Advanced Mathematics for

Business
Topic 3:
Inferential Statistics 1

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Inferential Statistics 1 Topic 3 - 3.2

Scope and Coverage

This topic will cover:
Sampling distributions
Point estimates and confidence intervals
Introduction to hypothesis testing

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Inferential Statistics 1 Topic 3 - 3.3

Learning Outcomes
By the end of this topic students will be able to:
Recognise the terms sample statistic and
population parameter
Use confidence intervals to indicate the reliability of
estimates
Know when approximate large sample or exact
confidence intervals are appropriate

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Inferential Statistics 1 Topic 3 - 3.4

Probabilities and the Standard

Normal Distribution
P(Z < 1)
= 0.8413
P(Z > 1)
= 0.1587
+

z = 1.0

P( 0 <Z < 1)
= 0.3413

0.0 1.0

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P( - 1 <Z < 1)
= 0.6826
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Inferential Statistics 1 Topic 3 - 3.5

Probabilities and the Standard

Normal Distribution
z

0.8

0.7881

0.7910

0.7939

0.7967

0.9

0.8159

0.8186

0.8212

0.8238

1.0

0.8413

0.8438

0.8461

0.8485

1.1

0.8643

0.8665

0.8686

0.8708

0.8

0.2881

0.2910

0.2939

0.2967

0.9

0.3159

0.3186

0.3212

0.3238

1.0

0.3413

0.3438

0.3461

0.3485

1.1

0.3643

0.3665

0.3686

0.3708

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P(Z < 1) =
0.8413

z = 1.0

P( 0 <Z < 1)
= 0.3413

0.0 1.0

P( - 1 <Z < 1)
= 0.6826
-1.0

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Inferential Statistics 1 Topic 3 - 3.6

Percentage Points of the Normal

Distribution - 1
P(Z > 1.6449) = 0.05

5%
z = 1.6449

2.5%

5%

5%
-1.6449

1.6449

2.5%

2.5%
95%

z = 1.96

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-1.96

1.96

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Inferential Statistics 1 Topic 3 - 3.7

Percentage Points of the Normal

Distribution - 2
5%

5.0%

10%

2.5%

5%

1.0%

2%

0.5%

1%

z = 1.6449

5%
-1.6449

1.6449

1.6449
95%

1.9600
2.3263

99%

2.5%

2.5%

2.5%
95%

2.5758
z = 1.96

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5%

-1.96

1.96

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Inferential Statistics 1 Topic 3 - 3.8

Populations and Samples - 1

Population Parameters

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Sample
Statistics

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Inferential Statistics 1 Topic 3 - 3.9

Populations and Samples - 2

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Inferential Statistics 1 Topic 3 - 3.10

Distribution of Sample Means

Population Distribution

Distribution of Sample Means

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Inferential Statistics 1 Topic 3 - 3.11

Central Limit Theorem

Population Distribution

Distribution of Sample Means

n > 30

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Inferential Statistics 1 Topic 3 - 3.12

Populations and Samples - 3

Sample
Statistics

Population Parameters

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Inferential Statistics 1 Topic 3 - 3.13

95%

z = -1.96

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z = 1.96

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Inferential Statistics 1 Topic 3 - 3.14

95%

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Inferential Statistics 1 Topic 3 - 3.15

Confidence Interval

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5.0%

10%

2.5%

5%

1.0%

2%

0.5%

1%

1.6449
95%

1.9600
2.3263

99%

2.5758

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Inferential Statistics 1 Topic 3 - 3.16

Interpreting 95% Confidence

Interval
1 in 20 chance of not
containing population
mean
19 in 20 chance of
containing population
mean

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Inferential Statistics 1 Topic 3 - 3.17

Example - 1
A machine produces golf balls. The diameters of a each
of a sample of 30 balls is measured. Find the 95% and
99% confidence interval estimates of the mean diameter
of balls produced by the machine.
42.83
43.71
44.00
42.75
43.33
43.70

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43.82
43.37
42.77
43.90
42.78
43.85

43.51
42.76
43.00
43.36
42.75
42.91

42.64
43.18
42.99
42.81
43.09
43.32

43.82
43.22
42.85
42.92
43.72
43.67

5.0%

10%

2.5%

5%

1.0%

2%

0.5%

1%

1.6449
95%

1.9600
2.3263

99%

2.5758

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Inferential Statistics 1 Topic 3 - 3.18

Example - 2
A machine produces golf balls. The diameters of a each
of a sample of 30 balls is measured. Find the 95% and
99% confidence interval estimates of the mean diameter
of balls produced by the machine.

