Continuous Probability

Distributions
(Chapter 6)
MBA I602
Economics and Business Statistics

Instructor
Dr. Behrouz Bakhtiari
Outline

■ 6.1 Continuous Random Variables

■ 6.1 The Uniform Distribution
■ 6.2 The Normal Distribution
Motivation: Introductory Case
Motivation: Introductory Case
▪ Akiko Hamaguchi, manager of a small sushi restaurant Little Ginza,
in Phoenix, Arizona, has to estimate the daily amount of salmon
needed.
— Akiko has estimated the daily consumption of salmon to be normally
distributed with a mean of 12 pounds with a standard deviation of 3.2 pounds.
— Buying 20 pounds of salmon every day has resulted in too much wastage.
▪ Based on this information, Akiko would like to:
a) Calculate the probability that the demand for salmon at Little Ginza is above
20 pounds.
b) Calculate the probability that the demand for salmon at Little Ginza is below
15 pounds.
c) Determine the amount of salmon that should be bought daily so that the
restaurant meets demand on 90% of the days.
Continuous Random Variables
▪ A continuous random variable is characterized by
uncountable values in an interval.
— Cannot describe the values with a list
— Example: return on a mutual fund, time to complete a task
▪ Unlike a discrete random variable, the probability that a
continuous random variable assumes a particular value is
zero.
— 𝑃(𝑋 = 𝑥) = 0 for any value
— Cannot assign a nonzero probability to each of the uncountable
values and have the probabilities sum to one
▪ Calculate the probability within some specific interval.
— 𝑃(𝑎 ≤ 𝑋 ≤ 𝑏) = 𝑃(𝑎 < 𝑋 < 𝑏) = 𝑃(𝑎 < 𝑋 ≤ 𝑏) = 𝑃(𝑎 ≤ 𝑋 < 𝑏)
— 𝑃(𝑋 = 𝑎) = 0 𝑎𝑛𝑑 𝑃(𝑋 = 𝑏) = 0
Continuous Random Variables

The probability density function 𝒇(𝒙) for a continuous random

variable 𝑋 has the following properties:
■ 𝑓(𝑥) ≥ 0 for all possible values 𝑥 of 𝑋, and
■ the area under 𝑓(𝑥) over all values 𝑥 of 𝑋 equals one.
■ It is important to note that 𝑓(𝑥) values are not probabilities. The
𝑓 𝑥 values are called densities.
Continuous Random Variables
▪ The probability the variable assumes a value with an
interval, 𝑃(𝑎 ≤ 𝑋 ≤ 𝑏) is defined as the area under
𝑓(𝑥) between points 𝑎 and 𝑏.
▪ The cumulative distribution function is denoted 𝐹(𝑥).
▪ 𝐹(𝑥) = 𝑃(𝑋 ≤ 𝑥)
▪ Area under the probability density function up to the value 𝑥
▪ 𝑃(𝑎 ≤ 𝑋 ≤ 𝑏) = 𝐹(𝑏) − 𝐹(𝑎)
Uniform Distribution
▪ One of the simplest continuous probability distributions is
called the continuous uniform distribution.
▪ This distribution is appropriate when the underlying random
variable has an equally likely chance of assuming a value
within a specified range [𝑎, 𝑏].
1
for 𝑎 ≤ 𝑥 ≤ 𝑏
▪ 𝑓 𝑥 = ൝𝑏−𝑎
0 for 𝑥 < 𝑎 or 𝑥 > 𝑏
𝑎+𝑏
▪ 𝐸 𝑋 =
2
▪ 𝑆𝐷 𝑋 = 𝑏 − 𝑎 2 Τ12
Uniform Distribution
▪ The probability density function does not directly represent
probability.
— The area under the curve represents probability
— This is the area of a rectangle: base times height
1
— Length of an interval ∗
𝑏−𝑎
Uniform Distribution (Example)
▪ A manager of a local drugstore is projecting next month’s
sales for a particular cosmetic line. She knows from
historical data that monthly sales follow a continuous
uniform distribution with a lower limit of $2,500 and an
upper limit of $5,000. What are the mean and the standard
deviation for this continuous uniform distribution?
▪ Answer: If X represents monthly sales,
𝑎 + 𝑏 2,500 + 5,000
𝐸 𝑋 = = = 3,750 ($)
2 2
𝑏−𝑎 2 5,000 − 2,500 2
𝑆𝐷 𝑋 = = = 721.69 ($)
12 12
Uniform Distribution (Example)
▪ A manager of a local drugstore is
projecting next month’s sales for a
particular cosmetic line. She knows from
historical data that monthly sales follow a
continuous uniform distribution with a
lower limit of $2,500 and an upper limit of
$5,000. What is the probability that sales
exceed $4,000?
▪ Answer: If X represents monthly sales, we
want to find 𝑃(𝑋 > 4000).
𝑃 𝑋 > 4000 = 𝑃 4000 < 𝑋 < 5000
1
= 5000 − 4000 = 0.4
5000 − 2500
Uniform Distribution (Example)
▪ A manager of a local drugstore is
projecting next month’s sales for a
particular cosmetic line. She knows from
historical data that monthly sales follow a
continuous uniform distribution with a
lower limit of $2,500 and an upper limit of
$5,000. What is the probability that sales
are between $3,200 and $3,800?
▪ Answer: If X represents monthly sales, we
want to find 𝑃(3200 < 𝑋 < 3800).
𝑃 3200 < 𝑋 < 3800
1
= 3800 − 3200 = 0.24
5000 − 2500
The Normal Distribution
▪ The normal probability distribution or normal distribution is
the familiar bell-shaped distribution.
— Also called Gaussian distribution
— Most extensively used distribution
— Closely approximates the probability distribution for a wide range of
random variables
▪ The normal distribution is the cornerstone of statistical
inference.
The Normal Distribution
▪ The normal distribution is bell-shaped and symmetric
around its mean; that is, one side of the mean is just the
mirror image of the other side.
▪ The mean, the median, and the mode are all equal for a
normally distributed random variable.
▪ The normal distribution is completely described by two
parameters, the mean 𝜇 and the standard deviation 𝜎.
— The population mean describes the central location.
— The population standard deviation describes the dispersion of the
distribution.
— This distribution is denoted 𝑁(𝜇, 𝜎)
The Normal Distribution (Example)

