ESTIMATION

and
CONFIDENCE INTERVALS
Prepared by:
Loewelyn V. Barba
GOALS
1. Define a point
estimate
2. Define level of
confidence.
3. Construct a
confidence interval
for the population
mean when the
population standard
is known.
4. Construct a
confidence interval
for the population
mean when the
population standard
is unknown.
5. Construct a
confidence interval
for a population
proportion.
6. Determine the
sample size for
attribute and variable
sampling.
Population
Mean
Standard
Deviation.. etc
But in most
business situations
Such
information
is not available
SAMPLING
Estimation
Select a
SAMPLE from
the Population
Then use the
mean of the
sample to
ESTIMATE the
mean of the
population
Point Estimates and Confidence
Intervals for a Mean
We begin the study of point estimates and
confidence intervals by studying estimates of the
population mean. We will consider two cases, where
The Population standard deviation (o) is known,
The Population standard deviation is unknown. In this
case we substitute the sample standard deviation (s)
for the population standard deviation (o).



POINT ESTIMATE
CONFIDENCE INTERVAL
POINT ESTIMATE
Is the single statistic, computed
from sample information, which
is used to estimate the
population parameter
CONFIDENCE INTERVALS
Is a single value, a specific value
that estimates a parameter
For example: The sample mean ( ) is a
point estimate of the population mean ( ) ;
a sample proportion ( ) is a point estimate of
the population proportion (); and the
sample standard deviation (s) is a point
estimate of the population standard
deviation (o)
x

The problem is there is no

way to determine how close a
point estimate is to the
parameter
Is a range of values constructed
from the sample data so that the
sample parameter is likely to
occur within that range at a
specified probability. The
specified probability is called the
level of confidence.
Gives an estimated RANGE OF
VALUES whick is LIKELY to
include an unknown population
parameter
POINT ESTIMATE CONFIDENCE INTERVALS
Is a single value, a specific value
that estimates a parameter
Gives an estimated RANGE OF
VALUES whick is LIKELY to
include an unknown population
parameter
Point Estimate
Lower Confidence
Limit
Width of confidence interval
Ex. We estimate the mean yearly income for construction workers in New
York-New Jersey area is $ 65,000. The range of this estimate might be from
$61,000 to $69,000. We can describe how confident we are that the population
parameter is in the interval by making a probability statement. We might say,
for instance, that we are 90% sure that the mean yearly income of
construction workers in the New York-New Jersey area is between $61,000 to
$69,000.
$ 65,000 $ 69,000
Level of confidence
Upper Confidence
Limit
$ 61,000
Point Estimate
Width of confidence interval
$ 65,000
$ 61,000
$ 69,000
CONFIDENCE INTERVAL
probably contains the
population mean
The PROBABILITY that the
population mean is within this
confidence interval is EITHER
1 or 0.
POINT ESTIMATION
cannot be expected to
provide the exact value of
the population parameter
The PROBABILITY that the
the SAMPLE MEAN equals the
Population mean is 0.
$ 61,000
$ 69,000
Population Mean
Sample 4 does not
include the population
mean
Point Estimate
Width of confidence interval
An interval estimate is computed by adding and subtracting a margin
of error to and from the point of estimation.
Point estimate margin of error

x
?
?
margin of error
x
must be lower than
the sample mean (-)
Margin of error Margin of error
must be higher than
the sample mean (+)
PURPOSE of
Confidence
Interval estimate
give INFORMATION about
how CLOSE the estimate
to the value of parameter.
Point Estimate
Width of confidence interval

x
?
?
must be lower than
the sample mean (-)
Margin of error Margin of error
must be higher than
the sample mean (+)
The Interval Estimate of the Population mean is
X
margin of error

