(x y) t nx n y 2,/2 X Y (x y) t nx ny 2,/2
nx ny nx ny

Statistics for Business

(n x and
1)s 2
x (n y 1)s 2
y
s 2

Where 6ep 2007 Pearson
Economics, nx ny 2
Education, Inc. Chap 9-18
 Pooled Variance Example

You are testing two computer processors for speed.

Form a confidence interval for the difference in CPU
speed. You collect the following speed data (in Mhz):

CPUx CPUy
Number Tested 17 14
Sample mean 3004 2538
Sample std dev 74 56

Assume both populations are

normal with equal variances,
Statistics and
for Business
use 95%and
confidence
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-19
 Calculating the Pooled Variance

The pooled variance is:

S
2
n x 1 S x
2
n y 1 S y
2

17 1 742 14 1 562
4427.03
p
(n x 1) (n y 1) (17 - 1) (14 1)

The t value for a 95% confidence interval is:

t n x ny 2 , /2 t 29 , 0.025 2.045

Statistics for Business and

Economics, 6e 2007 Pearson
Education, Inc. Chap 9-20
 Calculating the Confidence Limits

The 95% confidence interval is

sp2 sp2 sp2 sp2

(x y) t n x n y 2,/2 X Y (x y) t n x n y 2,/2
nx ny nx ny

4427.03 4427.03 4427.03 4427.03

(3004 2538) (2.054) X Y (3004 2538) (2.054)
17 14 17 14

416.69 X Y 515.31

Statistics
We arefor95%
Business and that the mean difference in
confident
Economics, 6e is
CPU speed 2007 Pearson
between 416.69 and 515.31 Mhz.
Education, Inc. Chap 9-21
 x2 and y2 Unknown,
Assumed Unequal

Population means, Assumptions:

independent Samples are randomly and
samples
independently drawn

x2 and y2 known Populations are normally

distributed
x2 and y2 unknown
Population variances are
x2 and y2 unknown and assumed
assumed equal unequal
Statistics for Business and
*
2 2
x and y
Economics, 6e 2007 Pearson
assumed unequal
Education, Inc. Chap 9-22
 x2 and y2 Unknown,
Assumed Unequal
(continued)

Forming interval estimates:

Population means,
independent
The population variances are
samples
assumed unequal, so a pooled
variance is not appropriate
x2 and y2 known
use a t value with degrees
x2 and y2 unknown of freedom, where
2
s 2x s 2y
x2 and y2 ( ) ( )
assumed equal n x n y
v 2
Statistics for Business and sx
2
2
s 2

x2 and y2
assumed unequal
Education, Inc.
*
Economics, 6e 2007 Pearson /(nx 1) y /(ny 1)
n x
n
y
Chap 9-23
 Confidence Interval,
x2 and y2 Unknown, Unequal

x2 and y2 unknown

x2 and y2
assumed equal
The confidence interval for
1 2 is:
x2 and y2
assumed unequal *
2 2
s2x s y s2x s y
(x y) t ,/2 X Y (x y) t ,/2
nx ny nx ny
2
s2x s2y
( ) ( )
Statistics for Business and v n x n y
Where
Economics, 6e 2007 Pearson
2
s2x s2
2

/(nx 1) y /(ny 1)
n
nx y
Education, Inc. Chap 9-24
 Two Population Proportions
Goal: Form a confidence interval for
Population the difference between two
proportions population proportions, Px Py

Assumptions:
Both sample sizes are large (generally at
least 40 observations in each sample)

The point estimate for

Statistics for Business and
the difference is
p x p y
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-25
 Two Population Proportions
(continued)

The random variable

Population
proportions
(p x p y ) (p x p y )
Z
p x (1 p x ) p y (1 p y )

nx ny

is approximately normally distributed

Statistics for Business and
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-26
 Confidence Interval for
Two Population Proportions

Population The confidence limits for

proportions
Px Py are:

p x (1 p x ) p y (1 p y )
(p x p y ) Z / 2
nx ny

Statistics for Business and

Economics, 6e 2007 Pearson
Education, Inc. Chap 9-27
 Example:
Two Population Proportions
Form a 90% confidence interval for the
difference between the proportion of
men and the proportion of women who
have college degrees.

In a random sample, 26 of 50 men and

28 of 40 women had an earned college
degree
Statistics for Business and
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-28
 Example:
Two Population Proportions
(continued)

26
Men: p x 0.52
50

Women: p y 28 0.70
40

p x (1 p x ) p y (1 p y ) 0.52(0.48) 0.70(0.30)
0.1012
nx ny 50 40

For 90% confidence, Z/2 = 1.645

Statistics for Business and
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-29
 Example:
Two Population Proportions
(continued)

The confidence limits are:

p x (1 p x ) p y (1 p y )
(p x p y ) Z /2
nx ny

(.52 .70) 1.645 (0.1012)

so the confidence interval is

-0.3465 < Px Py < -0.0135

Statistics
Since thisfor Business
interval and
does not contain zero we are 90% confident that the
Economics, 6e 2007
two proportions are notPearson
equal
Education, Inc. Chap 9-30
 Confidence Intervals for the
Population Variance

Population Goal: Form a confidence interval

Variance
for the population variance, 2

The confidence interval is based on

the sample variance, s2

Assumed: the population is

normally distributed
Statistics for Business and
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-31
 Confidence Intervals for the
Population Variance
(continued)

Population The random variable

Variance
(n 1)s 2
2
n 1 2

follows a chi-square distribution
with (n 1) degrees of freedom
2
The chi-square value n1, denotes the number for which
Statistics for Business
P(and
n21 n21, )
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-32
 Confidence Intervals for the
Population Variance
(continued)

Population The (1 - )% confidence interval

Variance for the population variance is

(n 1)s 2
(n 1)s 2

2
2
2

n1, /2 n1, 1 - /2

Statistics for Business and

Economics, 6e 2007 Pearson
Education, Inc. Chap 9-33
 Example

You are testing the speed of a computer processor. You

collect the following data (in Mhz):

CPUx
Sample size 17
Sample mean 3004
Sample std dev 74

Assume the population is normal.

