Statistics for Business and

Economics

Lecture 7
Inferences Based on a Single Sample:
Estimation with Confidence Intervals

İstanbul Şehir University

Gökçen Arkalı Olcay
Fall 2016-2017

Fall 2016 MGT 205

 Content
1. Identifying and Estimating the Target Parameter
2. Confidence Interval for a Population Mean:
Normal (z) Statistic
3. Confidence Interval for a Population Mean:
Student’s t-Statistic
4. Large-Sample Confidence Interval for a Population
Proportion
5. Determining the Sample Size
6. Finite Population Correction for Simple Random
Sampling

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 Learning Objectives

1. Estimate a population parameter (means or

proportion) based on a large sample selected
from the population
2. Use the sampling distribution of a statistic to
form a confidence interval for the population
parameter
3. Show how to select the proper sample size for
estimating a population parameter

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 Estimating the Target Parameter
Suppose you are interested in

• the mean gas mileage for a new

car model
• the average expected life of a
flat-screen computer monitor
• the proportion of dot-com
companies that fail within a year
of start-up

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 Statistical Methods

Statistical
Methods

Descriptive Inferential
Statistics Statistics

Hypothesis
Estimation
Testing

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 Identifying and Estimating
the Target Parameter

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 Estimation Methods

Estimation

Point Interval
Estimation Estimation

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 Target Parameter

The unknown population parameter (e.g., mean or

proportion) that we are interested in estimating is called
the target parameter.

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 Target Parameter

Determining the Target Parameter

Parameter Key Words of Phrase Type of Data

µ Mean; average Quantitative

p Proportion; percentage
fraction; rate Qualitative

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 Point Estimator

A point estimator of a population parameter is a rule or

formula that tells us how to use the sample data to
calculate a single number that can be used as an
estimate of the target parameter.

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 Point Estimation

1. Provides a single value

• Based on observations from one sample
2. Gives no information about how close the
value is to the unknown population
parameter
3. Example: Sample mean x = 3 is the point
estimate of the unknown population mean

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 Interval Estimator

An interval estimator (or confidence interval) is a

formula that tells us how to use the sample data to
calculate an interval that estimates the target
parameter.

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 Interval Estimation
1. Provides a range of values
• Based on observations from one sample
2. Gives information about closeness to unknown
population parameter
• Stated in terms of probability
– Knowing exact closeness requires knowing unknown
population parameter
3. Example: Unknown population mean lies between 50
and 70 with 95% confidence

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 Confidence Interval for a Population
Mean:
Normal (z) Statistic
σ known

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 Estimation Process

Population Random Sample

I am 95%
Mean confident that 
Mean, , is 
 x = 50 is between 40 &
unknown
 60.
 
 
Sample 

 



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 Key Elements of Interval Estimation

Sample statistic
Confidence interval
(point estimate)

Confidence limit Confidence limit

(lower) (upper)

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.
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 Confidence Interval for Population
Mean
According to the Central Limit Theorem, the sampling
distribution of the sample mean is approximately normal
for large samples. Let us calculate the interval estimator:
1.96s
x ± 1.96s x = x ±
n
That is, we form an interval from 1.96 standard
deviations below the sample mean to 1.96 standard
deviations above the mean. Prior to drawing the sample,
what are the chances that this interval will enclose µ, the
population mean?
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 Confidence Interval
If sample measurements yield a value of x that falls
between the two lines on either side of µ, then the
interval x ± 1.96s xwill contain µ.
The area under the
normal curve between
these two boundaries is
exactly 0.95. Thus, the
probability that a
randomly selected
interval will contain µ
is equal to 0.95.
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 Example 1-Calculate a
Confidence Interval
Consider the large bank that wants to estimate the
average amount of money owed by its delinquent
debtors, μ. The bank randomly samples n=100 of its
delinquent accounts and finds that the sample mean
amount owed is x = $230. Also suppose it is known that
the standard deviation of the amount owed for all
delinquent accounts is σ=$90. Use the interval
estimator x ±1.96s x to calculate a confidence interval for
the target parameter, μ.

