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O. Estimation of Parameters.
1. Point and Interval Estimation. Properties of Estimators.

2. A Confidence Interval for  When  is Known.

Text 8.1 -8.3, 8.8. (8.1 -8.3, 8.8.)

3. A Confidence Interval for  When  is not known.

Text 8.10, 8.11, 8.17, 8.21, 8.89! on CD [8.10, 8.11, 8.15, 8.20*]. (8.10, 8.11, 8.15, 8.17*). O1.

3. A Confidence Interval for a Proportion.

O2.

---------------------------------------------------------------------------------------------------------------------------
Confidence Intervals when the Population Standard Deviation is Known

From the Outline:

  x  z 2 s x This is not what you actually use most of the time! All that "  unknown" means is
that we do not have a value of the population variance    . If you only have the sample variance
2

 s  , ignore this stuff and use the t table.

2

x x N n
Remember that  x  or  x  , but that only the first formula is used in these exercises.
n n N 1

Exercise 8.1: If x  85,   8 and n  64, construct a 95% confidence interval for the population mean.
Solution:   .05. z  2  z .025  1.960 can be found on the last line of the t table. So
 8
 xz  85  1.960  85  1.96 or 83.04    86.96. More formally,
n 64
P  83.04    86.96  .95 .

Exercise 8.2: If x  125,   24 and n  36, construct a 99% confidence interval for the population
mean.
Solution:   .01. z  2  z .005  2.576 from the last line of the t table. So
 24
 xz  125  10.30 or 114.70    135.30
 125  2.576
n 36
Exercise 8.3: A market researcher says that she has 95% confidence that the mean monthly sales of a
product are between $170,000 and $200,000. Explain the meaning of this statement.
Solution: According to the Instructor’s Solutions Manual, if all possible samples of the
same size n are taken, 95% of them include the true population average monthly sales of
the product within the interval developed. Thus we are 95 percent confident that this
sample is one that does correctly estimate the true average amount.

Exercise 8.8: the quality control manager at a light bulb factory needs to estimate the mean life of a batch
(population) of light bulbs. We assume that the (population) standard deviation is 100
hours. A random sample of 64 light bulbs from the batch yields a sample mean of 350.
a) Construct a 95% confidence interval for the population mean of light bulbs in this
batch.
b) Do you think that the manufacturer has the right to state that the average life of the
light bulbs is 400 hours? Explain.
c) Must you assume that the population of light bulb lives is Normal? Explain.
d) Suppose that the (population) standard deviation changed to 80 hours. How would this
change your answers to b) and c)?

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Solution: We are given   .05, x  350,   100, n  64 . The answer below has been edited
from the Instructor’s Solutions Manuals for the 9th and 10th editions.
(a) The Instructor’s Solutions Manual for the 9th edition does not show the details of this solution,
but gives the following printout.

 100
The 10th edition actually says that X �Z �  350 �1.96 � or
n 64
325.5    374.50. If you can’t show this using the examples on the previous page, you
have a serious problem!
(b) No. The manufacturer cannot support a claim that the bulbs last an average 400 hours.
Based on the data from the sample, a mean of 400 hours would represent a distance of 4
standard deviations above the sample mean of 350 hours. This is what is called a
hypothesis test! Our so-called null hypothesis is H 0 :   400 . Showing that 400 does
not fall on the confidence interval constructed from our sample statistic, we have shown
that the mean is significantly different from 400 (at the 5% significance level).
(c) No. Since  is known and n = 64, from the central limit theorem, we may assume that the
sampling distribution of x is approximately normal.

(d) in the 9th edition asks us to explain why an observed value of 320 hours would not be unusual even
though it would be outside of the confidence interval just calculated. The Instructor’s
Solutions Manual for the 9th edition gives the following answer. An individual value of 320 is
only 0.30 standard deviations below the sample mean of 350. The confidence interval
represents bounds on the estimate of a sample of 64, not an individual value.
(d) in the 10th edition is (e) in the 9th edition. The confidence interval is narrower based on a
process standard deviation of 80 hours rather than the original assumption of 100 hours.
 80
(a) X  Z  350  1.96  or 330.4    369.6.
n 64
(b) Based on the smaller standard deviation, a mean of 400 hours would represent a
distance of 5 standard deviations above the sample mean of 350 hours. No, the
manufacturer cannot support a claim that the bulbs last an average of 400 hours.
On the other hand, if the process standard deviation was sufficiently above
100 hours, we could deny that the mean was significantly different from 400
hours. How large would that have to be? Good question! The confidence
 
interval is   x  z  350  1.960 . If
n 64
 
350  1.960  400, then 1.960  400  350  50. If we
64 64

take this as an equality we get 1.960  50 or
64

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 204.08. So if  is larger than 204.08, we will not be able to

