Question

A marketing firm is asked to estimate the percentage of existing customers who would purchase a "digital upgrade" to their basic cable TV service. The firm wants 99 percent confidence and an error of ±5 percent. What is the required sample size (to the next higher integer)?

Answer 1

`n=(0.5(1-0.5))/(((0.05)/(2.58))^2)=665.64`

And rounded up we have that n=666

Explanation:

Previous concepts

A confidence interval is "a range of values that’s likely to include a population value with a certain degree of confidence. It is often expressed a % whereby a population means lies between an upper and lower interval".

The margin of error is the range of values below and above the sample statistic in a confidence interval.

Normal distribution, is a "probability distribution that is symmetric about the mean, showing that data near the mean are more frequent in occurrence than data far from the mean".

Solution to the problem

In order to find the critical value we need to take in count that we are finding the interval for a proportion, so on this case we need to use the z distribution. Since our interval is at 99% of confidence, our significance level would be given by
`\alpha=1-0.99=0.01` and
`\alpha/2 =0.005`. And the critical value would be given by:

`z_(\alpha/2)=-2.58, z_(1-\alpha/2)=2.58`

The margin of error for the proportion interval is given by this formula:

`ME=z_(\alpha/2)\sqrt{(\hat p (1-\hat p))/(n)}` (a)

And on this case we have that
`ME =\pm 0.05` and we are interested in order to find the value of n, if we solve n from equation (a) we got:

`n=(\hat p (1-\hat p))/(((ME)/(z))^2)` (b)

We can assume an estimator of p as
`\hat p =0.5` since we don't have prior info. And replacing into equation (b) the values from part a we got:

`n=(0.5(1-0.5))/(((0.05)/(2.58))^2)=665.64`

And rounded up we have that n=666