Brief lecture notes

Estimation
The investigation of whole population (totality of all elements) is not feasible,
because it may be time consuming, the cost is very high, need large number of
skilled persons etc.
In business, economics and managerial problems we frequently deal with
population parameters such as population mean ( ), population variance ( )
etc. In most of the business and economics problems such information are not
available. In that case sampling is used to estimate these unknown parameters
based on sample information to make inference and policy formulation.
For example, we draw a random sample from a population and we use the
sample mean ( ) to estimate the population mean .
Thus, estimation is a statistical technique which applies the sample
observations to find the answer of a particular question regarding population
parameters.

Parameter
The numerical measures such as population mean ( ), population variance ( )
etc. that describes a population are called parameter. Thus any parameter is the
function of population observations.
For example, the average monthly salary of all the teachers of BUP in 2015 is a
parameter.
Statistic
On the other hand, the numerical measures such as sample mean , sample
variance ( ) etc. that describes a sample are called statistic. Thus any statistic
is the function of sample observations.
For example, the average monthly salary of all the teachers of FBS of BUP in
2015 is a statistic.
Estimator
Any statistic is a function of sample observations, being used to estimate a
population parameter from which the sample is drawn is called an estimator of
the parameter. Thus, an estimator is a random variable because its value varies
from sample to sample.

For example, the sample mean

, and the sample variance

are the estimators that are used to estimate population mean

, population variance
respectively.

Estimate
Any specific value of an estimator computed from a particular sample is called
an estimate of the parameter.
Example:
Let us consider a random sample of obtaining marks of Statistics of 25 students
in a final exam of BUP as 65, 45, 46, 47, 48, 65, 70, 71, 75, 45, 35, 32, 68, 65,
63, 55, 48, 49, 44, 56, 44, 53, 60, 70, and 67. Here all the students are the
population and X indicates the marks of students,
and
are the mean and
variance of the population and can be estimated by using sample mean ,
sample variance ( ) . These sample mean and variance are the estimators.
The specific value of these estimators is called the estimate.
Point estimate
A point estimate is a single value of an estimator which is computed from a
particular sample, and being used to estimate population parameter from which
the sample is drawn at random.
Interval estimate
An interval estimate is a range of numbers which is computed from a particular
sample, having a specified probability of correctly estimating the true value of
the population parameter from which the sample is drawn. The probability is
called the confidence level.
Confidence interval and confidence level
A confidence interval is a range of values computed from a particular sample so
that the population parameter from which the sample is drawn at random will
occur within that range have a specified probability. The specified probability is
called the confidence level.
Example
Let
be a random sample of size (
which is drawn
from a normal population with mean and variance . The 95% confidence
interval of the population mean is given by
(
Therefore, the interval

the population parameter . If

sample estimate.

is called the 95% confidence interval of

is unknown to us, we have to replace it by

. Therefore, the 95% confidence

interval for the population parameter

confidence level is 0.95 or 95%.

is given by

. The

Properties of a good estimator

Any estimator is said to be good, if it satisfies the following properties.
- Unbiasedness
- Efficiency
- Consistency
- Sufficiency
Estimation methods
Several methods are developed for constructing good estimators for the
unknown population parameters. The most popular and widely used methods for
estimation are given below:
- Least squares method
- Maximum likelihood method
- Method of moments
Problem
The monthly consumption expenditure (Tk.) and the level of monthly income
(Tk.) of 25 employees of a garment factory are given below:
Consumption
Level of Income
Consumption
Level of Income
Expenditure (y)
(x)
Expenditure (y)
(x)
7880
8750
11589
12520
8025
8900
11969
12990
8055
9000
11905
13500
8225
9100
12545
13580
8435
9275
12869
13975
8725
9550
13255
14200
9205
10200
13518
14525
9578
10515
13689
15250
9855
10825
13700
15500
10513
11025
14255
15980
10599
11450
14555
16700
10719
11650
15500
16925
10987
12100
Fit the equation between income and consumption expenditure:
using least squares method.
Solution
The equation between monthly consumption expenditure and income of the
employee of a garments factory is given by:
Here, the variable Y indicates the monthly consumption expenditure and the
variable X indicates income level of the employees,
is the regression

constant,
is the regression coefficient which indicates the impact of per unit
income on consumption expenditure, is the random error term.
For sample observations the equation is given by

Where, and are the least squares estimators of

and
respectively.
If we apply the least squares method we have

.. (1)

And

.. (2)

Table for calculations:

Consumption Expenditure (y)
7880
8025
8055
8225
8435
8725
9205
9578
9855
10513
10599
10719
10987
11589
11969
11905
12545
12869
13255
13518
13689
13700
14255
14555
15500
280150

Now,

Level of Income (x)

8750
8900
9000
9100
9275
9550
10200
10515
10825
11025
11450
11650
12100
12520
12990
13500
13580
13975
14200
14525
15250
15500
15980
16700
16925
307985

,
4

68950000
71422500
72495000
74847500
78234625
83323750
93891000
100712670
106680375
115905825
121358550
124876350
132942700
145094280
155477310
160717500
170361100
179844275
188221000
196348950
208757250
212350000
227794900
243068500
262337500
3.5960e+09

76562500
79210000
81000000
82810000
86025625
91202500
104040000
110565225
117180625
121550625
131102500
135722500
146410000
156750400
168740100
182250000
184416400
195300625
201640000
210975625
232562500
240250000
255360400
278890000
286455625
3.9570e+09

Putting the values in the equation we have

Therefore, the fitted regression equation is:

Exercises
1. The Bradford Electric Illuminating Company is studying the relationship
between kilowatt-hours (thousands) and number of rooms in a private singlefamily residence. A random sample of 10 homes yielded the following.
Number of Rooms
12
9
14
6
10
8
10 10 5 7
Kilowatt-hours(thous) 9
7
10
5
8
6
8 10 4 7
(i)
Determine the regression equations
(ii) Determine the number of kilowatt-hours, in thousands, for a six-room
house.
2. Mr. James McWhinney, president of Daniel-James Financial Services,
believes there is a relationship between the number of client contacts and the
dollar amount of sales. To document this assertion, Mr. McWhinney gathered
the following sample information. The X column indicates the number of client
contacts last month, and the Y column shows the value of sales ($ thousands)
last month for each client sampled.
Number of Contacts 14 12 20
16
46
23 48 50 55 50
Sales ($ thousands) 24 14 28
30
80
30 90 85 120 110
(i)
Determine the regression equation
(ii) Determine the estimated sales if 40 contacts made.