Chapter 5

Statistical Inference:
Estimation and
Hypothesis Testing for
Single Populations
University of Economics
Ho Chi Minh City
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Outline

• Estimation for Single Population

• Introduction To Hypotheses Testing
• Testing Hypotheses About A Population Mean (Z Statistic)
• Testing Hypotheses About A Population Mean (t Statistic)

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 Estimating the Population Mean Using the Z Statistic
(Population Variance is known)

Process of Inferential Statistics to Calculate to

Estimate a Population Mean (μ) estimate μ

Population Sample
μ
(parameter) (statistic)

Select a
random
sample
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 Estimating the Population Mean Using the Z Statistic
(Population Variance is known)

• A point estimate is a statistic taken from a sample that is used to estimate a population parameter.

Sample 1 𝑥1
• An interval estimate
(confidence interval) is a
Point estimate
range of values within which
the analyst can declare, with Population
some confidence, the Sample 2 𝑥2
population parameter lies.

Sample n 𝑥𝑛 Interval estimate

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 Estimating the Population Mean Using the Z Statistic
(Population Variance is known)

• Confidence Interval To Estimate Population Mean (μ)

𝜎 𝜎 𝜎 α=the area under the normal curve
𝑥 ± 𝑍𝛼 / 2 𝑜𝑟 𝑥 − 𝑍 𝛼 ≤ 𝜇 ≤ 𝑥+ 𝑍 𝛼 outside the confidence interval area
√𝑛 2 √𝑛 2 √𝑛

α/2=the area in one end (tail) of the

distribution outside the confidence
interval

Some of the common levels of confidence

used by business researchers are 90%, 95%,
98%, and 99%.

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 Estimating the Population Mean Using the Z Statistic
(Population Variance is known)

Example: A survey was taken of U.S. companies that do business with firms in India. One of the
questions on the survey was: Approximately how many years has your company been trading with
firms in India? A random sample of 44 responses to this question yielded a mean of 10.455 years.
Suppose the population standard deviation for this question is 7.7 years. Using this information,
construct a 90% confidence interval for the mean number of years that a company has been trading
in India for the population of U.S. companies trading with firms in India.

𝑛=44 , 𝑥=10.455 , 𝜎=7.7

𝛼
90% 𝑐𝑜𝑛𝑓𝑖𝑑𝑒𝑛𝑐𝑒𝑖𝑛𝑡𝑒𝑟𝑣𝑎𝑙⇒𝛼=1−0.9=0.1⇒ =0.05⇒ 𝑐h𝑒𝑐𝑘𝑧𝑡𝑎𝑏𝑙𝑒:𝑧=1.645
2

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 Estimating the Population Mean Using the t Statistic
(Population Variance is Unknown)

• The t Distribution: is used instead of the z distribution for doing inferential statistics on the
population mean when the population standard deviation is unknown and the population is
normally distributed.
• Characteristics of the t Distribution: Like the standard normal curve, t distributions are
symmetric, unimodal, and a family of curves. The t distributions are flatter in the middle and have
more area in their tails than the standard normal distribution.

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 Estimating the Population Mean Using the t Statistic
(Population Variance is Unknown)

• Reading the t Distribution: To find a value in the t distribution table requires knowing the
degrees of freedom; each different value of degrees of freedom is associated with a different t
distribution.
• Degrees of freedom: refers to the number of independent observations for a source of variation
minus the number of independent parameters estimated in computing the variation. (degree of
freedom = n-1).

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 Estimating the Population Mean Using the t Statistic
(Population Variance is Unknown)

• Confidence Interval To Estimate Population Mean (μ)

𝑠 𝑠 𝑠
𝑥± 𝑡𝛼 𝑜𝑟 𝑥 − 𝑡 𝛼 ≤ 𝜇 ≤ 𝑥+𝑡 𝛼
, 𝑛 −1 √ 𝑛 ,𝑛 − 1 √ 𝑛 ,𝑛 − 1 √ 𝑛
2 2 2

Example: A survey was taken of U.S. companies that do business with firms in India. One of the
questions on the survey was: Approximately how many years has your company been trading with
firms in India? A random sample of 18 responses to this question yielded a mean of 13.56 years.
Suppose the population standard deviation for this question unknown. The sample standard deviation is
7.8 years. Using this information, construct a 90% confidence interval for the mean number of years
that a company has been trading in India for the population of U.S. companies trading with firms in
India.
𝑛= 18 , 𝑥=13.56 , 𝑆=7.8 , 90 %  𝑐𝑜𝑛𝑓𝑖𝑑𝑒𝑛𝑐𝑒 𝑖𝑛𝑡𝑒𝑟𝑣𝑎𝑙 ⇒ 𝑡 𝛼 =𝑡 0.05,17=1.740
,𝑛 − 1
2

