CH 08

Business Statistics, 4e
by Ken Black
Chapter 8
Discrete Distributions
Statistical Inference:
Estimation for
Single Populations
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
8-1
Learning Objectives
• Know the difference between point and interval
estimation.
• Estimate a population mean from a sample mean
when s is known.
• Estimate a population mean from a sample mean
when s is unknown.
• Estimate a population proportion from a sample
proportion.
• Estimate the population variance from a sample
variance.
• Estimate the minimum sample size necessary to
achieve given statistical goals.
8-2
Statistical Estimation
• Point estimate -- the single value of a statistic

calculated from a sample
• Interval Estimate -- a range of values calculated

from a sample statistic(s) and standardized
statistics, such as the Z.
– Selection of the standardized statistic is
determined by the sampling distribution.
– Selection of critical values of the standardized
statistic is determined by the desired level of
confidence.
8-3
Confidence Interval to Estimate 
when n is Large
• Point estimate X
 X
n
s
• Interval XZ
n
Estimate
or
s s
XZ  XZ
n n
8-4
Distribution of Sample Means
for (1-)% Confidence
 
2 2

 X
Z
 Z 0 Z
2 2
8-5
 
2   2
.5 .5
2 2
 X
Z
 Z 0 Z
2 2
8-6
 
2 1 1 2
2 2
 X
Z
 Z 0 Z
2 2
8-7
Probability Interpretation
of the Level of Confidence
s s
Pr ob[ X  Z     X  Z ]  1 
2 n 2 n
8-8
for 95% Confidence
.025 .025
95%
.4750 .4750
 X
Z
-1.96 0 1.96
8-9
95% Confidence Interval for 
X  4.26, s  11
. , and n  60.
s s
X Z   X Z
n n
46 46
153  1.96    153  1.96
85 85
153  9.78    153  9.78
143.22    162.78
8-10
95% Confidence Intervals for 
95%
 X
X
X
X
X
X
X
8-11
95% Confidence Intervals for 
Is our interval,
95%
143.22 
162.78, in the
 red?
X
X
X
X
X
X
X
8-12
Demonstration Problem 8.1
X  10.455, s  7.7, and n  44.
90% confidence  Z  1645
.
s s
X Z   X Z
n n
7.7 7.7
10.455  1645
.    10.455  1645
.
44 44
.    10.455  191
10.455  191 .
8.545    12.365
Pr ob[8.545    12.365]  0.90

8-13
Demonstration Problem 8.2
X  34.3, s  8, N = 800 and n  50.
98% confidence  Z  2.33
s N n s N n
X Z  X Z
n N 1 n N 1
8 800  50 8 800  50
34.3  2.33    34.3  2.33
50 800  1 50 800  1
34.3  2.554    34.3  2.554
.    36.85
3175
8-14
Confidence Interval to Estimate 
when n is Large and s is Unknown
S
X  Z
n 2
or
S S
X  Z    X  Z
n n 2 2
8-15
Car Rental Firm Example
X  85.5, S  19.3, and n  110.
99% confidence  Z  2.575
S S
X Z   X Z
n n
19.3 19.3
85.5  2.575    85.5  2.575
110 110
85.5  4.7    85.5  4.7
80.8    90.2
Pr ob[80.8    90.2]  0.99

8-16
Z Values for Some of the More
Common Levels of Confidence
Confidence
Z Value
Level
90% 1.645
95% 1.96
98% 2.33
99% 2.575
8-17
Estimating the Mean of a Normal
Population: Small n and Unknown s
• The population has a normal distribution.
• The value of the population standard
deviation is unknown.
• The sample size is small, n < 30.
• Z distribution is not appropriate for these
conditions
• t distribution is appropriate
8-18
The t Distribution
• Developed by British statistician, William
Gosset
• A family of distributions -- a unique
distribution for each value of its parameter,
degrees of freedom (d.f.)
• Symmetric, Unimodal, Mean = 0, Flatter
than a Z
• t formula t  X  
S
n
8-19
Comparison of Selected t Distributions
to the Standard Normal
Standard Normal
t (d.f. = 25)
t (d.f. = 5)
t (d.f. = 1)
-3 -2 -1 0 1 2 3
8-20
Table of Critical Values of t
df t0.100 t0.050 t0.025 t0.010 t0.005

1 3.078 6.314 12.706 31.821 63.656
2 1.886 2.920 4.303 6.965 9.925
3 1.638 2.353 3.182 4.541 5.841
4 1.533 2.132 2.776 3.747 4.604 
5 1.476 2.015 2.571 3.365 4.032
23 1.319 1.714 2.069 2.500 2.807

