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circulation figures to use in soliciting advertising. A study of weekly sales over the past

three years fails to reveal any marked trend or seasonal variation; the circulation

figures seem to be roughly normally distributed. During the period studied, the mean

weekly circulation was 650,000 copies, with a sample standard deviation of 40,000

copies. For parts (a)-(d), which review basic concepts involving random variables and

the normal distribution, assume these figures to be accurate estimates.

(a) If you guarantee the sale of at least 600,000 copies next week, what chance

will you face of failing to meet the guarantee?

(b) How many copies of your next issue must you print, in order to have only

one chance in 100 of being caught short?

(c) What mean weekly circulation figure would you be 95% safe in

guaranteeing over the next (52-week) year?

(d) What total circulation figure would you be 95% safe in

guaranteeing over the next (52-week) year?

(e) The estimate of mean weekly circulation is actually based on a

sample of 156 weeks (3 years). Give a 95%-confidence interval

for the true mean weekly circulation.

Advertising Sales

sales) the average annual expenditure on furniture among its subscribers. A

sample of 100 subscribers is chosen at random from the 100,000-person

subscription list, and each sampled subscriber is questioned about his

furniture purchases in the last year. The sample mean response is $530,

with a sample standard deviation of $180.

(b) Give a 95% confidence interval for the estimate.

(c) How would your answer in (b) change, if the subscription list included 400,000 people?

(d) How would your answer in (b) change, if the subscription list included 1,000 people?

(e) How would your answer in (b) change, if the sample size were only 10?

(f) Did any of your answers above require special assumptions?

(g) If (b) had asked for a 99% confidence interval, would you have reported a

wider or narrower interval?

TV Ratings

The A.C. Nielsen Co. wishes to estimate, for each of several cities, the

amount of time a typical adult living in the city spends watching television

each week. In San Diego (which has an adult population of 400,000), they

sample 100 people. The sample mean is 25 hours, with a sample standard

deviation of 10 hours.

(b) How many more people should they interview, in order to be 95%-confident

that their final estimate is wrong by no more than 1 hour?

(c) Assuming that viewing time varies from person to person in Los Angeles by

about as much as it does in San Diego, and that Nielsen wishes to make as

precise an estimate for L.A. as they did in part (a) for San Diego, how large

a sample should they take in L.A. (which has an adult population of

1,600,000)?

Miscellany

Explain, briefly, the difference between sampling bias and sampling error.

A 95%-confidence interval for an estimate indicates how much you can trust

the (fill in the blank) __________________ .

A firm has conducted a study, and has found that a 95%-confidence interval

for the mean time required to process new insurance policies is (10 days,

12 days). This means that

(a) only 5 percent of all policies take less than 10 or more than 12 days to process.

(b) only 5 percent of all policies take between 10 and 12 days to process.

(c) about 95 out of every 100 intervals similarly constructed will contain the true

mean processing time.

(d) the probability is 0.95 that the true mean lies between 10 and 12 days.

Excel Functions

defined. While NORMDIST and NORMINV are both left-tail oriented, TDIST is

right-tail oriented and TINV is two-tail oriented.

1000 mean

200 standard deviation

900 target

30.8538% #VALUE!

Pr(normally-distributed random variable with given mean and

standard deviation is less than or equal to target value)

1000 mean

200 standard deviation

95.0000% target left-tail probability

1328.97 #VALUE!

value that a normally-distributed random variable with given mean

and standard deviation has "target probability" of being less than

or equal to

9 degrees of freedom

1.5 target value (must be non-negative)

8.3925% #VALUE!

Pr(t-distributed random variable with given number of degrees of

freedom [and with mean 0 and standard deviation 1] is greater

than or equal to target value)

9

5.0000% target two-tail probability

2.2622 #VALUE!

value that the absolute value of a t-distributed random variable with

given number of degrees of freedom has "target probability" of

exceeding

Excel offers functions for computing the variance and standard deviation of a

"population" of values, and a matching set of functions for using sample

values to estimate a population's variance and standard deviation.

1.0

2.0 a range of sample data

3.0

4.0

2.5000 #VALUE! population and sample mean sum of observations, divided by "n"

1.2500 #VALUE! population variance sum of squared differences from the mean, divided by "n"

1.1180 #VALUE! population standard deviation square root of population variance

1.6667 #VALUE! sample variance sum of squared differences from the mean, divided by "n-1"

1.2910 #VALUE! sample standard deviation square root of sample variance

Circulation

Circulation

circulation figures to use in soliciting advertising. A study of weekly sales over the past

three years fails to reveal any marked trend or seasonal variation; the circulation

figures seem to be roughly normally distributed. During the period studied, the mean

weekly circulation was 650,000 copies, with a sample standard deviation of 40,000

copies. For parts (a)-(d), which review basic concepts involving random variables and

the normal distribution, assume these figures to be accurate estimates.

(a) If you guarantee the sale of at least 600,000 copies next week, what chance

will you face of failing to meet the guarantee?

You will only fail to meet the guarantee if demand runs below 600,000.

40,000 standard deviation

600,000 guarantee 10.56% Pr(demand < guaranteed amount)

(b) How many copies of your next issue must you print, in order to have only

one chance in 100 of being caught short?

