Statistics for Mgt

II
CHAPTER TWO
STATISTICAL ESTIMATIONS
 CHAPTER TWO
STATISTICAL ESTIMATIONS

• In many cases values for a population parameter are

unknown.
• If parameters are unknown it is generally not sufficient to
make some convenient assumption about their values,
rather those unknown parameters should be estimated.
• In business many decision are made without complete
information.
• Inferential statistics is concerned with estimation. It is the
procedure where inference about a population is made on
the basis of the results obtained from a sample drawn from
that population.
 Estimation: is the process of predicting the unknown
population parameter through sampling i.e. it is the process
of using sample statistic so as to estimate the unknown
population parameter. i.e. SS PP
 It is simply the act of guessing the value of a population
parameter.
 The objective of estimation is to determine the approximate
value of a population parameter on the basis of a sample
statistic.
E.g. The sample mean ( X ) is employed to estimate the
population mean (  )
Types of Estimates
1. Point Estimation
 It is a single numerical value obtained from a random sample
used to estimate the corresponding population parameter.
 A random sample of observations is taken from the
population of interest and the observed values are used to
obtain a point estimate of the relevant parameter.
E.g. X µ
P P
S 
S2 2
Estimators and their properties / Goodness of an estimator/
Unbiasedness - An estimator is said to be unbiased if its
expected value is equal to the population parameter it
estimates.
Efficiency - An estimator is efficient if it has a relatively small
variance (as standard deviation). If there are two unbiased
estimators of a parameter, the one whose variance is smaller
is said to be relatively efficient.
Consistency - An estimator is said to be consistent if its
probability of being close to the parameter it estimates
increases as the sample size increases.
Sufficiency - An estimator is said to be sufficient if it contains all
the information in the data about the parameter it estimates.
 2. Interval Estimation
Interval estimate states the range within which a population
parameter probably lies.
The interval with in which a population parameter is expected
to lie is usually referred to as the confidence interval.
The confidence interval for the population mean is the interval
that has a high probability of containing the population
means, . Three confidence intervals are used extensively.
 90% confidence interval,
 95% confidence interval and
 99% confidence interval
 The confidence interval for a population mean is estimated
X Zx
Exercise
A research firm conducted a survey to determine the mean
amount smokers spend on cigarette during a week. A sample
of 49 smokers revealed that the sample mean is Br. 20 with
standard deviation of Br. 5. Construct 95% confidence interval
for the mean amount spent.
Interval Estimation of the difference between two
independent means
If all possible samples of large size n 1 and n2 are drawn from
two different populations, then sampling distribution of the
difference between two means X1 & X2 is approximately
normal with mean (µ1-µ2) and standard deviation  X1 - X2 =
√12/n1 +22/n2
For a desired CL, the confidence interval limits for the
population mean (µ1-µ2) are given by X1 - X2 ± Z X1 - X2
Exercise:
The strength of the wire produced by company A has a mean of
4,500kg and a standard deviation of 200 kg. Company B has a
mean of 4,000 kg and a standard deviation of 300 kg. A sample
of 50 wires of company A and 100 wires of company B are
selected at random for testing the strength. Find 99% confidence
limits on the difference in the average strength of the populations
of wires produced by the two companies.
Exercise:
A large chain-store wishes to compare credit card holders living
in area I with those living in area II in terms of the length of time
the customers have held the credit cards. A random sample of 81
card holders is selected from each area. The sample means are
found to be 120 months and 90 months for area I and area II,
respectively. The population variances being 49 months for area I
and 36 months for area II, construct a 99% confidence interval
for the difference between the two population means.
Interval estimation for a population proportion
 The confidence interval for a population proportion is
estimated P Zp
Exercise: Suppose 1600 of 2000 union members sampled said
they plan to vote for the proposal to merge with a national
union. Union by laws state that at least 75% of all members
must approve for the merger to be enacted. Using the 0.95
degree of confidence, what is the interval estimate for the
population proportion? Based on the confidence interval,
what conclusion can be drawn?
Exercise :A sample of 200 people was assumed to identify their
major source of news information; 110 stated that their major
source was television news coverage. Construct a 90%
confidence interval for the proportion of people in the
population who consider television their major source of
news information.
Student’s t- Distribution
In many situations the sample size is less than 30 and population
standard deviation is unknown, the standard normal
distribution, Z, is not appropriate. The student’s t or the t
distribution is used.
Characteristics of the Student’s t Distribution
There is no one t distribution, but rather a ‘family’ of t
distribution.
As the sample size increases, the t distribution approaches
the standard normal distribution.
It is more spread out and flatter at the center than is the Z.
The t distribution depends on a parameter known as a degree
of freedom. Degree of freedom means the freedom to freely
move data points or the freedom to freely assign values
arbitrarily. df = n – 1 where n is the sample size.
Exercise
A quality controller of a company plans to inspect the average
diameter of small bolts made. A random sample of 6 bolts
was selected. The sample mean is computed to be 2.0016mm
and the sample standard deviation 0.0012mm. Construct the
99% confidence interval for all bolts made.
Sample size for estimating Population mean
n = Z22
E2
Given a population with a standard deviation of 8.6. What
sample size is needed to estimate the mean of population
within ± 0.5 with 99% confidence?
Sample size for estimating population proportion
n = P(1-P)Z2
E2
Example: A member of parliament wants to determine her
popularity in her region. She indicates that the proportion of
voters who will vote for her must be estimated within + 2
percent of the population proportion. Further, the 95%
degree of confidence is to be used. In past elections she
received 40% of the popular vote in that area. She doubts
whether it has changed much. How many registered voters
should be sampled?
 Sample size determination for finite population
 When samples are drawn from a finite population of size
N, finite population correction factor will used to minimize
the sample which will be taken. It has little effect on
reducing the amount of sampling error.

n =

Example:
for a population of 1000, what should be the sampling size
necessary to estimate the population mean at 95%
confidence with a sampling error of 5 and the standard
deviation equal to 20?
THANK YOU!!!

END OF THE 2nd CHAPTER!!