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
treatment Group 2

Statistics for Business and 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  i
(d  d) 2

deviation is: Sd  i1

n 1
n is the number of matched pairs in the sample
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-5
 Confidence Interval for
Mean Difference
The confidence interval for difference
Dependent between population means, μd , is
samples

Sd Sd
d  t n1,α/2  μd  d  t n1,α/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 n1,α/2
n

 tn-1,/2 is the value from the Student’s t

distribution with (n – 1) degrees of freedom
for which
α
P(t n1  t n1,α/2 ) 
2

Statistics for Business and 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
42  4.82

Statistics for Business and 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, μd , is
Sd S
d  t n1,α/2  μd  d  t n1,α/2 d
n n
4.82 4.82
7  (2.571)  μd  7  (2.571)
6 6
 1.94  μd  12.06

Since this interval contains zero, we cannot be 95% confident, given this
limited data, that the weight loss program helps people lose weight

Statistics for Business and 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, μx – μy
 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
sample means:
x–y
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-10
 Difference Between Two Means
(continued)

Population means,
independent
samples

σx2 and σy2 known Confidence interval uses z/2

σx2 and σy2 unknown

σx2 and σy2

assumed equal Confidence interval uses a value
from the Student’s t distribution
σx2 and σy2
assumed unequal
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-11
 σx2 and σy2 Known

Population means, Assumptions:

independent
samples  Samples are randomly and
independently drawn
σx2 and σy2 known
*  both population distributions
σx2 and σy2 unknown are normal

 Population variances are

known

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-12
 σx2 and σy2 Known
(continued)

When σx and σy are known and

Population means,
independent both populations are normal, the
samples variance of X – Y is
2 2
σx σy
σ 2X Y  
σx2 and σy2 known
* nx ny

…and the random variable

σx2 and σy2 unknown
(x  y)  (μX  μY )
Z
2
σ 2x σ y

nX nY

has a standard normal distribution

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-13
 Confidence Interval,
σx2 and σy2 Known

Population means,
independent
samples

σx2 and σy2 known

* The confidence interval for
μx – μy is:
σx2 and σy2 unknown

σ 2X σ 2Y σ 2X σ 2Y
(x  y)  z α/2   μX  μY  (x  y)  z α/2 
nx ny nx ny

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-14
 σx2 and σy2 Unknown,
Assumed Equal

Population means, Assumptions:

independent  Samples are randomly and
samples
independently drawn

σx2 and σy2 known  Populations are normally

distributed
σx2 and σy2 unknown
 Population variances are
σx2 and σy2
assumed equal * unknown but assumed equal

σx2 and σy2

assumed unequal
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-15
 σx2 and σy2 Unknown,
Assumed Equal
(continued)

Population means, Forming interval

independent estimates:
samples
 The population variances
σx2 and σy2 known are assumed equal, so use
the two sample standard
deviations and pool them to
σx2 and σy2 unknown
estimate σ
σx2 and σy2
assumed equal *  use a t value with
(nx + ny – 2) degrees of
σx2 and σy2 freedom
assumed unequal
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-16
 σx2 and σy2 Unknown,
Assumed Equal
(continued)

Population means,
independent
samples
The pooled variance is
σx and σy known
2 2

σx2 and σy2 unknown (nx  1)s2x  (n y  1)s2y

sp2 
nx  ny  2
σx2 and σy2
assumed equal *
σx2 and σy2
assumed unequal
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-17
 Confidence Interval,
σx2 and σy2 Unknown, Equal

σx2 and σy2 unknown

σx2 and σy2

assumed equal * The confidence interval for
μ1 – μ2 is:
σx2 and σy2
assumed unequal

sp2 sp2 sp2 sp2

(x  y)  t nx ny 2,α/2   μX  μY  (x  y)  t nx ny 2,α/2 
nx ny nx ny

(nx  1)s2x  (ny  1)s2y

Where sp2 
nx  ny  2
Statistics for Business and Economics, 6e © 2007 Pearson 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,
and use 95% confidence

Statistics for Business and 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74 2  14  156 2
 4427.03
p
(n x  1)  (n y  1) (17 - 1)  (14  1)

The t value for a 95% confidence interval is:

t nx ny 2 , α/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 nx ny 2,α/2   μX  μY  (x  y)  t nx ny 2,α/2 
nx ny nx ny

4427.03 4427.03 4427.03 4427.03

(3004  2538)  (2.054)   μX  μY  (3004  2538)  (2.054) 
17 14 17 14

416.69  μX  μY  515.31

We are 95% confident that the mean difference in

CPU speed is between 416.69 and 515.31 Mhz.
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-21
 σx2 and σy2 Unknown,
Assumed Unequal