7.8 7.8
13.56 −1.740 ≤ 𝜇 ≤ 13.45+1.740 ⇒ 10.36 ≤ 𝜇 ≤ 16.76
√ 18 √ 18
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 Estimating the Population Mean Using the t Statistic
(Population Variance is Unknown)

Example: The owner of a large equipment rental company wants to make a rather quick estimate of the
average number of days a piece of ditchdigging equipment is rented out per person per time. The
company has records of all rentals, but the amount of time required to conduct an audit of all accounts
would be prohibitive. The owner decides to take a random sample of rental invoices. Fourteen different
rentals of ditchdiggers are selected randomly from the files, yielding the following data (3 1 3 2 5 1
2 1 4 2 1 3 1 1). She uses these data to construct a 99% confidence interval to estimate the
average number of days that a ditchdigger is rented and assumes that the number of days per rental is
normally distributed in the population.

2.14 − 3.012
( )
1.29
√ 14
≤ 𝜇 ≤ 2.14 +3.012(
1.29
√14
) ⇒1.10 ≤ 𝜇≤ 3.18

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Estimating The Population Proportion
• Confidence Interval To Estimate The Population Proportion:

√ √
= sample proportion
^^ ^^
^𝑝 − 𝑍 𝛼 𝑝 𝑞 ≤ 𝑝 ≤ 𝑝^ − 𝑍 𝛼/ 2 𝑝 𝑞 = 1-
𝑛 𝑛 p= population proportion
2 n= sample size

Example: A study of 87 randomly selected companies with a telemarketing (telephone marketing)

operation revealed that 39% of the sampled companies used telemarketing to assist them in order
processing. Using this information, how could a researcher estimate the population proportion of
telemarketing companies that use their telemarketing operation to assist them in order processing?
Given 95% confidence interval.
1- 95% confidence interval =>Z=1.96

0 .39 −1.96
√
0.39 ∗ 0.61
87
≤ 𝑝≤ 0.39+1.96
√
0.39 ∗ 0.61
87
⇒0.29 ≤ 𝑝 ≤ 0.49
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Estimating The Population Proportion
Example: A clothing company produces men’s jeans. The jeans are made and sold with either a
regular cut or a boot cut. In an effort to estimate the proportion of their men’s jeans market in
Oklahoma City that prefers boot-cut jeans, the analyst takes a random sample of 212 jeans sales from
the company’s two Oklahoma City retail outlets. Only 34 of the sales were for boot-cut jeans.
Construct a 90% confidence interval to estimate the proportion of the population in Oklahoma City
who prefer boot-cut jeans.

1- 90% confidence interval =>Z=1.645

0 .16 −1.645
√
0.16 ∗ 0.84
212
≤ 𝑝≤ 0.16 +1.645
√
0.16 ∗0.8 4
212
⇒0.12 ≤ 𝑝 ≤ 0.20

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Introduction To Hypotheses Testing
• In searching for answers to questions and in attempting to find
explanations for business phenomena, business researchers often develop
“hypotheses” that can be studied and explored.
• Hypotheses: are tentative explanations of a principle operating in
nature.
• Three types of hypotheses:
-Research hypothesis
-Statistical hypothesis
-Substantive hypothesis

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 Introduction To Hypotheses Testing
• Research hypothesis: is a statement of what the researcher believes will be
the outcome of an experiment or a study.
Example:
-Older workers are more loyal to a company.
-The implementation of a Six Sigma quality approach in manufacturing will
result in greater productivity.
-Companies with more than $1 billion in assets spend a higher percentage of
their annual budget on advertising than do companies with less than $1 billion
in assets.
-Airline company stock prices are positively correlated with the volume of
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Introduction To Hypotheses Testing
• Statistical Hypotheses: In order to scientifically test research hypotheses, researchers convert
research hypotheses to statistical hypotheses.
• All statistical hypotheses consist of two parts: a null hypothesis and an alternative hypothesis.
• Null hypothesis (: states that the “null” condition exists; that is, there is nothing new happening,
the old theory is still true, the old standard is correct, and the system is in control.
• Alternative hypothesis (: states that the new theory is true, there are new standards, the system is
out of control, and/or something is happening.
Example: Suppose a company has held an 18% share of the market. However, because of an
increased marketing effort, company officials believe the company’s market share is now greater
than 18%, and the officials would like to prove it.
-What the research want to prove is stated in the alternative hypothesis
-The null and alternative hypotheses are mutually exclusive (no overlap) and
collectively exhaustive (all cases included).
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Introduction To Hypotheses Testing
• Two-tailed tests: always use = and ≠ in the statistical hypotheses.
Example: Suppose flour packaged by a manufacturer is sold by weight; and a particular size of
package is supposed to average 40 ounces. Suppose the manufacturer wants to test to determine
whether their packaging process is out of control as determined by the weight of the flour packages.