24 1.318 1.711 2.064 2.492 2.797
25 1.316 1.708 2.060 2.485 2.787
 t
29 1.311 1.699 2.045 2.462 2.756
30 1.310 1.697 2.042 2.457 2.750
40 1.303 1.684 2.021 2.423 2.704 With df = 24 and = 0.05,

60 1.296 1.671 2.000 2.390 2.660
120 1.289 1.658 1.980 2.358 2.617
t = 1.711.
 1.282 1.645 1.960 2.327 2.576
8-21
Confidence Intervals for  of a Normal
Population: Small n and Unknown s
S
X t
n
or
S S
X t    X t
n n
df  n  1
8-22
Solution for Demonstration Problem 8.3
X  2.14, S  1.29, n  14, df  n  1  13
 1.99
  0.005
2 2
t .005,13  3.012
S S
X t   X t
n n
1.29 1.29
2.14  3.012   2.14  3.012
14 14
2.14  1.04    2.14  1.04
. 
110  318
.
8-23
S S
X t   X t
n n
1.29 1.29
2.14  3.012   2.14  3.012
14 14
2.14  1.04    2.14  1.04
. 
110  318
.
.    318
Pr ob[110 . ]  0.99
8-24
Comp Time: Excel Normal View
8-25
Comp Time: Excel Formula View
A B C D E F
1 Comp Time Data
2 6 21 17 20 7 0
3 8 16 29 3 8 12
4 11 9 21 25 15 16
5
6 n= =COUNT(A2:F4)
7 Mean = =AVERAGE(A2:F4)
8 S= =STDEV(A2:F4)
9 Std Error = =B8/SQRT(B6)
10
11 = 0.1
12 df = =B6-1
13 t= =TINV(B11,B12)
14
15 =B7-B13*B9  =B7+B13*B9
8-26
Confidence Interval to Estimate
the Population Proportion

pq 
pq
p  Z   P  p  Z 
2 n 2 n
where:
p = sample proportion
q = 1 - p
P = population proportion
n = sample size
8-27
X 34
n  212, X  34, p    016
.
n 212
q = 1 - p  1  016
.  0.84
90% Confidence  Z  1645
.

pq 
pq
p  Z  P  p  Z
n n
(0.16)(0.84) (0.16)(0.84)
0.16  1.645  P  0.16  1.645
212 212
0.16  0.04  P  0.16  0.04
0.12  P  0.20
.  P  0.20]  0.90
Pr ob[012
8-28
Population Variance
• Variance is an inverse measure of the group’s
homogeneity.
• Variance is an important indicator of total quality
in standardized products and services. Managers
improve processes to reduce variance.
• Variance is a measure of financial risk. Variance of
rates of return help managers assess financial and
capital investment alternatives.
• Variability is a reality in global markets.
Productivity, wages, and costs of living vary
between regions and nations.
8-29
Estimating the Population Variance
• Population Parameter s
• Estimator of s
 X  X 
2
2
S 
n 1
•  formula for Single Variance
 
n 1
2S
2
s
2
degrees of freedom = n - 1
8-30
Confidence Interval for s2
 n  1 S 2
 n  1 S 2
s 
2
 
2 2
 
1
2 2
df  n  1
  1  level of confidence
8-31
Selected 2 Distributions
df = 3
df = 5
df = 10
8-32
2 Table
df 0.975 0.950 0.100 0.050 0.025
1 9.82068E-04 3.93219E-03 2.70554 3.84146 5.02390
2 0.0506357 0.102586 4.60518 5.99148 7.37778 df = 5
3 0.2157949 0.351846 6.25139 7.81472 9.34840
4 0.484419 0.710724 7.77943 9.48773 11.14326
5 0.831209 1.145477 9.23635 11.07048 12.83249
6 1.237342 1.63538 10.6446 12.5916 14.4494 0.10
7 1.689864 2.16735 12.0170 14.0671 16.0128
8 2.179725 2.73263 13.3616 15.5073 17.5345
9 2.700389 3.32512 14.6837 16.9190 19.0228
10 3.24696 3.94030 15.9872 18.3070 20.4832
0 5 10 15 20
20
21
9.59077
10.28291
10.8508
11.5913
28.4120
29.6151
31.4104
32.6706
34.1696
35.4789
9.23635
22 10.9823 12.3380 30.8133 33.9245 36.7807
With df = 5 and  =
23 11.6885 13.0905 32.0069 35.1725 38.0756
24 12.4011 13.8484 33.1962 36.4150 39.3641
0.10, 2 = 9.23635
25 13.1197 14.6114 34.3816 37.6525 40.6465
70 48.7575 51.7393 85.5270 90.5313 95.0231

