CHAPTER 4

STATISTICAL ESTIMATION
o The sampling distribution of the mean shows how far sample means
could be from a known population mean.
o Similarly, the sampling distribution of the proportion shows how far
sample proportions could be from a known population proportion.
o In estimation, our aim is to determine how far an unknown
population mean could be from the mean of a simple random
sample selected from that population; or how far an unknown
population proportion could be from a sample proportion.
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 Basic concepts:
Estimation: is the process of using statistics as estimates of parameters.

Estimator- refers to any sample statistic that is used to estimate a population

parameter.
E.g. x for  p for p.

Estimate- is a specific numerical value of our estimator. E.g. = 9, 2, 5

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Important Properties of Estimators


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3. Consistency:
A statistic is a consistent estimator of a population
parameter if, as the sample size increases, it becomes
almost certain that the value of the statistic comes very
close to the value of the population parameter.
4. Sufficiency:
A sufficient statistic is an estimator that utilizes all the
information a sample contains about the parameter to
be estimated. For example, the sample mean is a
sufficient estimator of the population mean.

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 Types of Estimates
1. A point estimate: -
Is a single number that is used to estimate an
unknown population parameter.

The most important point estimates (given that they are single values) are:

o Sample mean x for population mean 

o Sample proportion p for population proportion p

o Sample variance s 2 for population variance  2 and

o Sample standard deviation s for population standard deviation 

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2. An interval estimate
 It is a range of values used to estimate a population parameter.
 It describes the range of values with in which a parameter might lie.

Example:
Suppose we have the sample 10, 20, 30, 40 and 50 selected randomly from a population whose

mean  is unknown.

 xi 10  20  30  40  50
The sample Mean, x    30 is a point estimate of  .
n 5

On the other hand, if we state that the mean,  is between x  10 , the range of values from 20 (30-

10) to 40 (30+10) is an interval estimate.

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 Interval estimation for population mean μ


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Cont’d…..


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 Confidence interval for population mean is affected by
1)The population distribution: whether the population is
normally distributed or not.
2) The standard deviation: whether it is known or not.
3) The sample size: whether n is large or not.

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

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To find the interval estimate of population mean, we have the
following steps.
1. Compute the standard error of the mean
2. Compute from the confidence coefficient.
3. Find the Z value for the from the table
4. Construct the confidence interval
5. Interpret the results

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EXAMPLE 1:

Suppose that the standard deviation of the tube life for a particular brand of TV picture tube is

known to be σ = 500, but that the mean operating life is not known. Overall, the operating life of

the tubes is assumed to be approximately normally distributed. For a sample of n = 15, the mean

operating life is X = 8,900 hr. Determine (a) the 95 percent and (b) the 90 percent confidence

intervals for estimating the population mean.

The normal probability distribution can be used in this case because the population is normally

distributed and σ is known.

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Answer:
500
Ans(a)  X  Z α
2
σ  8,900 1.96
n 15
500
 8,900  1.96( )  8,900  253  8,647 to 9,153
3.87

Ans(b)  8,900 1.645(129.20)  8,900  213  8,687 to 9,113 hr

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Example 2:

With respect to the above example 1, suppose that the population of tube life cannot be assumed to

be normally distributed. However, the sample mean of X = 8,900 is based on a sample of n = 35.

Determine the 95 percent confidence interval for estimating the population mean.
500
Ans  X  Z α
2
σ  8,900 1.96
n 35
500
 8,900  1.96( )  8,900 1.96(84.46)  8,734 to 9,066
5.92

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 Confidence interval estimate of mean
Normal population, s.d unknown, n large
The confidence interval to estimate mean when
population standard deviation is unknown,
population normal and n is large is

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Example:

For a given week, a random sample of 30 hourly employees selected from a very large number of

employees in a manufacturing firm has a sample mean wage of X = $180, with a sample standard

deviation of s = $14. We estimate the mean wage for all hourly employees in the firm with an

interval estimate such that we can be 95 percent confident that the interval includes the value of

the population mean, as follows:

Given:

X = $180 s = $14

n = 30 C= 0.95   1  0.95  0.05

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 s 14
1. σx    2.56
n 30
  1  0.95  0.05
Z α
2  1.96
μ  X  Z 2
σ
n

 180  1.96x2.56  $174.98 to $185.02

Thus, we can state that the mean wage level for all
employees is between $174.98 and $185.02, with a 95
percent level of confidence in this estimate 17
Example 2:
A study is being conducted in a company that has 800
engineers. A random sample of 50 of these engineers reveals
that the average sample age is 34.3 years, and the sample
standard deviation is 8 years. Assuming normality, construct
a 98% confidence interval to estimate the average age of all
engineers in this company.
Given:

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 S N n
Solution : S x  *
n N 1
8 800  50
i. = *  1.10
50 800  1

ii. α = 1 – C = 1- 0.98 = 0.02

 2 = 0.02/2 = 0.01
iii. Z  / 2  Z 0.01  2.33
N  n
iv.   X  Z / 2 s *
n N 1
= 34.3 ± 2.33(1.10)
= 34.3 ± 2.56
31.74 ≤  ≤ 36.86
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Confidence interval for mean, unknown sd, n-small, population normal

If the sample size is small (n<30), we can develop an interval estimate

of a population mean only if the population has a normal probability
distribution.
If the sample standard deviation s is used as an estimator of the
population standard deviation and if the population has a normal
distribution, interval estimation of the population mean can be based
up on a probability distribution known as t-distribution.