Determine the 95% confidence interval for x2
Statistics for Business and
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-34
 Finding the Chi-square Values
n = 17 so the chi-square distribution has (n 1) = 16
degrees of freedom
= 0.05, so use the the chi-square values with area
0.025 in each tail:
n21, /2 16
2
, 0.025 28.85

n21, 1 - /2 16
2
, 0.975 6.91

probability probability
/2 = .025 /2 = .025
Statistics for Business and 216
Economics, 6e 2007 216 = Pearson
6.91 216 = 28.85
Education, Inc. Chap 9-35
 Calculating the Confidence Limits
The 95% confidence interval is
(n 1)s 2 (n 1)s 2

2
2
2
n1, /2 n1, 1 - /2

(17 1)(74)2 (17 1)(74) 2

2
28.85 6.91
3037 2 12683

Converting to standard deviation, we are 95%

Statistics for Business
confident that theand
population standard deviation of
Economics, CPU6e speed
2007isPearson
between 55.1 and 112.6 Mhz
Education, Inc. Chap 9-36
 Sample PHStat Output

Statistics for Business and

Economics, 6e 2007 Pearson
Education, Inc. Chap 9-37
 Sample PHStat Output
(continued)

Input

Output

Statistics for Business and

Economics, 6e 2007 Pearson
Education, Inc. Chap 9-38
 Sample Size Determination

Determining
Sample Size

For the For the

Mean Proportion

Statistics for Business and

Economics, 6e 2007 Pearson
Education, Inc. Chap 9-39
 Margin of Error
The required sample size can be found to reach a
desired margin of error (ME) with a specified level of
confidence (1 - )

The margin of error is also called sampling error

the amount of imprecision in the estimate of the population
parameter
the amount added and subtracted to the point estimate to
form the confidence interval

Statistics for Business and

Economics, 6e 2007 Pearson
Education, Inc. Chap 9-40
 Sample Size Determination

Determining
Sample Size

For the
Mean Margin of Error
(sampling error)

x z /2 ME z /2
n n
Statistics for Business and
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-41
 Sample Size Determination
(continued)

Determining
Sample Size

For the
Mean

2 2
z
ME z /2
n
Now solve
for n to get n /2
2
Statistics for Business and ME
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-42
 Sample Size Determination
(continued)

To determine the required sample size for the

mean, you must know:

The desired level of confidence (1 - ), which

determines the z/2 value
The acceptable margin of error (sampling error), ME
The standard deviation,

Statistics for Business and

Economics, 6e 2007 Pearson
Education, Inc. Chap 9-43
 Required Sample Size Example
If = 45, what sample size is needed to
estimate the mean within 5 with 90%
confidence?

2 2 2 2
z (1.645) (45)
n /2
2
2
219.19
ME 5

So the required sample size is n = 220

Statistics for Business and (Always round up)
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-44
 Sample Size Determination

Determining
Sample Size

For the
Proportion

p (1 p ) p (1 p )
p z /2 ME z /2
n n
Statistics for Business and
Margin of Error
Economics, 6e 2007 Pearson
(sampling error)
Education, Inc. Chap 9-45
 Sample Size Determination
(continued)

Determining
Sample Size

For the
Proportion
p (1 p )
ME z /2
n
p (1 p ) cannot Substitute 2
be larger than 0.25 for p (1 p ) 0.25 z
Statistics
0.25, whenfor pBusiness
= and
and solve for n 2
/2

Economics,
0.5 6e 2007 Pearson
n to get
ME
Education, Inc. Chap 9-46
 Sample Size Determination
(continued)
The sample and population proportions, p and P, are
generally not known (since no sample has been taken
yet)
P(1 P) = 0.25 generates the largest possible margin
of error (so guarantees that the resulting sample size
will meet the desired level of confidence)
To determine the required sample size for the
proportion, you must know:
The desired level of confidence (1 - ), which determines the
critical z/2 value
TheBusiness
Statistics for acceptableand
sampling error (margin of error), ME
Economics,
6e 2007
Estimate Pearson
P(1 P) = 0.25
Education, Inc. Chap 9-47
 Required Sample Size Example

How large a sample would be necessary

to estimate the true proportion defective in
a large population within 3%, with 95%
confidence?

Statistics for Business and

Economics, 6e 2007 Pearson
Education, Inc. Chap 9-48
 Required Sample Size Example
(continued)

Solution:
For 95% confidence, use z0.025 = 1.96
ME = 0.03
Estimate P(1 P) = 0.25
2 2
0.25 z (0.25)(1.96)
n 2
/2
2
1067.11
ME (0.03)
Statistics for Business and So use n = 1068
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-49
 PHStat Sample Size Options

Statistics for Business and

Economics, 6e 2007 Pearson
Education, Inc. Chap 9-50
 Chapter Summary
Compared two dependent samples (paired samples)
Formed confidence intervals for the paired difference
Compared two independent samples
Formed confidence intervals for the difference between two
means, population variance known, using z
Formed confidence intervals for the differences between two
means, population variance unknown, using t
Formed confidence intervals for the differences between two
population proportions
Formed confidence intervals for the population variance
using the chi-square distribution
Determined required sample size to meet confidence
Statistics
andfor Business
margin andrequirements
of error
Economics, 6e 2007 Pearson
Education, Inc. Chap 9-51