Statistics for Management II (MGMT2073)

2025/2026

CHAPTER TWO

2. STATISTICAL ESTIMATIONS

2.1. Definition

It is the procedure of using a sample statistic to estimate a population parameter. This is one
way of making inference about the population parameter where the investigator does not have
any prior notion about values or characteristics of the population parameter.

Statistical estimation is divided into two main categories:

i. Point Estimation
ii. Interval Estimation.
2.2. Point Estimation

When we use a single value of a statistic to estimate the corresponding parameter of a

population, it is called point estimation.

The object of point estimation is to calculate, from the sample data, a single number that is
likely to be close to the unknown value of the population parameter. The available
information is assumed to be in the form of a random sample X1, X2. . . Xn of size n taken
from the population. The object is to formulate a statistic such that its value computed from
the sample data would reflect the value of the population parameter as closely as possible.

Definition 2.2. A point estimator of a unknown population parameter is a statistic that

estimates the value of that parameter. A point estimate of a parameter is the value of a
statistic that is used to estimate the parameter. (Agresti & Finlay, 1997 and Weiss, 1999)

Point estimators of the mean

For instance, to estimate a population means μ, perhaps the most intuitive point estimator is
the sample mean:
𝑋1 + 𝑋2 + ⋯ + 𝑋𝑛
µ̂ = 𝑋̅ =
𝑛
Once the observed values x1, x2. . . xn of the random variables Xi are available, we can
actually calculate the observed value of the sample mean 𝑥̅ , which is called a point estimate
of μ.
Suppose a college president wishes to estimate the average age of students attending classes
this semester. The president could select a random sample of 100 students and find the
∑100
𝑖=1 𝑥𝑖
average age of these students say, 𝑋̅ = is an estimator for the population mean and 𝑋̅ =
𝑛
22.3 years is an estimate, which is one of the possible value of 𝑋̅. From the sample mean, the
president could infer that the average age of all the students is 22.3 years. This type of
estimate is called a point estimate.

BY: Habitamu W. Page 1

 Statistics for Management II (MGMT2073)
2025/2026

Point estimators of the proportion

AUSATODAY Snap shots feature stated that 12% of the pleasure boats in the United States
were named Serenity. The parameter 12% is called a proportion. It means that of all the
pleasure boats in the United States, 12 out of every 100 are named Serenity. Proportion
represents a part of a whole. It can be expressed as a fraction, decimal, or percentage. In this
case, 12% = 0.12 = 12/100 or . Proportions can also represent probabilities. In this case, if a
pleasure boat is selected at random, the probability that it is called Serenity is 0.12.
Proportions can be obtained from samples or populations. The following symbols will be
used.

Symbols Used in Proportion Notation

𝑃 = population Proportion
̂(read "Phat") = Sample Proportion
P
For sample proportion
X 𝑛−𝑋
̂ = population Proportion = , 𝑞̂ =
P ̂
, 𝑞̂ = 1 − P
n 𝑛

Example

Properties of a Good Estimator

Let 𝜃̂ be an estimator of θ.

1. The estimator should be an unbiased estimator. That is, the expected value or the mean
of the estimates obtained from samples of a given size is equal to the parameter being
estimated. i.e. E(𝜃̂) = θ.

2. The estimator should be consistent. For a consistent estimator, as sample size increases,
the value of the estimator approaches the value of the parameter estimated. i.e. 𝜃̂ gets
closer to θ as the sample size increases.

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 Statistics for Management II (MGMT2073)
2025/2026

3. The estimator should be a relatively efficient estimator. That is, of all the statistics that
can be used to estimate a parameter, the relatively efficient estimator has the smallest
variance.

2.3. Interval Estimation

For point estimation, a single number lies in the forefront even though a standard error is
attached. Instead, it is often more desirable to produce an interval of values that is likely to
contain the true value of the unknown parameter.

A confidence interval estimate of a parameter consists of an interval of numbers obtained

from a point estimate of the parameter together with a percentage that specifies how
confident we are that the parameter lies in the interval. The confidence percentage is called
the confidence level.

It deals with identifying the upper and lower limits of a parameter. The limits by themselves
are random variable.

