Question

The American Management Association is studying the income of store managers in the retail industry. A random sample of 49 managers reveals a sample mean of $45,420. The standard deviation of the population is known to be $2,050.

a). Compute a 95% confidence interval, as well as the margin of error.
b). Interpret the confidence interval you have computed.

Answer 1

a) The 95% confidence interval for the income of store managers in the retail industry is ($44,846, $45,994), having a margin of error of $574.

b) The interval mean that we are 95% sure that the true mean income of all store managers in the retail industry is between $44,846 and $45,994.

Explanation:

Question a:

We have to find our
`\alpha` level, that is the subtraction of 1 by the confidence interval divided by 2. So:

`\alpha = (1 - 0.95)/(2) = 0.025`

Now, we have to find z in the Z-table as such z has a p-value of
`1 - \alpha`.

That is z with a p-value of
`1 - 0.025 = 0.975`, so Z = 1.96.

Now, find the margin of error M as such

`M = z(\sigma)/(√(n))`

In which
`\sigma` is the standard deviation of the population and n is the size of the sample.

`M = 1.96(2050)/(√(49)) = 574`

The lower end of the interval is the sample mean subtracted by M. So it is 45420 - 574 = $44,846.

The upper end of the interval is the sample mean added to M. So it is 45420 + 574 = $45,994.

The 95% confidence interval for the income of store managers in the retail industry is ($44,846, $45,994), having a margin of error of $574.

Question b:

The interval mean that we are 95% sure that the true mean income of all store managers in the retail industry is between $44,846 and $45,994.