Essentials of Modern Business Statistics (7e)

Essentials of Modern
Business Statistics (7e)
Anderson, Sweeney, Williams, Camm, Cochran
© 2018 Cengage Learning

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
1
 Essentials of Modern Business Statistics (7e)

Chapter 8
Interval Estimation

 Population Mean:  Known

 Population Mean:  Unknown
 Determining the Sample Size
 Population Proportion
 Big data and Interval estimation

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
2
 Essentials of Modern Business Statistics (7e)

Margin of Error and the Interval Estimate

 A point estimator cannot be expected to provide the exact

value of the population parameter.
 An interval estimate can be computed by adding and
subtracting a margin of error to the point estimate.
Point Estimate +/- Margin of Error
 The purpose of an interval estimate is to provide information
about how close the point estimate is to the value of the
parameter.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
3
 Essentials of Modern Business Statistics (7e)

Margin of Error and the Interval Estimate



© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
4
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean:  Known

 In order to develop an interval estimate of a population mean,

the margin of error must be computed using either:
• the population standard deviation , or
• the sample standard deviation s

  is rarely known exactly, but often a good estimate can be

obtained based on historical data or other information.

 We refer to such cases as the known case.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
5
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean:  Known



/2 /2

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
6
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean:  Known

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
7
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean:  Known



© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
8
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean:  Known

Values ofz
f
o
/
2r
th
e
M
os
t
C
om
mo
n
l
y
Us
ed
C
o
n
fid
e
n
c
eL
e
v
e
l
s

Confidence   /2 Look-up z
/
2
level Area
90% .1 .05 .9500 1.645

95% .05 .025 .9750 1.960

99% .01 .005 .9950 2.576

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
9
 Essentials of Modern Business Statistics (7e)

Meaning of Confidence


© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
10
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean: Known



© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
11
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean: Known



© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
12
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean: Known

Example: Lloyds Department store

Interval estimate of is:

$82 + $ 3.92
or
$78.08 to $85.29

We are 95% confident that the interval contains the population

mean.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
13
 Essentials of Modern Business Statistics (7e)

Using Excel to construct a confidence interval -

Known
 Excel Formula Worksheet

Note: Rows 18-99

are not shown.
© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
14
 Essentials of Modern Business Statistics (7e)

Using Excel to construct a confidence interval -

Known
 Excel Value Worksheet

Note: Rows 18-99

are not shown.
© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
15
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean: Known

Example: Lloyds Department store

Confidence level Margin of Error Interval estimate

90% 3.29 78.71 – 85.29

95% 3.92 78.08 – 85.92

99% 5.15 76.85 – 87.15

In order to have a higher degree of confidence, the margin of error and

thus the width of the confidence interval must be larger.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
16
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean: Known

Adequate Sample Size
 In most applications, a sample size ofn ≥ 30 is adequate.

 If the population distribution is highly skewed or contains

outliers, a sample size of 50 or more is recommended.

 If the population is not normally distributed but is roughly

symmetric, a sample size as small as 15 will suffice.

 If the population is believed to be at least approximately

normal, a sample size of less than 15 can be used.
© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
17
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean:

Unknown

 If an estimate of the population standard deviation cannot

be developed prior to sampling, we use the sample standard
deviations to estimate  .
 This is the unknown case.
 In this case, the interval estimate for is based on thet
distribution.
 (We’ll assume for now that the population is normally
distributed.)

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
18
 Essentials of Modern Business Statistics (7e)

t Distribution

 William Gosset, writing under the name “Student”, is the

founder of thet distribution.
 Gosset was an Oxford graduate in mathematics and worked
for the Guinness Brewery in Dublin.
 He developed thet distribution while working on small-scale
materials and temperature experiments.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
19
 Essentials of Modern Business Statistics (7e)

t Distribution

 Thet distribution is a family of similar probability distributions.

 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 ofs .

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
20
 Essentials of Modern Business Statistics (7e)

t Distribution

 At distribution with more degrees of freedom has less

dispersion.

 As the degrees of freedom increase, the difference between

thet distribution and the standard normal probability
distribution becomes smaller and smaller.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
21
 Essentials of Modern Business Statistics (7e)

t Distribution
Comparison of the standard normal distribution witht
distributions having 10 and 20 degrees of freedom.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
22
 Essentials of Modern Business Statistics (7e)

t Distribution


© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
23
 Essentials of Modern Business Statistics (7e)

t Distribution
Selected values
from thet
distribution table

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
24
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean: 

Unknown


© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
25
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean: 

Unknown
Example: Credit card debt for the population of US households

The credit card balances of a sample of 70 households provided

a mean credit card debt of $9312 with a sample standard
deviation of $4007.
Let us provide a 95% confidence interval estimate of the mean
credit card debt for the population of US households. We will
assume this population to be normally distributed.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
26
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean: 

