Course Title: Business Statistics II

Assignment #2
Confidence Interval Estimation
Exercise #1

The manager of a paint supply store wants to estimate the actual amount of paint contained in
1-gallon cans purchased from a nationally known manufacturer. The manufacturers
specifications state that the standard deviation of the amount of paint is equal to 0.02 gallon. A
random sample of 50 cans is selected, and the sample mean amount of paint per 1-gallon can is
0.995 gallon.

1- Construct a 99% confidence interval estimate for the population mean amount of paint
included in a 1-gallon can.

2- Must you assume that the population amount of paint per can is normally distributed here?
Explain.

Exercise #2

A stationery store wants to estimate the mean retail value of greeting cards that it has in its
inventory. A random sample of 100 greeting cards indicates a mean value of 2.55 Dinars and a
standard deviation of 0.44 Dinars.
1- Assuming a normal distribution, construct a 95% confidence interval estimate for the
mean value of all greeting cards in the stores inventory.
2- Suppose there are 2,500 greeting cards in the stores inventory. How are the results in
(1) useful in assisting the store owner to estimate the total value of the inventory?

Exercise #3

According to the Stern Marketing Group, 9 out of 10 professional women say that financial
planning is more important today than it was five years ago. Where do these women go for help
in financial planning? Forty-seven percent use a financial advisor (broker, tax consultant,
financial planner). Twenty-eight percent use written sources such as magazines, books, and

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newspapers. Suppose these figures were obtained by taking a sample of 560 professional
women who said that financial planning is more important today than it was five years ago.
Construct a 95% confidence interval for the proportion of professional women who use a
financial advisor. Use the percentage given in this problem as the point estimate.

Exercise #4

Suppose you have been following a particular airline stock for many years. You are interested
in determining the average daily price of this stock in a 10-year period and you have access to
the stock reports for these years. However, you do not want to average all the daily prices over
10 years because there are several thousand data points, so you decide to take a random sample
of the daily prices and estimate the average. You want to be 90% confident of your results, you
want the estimate to be within $2.00 of the true average, and you believe the standard deviation
of the price of this stock is about $12.50 over this period of time. How large a sample should
you take?

Exercise #5

The sponsors of television shows targeted at the children’s market wanted to know the amount
of time children spend watching television because the types and number of programs and
commercials are greatly influenced by this information. As a result, it was decided to survey
100 North American children and ask them to keep track of the number of hours of television
they watch each week. From past experiences, it is known that the population standard deviation
of the weekly amount of television watched is   8.0 hours.
1. What are the population, the variable of interest and the objective of the survey?
The results of the survey are given in Table 1.

Table 1 : Descriptive Statistics of Time

N Minimum Maximum Mean Std. Deviation

Time 100 9,5 50,3 27,191 8,3728

Valid N (listwise) 100

2. The television sponsors want an estimate of the amount of television watched by the
average North American child. A confidence level of 95% is judged to be appropriate.

Exercise #6

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Bankers and economists watch for signs that the economy is slowing. One statistic they monitor
is consumer debt, particularly credit card debt. The Federal Reserve conducts surveys of
consumer finances every 3 years. The last survey determined that 23.8% of American
households have no credit cards and another 31.2% of the households paid off their most recent
credit card bills. The remainder, approximately 50 million households, did not pay their credit
card bills in the previous month. A random sample of these households1 was drawn. Each
household in the sample reported how much credit card debt it currently carries. Table 2 shows
some descriptive statistics.

Table 2 : Descriptive Statistics of Debt

N Minimum Maximum Mean Std. Deviation

Debt 306 1197 29587 15137,39 5263,144

Valid N (listwise) 306

The Federal Reserve would like an estimate (with 95% confidence) of the total credit card debt
in the United States. Assume that the random variable is normally distributed. (Hint.
Construct a confidence interval for the mean and multiply it by the population size, 50 millions)

Exercise #7

The machine that fills 500-gram coffee containers for a large food processor is monitored by
the quality control department. Ideally, the amount of coffee in a container should vary only
slightly about the nominal 500-gram value. If the variation was large, then a large proportion
of the containers would be either underfilled, thus cheating the customer, or overfilled, thus
resulting in economic loss to the company. The machine was designed so that the weights of
the 500-gram containers would have a normal distribution with mean value of 506.6 grams and
a standard deviation of 4 grams. This would produce a population of containers in which at
most 5% of the containers weighed less than 500 grams.
To maintain a population in which at most 5% of the containers are underweight, a random
sample of 30 containers is selected every hour. These data are then used to determine whether
the mean and standard deviation are maintained at their nominal values. The weights from
one of the hourly samples are given here:

501.4 498.0 498.6 499.2 495.2 501.4 509.5 494.9 498.6 497.6

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The 50 millions who did not pay their credit card bills in the previous month

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 505.5 505.1 499.8 502.4 497.0 504.3 499.7 497.9 496.5 498.9
504.9 503.2 503.0 502.6 496.8 498.2 500.1 497.9 502.2 503.2

The Minitab output 1 shows different descriptive statistics of the observations. Figures 1 and 2
show the histogram (with normal curve) and the probability plot of the 30 observations,
respectively. They show that the normality assumption of the observations appears to be
satisfied (the 30 values fall near the straight line in the probability plot).

Minitab Output 1
Descriptive Statistics: Weight

Total
Variable Count Mean StDev Minimum Maximum
Weight 30 500,45 3,43 494,90 509,50

Figure 1. Histogram (with Normal Curve) of Weight

Mean 500,5
9
StDev 3,433
N 30
8

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Frequency

0
496 500 504 508
Weight

Figure 2. Probability Plot of Weight

Normal - 95% CI
99
Mean 500,5
StDev 3,433
95 N 30
AD 0,401
90
P-Value 0,339
80
70
Percent

60
50
40
30
20

10

1
490 495 500 505 510
Weight

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 1. Estimate the mean weights of coffee containers filled during the hour, in which the
random sample of 30 containers was selected using a 99% confidence interval (Hint.
We assume that  and  are unknown).
2. Interpret the results (Hint. Compare the estimated value to the nominal value).
Exercise #8

A national survey of companies included a question that asked whether the company had at
least one bilingual telephone operator. The sample results of 90 companies follow (Y denotes
that the company does have at least one bilingual operator; N denotes that it does not).
NNNNYNYNN
YNNNYYNNN
NNYNYNYNY
YYNYNNNYN
NYNNNNNNN
YNYYNNYNY
NNYYNNNNN
YNNNNYNNN
YYYNNYNNN
NNNYYNNYN

Use this information to estimate with 95% confidence the proportion of the population that
does have at least one bilingual operator.
References

Black, K. (2010). Business Statistics: For Contemporary Decision Making. 6th edition, Wiley.
Keller, G. (2012). Managerial Statistics. 9th edition. Cengage Learning.
Ott, R. L. (2010). An Introduction to Statistical Methods and Data Analysis. 6th edition, Cengage Learning