Interval Estimation

Margin of Error
• It is unrealistic to expect that the point estimate of a population
parameter will exactly equal the population parameter.
• A point estimate should always be interpreted with its margin of error.
Thus, the interval estimate is given by:
Point estimate Margin of error
• For example, in case of the sample mean , the interval estimate would be:

• The purpose of an interval estimate is to provide information about how

close the point estimate, provided by the sample, is to the value of the
population parameter.
Interval Estimate for the Population Mean
• The margin of error can be either calculated using:
• The population standard deviation , when can be assumed to be known, or
• The sample standard deviation , when is unknown. This is the case most of
the times.
Interval Estimate for the Population Mean:
Known Case
Suppose a retail store selects a random sample of 100 customers to
learn about the amount spent per shopping trip.
From the sample, the average amount spent per shopping trip = 82$.
Based on historical data, it is assumed that the population standard
deviation of the amount spent per shopping trip = 20$.
Interval Estimate for the Population Mean:
Known Case
When is assumed known, confidence interval for the population mean
is given by:

where is the confidence coefficient and is the value providing an area

of in the upper tail of the standard normal probability distribution.
Interpretation of the Confidence Interval for
the Population Mean
• The 95% confidence interval for the population mean :
• If we construct 100 such 95% confidence intervals using 100 different
samples, then approximately 95 of those confidence intervals contain the
population mean
• In the retail store example, we can be 95% confident that the interval (78.08,
85.92) contains the population average amount spent .
Data were collected on the amount spent by 64 customers for lunch at a major
Houston restaurant. These data are contained in the file named houston.csv (Check
my github or textbook datasets in chapter 7). Based upon past studies the
population standard deviation is known with = $6.
a. At 99% confidence, what is the margin of error?
b. Develop a 99% confidence interval estimate of the mean amount spent for lunch.
Interval Estimate for the Population Mean:
Unknown Case
• It is usually the case that the population standard deviation is also
not known.
• We use sample standard deviation to estimate the population
standard deviation.
• We construct our confidence interval for the mean based on the
sample mean and sample standard deviation .
• When s is used to estimate , the margin of error and the interval
estimate for the population mean are based on a probability
distribution known as the distribution.
distribution
• distribution has one parameter called the degrees of freedom.
• A distribution with higher degrees of freedom has lower dispersion.
• A distribution has heavier tails than the normal distribution.
• As the degrees of freedom increases, the difference between the
distribution and the standard normal probability distribution becomes
smaller and smaller.
• For more than 100 degrees of freedom, the standard normal value
provides a good approximation to the value.
Interval Estimate for the Population Mean:
Unknown Case
When is unknown, confidence interval for the population mean is
given by:

where is the confidence coefficient and is the value providing an area

of in the upper tail of the distribution with degrees of freedom.
Marvel Studio’s motion picture Guardians of the Galaxy opened over the first two
days of the 2014 Labor Day weekend to a record-breaking ticket sales revenue in
North America (The Hollywood Reporter, August 3, 2014).
The ticket sales revenue in dollars for a sample of 30 theaters is given in the file
gauardians.csv (Check my github or textbook datasets in chapter 7).
a. What is the 95% confidence interval estimate for the mean ticket sales revenue
per theater? Interpret this result.
b. Using the movie ticket price of $8.11 per ticket, what is the estimate of the
mean number of customers per theater?
c. The movie was shown in 4080 theaters. Estimate the total number of
customers who saw Guardians of the Galaxy and the total box office ticket sales
for the weekend.
Determining the Sample Size for a Desired
Margin of Error
Sample size for an interval estimate of a population mean with a
desired margin of error :
Determining the Sample Size for a Desired
Margin of Error
• The planning value of is found by one of the following ways:
• Use the estimate of the population standard deviation computed from data of
previous studies as the planning value for .
• Use a pilot study to select a preliminary sample. The sample standard
deviation from the preliminary sample can be used as the planning value for
• Use judgment or a “best guess” for the value of . For example, we might begin
by estimating the largest and smallest data values in the population. The
difference between the largest and smallest values provides an estimate of
the range for the data. Finally, the range divided by 4 is often suggested as a
rough approximation of the standard deviation and thus an acceptable
planning value for .
A market research firm wants to conduct a survey to estimate the
average amount spent on entertainment by each person visiting a
popular resort.
The people who plan the survey would like to be able to determine the
average amount spent by all people visiting the resort to within $120,
with 95% confidence.
From past operation of the resort, a planning value of the population
standard deviation is = $400. What is the minimum required sample
size?
There has been a trend toward less driving in the last few years, especially by
young people. From 2001 to 2009 the annual vehicle miles traveled by people from
16 to 34 years of age decreased from 10,300 to 7900 miles per person (U.S. PIRG
and Education Fund website, April 6, 2012).
Assume the standard deviation was 2000 miles in 2009.
Suppose you would like to conduct a survey to develop a 95% confidence interval
estimate of the annual vehicle-miles per person for people 16 to 34 years of age at
the current time.
A margin of error of 100 miles is desired. How large a sample should be used for
the current survey?
Interval Estimate for a Population Proportion
The sampling distribution of can be approximated by a normal
distribution whenever and

confidence interval for the population proportion is given by:

where is the confidence coefficient and is the value providing an area of

in the upper tail of the standard normal distribution. Remember is the
sample proportion.
Determining the Sample Size for a Desired
Margin of Error
• Sample size for an interval estimate of a population proportion with a
desired margin of error :
Determining the Sample Size for a Desired
Margin of Error
• The planning value of is found by one of the following ways:
• Use the sample proportion from a previous sample of the same or similar
units.
• Use a pilot study to select a preliminary sample. The sample proportion from
this sample can be used as the planning value,
• Use judgment or a “best guess” for the value of .
• If none of the preceding alternatives apply, use a planning value of = .50
Before launching its Buyers’ Assurance Program, American Express
wanted to estimate the proportion of cardholders who would be
interested in this automatic insurance coverage plan.
A random sample of 250 American Express cardholders was selected
and sent questionnaires.
The results were that 121 people in the sample expressed interest in
the plan.
Give a 95% confidence interval for the proportion of all interested
American Express cardholders.
In a sample of 142 casual dining restaurants, 81 earned a profit of less than
$50,000 last year.
a. What is the point estimate of the proportion of casual dining restaurants that earned a
profit of less than $50,000 last year?
b. Determine the margin of error and provide a 95% confidence interval for the proportion of
casual dining restaurants that earned a profit of less than $50,000 last year.
c. How large a sample is needed if the desired margin of error is .03?