Question

When conducting sequential sampling in simulation output analysis of 40 replications, the sample mean is found to be 3.20, and the sample variance is found to be 0.25.

a) Calculate the 95% confidence interval.

b) Explain how to reduce the half width by 50%.

c) Explain the difference between relative and absolute precision as it applies to this example.

Answer 1

a.

SD = 0.25^0.5 = 0.5

95% confidence interval :

[mean - 1.96*SD/(n^0.5), mean + 1.96*SD/(n^0.5)]

= [3.20 - 1.96*0.5/(40^0.5), 3.20 + 1.96*0.5/(40^0.5)]

= [ 3.0450 , 3.3550 ]

b.

half width = 1.96*SD/(n^0.5)

to reduce it by 50% we have to increase sample size 4 times

c.

difference between relative and absolute precision is that relative precision depends on sample size whereas absolute depends on variance / standard deviation of the population

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