You are interested in purchasing a new car. One of the many points you wish to consider is the resale value of the car after 5 years. Since you are particularly interested in a certain foreign sedan, you decide to estimate the resale value of this car with a 90% confidence interval. You manage to obtain data on 17 recently resold 5-year-old foreign sedans of the same model. These 17 cars were resold at an average price of $12,630 with a standard deviation of $800. Suppose that the interval is calculated to be ($12,291.23, $12,968.77). How could we alter the sample size and the confidence coefficient in order to guarantee a decrease in the width of the interval?

Accepted Solution

Answer:There are 3 ways to decrease the width of the intervalStep-by-step explanation:First way:  Reduce the level of confidence.  This drops the error value, since we are saying we are less confidence in the interval, we can have a smaller interval.  Say we drop it to 80%, that means that we are only 80% confident that we are correct, so we're admitting to being wrong 20% of the time.  Second way:  Increasing the sample size will reduce the error value, which will decrease the interval.  Third way:  Reduce the level of confidence and increase the sample size.  This is a combination of both previous methods.