Unknown
 At 95% confidence, = .05, and /2 = .025.
 t.
025isbasedonn - 1=7 0 - 1= 69d eg re
es o
f
f
r
ee
d
om
.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
27
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean: 

Unknown


© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
28
 Essentials of Modern Business Statistics (7e)

Using Excel’s Descriptive Statistics Tool

Steps

Step 1: Click the Data tab on the Ribbon

Step 2: In the Analysis group click Data Analysis

Step 3: Choose Descriptive Statistics from the list of Analysis

tools

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
29
 Essentials of Modern Business Statistics (7e)

Using Excel’s Descriptive Statistics Tool

Step 4: When the Descriptive statistics dialog box appears
• Enter Input Range
• Select Grouped by columns
• Select Labels in the first row
• Select Output range:
• Enter C1 in the output range box
• Select summary statistics
• Select confidence level for mean
• Enter 95 in the confidence level for mean box
• Click OK

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
30
 Essentials of Modern Business Statistics (7e)

Using Excel’s Descriptive Statistics Tool

 Excel Worksheets

95% confidence interval

for credit card balances.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
31
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Mean: 

Unknown


© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
32
 Essentials of Modern Business Statistics (7e)

Summary of Interval Estimation Procedures

for a Population Mean

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
33
 Essentials of Modern Business Statistics (7e)

Sample Size for an Interval Estimate of a

Population Mean

 LetE = the desired margin of error.

 E is the amount added to and subtracted from the point
estimate to obtain an interval estimate.
 If a desired margin of error is selected prior to sampling, the
sample size necessary to satisfy the margin of error can be
determined.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
34
 Essentials of Modern Business Statistics (7e)

Sample Size for an Interval Estimate of a

Population Mean


© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
35
 Essentials of Modern Business Statistics (7e)

Sample Size for an Interval Estimate of a

Population Mean
 The Necessary Sample Size equation requires a value for the
population standard deviation .
 If is unknown, a preliminary or planning value for can be
used in the equation.
1. Use the estimate of the population standard deviation
computed in a previous study.
2. Use a pilot study to select a preliminary study and use the
sample standard deviation from the study.
3. Use judgment or a “best guess” for the value of .

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
36
 Essentials of Modern Business Statistics (7e)

Sample Size for an Interval Estimate of a

Population Mean
Example: Cost of renting Automobiles in United States
A previous study that investigated the cost of renting
automobiles in the United States found a mean cost of
approximately $55 per day for renting a midsize automobile with
a standard deviation of $9.65.
Suppose the project director wants an estimate of the population
mean daily rental cost such that there is a .95 probability that the
sampling error is $2 or less.
How large a sample size is needed to meet the required precision?

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
37
 Essentials of Modern Business Statistics (7e)

Sample Size for an Interval Estimate of a

Population Mean


© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
38
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Proportion



© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
39
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Proportion



© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
40
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Proportion



© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
41
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Proportion



© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
42
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Proportion

Example: Survey of women golfers

A national survey of 900 women golfers was conducted to learn

how women golfers view their treatment at golf courses in United
States. The survey found that 396 of the women golfers were
satisfied with the availability of tee times.
Suppose one wants to develop a 95% confidence interval
estimate for the proportion of the population of women golfers
satisfied with the availability of tee times.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
43
 Essentials of Modern Business Statistics (7e)

Interval Estimate of a Population Proportion



© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
44
 Essentials of Modern Business Statistics (7e)

Using Excel to construct a confidence interval

 Excel Formula and Value Worksheet

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
45
 Essentials of Modern Business Statistics (7e)

Sample Size for an Interval Estimate of

a Population Proportion


© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
46
 Essentials of Modern Business Statistics (7e)

Sample Size for an Interval Estimate of

a Population Proportion


© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
47
 Essentials of Modern Business Statistics (7e)

Sample Size for an Interval Estimate of

a Population Proportion
Example: Survey of women golfers

Suppose the survey director wants to estimate the population

proportion with a margin of error of .025 at 95% confidence.

How large a sample size is needed to meet the required precision?

(A previous sample of similar units yielded .44 for the sample
proportion.)

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
48
 Essentials of Modern Business Statistics (7e)

Sample Size for an Interval Estimate of

a Population Proportion


© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
49
 Essentials of Modern Business Statistics (7e)

Sample Size for an Interval Estimate of

a Population Proportion

Note: We used .44 as the best estimate ofp in the preceding

expression. If no information is available aboutp , then .5 is
often assumed because it provides the highest possible sample
p = .5, the recommended
size. If we had used n would have
been 1537.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
50
 Essentials of Modern Business Statistics (7e)

Implications of Big Data

 As the sample size becomes extremely large, the margin of

error becomes extremely small and resulting confidence
intervals become extremely narrow.
 No interval estimate will accurately reflect the parameter being
estimated unless the sample is relatively free of nonsampling
error.
 Statistical inference along with information collected from
other sources can help in making the most informed decision.

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
51
 Essentials of Modern Business Statistics (7e)

End of Chapter 8

© 2018 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
52