Chapter 8

Interval Estimation

Population Mean: Known

Population Mean: Unknown

Determining the Sample Size
Population Proportion

Margin of Error and the Interval Estimate

A
A point
point estimator
estimator cannot
cannot be
be expected
expected to
to provide
provide the
the
exact
exact value
value of
of the
the population
population parameter.
parameter.
An
An interval
interval estimate
estimate can
can be
be computed
computed by
by adding
adding and
and
subtracting
subtracting aa margin
margin of
of error
error to
to the
the point
point estimate.
estimate.
Point Estimate +/ Margin of Error
The
The purpose
purpose of
of an
an interval
interval estimate
estimate is
is to
to provide
provide
information
information about
about how
how close
close the
the point
point estimate
estimate is
is to
to
the
the value
value of
of the
the parameter.
parameter.

Margin of Error and the Interval Estimate

The
The general
general form
form of
of an
an interval
interval estimate
estimate of
of aa
population
population mean
mean is
is

x Margin of Error

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.

Interval Estimate of a Population Mean:

Known
There is a 1 probability that the value of a
sample mean will provide a margin of errorzof
/2 x
or less.

Sampling
distribution
of x

/2

1 - of all
x values

z /2 x

/2
x

z /2 x

Interval Estimate of a Population Mean:

Known
Sampling
distribution
of x

/2
interval
does not
include

1 - of all
x values

z /2 x

x
z /2 x

x -------------------------]

interval
includes

x -------------------------]
[------------------------- x -------------------------]

[------------------------[-------------------------

/2

Interval Estimate of a Population Mean: Known

Interval Estimate of
x z /2

where: x
is the sample mean
1 - is the confidence coefficient
z/2 is the z value providing an area of
/2 in the upper tail of the standard
normal probability distribution
is the population standard deviation
n is the sample size

Interval Estimate of a Population Mean: Known

Values of z/2 for the Most Commonly

Used Confidence Levels
Confidence
Level
z/2
90%
1.645
95%
1.960
99%
2.576

.10
.05
.01

/2
.05
.025
.005

Table
Look-up Area
.9500
.9750
.9950

Meaning of Confidence
Because
Because 90%
90% of
of all
all the
the intervals
intervals constructed
constructed using
using
x 1.645 x will
will contain
contain the
the population
population mean,
mean,
we
we say
say we
we are
are 90%
90% confident
confident that
that the
the interval
interval
x 1.645 x includes
includes the
the population
population mean
mean ..
We
We say
say that
that this
this interval
interval has
has been
been established
established at
at the
the
90%
90% confidence
confidence level.
level.
The
The value
value .90
.90 is
is referred
referred to
to as
as the
the confidence
confidence
coefficient.
coefficient.

Interval Estimate of a Population Mean:

Known

Example: Discount Sounds

Discount Sounds has 260 retail outlets
throughout
the United States. The firm is evaluating a
potential
location for a new outlet, based in part, on the
mean
A sample
of of
size
n individuals
= 36 was taken;
annual
income
the
in thethe
sample
marketing
mean
is location.
$41,100. The population is
area ofincome
the new
not
believed to be highly skewed. The population
standard deviation is estimated to be $4,500,
and the
confidence coefficient to be used in the
interval
estimate is .95.

Interval Estimate of a Population Mean:

Known

Example: Discount Sounds

95% of the sample means that can be observed
are within + 1.96
x
of the population mean .
The margin of error is:

z / 2

4,500
1.96
1,470
n
36

Thus, at 95% confidence, the margin of error

is $1,470.

Interval Estimate of a Population Mean:

Known

Example: Discount Sounds

Interval estimate of is:

$41,100 + $1,470
or
$39,630 to $42,570
We are 95% confident that the interval contains the
population mean.

Interval Estimate of a Population Mean:

Known

Adequate Sample Size

In
In most
most applications,
applications, aa sample
sample size
size of
of n
n=
= 30
30 is
is
adequate.
adequate.
If
If the
the population
population distribution
distribution is
is highly
highly skewed
skewed or
or
contains
contains outliers,
outliers, aa sample
sample size
size of
of 50
50 or
or more
more is
is
recommended.
recommended.

Interval Estimate of a Population Mean:

Known

Adequate Sample Size (continued)

If
If the
the population
population is
is not
not normally
normally distributed
distributed but
but is
is
roughly
roughly symmetric,
symmetric, aa sample
sample size
size as
as small
small as
as 15
15
will
will suffice.
suffice.

If
If the
the population
population is
is believed
believed to
to be
be at
at least
least
approximately
approximately normal,
normal, aa sample
sample size
size of
of less
less than
than 15
15
can
can be
be used.
used.