Suppose we know that the ages of employees in Industries A, B, and C

are normally distributed. We are given the following information on the
relevant parameters:
Industry A Industry B Industry C
μ = 42 years μ = 36 years μ = 42 years
σ = 5 years σ = 5 years σ = 8 years

Graphically compare the ages of employees in Industry A with Industry

B. Repeat the comparison for Industry A with Industry C.
The Normal Distribution (Example)
Industry A Industry B
μ = 42 years μ = 36 years
σ = 5 years σ = 5 years
The Normal Distribution (Example)
Industry A Industry C
μ = 42 years μ = 42 years
σ = 5 years σ = 8 years
The Standard Normal Distribution
▪ The standard Normal distribution is a special case of the
normal distribution, denoted by 𝑍 (where 𝑧 indicates a
value Z may assume).
— The mean is 0 and the standard deviation is 1, or 𝑍~𝑁(0,1)
— The value z is the z-score discussed before.
— The z-score corresponding to a value is the number of standard
deviations the value is away from the mean
— Converting values into z-scores is called standardizing the data
— Using a Standard Normal Probability Table, we can calculate
𝑃 𝑍 ≤ 𝑧 for any value of 𝑧.
The Standard Normal Distribution
The Standard Normal Table
▪ Here is an excerpt from the standard Normal probability table that is shared
with you.
The Standard Normal Table
▪ The 𝑍 probability table provided here, always shows the
probability to the left of a 𝑧 value. Therefore, the table always
shows 𝑃(𝑍 ≤ 𝑧).
The Standard Normal Distribution
▪ Using the table to find 𝑃(𝑍 ≤ 1.52)

z 0.00 0.01 0.02

0.0 0.5000 0.5040 ↓
0.1 0.5398 0.5438 ↓
⋮ ⋮ ⋮ ⋮
1.5 → → 0.9357

▪ Obviously, 𝑃 𝑍 > 1.52 = 1 − 𝑃 𝑍 ≤ 1.52 = 1 − 0.9357 = 0.0643

The Standard Normal Distribution
▪ Using the table let’s find 𝑃(𝑍 ≤ 0)
The Standard Normal Distribution (Example)
▪ 𝑃 0 ≤ 𝑍 ≤ 1.96 =?
▪ 𝑃(0 ≤ 𝑍 ≤ 1.96) = 𝑃(𝑍 ≤ 1.96) − 𝑃(𝑍 ≤ 0) = 0.9750 − 0.50 = 0.4750
The Standard Normal Distribution (Example)
▪ 𝑃 −1.52 ≤ 𝑍 ≤ 1.96 =?
▪ 𝑃(−1.52 ≤ 𝑍 ≤ 1.96) = 𝑃(𝑍 ≤ 1.96) − 𝑃(𝑍 ≤ −1.52) = 0.9750 − 0.0643 =
0.9107
The Standard Normal Distribution (Example)
▪ 𝑃 1.52 ≤ 𝑍 ≤ 1.96 =?
▪ 𝑃(1.52 ≤ 𝑍 ≤ 1.96) = 𝑃(𝑍 ≤ 1.96) − 𝑃(𝑍 ≤ 1.52) = 0.9750 − 0.9357 = 0.0393
The Standard Normal Distribution (Example)
▪ 𝑃 𝑍 > 0.78 =?
▪ 𝑃 𝑍 > 0.78 = 1 − 𝑃 𝑍 ≤ 0.78 = 1 − 0.7823 = 0.2177