• One-tailed tests: are always directional, and the alternative hypothesis uses either the greater than
(>) or the less than (<) sign.
Example: suppose a company has held an 18% share of the market. However, because of an
increased marketing effort, company officials believe the company’s market share is now greater
than 18%, and the officials would like to prove it.

⇒
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Introduction To Hypotheses Testing
• Substantive Hypotheses: In testing a statistical hypothesis, a business researcher reaches a conclusion
based on the data obtained in the study. If the null hypothesis is rejected and therefore the alternative
hypothesis is accepted, it is common to say that a statistically significant result has been obtained.
However, this statistically significant result may not be a significant business outcome.
Example: In the market share study, Suppose a large sample of potential customers is taken, and a
sample market share of 18.2% is obtained.

We would conclude statistically that the market share is

significantly higher than 18%. However,to the business
decision maker, a market share of 18.2% might not be
significantly higher than 18%.
• A substantive result is when the outcome of a statistical study produces results that are important to
the decision maker.

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 Introduction To Hypotheses Testing
• Testing Hypotheses:

Eight-step Approach
Step 1: Establish a null and alternative hypothesis.
HTAB Approach Step 2: Determine the appropriate statistical test
Task 1: Establishing the hypotheses Step 3: Set the value of alpha, the Type I error rate.
Task 2: Conducting the test Step 4: Establish the decision rule.
Task 3: Taking statistical action Step 5: Gather sample data.
Task 4: Determining the business implications Step 6: Analyze the data.
Step 7: Reach a statistical conclusion.
Step 8: Make a business decision.

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Introduction To Hypotheses Testing

Combine HTAB and

Eight-step Approach.

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 Introduction To Hypotheses Testing
• Critical values are used at the decision
step to determine whether the null
hypothesis is rejected or not.
• Statistical outcomes that result in the
rejection of the null hypothesis lie in
what is termed the rejection region.
• Statistical outcomes that fail to result in
the rejection of the null hypothesis lie
in what is termed the nonrejection
region.

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 Introduction To Hypotheses Testing
• Type I error (α): is the probability of rejecting
the null hypothesis (H0) when it is actually true.
• Type II error (β): is the probability of not
rejecting the null hypothesis when it is actually
false.
• Power (1-β): is the probability of correctly
rejecting the null hypothesis when it is actually
false.
• Power can be affected by three factors: sample
size, effect size, and alpha level.
• Type I and type II errors are inversely related.
One effective way to reduce simultaneously
both type I and type II errors is to increase
sample size.
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Testing Hypotheses About A Population Mean
(Z Statistic, Population Variance is known)
• Z test for single mean:

𝑥 −𝜇
𝑍=
𝜎 /√𝑛

Example: A survey of CPAs across the United States found that the average net
income for sole proprietor CPAs is $74,914. Because this survey is now more than
ten years old, an accounting researcher wants to test this figure by taking a random
sample of 112 sole proprietor accountants in the United States to determine whether
the net income figure changed. Assume the population standard deviation of net
incomes for sole proprietor CPAs is $14,530 and the sample mean is $78,695.