You will only run short if demand exceeds the number of copies printed.

743,054 number to print

(c) What mean weekly circulation figure would you be 95% safe in

guaranteeing over the next (52-week) year?

In a typical advertising contract, you promise to rebate some of the fees if your

circulation doesn't reach a specified target level. In this case, you want a 95%

chance that circulation will be above the guaranteed level, i.e., only a 5% chance

of circulation being below that level.

The key here is to remember that the variance of a sum of independent random

variables is the sum of their variances. Therefore the standard deviation of a

sum of n independent, identically-distributed random variables is sqrt(n) times

the standard deviation of a single one, and the standard deviation of the mean is

the original standard deviation divided by sqrt(n).

52 time period

650,000 mean per week

5,547 standard deviation of mean over time period

5% chance of failing to meet guarantee

guaranteeing over the next (52-week) year?

Page 5

Circulation

The answer obviously must be 52 times the answer to the previous question.

52 time period

33,800,000 expected total over time period

288,444 standard deviation of total over time period

5% chance of failing to meet guarantee

sample of 156 weeks (3 years). Give a 95%-confidence interval

for the true mean weekly circulation.

650,000 6,326 a bit more precise

Page 6

Advertising sales

Advertising Sales

sales) the average annual expenditure on furniture among its subscribers. A

sample of 100 subscribers is chosen at random from the 100,000-person

subscription list, and each sampled subscriber is questioned about his

furniture purchases in the last year. The sample mean response is $530,

with a sample standard deviation of $180.

$180 sample standard deviation, and estimate of population standard deviation

100 sample size

530 35.2800

(c) How would your answer in (b) change, if the subscription list included 400,000 people?

(d) How would your answer in (b) change, if the subscription list included 1,000 people?

Again, it wouldn't change. But this is assuming that the sample procedure

used simple random sampling with replacement. Had it used simple random

sampling without replacement, the answers to (b)-(d) would be:

100,000 35.26253 35.6982

400,000 35.27563 35.7115

1,000 33.48629 33.9000

(e) How would your answer in (b) change, if the sample size were only 10?

(f) Did any of your answers above require special assumptions?

assumption in reality, since it's likely that the population contains a number

of people who bought no furniture last year - the answer to (e) would be

530 128.7642

2.262157 how many standard deviations out from the mean you must go in

the t-distribution with 10-1 = 9 degrees of freedom, in order to cut

off 5% of the distribution in the two tails

(g) If (b) had asked for a 99% confidence interval, would you have reported a

wider or narrower interval?

Page 7

Advertising sales

530 47.2753 a bit more precise

Page 8

TV ratings

TV Ratings

The A.C. Nielsen Co. wishes to estimate, for each of several cities, the

amount of time a typical adult living in the city spends watching television

each week. In San Diego (which has an adult population of 400,000), they

sample 100 people. The sample mean is 25 hours, with a sample standard

deviation of 10 hours.

25 1.96

(b) How many more people should they interview, in order to be 95%-confident

that their final estimate is wrong by no more than 1 hour?

It takes roughly four times as large a sample, in order to cut the margin

of error in the estimate in half (this is the "square-root" effect). Hence, they

need a total sample of roughly 400 viewers.

(c) Assuming that viewing time varies from person to person in Los Angeles by

about as much as it does in San Diego, and that Nielsen wishes to make as

precise an estimate for L.A. as they did in part (a) for San Diego, how large

a sample should they take in L.A. (which has an adult population of

1,600,000)?

The same size. For practical purposes (i.e., ignoring the distinction between

sampling with and without replacement), the margin of error in an estimate

depends on the sample size, but not on the population size.

Page 9

Miscellany

Miscellany

Explain, briefly, the difference between sampling bias and sampling error.

statistical analysis; it is completely avoidable through the use of good

judgment. Sampling error is the result of being unlucky; our exposure to it

can be measured and controlled; it can never be eliminated (except through

100% sampling).

A 95%-confidence interval for an estimate indicates how much you can trust

the (fill in the blank) __________________ .

... estimation procedure. The point here is that we don't have any idea how

accurate our actual estimate is, but we do know how much accuracy is

inherent in the procedure we used to make the estimate.

A firm has conducted a study, and has found that a 95%-confidence interval

for the mean time required to process new insurance policies is (10 days,

12 days). This means that

(a) only 5 percent of all policies take less than 10 or more than 12 days to process.

(b) only 5 percent of all policies take between 10 and 12 days to process.

(c) about 95 out of every 100 intervals similarly constructed will contain the true

mean processing time.

(d) the probability is 0.95 that the true mean lies between 10 and 12 days.

(a) and (b) are totally wrong, since they refer to the distribution of individuals

within the population, and a 95%-confidence interval tells us nothing about

that. It could well be that half of all the policies are approved instantly, and

the other half take about three weeks.

(c) is objectively (no one could argue) correct. It restates the definition of a

95%-confidence interval.

Page 10

Miscellany

(d) is subjectively (from the viewpoint of the person making the estimate,

who sees only this sample data) correct, if we accept the principle that

most people equate lack-of-personal-knowledge with randomness. (d) is the

interpretation most commonly used in practice.

Page 11

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