Estimate ± critical value × Standard error of the estimator

2.3.1. Confidence interval estimation of the population mean and Proportion

Although X possesses nearly all the qualities of a good estimator, because of sampling error,
we know that it's not likely that our sample statistic will be equal to the population parameter,
but instead will fall into an interval of values. We will have to be satisfied knowing that the
statistic is "close to" the parameter. That leads to the obvious question, what is "close"?

We can phrase the latter question differently: How confident can we be that the value of the
statistic falls within a certain "distance" of the parameter? Or, what is the probability that the
parameter's value is within a certain range of the statistic's value? This range is the
confidence interval.

The confidence level is the probability that the value of the parameter falls within the range
specified by the confidence interval surrounding the statistic.

There are different cases to be considered to construct confidence intervals.

Case 1: If sample size is large or if the population is normal with known variance.

Recall the Central Limit Theorem, which applies to the sampling distribution of the mean of a
sample. Consider samples of size n drawn from a population, whose mean is
 and standard
deviation is  with replacement and order important. The population can have any frequency
distribution. The sampling distribution of X will have a mean
 x   and a standard

x 
deviation n , and approaches a normal distribution as n gets large. This allows us

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2025/2026

to use
the normal distribution curve for computing confidence intervals.
X 
Z  has a normal distribution with mean  0 and var iance  1
 n

   X  Z n
 X , where  is a measure of error.
  Z n
 For the interval estimator to be good the error should be small. How it is small?
 By making n large
 Small variability
 Taking Z small
 To obtain the value of Z, we have to attach this to a theory of chance. That is, there is an
area of size 1   such that
P( Z  2  Z  Z  2 )  1  
Where   is the probability that the parameter lies outside the int erval
Z  2  s tan ds for the s tan dard normal var iable to the right of which
 2 probability lies, i.e P( Z  Z  2 )   2
For 𝑋̅ , we then have
X 
 P ( Z 2   Z 2 )  1  
 n
 P ( X  Z 2  n    X  Z 2  n)  1

Hence the above probability statement

 ( X  Z 2  n , X  Z 2  n ) is a1001   % conifidence int erval for 

But usually 
2
is not known, in that case we estimate by its point estimator S2
 ( X  Z 2 S n , X  Z 2 S n ) is a1001   % conifidence int erval for 

Here are the Z values corresponding to the most commonly used confidence levels.

100(1   )   2 Z 2
%
90 0.10 0.05 1.645
95 0.05 0.025 1.96
99 0.01 0.005 2.58

BY: Habitamu W. Page 4

 Statistics for Management II (MGMT2073)
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Case 2: If sample size is small and the population variance,  2 is not known.
X 
t has t distribution with n  1 deg rees of freedom.
S n

 ( X  t 2 S n , X  t 2 S n ) is a1001   % conifidence int erval for 

The unit of measurement of the confidence interval is the standard error. This is just the
standard deviation of the sampling distribution of the statistic.

Examples:

1. From a normal sample of size 25 a mean of 32 was found .Given that the population
standard deviation is 4.2. Find

a) A 95% confidence interval for the population mean.

b) A 99% confidence interval for the population mean.
Solution:

X  32,   4.2, 1    0.95    0.05,  2  0.025

 Z 2  1.96 from table.
 The required int erval will be X  Z 2  n
 32  1.96 * 4.2 25
 32  1.65
 (30.35, 33.65)
a)

X  32,   4.2, 1    0.99    0.01,  2  0.005

 Z 2  2.58 from table.
 The required int erval will be X  Z 2  n
 32  2.58 * 4.2 25
 32  2.17
 (29.83, 34.17)

2. A drug company is testing a new drug which is supposed to reduce blood pressure. From
the six people who are used as subjects, it is found that the average drop in blood pressure
is 2.28 points, with a standard deviation of .95 points. What is the 95% confidence
interval for the mean change in pressure?

Solution:

BY: Habitamu W. Page 5

 Statistics for Management II (MGMT2073)
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X  2.28, S  0.95, 1    0.95    0.05,  2  0.025

 t 2  2.571 with df  5 from table.
 The required int erval will be X  t 2 S n
 2.28  2.571* 0.95 6 That is, we
 2.28  1.008 can be 95%
 (1.28, 3.28) confident
that the
mean decrease in blood pressure is between 1.28 and 3.28 points.

 Confidence interval estimation of the population Proportion

Let se (p) denote the estimated standard error of p. A large sample 100(1 − α) % confidence
interval for π has the formula;

p(1  p)
P  z .se( p) with se(p) ....................(1.3) z
2 n Where 2 denotes the standard
z
normal percentile having right-tail probability equal to 2 .