𝜇=74,914 , 𝑛=112 , 𝜎 =14,530

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 Testing Hypotheses About A Population Mean
(Z Statistic, Population Variance is known)

• Step 1:

• Step 2: because σ is known => Z test is

appropriate.
• Step 3: determine α value (common values
of alpha include 0.05, 0.01, 0.010, and 0.10.
Value of alpha is often given subjectively by
the researchers)
Suppose in this study, we give a α value of
0.05 => check Z table:
• Step 4: establish the decision rule

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 Testing Hypotheses About A Population Mean
(Z Statistic, Population Variance is known)
• Step 5: gather the data.
In this study, the researcher already gather data (n=112), and calculate
• Step 6: analyze the data

𝑥 −𝜇 78,695 −74,914
𝑍= = =2.75
𝜎 /√𝑛 14,530/ √ 112

• Step 7: reach a statistical conclusion

Because Z=2.75 > the critical value of Z in the upper tail of the distribution (Z=+1.96) => reject
the null hypothesis and accept the alternative hypothesis.
• Step 8: make a business decision
The sample mean of $78,695 is $3781 higher than the national mean being tested. The researcher
can conclude that the national average is more than before.
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 Testing Hypotheses About A Population Mean
(Z Statistic, Population Variance is known)
• Testing the Mean with a Finite Population:
𝑥−𝜇
𝑍=
𝜎
√( 𝑁 −𝑛)/( 𝑁 − 1)
√𝑛

Example: In the CPA net income example, suppose only 600 sole
proprietor CPAs practice in the United States.
𝑥−𝜇 78,695 −74,914 3,781
𝑍= = = =3.05
𝜎 14,530 1,239.2
√( 𝑁 −𝑛)/( 𝑁 − 1) √( 600− 112)/ (600 −1)
√𝑛 √ 112

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 Testing Hypotheses About A Population Mean
(Z Statistic, Population Variance is known)
• Using the p-Value to Test Hypotheses: The p-value defines
the smallest value of alpha for which the null hypothesis can
be rejected.
For example, if the p-value of a test is 0.038, the null
hypothesis cannot be rejected at = 0.01 because 0.038 is the
smallest value of alpha for which the null hypothesis can be
rejected.

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 Testing Hypotheses About A Population Mean
(t Statistic, Population Variance is Unknown)

• t test for single mean: 𝑥−𝜇

𝑡= 𝑑𝑓 =𝑛 −1
𝑆/ √ 𝑛

Example: Figures released by the U.S. Department of Agriculture show that the average size of farms has
increased since 1940. In 1940, the mean size of a farm was 174 acres; by 1997, the average size was 471
acres. Between those years, the number of farms decreased but the amount of tillable land remained
relatively constant, so now farms are bigger. This trend might be explained, in part, by the inability of
small farms to compete with the prices and costs of large-scale operations and to produce a level of income
necessary to support the farmers’ desired standard of living. Suppose an agribusiness researcher believes
the average size of farms has now increased from the 1997 mean figure of 471 acres. To test this notion,
she randomly sampled 23 farms across the United States and ascertained the size of each farm from county
records. The data she gathered follow. Use a 5% level of significance to test her hypothesis. Assume that
number of acres per farm is normally distributed in the population.

445 489 474 505 553 477 454 463 466 545 590 560
557 502 449 438 500 466 477 557 433 511 561
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 Testing Hypotheses About A Population Mean
(t Statistic, Population Variance is Unknown)

𝑛=23,𝜇=471,𝑑𝑓=23−1=2 ,𝛼=0.05
𝑺𝒕𝒆𝒑 𝟐 : 𝑡h𝑒 𝑡 𝑠𝑡𝑎𝑡𝑖𝑠𝑡𝑖𝑐𝑎𝑙 𝑡𝑒𝑠𝑡 𝑖𝑠𝑎𝑝𝑝𝑟𝑜𝑝𝑟𝑖𝑎𝑡𝑒
𝑺𝒕𝒆𝒑 𝟑: 𝑡h𝑒𝑣𝑎𝑙𝑢𝑒𝑜𝑓 𝛼 𝑖𝑠0.05

𝑺𝒕𝒆𝒑 𝟓: 𝑥=498.78 ,𝑆=46.94

𝑺𝒕𝒆𝒑 𝟔 :𝑡=
𝑥 − 𝜇 498.78 − 471
=
𝑆/ √ 𝑛 46.94 / √ 23
=2.84
𝑺𝒕𝒆𝒑 𝟕 : 𝑏𝑒𝑐𝑎𝑢𝑠𝑒 𝑡h𝑒 𝑜𝑏𝑠𝑒𝑟𝑣𝑒𝑑𝑡 =2.84 > 𝑡h𝑒 𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙 𝑡 𝑣𝑎𝑙𝑢𝑒 1.717 ⇒ 𝑟𝑒𝑗𝑒𝑐𝑡 𝐻 0

.
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