50 64
 
1.960
say that the mean is significantly different from 400.
Confidence Intervals when the Population Standard Deviation is Unknown

From the Outline:

  x  t  n 1 s x This is what you actually use most of the time! All that "  unknown" means is
2

that we do not have a value of the population variance. If you only have the sample variance, use the
sx s N n
t table. Remember that s x  or s x  x . Only the first formula is used in most text
n n N 1
problems.
Exercise 8.10: Find t n 1 for a) a 95% confidence level and a sample size of 10, b) a 99% confidence
2
level and a sample size of 10, c) a 95% confidence level and a sample size of 32, d) a
95% confidence level and a sample size of 65 and e) a 90% confidence level and a
sample size of 16.
 n 1
Solution: In each case we use t  2

1    .95, so   .05 and  2  .025. n  10,  9

(a) so n  1  9 , and t .025 =
2.262.
(b) t .005
9
= 3.250
 31
t .025 = 2.040
(c)
(d) t .025
64 
= 1.998
(e) t .05
15 
= 1.753

Exercise 8.11: If x  75, s  24, n  36 and the parent population is Normal, find a 95% confidence
interval for the population mean.
 n 1 t  35   2.030
Solution:   .05. t  .025 .
2

24
  x  ts x  75  2.030  75  8.12 or 66.98    83.12.
36

Exercise 8.17 [8.15 in 9th]: The problem is about a tread wear index, an important measure of a tire’s
performance. A brand of tires is graded 200. A random sample of 18 tires is taken by a consumer
organization and gives a sample mean tread wear index of 195.3 and a sample standard deviation of 21.4.
Assume a Normal distribution.
a. Set up a 95% confidence interval for the population mean.
b. Should the organization accuse the manufacturer of not meeting the standard for the grade?
c. Why is a tread wear index of 210 for a given tire not unusual?
 n 1 t 17   2.110
Solution: Since x  195.3, s  21.4, n  18 and   .05. t  .025
2

21.4
(a)   x  ts x  195.3  2.110  195.3  10.643 184.657 
18
205.942
(b) No, a grade of 200 is in the interval.
(c) It is not unusual. A tread-wear index of 210 for a particular tire is only 0.69 standard
deviations above the sample mean of 195.3.

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Exercise 8.89 [Not in 9th ??]: If we are sampling without replacement from a population of 200 and from
a sample of 36 get a sample mean of 75 and a standard deviation of 24, construct a 95% confidence
interval for the mean.
Solution: Our facts are x  75, s  24, n  36, N  200 and   .05. Our basic formula remains
  x  t n1 s x but because the sample is more than 5% of the population, we need a finite population
2

sx N n 24 200  36 164
correction. s x   4  4 0.82412  4 .9078  3.631 .
n N  1 36 200  1 199
The value of

t n 1  35 
that we need is t .025  2.030. So the interval is
2

  x  t  n 1 s x  75  2.030 3.631  75  9.55 , so

2

we can say P  65.45    84.55  .95 .

Exercise 8.17(in 8th edition only): In order to estimate dental expenses to plan for a proposed dental plan,
a personnel department takes a random sample of dental expenses for the families of 10 employees over
the previous year. (Dental data set on disk)
Expenses
110 362 246 85 510 208 173 425 316 179
a. Set up a 90% confidence interval estimate of mean family dental exposes for all employees.
b. What assumption must be made about the population distribution in a)?
c. Give an example of a family dental expense that is outside the confidence interval but that are not
unusual for an individual family and explain why this is not a contradiction.
d. Repeat a) for a 95% interval.
e. What would the effect be in a) of changing the fourth value from $85 to $585?

Solution: Since the file is available on your disk, I downloaded it to Minitab and got the following results
with my comments added.

————— 4/9/2003 2:42:54 PM ————————————————————

Welcome to Minitab, press F1 for help.
MTB > Retrieve "E:\Content\Data Files\Minitab Data Files\Dental.MTW".
Retrieving worksheet from file: E:\Content\Data Files\Minitab Data
Files\Dental.MTW
# Worksheet was saved on Mon Apr 27 1998

Results for: Dental.MTW The data you have is labeled Expenses and is in C1.

MTB > Let c2=c1*c1 To compute the variance I squared the data and placed it in C2.

