Central Limit Theorem

Irrespective of the shape of the underlying

distribution of the population, by
increasing the sample size, sample means
& proportions will approximate normal
distributions if the sample sizes are
sufficiently large.
Central Limit Theorem in action:
How large must a sample be for the Central Limit
theorem to apply?

The sample size varies according to the shape of

the population.

However, for our use, a sample size of 30 or

larger will suffice.
 Confidence Interval Estimates
• A range of values so constructed that there is a specified probability
of including the true value of a parameter within it
• Probability of including the true value of a parameter within a
confidence interval
• Percentage
• Two extreme measurements within which an observation lies

• End points of the confidence interval

• Larger confidence – Wider interval

 Confidence Interval Estimates
How do we form a confidence interval?
• The purpose of taking a random sample from a lot or population and
computing a statistic, such as the mean from the data, is to
approximate the mean of the population.
• How well the sample statistic estimates the underlying population
value is always an issue.
• A confidence interval addresses this issue because it provides a range
of values which is likely to contain the population parameter of
interest.
 Confidence Interval Estimates
• Confidence Interval
Confidence intervals are constructed at a confidence level, such as 95
%, selected by the user.
What does this mean?
It means that if the same population is sampled on numerous
occasions and interval estimates are made on each occasion, the
resulting intervals would bracket the true population parameter in
approximately 95 % of the cases. In simple sense, a 95% confidence
interval has a 0.95 probability of containing the population mean.
How do you calculate a 95% interval
1. Write down the phenomenon you'd like to test.
2. Select a sample from your chosen population.
3. Calculate your sample mean and sample standard deviation.
4. Choose your desired confidence level.
5. Calculate your margin of error.
6. State your confidence interval
Common levels of confidence intervals used
by analysts are 90%, 95%, 98%, and 99%.
Factors Affecting Confidence Interval Estimates

The factors that determine the width of a confidence

interval are:
1.The sample size, n.
2.The variability in the population, usually σ estimated by s if σ
unknown.
3.The desired level of confidence (the probability).

9
Interval Estimates - Interpretation
For a 95% confidence interval about 95% of the similarly constructed intervals
will contain the parameter being estimated. Also 95% of the sample means
for a specified sample size will lie within 1.96 standard deviations of the
hypothesized population.
The probability 1– α is called the confidence level.

10
 t-Distribution
• What is t-distribution
In probability and statistics, Student's T-distribution (or simply the t-
distribution) is any member of a family of continuous
probability distributions that arises when estimating the mean of a
normally distributed population in situations where the sample size is
small and population standard deviation is unknown.
 z-distribution
• A probability density function and especially a
normal distribution that has a mean equal to zero and a standard
deviation equal to one and that is used especially in testing
hypotheses about means or proportions of samples drawn from
populations whose population standard deviations are known —
compare z-test.
• Z=Distance of a value (X) from mean value (µ) in units of standard
deviation (SD) (Standard normal variate)
Confidence Interval Estimates for the Mean

Use Z-distribution Use t-distribution

If the population standard If the population standard
deviation is known or the deviation is unknown and the
sample is greater than 30. sample is less than 30 and
normally distributed.

13
Four commonly used confidence levels…
• Confidence Level cut & keep handy!
 

Table 10.1
10.14
When to Use the z or t Distribution for Confidence Interval
Computation

15
Example 10.1…
• A computer company samples demand during lead time over 25 time
periods:
235 374 309 499 253
421 361 514 462 369
394 439 348 344 330
261 374 302 466 535
386 316 296 332 334

• Its is known that the standard deviation of demand over lead time is
75 computers. We want to estimate the mean demand over lead time
with 95% confidence in order to set inventory levels…

10.16
Example 10.1…
• “We want to estimate the mean demand over lead time with 95%
confidence in order to set inventory levels…”

• Thus, the parameter to be estimated is the pop’n mean:

• And so our confidence interval estimator will be:

10.17
 CALCULATE

Example 10.1…
• In order to use our confidence interval estimator, we need the following pieces of data:
370.16 Calculated from the data…

1.96

75
Given
n 25

• therefore:

• The lower and upper confidence limits are 340.76 and 399.56.

10.18
Confidence Interval for the Mean – Example using the t-distribution

A tire manufacturer wishes to investigate the tread

life of its tires. A sample of 10 tires driven 50,000 Given in the problem :
miles revealed a sample mean of 0.32 inch of
tread remaining with a standard deviation of 0.09 n  10
inch. Construct a 95 percent confidence interval
for the population mean. Would it be reasonable x  0.32
for the manufacturer to conclude that after s  0.09
50,000 miles the population mean amount of
tread remaining is 0.30 inches?
Compute the C.I. using the
t - dist. (since  is unknown)
s
X  t / 2,n 1
n

19
Student’s t-distribution Table

20
Selecting a Sample Size

There are 3 factors that determine the size

of a sample, none of which has any direct
relationship to the size of the population.
They are:
• The degree of confidence selected.
• The maximum allowable error.
• The variation in the population.

21
Sample Size Determination for a Variable

• To find the sample size for a variable:

 zs 
2

n 
 E 

where :
E - the allowable error
z - the z - value correspond ing to the selected
level of confidence
s - the sample deviation (from pilot sample)

22
Sample Size Determination for a Variable-Example

A student in public administration wants to determine the mean

amount members of city councils in large cities earn per month
as remuneration for being a council member. The error in
 zs 
estimating the mean is to be less than $100 with a 95 percent 2
level of confidence. The student found a report by the
Department of Labor that estimated the standard deviation to n 
be $1,000. What is the required sample size?  E 

Given in the problem:

 1.96  $1,000 
2
• E, the maximum allowable error, is $100
 
• The value of z for a 95 percent level of confidence is 1.96,  $100 
• The estimate of the standard deviation is $1,000.
 (19.6) 2
 384.16
 385

23
Sample Size Determination for a Variable-
Another Example
A consumer group would like to estimate the mean monthly
electricity charge for a single family house in July within $5 using a 99
percent level of confidence. Based on similar studies the standard
deviation is estimated to be $20.00. How large a sample is required?

2
 (2.58)( 20 ) 
n   107
 5 

24
Sample Size for Proportions
• The formula for determining the sample size in the case of a
proportion is:
2
Z
n  p(1  p) 
E

where :
p is estimate from a pilot study or some source,
otherwise, 0.50 is used
z - the z - value for the desired confidence level
E - the maximum allowable error
25
Another Example
The American Kennel Club wanted to estimate the proportion
of children that have a dog as a pet. If the club wanted the
estimate to be within 3% of the population proportion, how
many children would they need to contact? Assume a 95%
level of confidence and that the club estimated that 30% of
the children have a dog as a pet.

2
 1.96 
n  (.30 )(. 70 )   897
 .03 

26
Another Example
A study needs to estimate the proportion of cities
that have private refuse collectors. The
investigator wants the margin of error to be
within .10 of the population proportion, the
desired level of confidence is 90 percent, and no
2
estimate is available for the population  1.65 
proportion. What is the required sample size? n  (.5)(1  .5)   68.0625
 .10 
n  69 cities

27