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Stats 309 12-2 - 12.2 Inference about Population Variance...

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12.2 Inference about Population Variance An important application of variance is in operations management. Quality technicians attempt to ensure that their company’s products consistently meet specifications. One way of judging the consistency of a production process is to compute the variance of the size, weight, or volume of the product. If the variation on product size, weight, or volume is large, it is likely that an unsatisfactorily large number of products will lie outside the specifications for that product. Or, maybe we want to know something about the variance of a particular stock we are thinking of investing in to see if the risk is high. The estimator of σ 2 is sample variance, s 2 . The sample variance is an unbiased, consistent estimator of population variance. The distribution for the variance test statistic is not normal, but rather chi- square distributed. This distribution is skewed right, which means we will lose the symmetry that we had with the normal distribution.
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Now, we are doing a hypothesis test about the variance.
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