Example:

A survey conducted by Sallie Mae and Gallup of 1404 respondents found that 323 students
paid for their education by student loans. Find the 90% confidence of the true proportion of
students who paid for their education by student loans.

Solution

BY: Habitamu W. Page 6

 Statistics for Management II (MGMT2073)
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2.4. Interval estimation of the difference between two means and proportions

A Interval estimation of the difference between two independent means

Confidence intervals for the difference between two means can be found by using this
formula:

Formula for the z Confidence Interval for Difference between Two Means

𝜎1 𝜎2 𝜎1 𝜎2
(𝑋̅1 − 𝑋̅2) − 𝑍𝛼 √ + < 𝜇1 − 𝜇2 < (𝑋̅1 − 𝑋̅2) − 𝑍𝛼 √ +
2 𝑛1 𝑛2 2 𝑛1 𝑛2

Example:-

A survey found that the average hotel room rate in New Orleans is $88.42 and the average
room rate in Phoenix is $80.61. Assume that the data were obtained from two samples of 50
hotels each and that the standard deviations of the populations are $5.62 and $4.83,
respectively. Construct 95% confidence interval for the difference of the population mean

Solution:

B Interval estimation of the difference between two population proportion

Confidence intervals for the difference between two Proportions can be found by using this
formula:

BY: Habitamu W. Page 7

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2025/2026

Confidence Interval for the Difference between Two Proportions

𝑃̂ 1𝑞̂1 𝑃̂2𝑞̂2 𝑃̂ 1𝑞̂1 𝑃̂2𝑞̂2

(𝑃̂1 − 𝑃̂ 2) − 𝑍𝛼 √ + < (𝑃1 − 𝑃2) < (𝑃̂1 − 𝑃̂2) + 𝑍𝛼 √ +
2 𝑛1 𝑛2 2 𝑛1 𝑛2

Example: the researchers found that 12 out of 34 small frims had a resident vaccination rate
of less than 80%, while 17 out of 24 large firms had a vaccination rate of less than 80%.
Construct a 95% CI of the difference in the proportions of the small and large firm homes
with a resident vaccination rate of less than 80%.

Solution:

2.5. Determining the sample size

The sample size for Mean

What is the size of the sample which one should study?” is the question which comes to the
mind of every researcher. He wants the sample to be small enough to make the study feasible

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and large enough to make it scientifically or statistically valid. Then what is this “optimum”
sample?

Statistics is based on a lot of presumptions and they should be considered in detail before
determining the sample size.

1) What is the reasonable estimate or expected proportion or average „p‟ in the study?
If not known take 50% as proportion or 0.5.

2) How far can you allow the sample estimate to deviate from the true value in the
population? This has to be decided by the researcher. For high degree of accuracy
with smaller error to be tolerated, the larger is the sample size required.

3) How confident (Z) do you want to be so that the sample estimate is as accurate as
you wish. Normally for 95% confidence level Z = 1.96 and for 99% confidence level
Z = 2.58

Here is the formula for the sample size which is obtained by solving the maximum error of
the estimate formula for the population mean for n.

Comment Since  is often unknown; a small-scale pilot study may be required to estimate
 using s.

Example:-How large a sample should be taken to estimate the mean waiting time of patients
at a clinic with an error of ± 1.5 minutes and 95% confidence?

Solution The formula requires the standard deviation, so we take a small preliminary sample
and obtain s = 8.37 minutes. For 95% confidence we use z = 1.960. For tolerable error of 1.5,
the required sample size is 120.

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 Statistics for Management II (MGMT2073)
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Sample Size for Proportions: To find the sample size needed to determine a confidence
interval about a proportion, use this formula:

Formula for Minimum Sample Size Needed for Interval Estimate of a Population Proportion

𝑃̂ 𝑞̂𝑍𝛼/2 2
𝑛=
𝐸2
If necessary, round up to obtain a whole number

This formula can be found by solving the margin of error value for n in the formula

Example: A researcher wishes to estimate, with 95% confidence, the proportion of people
who own a home computer. A previous study shows that 40% of those interviewed had a
computer at home. The researcher wishes to be accurate within 2% of the true proportion.
Find the minimum sample size necessary.

Solution:

BY: Habitamu W. Page 10