Data are normally distributed
(If not normally distributed, the
sample size > 30)
Data are normally distributed
(if not normally distributed, the
sample size < 30)
X Z t X
t - distribution z - distribution
The American Management Association wishes to have information on the mean
income of middle managers in the retail industry. A random sample of 256
managers reveals a sample mean of $45,420. The standard deviation of this
population is $2,050. The association decides to use the 95 percent level of
confidence. The association would like answers to the following questions:
1. What is the population mean ? What is a reasonable value to
use as an estimate of the population?
2. What is a reasonable range of values for the population mean?
3. What do these results mean?
The American Management Association wishes to have information on the mean
income of middle managers in the retail industry. A random sample of 256
managers reveals a sample mean of $45,420. The standard deviation of this
population is $2,050. The association decides to use the 95 percent level of
confidence. The association would like answers to the following questions:
1. What is the population mean ? What is a reasonable value to
use as an estimate of the population?
In this case, we DO NOT KNOW the Population Mean
But what do we know?
We do KNOW the SAMPLE MEAN
Sample Mean is $45,420
BEST ESTIMATE of
the unknown
population value
Thus, it is the POINT
ESTIMATE of the unknown
population mean
The American Management Association wishes to have information on the mean
income of middle managers in the retail industry. A random sample of 256
managers reveals a sample mean of $45,420. The standard deviation of this
population is $2,050. The association decides to use the 95 percent level of
confidence. The association would like answers to the following questions:
2. What is a reasonable range of values for the population mean?
NOTE: The association decides to use the 95% level of confidence
FORMULA
Is Population Standard
Deviation Known?
Is the sample mean >
or < than 30 ?
256 > 30
Use Z-Distribution YES
The American Management Association wishes to have information on the mean
income of middle managers in the retail industry. A random sample of 256
managers reveals a sample mean of $45,420. The standard deviation of this
population is $2,050. The association decides to use the 95 percent level of
confidence. The association would like answers to the following questions:
2. What is a reasonable range of values for the population mean?
NOTE: The association decides to use the 95 % level of confidence
FORMULA
z = z-value for a particular confidence level
x = sample mean $45,420
$2,050
256
?
Computation of Z value
95% Confidence Interval Level
100 %
o
95 %
.025 .025
o
95 %
.025 .025
Computation of Z value
95% Confidence Interval Level
.025 .025
CI
What is the Value of z?
Lower level
(-)
Upper level
(+)
Z
Z
.475 .475
Z= 1.96
Computation of Z value
95% Confidence Interval Level
CI
1.96
- $251
+ $251
$ 45,420 $ 45,671
$ 45,169
95 %
.025 .025
t
.025 .025
Lower level
(-)
Upper level
(+)
Z
Z
We assume the population is normally distributed.
t X
CI =
Characteristics of t-distribution based on the
assumption that the population of interest follows the
normal distribution
It is, like the z distribution, a continuous distribution.

It is, like the z distribution, bell-shaped and
symmetrical.

There is not one t-distribution, but rather a family of t-
distributions. All t-distributions have a mean of 0, but
their standard deviations differ according to the
sample size, n.
t
0
t (df = 5)
t (df = 13)
t-distributions are bell-shaped
and symmetric, but have
fatter tails than the normal
Standard
Normal
Confidence Interval for the Mean
Example using the t-distribution
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 percent
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
inches?


10
09 . 0
32 . 0
unknown) is (since dist. - t
the using C.I. the Compute
09 . 0
32 . 0
10
: problem in the Given
t
n
s
t X
s
x
n

=
=
=
o
10
09 . 0
32 . 0 t CI =
t
0
95 %
.025 %
.025 %
To find t value, let us first determine the degree of freedom
df = n-1
= 10 1
= 9
df = 9
t value
t
0
95 %
.025 %
.025 %
10
09 . 0
32 . 0 t CI =
10
09 . 0
262 . 2 32 . 0 = CI
064 . 32 . 0 = CI
0.32
x
Lower limit (-)
Upper limit (+)
(- .064)
0.256 0.384
(+ .064)
Confidence Interval Estimate
A CONFIDENCE INTERVAL FOR A PROPORTION
Suppose that we are interested in the opinion of US
Adults regarding legalizing the use of marijuana.
PARAMETER: p
(proportion who
believe marijuana
should be legalized)
Population: US Adults
p = ?
Point estimation
Where:
p = symbol for sample proportion
X = number of sample units that posses the characteristics of interest
n = sample size
Suppose a poll of 1,000 U.S. adults finds that 560 of them
believe marijuana should be legalized.
p = .56
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. These conditions are:
a. The sample data is the result of counts. We count the
number of successes in a fixed number of trials.
b. There are only two possible outcomes. We usually
label one of the outcomes a success and the other a
failure.
c. The probability of a success remains the same
from one trial to the next.
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.


Confidence Interval for a
Population Proportion


n
p p
z p
) 1 (

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 percent 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?

First, compute
the sample proportion:
= .80
Compute the 95% C.I for the
population proportion
C.I for the population proportion
0.80
+ .018 - .018
0.782 0.818
Confidence Interval
CONCLUSION:

The merger proposal will likely pass because the interval
estimate includes values greater than 75% of the union
membership.
FINITE-POPULATION CORRECTION FACTOR
However, if n/N < .05, the finite-population correction factor may be
ignored.

A population that has a fixed upper bound is said to be finite.
For a finite population, where the total number of objects is N and
the size of the sample is n, the following adjustment is made to the
standard errors of the sample means and the proportion:



Standard Error of the Sample
Mean
Standard Error of the Sample
Proportion
Finite Population Corrector Factor
FPC =
Where
N = is the total number of
objects/individuals
n = is the number of objects/
individuals in the sample
Effects on FPC when n/N Changes
Observe that FPC approaches 1 when n/N becomes smaller
However, if n/N < .05, the finite-population correction factor may
be ignored.