▪ 𝑃 𝑍 > 4 =?
▪ 𝑃 𝑍 >4 =1−𝑃 𝑍 ≤4 =1−1=0
▪ Please note that 𝑃(𝑍 ≤ 4) only approximately equals 1,
because the normal density function never really touches
the horizontal axis. However, the probability is only very very
slightly below 1, so we can safely assume it is 1, see 𝑃(𝑍 ≤
3.99) in the table.
The Standard Normal Distribution (Example)
▪ We can also do the reverse. For instance, Suppose 𝑃 𝑍 ≤ 𝑧 = 0.6808,
find 𝑧.
▪

▪ Look up 0.6808 from the body of the z- table and read the z value from
the margins.
▪ Therefore 𝑧 = 0.47.
The Standard Normal Distribution (Example)
▪ 𝑃 𝑍 ≤ 𝑧 = 0.9, what is 𝑧?
▪ The closest value to 0.90 in the z-table is 0.8997.
Therefore, 𝑧 ≈ 1.28.
The Standard Normal Distribution (Example)
▪ 𝑃 𝑍 ≤ 𝑧 = 0.0643, what is 𝑧?
▪ Look up 0.0643 in the body of the z-table. Therefore, 𝑧 = −1.52.
The Standard Normal Distribution (Example)
▪ 𝑃 𝑍 > 𝑧 = 0.0212, what is 𝑧?
▪ 𝑃 𝑍 > 𝑧 = 0.0212 therefore, 𝑃 𝑍 ≤ 𝑧 = 1 − 0.0212 = 0.9788
▪ We look up 0.9788
in the body of the table
▪ Therefore, 𝑧 = 2.03
The Normal Distribution
▪ Any normally distributed random
variable 𝑋 with mean 𝜇 and
standard deviation 𝜎 can be
transformed into the standard
normal random variable 𝑍 as
𝑋−𝜇
𝑍=
𝜎
▪ Therefore, any value 𝑥 has a
corresponding value 𝑧 given by
𝑥−𝜇
𝑧=
𝜎
 The Normal Distribution (Example)
▪ Question: Scores on a management aptitude
exam are normally distributed with a mean of
72 and a standard deviation of 8. What is the
probability that a randomly selected manager
will score above 60?
▪ Answer: if X represents the random variable
representing a manager’s score. We need to
calculate 𝑃 𝑋 > 60 .

60 − 72
𝑃 𝑋 > 60 = 𝑃 𝑍 > = 𝑃 𝑍 > −1.5
8
= 1 − 𝑃 𝑍 ≤ −1.5 = 1 − 0.0668 = 0.9332
 The Normal Distribution (Example)
▪ Question: Scores on a management aptitude
exam are normally distributed with a mean of
72 and a standard deviation of 8.
▪ What is the probability that a randomly
selected manager will score between 68 and
84?
▪ Answer: if X represents the random variable
representing a manager’s score. We need to
calculate 𝑃 68 ≤ 𝑋 ≤ 84 .
68 − 72 84 − 72
𝑃 ≤𝑍≤
8 8
= 𝑃 −0.5 ≤ 𝑍 ≤ 1.5
= 𝑃 𝑍 ≤ 1.5 − 𝑃 𝑍 ≤ −0.5
= 0.9332 − 0.3085 = 0.6247
The Normal Distribution
▪ The Inverse Transformation:
▪ The standard normal variable 𝑍 can
be transformed to the normally
distributed random variable 𝑋 with
mean 𝜇 and standard deviation 𝜎 as
𝑋 = 𝜇 + 𝑍𝜎

▪ Therefore, any value 𝑧 has a

corresponding value 𝑥 given by
𝑥 = 𝜇 + 𝑧𝜎
The Normal Distribution (Example)
▪ Scores on a management aptitude
examination are normally distributed with a
mean of 72 and a standard deviation of 8.
What is the lowest score that will place a
manager in the top 10% (90th percentile) of
the distribution?
▪ Answer: To be in the top 90%, 90% of all values
must be lower than the point 𝑥, or 𝑃 𝑋 ≤ 𝑥 =
0.9
▪ This means, the corresponding 𝑧 value also has
90% of values below it, or 𝑃 𝑍 ≤ 𝑧 = 0.9.
▪ From the table we find 𝑧 = 1.28.
▪ Therefore, 𝑥 = 𝜇 + 𝑧𝜎 = 72 + 1.28 × 8 =
82.24
The Normal Distribution (Example)
▪ Scores on a management aptitude
examination are normally distributed with a
mean of 72 and a standard deviation of 8.
What is the highest score that will place a
manager in the bottom 25% (25th percentile)
of the distribution?
▪ Answer: We need to find the 𝑥 such that
𝑃 𝑋 ≤ 𝑥 = 0.25
▪ We find the corresponding z, where
𝑃 𝑍 ≤ 𝑧 = 0.25 from the table as 𝑧 = −0.67.
▪ Therefore, 𝑥 = 𝜇 + 𝑧𝜎 = 72 + (−0.67) × 8 =
66.64
Thank You…!