7.

13

N = 23,000 cars n = 200 cars s = 14.0 miles x =54.5 miles α = .95  x ≈s /  n

a) To find the upper and lower limits of the confidence interval, we use the equation, x ±t .05 /2  x ,
where .05 = 1-α. We then use the t-distribution table to determine that the t value is roughly equivalent to
1.96 (as the t table does not show the value for n=200, we can estimate that the value is close to the one
for n=250).

We can now complete the process:

x ±t .05 /2×s /  n

54.5±1.96×14 /  200
54.5±1.9403
52.5597−−−−−−−−−−−56.4403

b) I calculated the fees for the upper and lower limits as well as the sample mean.

Upper = 52.5597 *200 *.25 = 2627.99

Lower = 56.4403 * 200 * .25 = 2822.02
Sample mean = 54.5 * 200 * .25 = 2725

Seeing as how all three of these figures are above the $2500 fees received by Traveler Rent-A-Car, I
would definitely investigate the billing practices. The confidence interval and fees generated from it show
that the $2500 is not within the 95% confidence interval. Although it is completely possible that the
population would yield a sample x of 50 ($2500/.25/200), it is enough of a abnormality to warrant a
closer look into the company's billing practices.

c)
s
e=t α / 2
n
14
e=t .05/ 2
 200
14
e=1.96
 200
e=1.9403

1) Increase the sample size. This method will decrease the margin of error but will most likely be
more costly.

s
e=t α / 2
n
14
e=t .05/ 2
 500
14
e=1.9647
 500
e=1.2301

2) Decrease the confidence level. This action decreases the chance that the population mean will
be in the confidence interval as it shrinks the actual interval.

s
e=t α / 2
n
14
e=t .1/2
 200
14
e=1.96
 200
e=1.6334

3) Decrease the standard deviation. This method is most desired as it does not affect the
confidence level, nor does it cause us to inhibit more costs by using a larger sample size. This
method is also the most difficult to implement.

s
e=t α / 2
n
10
e=t .05/ 2
 200
10
e=1.96
 200
e=1.3859