MTB > print c1 c2

Data Display
Row Expenses C2

1 110 12100
2 362 131044
3 246 60516

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4 85 7225
5 510 260100
6 208 43264
7 173 29929
8 425 180625
9 316 99856
10 179 32041

MTB > sum c1

Sum of Expenses
Sum of Expenses = 2614.0  x  2614
MTB > sum c2
Sum of C2
Sum of C2 = 856700 x 2
 856700

MTB > Describe c1 This is the basic command for describing a data set.
Descriptive Statistics: Expenses
Variable N Mean Median TrMean StDev SE Mean
Expenses 10 261.4 227.0 252.4 138.8 43.9

Variable Minimum Maximum Q1 Q3

Expenses 85.0 510.0 157.3 377.8

MTB > tinterval 90 c1 This is the command to get a 90% confidence interval.
One-Sample T: Expenses
Variable N Mean StDev SE Mean 90.0% CI
Expenses 10 261.4 138.8 43.9 ( 180.9, 341.9)

So the interval is 180.9    341.9 

(a) Printout from the Instructor’s Solutions Manual follows:

If we do this by hand, we write down the two 425 180625

columns above. 316 99856
x x2 179 2041
110 12100 2614 856700
362 131044
246 60516
85 7225
510 260100
208 43264
173 29929

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x 2
 nx 2 856700  10 261.4  2

2
If   .10, n  10, s    19266.711
2
x  856700,
n 1 9

 x  2614, x    2614  261.4

x . s 19266.711  138.8046
n 10  n 1  9
We use t   t .05  1.833.
and 2

138.80
  x  ts x  261.4  1.833  261.40  80.45 or 180.95 to 341.85
10

(b) The population of dental expenses must be approximately normally distributed.

(c) I’ll let you think about this one.

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 n 1
(d) If   .05, n  10, x  261.4 and s  138.8046 , we use t 
 t .025
9 2
 2.262.

138.80
  x  ts x  261.4  2.262  261.40  2.262 43.892  261.40  99.28 or 161.12
10
to 360.68.

(e) The additional $500 in dental expenses, divided across the sample of 10, raises the mean by
$50 and increases the standard deviation by nearly $20. The interval half-width increases
over $11 in the process. The new interval is:
s 157.056
  x t  311 .40  1.8331
n 10
th
Exercise 8.21(8.20 in 9 ): In New York a random sample was taken of the time required in days to
approve 27 Savings Bank Life Insurance policies. (Insurance data set on disk)
Time
73 19 16 64 28 28 31 90 60 56
31 56 22 18 45 48 17 17 17 91
92 63 50 51 69 16 17
a. Set up a 95% confidence interval estimate of mean processing time.
b. What assumption must be made about the population distribution in a)?
c. Do you think that the assumption made in b) has been seriously violated? Explain.
d. Compare the conclusions reached in a) with those of Problem 3.61 on page 126.

Solution: Since the file was available on disk, I downloaded it to Minitab and got the results below.
MTB > Retrieve "C:\Berenson\Data_Files-9th\Minitab\INSURANCE.MTW".
Retrieving worksheet from file: C:\Berenson\Data_Files-9th\Minitab\INSURANCE.MTW
# Worksheet was saved on Mon Apr 09 2001

Results for: INSURANCE.MTW The data you have is labeled Time and is in C1.

MTB > let c2 = c1*c1 To compute the variance I squared the data and placed it in C2.
MTB > print c1 c2

Data Display
Row Time C2

1 73 5329
2 19 361
3 16 256
4 64 4096
5 28 784
6 28 784
7 31 961
8 90 8100
9 60 3600
10 56 3136
11 31 961
12 56 3136
13 22 484
14 18 324
15 45 2025
16 48 2304
17 17 289
18 17 289
19 17 289
20 91 8281
21 92 8464

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22 63 3969
23 50 2500
24 51 2601
25 69 4761
26 16 256
27 17 289

MTB > sum c1

Sum of Time
Sum of Time = 1185.0  x  1185
MTB > sum c2
Sum of C2
Sum of C2 = 68629 x 2
 68629
MTB > describe c1

Descriptive Statistics: Time This is the basic command for describing a data set.
Variable N Mean Median TrMean StDev SE Mean
Time 27 43.89 45.00 43.08 25.28 4.87

Variable Minimum Maximum Q1 Q3

Time 16.00 92.00 18.00 63.00

MTB > tinterval 95 c1 This is the command to get a 95% confidence interval.
One-Sample T: Time
Variable N Mean StDev SE Mean 95.0% CI
Time 27 43.89 25.28 4.87 ( 33.89, 53.89)