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5.0%

10%

2.5%

5%

1.0%

2%

0.5%

1%

1.6449
95%

1.9600
2.3263

99%

2.5758

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Inferential Statistics 1 Topic 3 - 3.19

Large Sample CI of Proportion

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Inferential Statistics 1 Topic 3 - 3.20

Example

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Inferential Statistics 1 Topic 3 - 3.21

Exact Confidence Interval

If normal model for population then
- exact sample confidence interval can be calculated
- do not use z percentage points but t percentage
points
- t percentage points come from a family of
distributions called Students t-distribution
- family because t-distribution depends on degrees of
freedom = (n 1)

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Inferential Statistics 1 Topic 3 - 3.22

Student t-distribution
t(30)

t(4)

t(1)

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Inferential Statistics 1 Topic 3 - 3.23

Exact Confidence Interval

=n-1

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1
2

5.00%
10.00%
90.00%

2.50%
5.00%
95.00%

1.00%
2.00%
98.00%

0.50%
1.00%
99.00%

1
2
3
4
10
100
1000

6.3138
2.9200
2.3534
2.1318
1.8125
1.6602
1.6464

12.7062
4.3027
3.1824
2.7764
2.2281
1.9840
1.9623

31.8205
6.9646
4.5407
3.7469
2.7638
2.3642
2.3301

63.6567
9.9248
5.8409
4.6041
3.1693
2.6259
2.5808

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Inferential Statistics 1 Topic 3 - 3.24

Example
A random sample of 11 apples is weighed and are
found to have a sample mean of 93.25 grams and a
sample standard deviation of 15.60 grams. Assuming
the apples are a random sample drawn from a normal
distribution what is the 95% CI for the mean?

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Inferential Statistics 1 Topic 3 - 3.25

Introducing Hypothesis Testing - 1

A car manufacturer releases a new car and claims
that its urban cycle fuel efficiency is 18.5 km per
litre. A car enthusiast magazine decides to test this
claim.
- Null hypothesis
H0: = 18.5
- Alternative hypothesis is
H1: 18.5

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Inferential Statistics 1 Topic 3 - 3.26

Introducing Hypothesis Testing - 2

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Inferential Statistics 1 Topic 3 - 3.27

Introducing Hypothesis Testing - 3

=n-1

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1
2

5.00%
10.00%
90.00%

2.50%
5.00%
95.00%

1.00%
2.00%
98.00%

0.50%
1.00%
99.00%

1
2
3
4

6.3138
2.9200
2.3534
2.1318

12.7062
4.3027
3.1824
2.7764

31.8205
6.9646
4.5407
3.7469

63.6567
9.9248
5.8409
4.6041

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Inferential Statistics 1 Topic 3 - 3.28

Introducing Hypothesis Testing - 4

2.5%

17.20

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95%

2.5%
18.38

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Inferential Statistics 1 Topic 3 - 3.29

Recap
By the end of this topic students will be able to:
Recognise the terms sample statistic and
population parameter
Use confidence intervals to indicate the reliability of
estimates
Know when approximate large sample and exact
confidence intervals are appropriate

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Inferential Statistics 1 Topic 3 - 3.30

Bibliography
Dewhurst, F. Quantitative Methods for Business and
Management. McGraw-Hill.
Hinton, PR. Statistics Explained Routledge
Oakshot, L. Essential Quantitative Methods for
Business, Management and Finance. Palgrave
Macmillan.

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Inferential Statistics 1 Topic 3 - 3.31

Topic 3 Inferential Statistics 1

Any Questions?

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