If we wish to develop a confidence interval for the
mean from a finite population and the population
standard deviation was unknown, we would adjust
the formula as follows:
Confidence Interval Formulas for Estimating
Means and Proportions with Finite Population
Correction
t X
CI =
There are 250 families in Scandia, Pennsylvania. A random sample
of 40 of these families revealed the mean annual church
contribution was $450 and the standard deviation of this was
$75. (Develop a 90% confidence interval for the population
mean)
Could the population mean be $445 or $425?

CI for Mean with FPC - Example
X = $450 BEST ESTIMATE
GIVEN :

X = $450
N = 250
n = 40
s = $75
.16 > .05
the FINITE
POPULATION
CORRECTOR
must be USED
There are 250 families in Scandia, Pennsylvania. A random sample
of 40 of these families revealed the mean annual church
contribution was $450 and the standard deviation of this was
$75. (Develop a 90% confidence interval for the population
mean)
Could the population mean be $445 or $425?

CI for Mean with FPC - Example
GIVEN :

X = $450
N = 250
n = 40
s = $75
The population standard deviation is not known therefore
use the t-distribution (may use the z-dist. since n>30)
Use the formula to compute the confidence interval:
Find T-value
Degree of freedom (df) = n 1
= 40 - 1
= 39
Confidence Inter vals



0.80

0.90

0.95

0.98


Level of Significance for One-Tailed
Test
df 0.100 0.050 0.025 0.010

Level of Significance for Two-Tailed
Test
0.20 0.10 0.05 0.02

31 1.309 1.695 2.040 2.453
32 1.309 1.694 2.037 2.449
33 1.308 1.692 2.035 2.445
34 1.307 1.691 2.032 2.441
35 1.306 1.690 2.030 2.438
36 1.306 1.688 2.028 2.434
37 1.305 1.687 2.026 2.431
38 1.304 1.686 2.024 2.429
39 1.304 1.685 2.023 2.426
40 1.303 1.684 2.021 2.423
42 1.302 1.682 2.018 2.418
44 1.301 1.680 2.015 2.414

$450
+ $ 18.35 - $ 18.35
$431.65
$468.35
Confidence Interval
X
Could the Population Mean be $ 445 or $425
For $445 YES because it is within the confidence interval
For $425 It is not likely because it is not within the confidence
interval
CHOOSING AN APPROPRIATE
SAMPLE SIZE
There are 3 factors that determine the size of a
sample, none of which has any direct
relationship to the size of the population.

The level of confidence desired.
The margin of error the researcher will
tolerate.
The variation in the population being
Studied.
We can express the interaction among these three
factors and the sample size in the following formula

Solving this equation for n yields the following result
SAMPLE SIZE FOR ESTIMATING
THE POPULATION MEAN

Given in the problem:
E, the maximum allowable error, is $100
The value of z for a 95 percent level of
confidence is 1.96,
The estimate of the standard deviation is
$1,000.
385
16 . 384
) 6 . 19 (
100 $
) 000 , 1 )($ 96 . 1 (
2
2
2
=
=
=
|
.
|

\
|
=
|
.
|

\
|

=
E
z
n
o
A student in public administration wants to determine the mean amount
members of city councils in large cities earn per month as remuneration
for being a council member. The error in estimating the mean is to be
less than $100 with a 95 percent level of confidence. The student found
a report by the Department of Labor that estimated the standard
deviation to be $1,000. What is the required sample size?
385
16 . 384
) 6 . 19 (
100 $
) 000 , 1 )($ 96 . 1 (
2
2
2
=
=
=
|
.
|

\
|
=
|
.
|

\
|

=
E
z
n
o
666
64 . 665
) 8 . 25 (
100 $
) 000 , 1 )($ 58 . 2 (
2
2
2
=
=
=
|
.
|

\
|
=
|
.
|

\
|

=
E
z
n
o
Level of Confidence = 95% Level of Confidence = 99%
An increase from 95% to 99% Conf. level resulted in an
increase of 281 (666-385) observations.
The formula to determine the sample size
of a proportion is
SAMPLE SIZE FOR ESTIMATING
THE POPULATION PROPORTION
Where:
p is estimate from a pilot or some source,
otherwise, 0.50 is used
z is the z-value for the desired confidence level
E is the maximum allowable error
The American Kennel Club wanted to estimate the
proportion of children that have a dog as a pet. If the
club wanted the estimate to be within 3% of the
population proportion, how many children would they
need to contact? Assume a 95% level of confidence
and that the club estimated that 30% of the children
have a dog as a pet.

A study needs to estimate the proportion of cities
that have private refuse collectors. The investigator
wants the margin of error to be within .10 of the
population proportion, the desired level of
confidence is 90 percent, and no estimate is
available for the population proportion. What is the
required sample size?

THANK YOU
Godbless =)