If we do this by hand we get the following.

obs x x2
1 73 5329
2 19 361
3 16 256
4 64 4096
5 28 784
6 28 784
7 31 961
8 90 8100
9 60 3600
10 56 3136
11 31 961
12 56 3136
13 22 484
14 18 324
15 45 2025
16 48 2304
17 17 289
18 17 289
19 17 289
20 91 8281
21 92 8464
22 63 3969
23 50 2500
24 51 2601
25 69 4761
26 16 256
27 17 289
1185 68629

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If   .05, n  27,  x  1185,  x 2

 68629, x   x  1185  43.88889
n 27

and s2 
 x 2  nx 2

68629  27 43.88889 2

16620.6667
 639.2564 .
n 1 26 26
s  639.2564  25.2835 . For a 2-sided interval use t  n 1  t .025
26 
 2.056 .
2

25.2835
  x  ts x  43.88889  2.056  43.89  10.00 or 33.89 to 53.89, which
27
means we can say P  33.89    53.89 . Or make a diagram of an almost Normal curve with a
mean at 43.89 and mark 33.89 and 53.89. Label the area between these two points with 95% and the
area in each of the tails with 2.5%.

The remainder of the solution comes from the Instructor’s Solutions Manual.

(b) The population distribution needs to be normally distributed.

(c)
Normal Probability Plot
100
90
80
70
60
Time

50
40
30
20
10
0
-2 -1.5 -1 -0.5 0 0.5 1 1.5 2

Z Value

Box-and-whisker Plot

Time

10 30 50 70 90

Both the normal probability plot and the box-and-whisker show that the population
distribution is not normally distributed and is skewed to the right.

(d) With a sample size of 27 and the population distribution that appears to be skewed, the
method used in (a) is not reliable and, hence, any comparison with Problem 2.64 is likely
to be invalid.

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A Summary Exam-type Problem

We are using the following formulas.

x x N n
When  is known   x  z 2 x , where  x  , or  x  when the sample
n n N 1
is more than 5% of the population.
 n1 s sx sx N n
When  is unknown   x  t  x , where s x  , or s x  when the
2
n n N 1
sample is more than 5% of the population.

Problem O1: If n  64 and x  11 .50 , find 95% confidence intervals for the mean under the following
circumstances:
a.   6.30, N  3000
b.   6.30, N  300
c. s  6.30, N  3000
d. s  6.30, N  300

Solution: Use the formulas from Table 3 of the syllabus supplement or from the outline.
a)   x  z 2 x  11 .50  1.960  .7875  11 .50  1.54 or 9.96 to 13.04
x 6.30
x    .7875 z  2  z .025  1.960 . More formally, we can say
n 64
P 9.96    13.04  .95 or make a diagram.
b)   x  z 2  x  11 .50  1.960 .6996  11 .50  1.37 or 10.13 to 12.87

x N n 6.30 300  64 236

x     0.7875   0.7875 .8884  .6996
n N 1 64 300  1 299
z  2  z .025  1.96
 n 1 s  11 .50  1.998 .7875  11 .50  1.57
c)   x  t  x or 9.93 to 13.07
2

sx 6.30
t  2
n 1
sx    .7875  t .025
63
 1998
.
n 64
 n 1 s  11 .50  1.998 .6996  11 .50  1.40
d)   x  t  x or 10.10 to 12.90
2

N n 300  64
t n 1  t.025
63 
sx 6.30
sx    .6996  1.998
n N 1 64 300  1 2

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A Confidence Interval for a Proportion

Problem O2 (Black): a) A researcher wants to know what share her company holds in a large city. A sample
of 1003 people who bought CDs in the last month is taken and 256 turn out to have bought her company’s products
(CDs). Create a 95% confidence interval for the proportion that bought her company’s products. b) CD sales aren’t
what they used to be. What if we find out that there were only 10000 people who bought CDs in the city last month?
pq x 256
Solution: a) p  p  z  2 s p  p  z  2 . p   .2552 , q  1  p  .7448 .
n n 1003
.2552 .7448 z  2  z .025  1.96 . So
sp   .0001895  .01377 .
1003
p  .2552  1.960 .01377   .2552  .0270 or .2282 to .2822
b) If N  10000 our sample is more than 5% of the population and we have
N n pq
sp 
N 1 n
10000  1003
  .01377  0.89979  .01377   0.94857 .01377   .01306 . So
10000  1
p  .2552  1.960 .01306  .2552  .0256 .

11