80 57.1532 60.3915 96.5782 101.8795 106.6285
90 65.6466 69.1260 107.5650 113.1452 118.1359
100 74.2219 77.9294 118.4980 124.3421 129.5613
8-33
Two Table Values of 2
df = 7 df
1
0.950
3.93219E-03
0.050
3.84146
2 0.102586 5.99148
3 0.351846 7.81472
4 0.710724 9.48773
5 1.145477 11.07048
.05 6 1.63538 12.5916
7 2.16735 14.0671
8 2.73263 15.5073
.95 9 3.32512 16.9190
10 3.94030 18.3070
20 10.8508 31.4104
21 11.5913 32.6706
.05 22 12.3380 33.9245
23 13.0905 35.1725
24 13.8484 36.4150
0 2 4 6 8 10 12 14 16 18 20 25 14.6114 37.6525
2.16735 14.0671
8-34
90% Confidence Interval for s2
.0022125, n  8, df  n  1  7,  .10
2
S
  
2 2 2
  .1  .05
 14.0671
2 2
  
2 2 2
1
  1
.1  .95
 2.16735
2 2
 n  1 S 2  n  1 S 2
s 
2
 
2 2
 
1
2 2
 8  1.0022125  8  1.0022125
s 
2
14.0671 2.16735
.001101  s .007146
2
Pr ob[0.001101  s  0.007146]  0.90 8-35

2
 1.2544, n  25, df  n  1  24,   .05
2
S
   .05  
2 2 2
  39.3641
.025
2 2
  
2 2 2
 .05  12.4011
1 1 .975
2 2
n  1 S 2 n  1 S 2
s 
2
 
2 2
 
1
2 2
25  1(1.2544)  25  1(1.2544)

s 
2
39.3641 12.4011
0.7648  s  2.4277
2
8-36
Determining Sample Size
when Estimating 
• Z formula X 
Z
s
n
• Error of Estimation E  X  
(tolerable error)
• Estimated Sample Size Z 2 s  Z 2 s 
2 2 2
n  
 E 
2
E
• Estimated s 1
s range
4
8-37
Sample Size When Estimating : Example
E  1, s  4
.
Zs
2 2
n 2
2
E
2 2
(1645
. ) (4)
 2
1
 43.30 or 44
8-38
E  2, range  25
.
1  1
estimated s : range     25  6.25
4  4
Zs
2 2
n 2
E
2 2

(196
. ) (6.25)
2
2
 37.52 or 38
8-39
Determining Sample Size
when Estimating P
•Z Z
pP
formula PQ
n
• Error of Estimation (tolerable

error) E  pP
• Estimated Sample
n Z 2
2
PQ
Size
E
8-40
E  0.03
98% Confidence  Z  2.33
estimated P  0.40
Q  1  P  0.60
2
n
Z PQ
2
E
 0.40 0.60
2

(2 .33)
.003 2
 1,447.7 or 1,448
8-41
Determining Sample Size when
Estimating P with No Prior Information
P PQ 400 Z = 1.96
350 E = 0.05
0.5 0.25
300
0.4 0.24 250
n 200
0.3 0.21
150
0.2 0.16 100
50
0.1 0.09
0
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
P
1
Z
2
n 4
E
2
8-42
Example: Determining n when
Estimating P with No Prior Information
E  0.05
90% Confidence  Z  1645 .
with no prior estimate of P, use P  0.50
Q  1  P  0.50
2
n
Z PQ
2
E
. )  0.50 0.50
2
(1645

.05 2
 270.6 or 271
8-43

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Business Statistics, 4e

• Point estimate -- the single value of a statistic

• Interval Estimate -- a range of values calculated

Pr ob[8.545    12.365]  0.90

Pr ob[80.8    90.2]  0.99

df t0.100 t0.050 t0.025 t0.010 t0.005

23 1.319 1.714 2.069 2.500 2.807

40 1.303 1.684 2.021 2.423 2.704 With df = 24 and = 0.05,

70 48.7575 51.7393 85.5270 90.5313 95.0231

Pr ob[0.001101  s  0.007146]  0.90 8-35

25  1(1.2544)  25  1(1.2544)

• Error of Estimation (tolerable

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