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 X   X  
t  
SX s
n
This formula is essentially the same as the z-formula, but the distribution table
values are not. The confidence interval to estimate mean becomes:

  X  t / 2,v s
n
Where: X = sample mean

α=1–C

ν = n – 1 (degrees of freedom)

s = sample standard deviation

n = sample size

 = unknown population mean 21

Steps:
i. Calculate degrees of freedom (v=n-1) and sample standard error of the mean.
ii. Compute  2

iii. Look up t / 2 ,V
iv. Construct the confidence interval
A. Interpret results

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Example:
In example 1 above we constructed confidence intervals for estimating the
mean operating life of a particular brand of TV picture tube based on the
assumption that the operating life of all tubes is approximately normally
distributed & s.d = 500, and given a sample of n = 15 withmean = 8,900 hr.

Suppose that s.d is not known, but rather, that the sample standard
deviation is S = 500.

Determine the 95 percent confidence interval for estimating the

population mean and compare this interval with the answer to example 1
above
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Solution:
S 500
i. SX  = = 129.09 ν = n – 1 = 15-1 = 14
n 15
ii. α = 1 – C = 1- 0.95 = 0.05
 2 = 0.05/2 = 0.025
t  2 , v  t 0.025,14  2.145
iii.   X  t / 2,v s
n
= 8,900± 2.145(129.09)
= 8,900 ± 276.89
= 8,623 ≤  ≤ 9,176
The confidence interval is wider than the one in the above example 1 24
Example: 2
Sales personnel for X Company are required to submit
weekly reports listing customer contacts made during the
week. A sample of 61 weekly contact reports showed a mean
of 22.4 customer contacts per week for the sales personnel.
The sample standard deviation was 5 contacts.
Required
A)Develop a 95% confidence interval estimate for the mean
number of weekly customer contacts for the population of
sales personnel.
Given
n= 61 weekly contact reports X = 22.4 contacts
s = 5 contacts C = 0.95
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 Solution
S 5
i. SX  = = 0.64
n 61
ii. α = 1 – C = 1- 0.95 = 0.05

 2 = 0.05/2 = 0.025

iii. Z / 2  Z 0.025  1.96

iv.   X  Z / 2 s
n
= 22.4 ± 1.96(0.64)

= 22.4 ± 1.25

21.15 ≤  ≤ 23.65 26
B) Assume that the population of weekly contact data has a normal
distribution. Use the t distribution to develop a 95% confidence
interval for the mean number of weekly customer contacts.
C) Compare your answer for parts (a) and (b).
What do you conclude from your results?
Given
n= 61 weekly contact reports X = 22.4 contacts
S = 5 contacts C = 0.95

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 S 5
i. SX  = = 0.64
n 61
ν = n – 1 = 61 – 1 = 60

ii. α = 1 – C = 1- 0.95 = 0.05

 2 = 0.05/2 = 0.025

iii. t / 2,v  t 0.025, 60  2.00

iv.   X  t / 2,v s
n
= 22.4 ± 2.00 (0.64)

= 22.4 ± 1.28

21.12 ≤  ≤ 23.68
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 Interval Estimation of the Population Proportion
PP
PP
Z  
p Pq
n
P pZ p q
n
Since Z can assume both positive and negative values, it becomes

P pZ pq  pZ Sp
 /2 n  /2
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Example 1:
Recently, a study of 87 randomly selected companies with telemarketing
operation was completed. The study revealed that 39% of the sampled
companies had used telemarketing to assist them in order processing. Using
this information estimate the population proportion of telemarketing companies
who use their telemarketing operation to assist them in order processing taking
a 95% confidence level.
Given:

n= 87 p = 0.39
q = 0.61 C = 0.95
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 Solution:

i. Sp  pq = 0.61 * 0.39 = 0.0523

n 87
ii. α = 1 – C = 1- 0.95 = 0.05
 2 = 0.05/2 = 0.025
iii. Z / 2  Z 0.025  1.96
iv. P  p  Z  / 2 S p
= 0.39 ± 1.96(0.0523)
= 0.39 ± 0.1025
0.2875 ≤ P ≤ 0.4925
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Example 3:
A fast food restaurant took a random sample of 400 customers to determine the
proportion of customers who are female. A confidence interval of .73 to .87 was
reported.
A) Find the number of females and the sample proportion
B) Find the level of confidence of this interval
Given:
n= 400 .73 ≤ P ≤ 0.87 p? Number of females=?