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 Confidence Coefficient
The confidence coefficient is the probability that a
randomly selected confidence interval encloses the
population parameter.

The confidence level is the confidence coefficient

expressed as a percentage.

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 95% Confidence Level
If our confidence level is 95%, then in the long run, 95%
of our confidence intervals will contain µ and 5% will
not.
For a confidence coefficient of 0.95, the area in the two
tails is 0.05. To choose a different confidence coefficient
we increase or decrease the area (call it ) assigned
to the tails. If we place /2 in
each tail and z/2 is the z-value,
the confidence interval with
coefficient coefficient (1 – ) is
( )
x ± za 2 s x .
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 Conditions Required for a Valid Large-Sample
Confidence Interval for µ

1. A random sample is selected from the target

population.
2. The sample size n is large (i.e., n ≥ 30). Due to the
Central Limit Theorem, this condition guarantees
that the sampling distribution of x is approximately
normal. Also, for large n, s will be a good estimator
of .

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Large-Sample (1 – )% Confidence Interval
for µ

where z/2 is the z-value with an area /2 to its right and
The parameter  is the standard deviation of the
sampled population, and n is the sample size.
Note: When  is unknown and n is large (n ≥ 30), the
confidence interval is approximately equal to

where s is the sample standard deviation.

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 Example 2- Estimating Confidence
Interval (σ known)
You are a Q/C inspector for Gallo. The  for 2-liter
bottles is 0.05 liters. A random sample of 100 bottles
showed x = 1.99 liters. What is the 90% confidence
interval estimate of the true mean amount in 2-liter
bottles?

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Confidence Interval for a Population
Mean:
Student’s t-Statistic
σ unknown

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 Small Sample  Unknown
• If an estimate of the population standard deviation 
cannot be developed prior to sampling, we use the
sample standard deviation s to estimate  .
• This is the  unknown case.
• In this case, the interval estimate for  is based on the t
distribution.

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 Student’s t-Statistic
The t-statistic has a distribution very much like that of
the z-statistic: mound-shaped, symmetric, with mean 0.

The primary difference between the probability distributions of t

and z is that the t-statistic is more variable than the z-statistic.

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 Degrees of Freedom
• A specific t distribution depends on a parameter
known as the degrees of freedom.
• Degrees of freedom refer to the number of
independent pieces of information that go into the
computation of s.

The t-statistic has (n – 1) degrees of freedom (df).

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 Student’s t Distribution

Standard
Normal
Bell-Shaped
t (df = 13)
Symmetric
‘Fatter’ Tails t (df = 5)

z
t
0
As the number of degrees of freedom increases, the difference between the t distribution
and the standard normal probability distribution becomes smaller and smaller.
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 t - Table

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 t - Table

• For more than 100 degrees of freedom, the standard

normal z value provides a good approximation to
the t value.

• The standard normal z values can be found in the

infinite degrees ( ) row of the t distribution table.

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 Small-Sample Confidence Interval
for µ

where,
1 - = the confidence coefficient
t/2 = the t value providing an area of /2 in the upper
tail of a t distribution with n - 1 degrees of freedom
s = the sample standard deviation

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 Conditions Required for a Valid
Small-Sample Confidence Interval
for µ

1. A random sample is selected from the target

population.
2. The population has a relative frequency
distribution that is approximately normal.

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 Example 3- Estimating Mean (
Unknown)
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 inches of tread
remaining with a standard deviation of 0.09 inches.
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?

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 Example 4- Estimating Mean (
Unknown)
The manager of the Inlet Square Mall, near Ft. Myers, Florida,
wants to estimate the mean amount spent per shopping visit by
customers. A sample of 20 customers reveals the following
amounts spent.

$48.16 42.22 46.82 51.45 23.78 41.86 54.86

37.92 52.64 48.59 50.82 46.94 61.83 61.69
49.17 61.46 51.35 52.68 58.84 43.88
What is the best estimate of the population mean? Determine a
95 % confidence interval. Interpret the result. Would it be
reasonable to conclude that the population mean is $50? What
about $60?
Fall 2016 MGT 205