Population means, Assumptions:

independent  Samples are randomly and
samples
independently drawn

σx2 and σy2 known  Populations are normally

distributed
σx2 and σy2 unknown
 Population variances are
σx2 and σy2 unknown and assumed
assumed equal unequal
σx2 and σy2
assumed unequal *
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-22
 σx2 and σy2 Unknown,
Assumed Unequal
(continued)

Population means,
Forming interval estimates:
independent
 The population variances are
samples
assumed unequal, so a pooled
variance is not appropriate
σx2 and σy2 known
 use a t value with  degrees
σx2 and σy2 unknown of freedom, where
2
 s2x s2y 
σx2 and σy2 ( )  ( )
assumed equal  n x n y 
v 2 2
 sx 
2  s 2

σx2 and σy2
assumed unequal *
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc.
  /(nx  1)   y  /(ny  1)
 nx 
n 
 y
Chap 9-23
 Confidence Interval,
σx2 and σy2 Unknown, Unequal

σx2 and σy2 unknown

σx2 and σy2 The confidence interval for

assumed equal
μ1 – μ2 is:
σx2 and σy2
assumed unequal *
2 2
s2x s y s2x s y
(x  y)  t ,α/2   μX  μY  (x  y)  t ,α/2 
nx ny nx ny
2
 s2x s 2y 
( )  ( )
 n x n y 
Where v 2
 s2 
2
 s 2x 
  /(nx  1)   y  /(ny  1)
n 
 nx   y
Statistics for Business and Economics, 6e © 2007 Pearson 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

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

 The random variable

Population
proportions
(pˆ x  pˆ y )  (p x  p y )
Z
pˆ x (1 pˆ x ) pˆ y (1 pˆ 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:

pˆ x (1 pˆ x ) pˆ y (1 pˆ y )
(pˆ x  pˆ 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)

ˆ 26
Men: p x   0.52
50

ˆ 28
Women: p y   0.70
40

pˆ x (1 pˆ x ) pˆ y (1 pˆ 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:

pˆ x (1 pˆ x ) pˆ y (1 pˆ y )
(pˆ x  pˆ y )  Z α/2 
nx ny

 (.52  .70)  1.645 (0.1012)

so the confidence interval is

-0.3465 < Px – Py < -0.0135

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

Population  Goal: Form a confidence interval

Variance for the population variance, σ2

 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
σ
follows a chi-square distribution
with (n – 1) degrees of freedom
 2
The chi-square value n1,  denotes the number for which

P( χ n21  χ n21, α )  α

Statistics for Business and 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 (n  1)s2 2

2
σ  2
2

χ n1, α/2 χ n1, 1 - α/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 σx2

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:
χ n21, α/2  χ16
2
, 0.025  28.85

χ n21, 1 - α/2  χ16

2
, 0.975  6.91

probability probability
α/2 = .025 α/2 = .025

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

2
 σ 2
 2
χ n1, α/2 χ n1, 1 - α/2

(17  1)(74) 2 (17  1)(74) 2

 σ2 
28.85 6.91
3037  σ 2  12683

Converting to standard deviation, we are 95%

confident that the population standard deviation of
CPU speed is between 55.1 and 112.6 Mhz
Statistics for Business and Economics, 6e © 2007 Pearson 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)
σ σ
x  z α/2 ME  z α/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
σ z σ
ME  z α/2
n
Now solve
for n to get n α/2
2
ME
Statistics for Business and 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, σ

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 σ (1.645) (45)
n 2
 α/2
2
 219.19
ME 5

So the required sample size is n = 220

(Always round up)

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-44
 Sample Size Determination

Determining
Sample Size

For the
Proportion

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

Determining
Sample Size

For the
Proportion
pˆ (1 pˆ )
ME  z α/2
n
pˆ (1 pˆ ) cannot Substitute 2
be larger than 0.25 for pˆ (1 pˆ ) 0.25 z
0.25, when p̂ = and solve for n 2
α/2

0.5 n to get
ME
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-46
 Sample Size Determination
(continued)
 The sample and population proportions, p̂ 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
 The acceptable sampling error (margin of error), ME
 Estimate P(1 – P) = 0.25
Statistics for Business and Economics, 6e © 2007 Pearson 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
α/2
 2
 1067.11
ME (0.03)
So use n = 1068

Statistics for Business and 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
and margin of error requirements

Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 9-51