0.73  0.87
Pointes estimate   0.80 or
2

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 0.73  p  Z / 2 s p


0.87  p  Z / 2 s p

1.60 = 2 p
p  0.80

Number of females (X) = n( p ) = 400(0.8) = 320

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B.
P  p  Z / 2 S p
0.87 = 0.8+ Z / 2 S p

0.07 = Z / 2 0.8 * 0.2

400
0.07 = Z  / 2 * 0.02
3.50 = Z  / 2
(P/Z=3.5) = 0.4997
C = 0.4997*2
= 99.94 %
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Example 4:
A random sample of 400 faculty members at HU contained 120 people
who believed that the University should improve its library service. On
the basis of this sample information, an analyst calculated the confidence
interval (.25, .35) for the population proportion of faculty members
favoring improvement. What is the level of confidence of this interval?
Given:
n= 400 X = 120
Interval estimate 0.25 ≤ P ≤ 0.35
p  0.30
Required: C =?

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Solution:

P  p  Z / 2 S p
0.25 = 0.30 - Z / 2 S p

0.05 = Z / 2 0.7 * 0.3

400
0.05 = Z  / 2 * 0.023
2.17 = Z  / 2
(P/Z=2.17) = 0.485
C = 0.485*2
= 97%
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 SAMPLE SIZE DETERMINATION
o The reason for taking a sample from a population is that it
would be too costly to gather data for the whole population.
o But collecting sample data also costs money; and the larger
the sample, the higher the cost.
o To hold cost down, we want to use as small a sample as
possible.
o On the other hand, we want a sample to be large enough to
provide “good” approximation/estimates of population
parameters.
o Consequently, the question is “How large should the sample
be?” 37
The answer depends on three factors:
1. How precise (narrow) do we want a confidence interval
to be?
2. How confident do we want to be that the interval
estimate is correct?
3. How variable is the population being sampled?

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Sample size for estimating population mean
The confidence interval for mean is

  X  Z / 2 
n

From the above expression Z  /2 is called error of estimation (e). So
n
σ
e  Zα 2
n

 Zα 2 σ 2
n μ 
 
 e 
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Example:

A gasoline service station shows a standard deviation of Birr 6.25 for the changes
made by the credit card customers. Assume that the station’s management would like
to estimate the population mean gasoline bill for its credit card customers to be with
in ± Birr 1.00. For a 95% confidence level, how large a sample would be necessary?

Given:

e = Birr 1.00 σ = Birr 6.25

C = 0.95 Z  / 2  Z 0.025  1.96
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Solution:
 Z / 2 
2

n  
 e 
 1.96 * 6.25 
2

n     151
 1 
Example 2:
The National Travel and Tour Organization (NTO) would like to estimate the
mean amount of money spent by a tourist to be with in Birr 100 with 95%
confidence. If the amount of money spent by tourist is considered to be
normally distributed with a standard deviation of Br 200, what sample size
would be necessary for the NTO to meet their objective in estimating this mean
amount?

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Given:
e = Birr 100 σ = Birr 200

C = 0.95 Z  / 2  Z 0.025  1.96

Solution:

 Z / 2 
2

n  
 e 
2
 1.96 * 200 
n  
 100 
15.37  16

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 Sample size for estimating population proportion, p .
The confidence interval for p is P  p  Z pq
α/2
n
The expression pq is called the error term (e).
Z α/2
n

pq
That is, e  Z / 2
n

pq
Squaring both sides e 2
 Z / 2
2

2 n
Z  / 2 pq  Z / 2 
2
np  2 np   pq
then e  e 
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Example
Suppose that a production facility purchases a particular
component parts in large lots from a supplier. The production
manager wants to estimate the proportion of defective parts
received from this supplier. She believes that the proportion of
defects is no more than 0.2 and wants to be with in 0.02 of the
true proportion of defects with a 90% level of confidence. How
large a sample should she take?
Given :
e = 0.02 p = 0.2 q =0.8
C = 0.90 Z  / 2  Z 0.05  1.64
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Solution:
2
 Z / 
np  2
 pq
 e 
2
 1.64 
np   0.2 * 0.8
 0.02 
 1075.84  1076

45
 Example 2:
What is the largest sample size that would be needed in estimating a
population proportion to with in ± 0.02, with a confidence coefficient of 0.95?

Given:
e = 0.02 C = 0.95
Z  / 2  Z 0.025  1.96

Solution:
The largest sample size would be obtained when p = 0.5. So,
2
 Z / 2 
2  1.96 
np   np   0.5 * 0.5
 pq  0.02 
 e 
 2401
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 EXERCISE
Determine the sample size necessary to estimate p for the
following information.
a). e = .02, p is approximately 0.40, and confidence level is 96%
b). e is to be within .04, p is unknown, & confidence level is 95%
c). e is to be within 5%, p is approximately 55%, and confidence
level is 90%
d). e is to be no more than .01, p is unknown, and confidence
level is 99%
a. 2522 b. 601 c. 268 d. 16,577
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END OF CHAPTER
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