JOMO KENYATTA UNIVERSITY

OF
AGRICULTURE & TECHNOLOGY

SCHOOL OF OPEN, DISTANCE AND eLEARNING

©JKUAT-SODeL

P.O. Box 62000, 00200

Nairobi, Kenya
E-mail: [email protected]

HCBA 3102 Statistics for Business Sciences

JJ II LAST REVISION ON June 24, 2013

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 HCBA 3102 STATISTICS FOR BUSINESS
This presentation is intended to covered within one week.
The notes, examples and exercises should be supple-
mented with a good textbook. Most of the exercises have
solutions/answers appearing elsewhere and accessible by
clicking the green Exercise tag. To move back to the same
page click the same tag appearing at the end of the solu-
©JKUAT-SODeL

tion/answer.

Errors and omissions in these notes are entirely the re-

sponsibility of the author who should only be contacted
through [email protected]. In such a case, kindly en-
sure that you specify the module, the lesson number
JJ II and the page before stating the error.
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 Contents
©JKUAT-SODeL

4 Normal Distribution 4
4.1 Description . . . . . . . . . . . . . . . . . . . . . 5
4.2 The Standard normal Distribution . . . . . . . . . 15
4.3 Normal distribution as an approximation . . . . . 26
Solutions to Exercises . . . . . . . . . . . . . . . . 32
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 HCBA 3102 STATISTICS FOR BUSINESS
LESSON 4
Normal Distribution

Learning outcomes
Upon completion of this lessonyou should be able to;
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1. Identity data that is normally distributed.

2. Read standard normal statistical tables.
3. Apply normality concept in estimating probabilities of cer-
tain outcomes

Introduction
The Normal Probability Distribution is one of the most useful
JJ II and more important continuous distributions in statistics.
J I The Normal distribution is used frequently in statistics for
J DocDoc I many reasons:
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 HCBA 3102 STATISTICS FOR BUSINESS
• The Normal distribution has many convenient mathemat-
ical properties.
• Many natural phenomena have distributions which when
studied have been shown to be close to that of the Normal
Distribution.
©JKUAT-SODeL

• The Central Limit Theorem shows that the Normal Dis-

tribution is a suitable model for large samples regardless
of the actual distribution.

4.1. Description
The Normal distribution describes a continuous variable that
takes on values in the real number line. The formula for the
JJ II Normal has two parameters, the mean, µ and the variance, σ 2 .
J I The parameter µ is a “location” parameter and σ 2 is a “scale”
J DocDoc I parameter. The symmetric about the mean as shown in the
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 HCBA 3102 STATISTICS FOR BUSINESS
©JKUAT-SODeL following figure

JJ II
J I
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 HCBA 3102 STATISTICS FOR BUSINESS
©JKUAT-SODeL Consider the following plot for a certain study on men heights

JJ II
J I It is clear that the very tall are as few as the very short. Majority
J DocDoc I of the Americans are 174 cm tall. The heights range from 150 cm
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 HCBA 3102 STATISTICS FOR BUSINESS
which is about 174 − 3(6.7)cm to about 195 cm which is about
174 + 3(6.7) cm. This is in line with Tchebysheff ’s theorem.

Functional form
A continuous random variable, X, is normally distributed with
a probability density function given by:
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!
1 (x − µ)2
f (x) = √ exp −
σ 2π 2σ 2

where µ and σ are the mean and the standard deviation respec-
tively. It can also be written as

1 1 x−µ 2
f (x) = √ e− 2 ( σ )
JJ II 2πσ
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 HCBA 3102 STATISTICS FOR BUSINESS
The expected value of a distribution is defined as the “proba-
bility weighted sum” of outcomes. For X ∼ N (µ, σ 2 ) ,
ˆ +∞
E(X) = f (x) · x dx = µ
−∞

and, the variance of a distribution is the “probability weighted

©JKUAT-SODeL

sum” of the squared differences between outcomes and their ex-

pected values.
ˆ +∞
V ar(X) = f (x) · [x − E(x)]2 dx
−∞

which can be rearranged as

ˆ +∞
JJ II
V ar(X) = f (x) · x2 dx − E(x)2 = E(x2 ) − E(x)2 = σ 2
J I −∞
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 HCBA 3102 STATISTICS FOR BUSINESS
It is now clear that the parameters µ and σ 2 are simply equal
to the expected value and variance (respectively).
Definition 1. Tchebysheff ’s theorem: For any set of ob-
servations, x1 , x2 , . . . xn , at least 1 − 1/k 2 of the values will lie
within k standard deviations of the mean is where k ≥ 1.
Empirical Rule: For any symmetrical, bell-shaped distri-
©JKUAT-SODeL

bution, approximately 68% of the observations will lie within

±1σ of the mean (µ); approximately 95% of the observations
will lie within ±2σ of the mean and approximately 99.7% within
±3σ of the mean.

JJ II
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 HCBA 3102 STATISTICS FOR BUSINESS
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Illustrations
The probability density function of a Normal distribution with
µ = 3 and σ = 5 is shown in Figure 4.1 on the following page.
JJ II
J I • How would one describe that?
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 HCBA 3102 STATISTICS FOR BUSINESS

N(3,25)

0.08
Probability of x
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0.04
0.00

−10 −5 0 5 10 15

Possible values of x
JJ II
J I Figure 4.1: Normal Distribution
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 HCBA 3102 STATISTICS FOR BUSINESS
• How does this distribution change in appearance if µ and
σ 2 are changed? Figure 4.2 on the next page illustrates
what happens.

While the figure looks like repetitious, it does convey one

very important attribute of the Normal distribution: it always
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keeps the same shape. At least for these parameter values, it

is unimodal and symmetric. These graphs look the same because
the X-axis is allowed to re-scale itself to use up the allocated
space.
If we restrict the display so that the axes of all of the fig-
ures are kept the same in a position that suits the largest set of
JJ II values–then the impact of changing the parameters is a bit more
J I apparent.
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 HCBA 3102 STATISTICS FOR BUSINESS

N(3,4,) N(6,4,)

Probability of x

Probability of x
0.00 0.15

0.00 0.15
−2 0 2 4 6 8 0 2 4 6 8 10 12

Possible values of x Possible values of x

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N(3,16,) N(6,16,)
Probability of x

Probability of x
0.08

0.08
0.00

0.00
−5 0 5 10 15 −5 0 5 10 15

Possible values of x Possible values of x

JJ II N(3,36,) N(6,36,)
Probability of x

Probability of x

J I
0.00 0.05

0.00 0.05

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−15 −5 0 5 10 15 20 −10 0 5 10 15 20 25
 HCBA 3102 STATISTICS FOR BUSINESS
The result is to be seen in Figure 4.3.

4.2. The Standard normal Distribution

A normal distribution with a mean of 0 and a standard deviation
of 1 is called the standard normal distribution. Every normally
distributed variable can be transformed into a standard normal
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variable by commuting the Z score value: The Z value is the

distance between a selected value, designated x, and the popu-
lation mean µ , divided by the population standard deviation,σ

X −µ
Z=
σ

The transformed values will always give the curve 4.4 on page 17.
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Notice that the central value of Z is zero (0) and the curve is
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still symetric.
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 HCBA 3102 STATISTICS FOR BUSINESS

N(3,4,) N(6,4,) N(9,4,)

0.20

0.20

0.20
probability of x

probability of x

probability of x
0.10

0.10

0.10
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0.00

0.00

0.00
−20 0 20 −20 0 20 −20 0 20

possible values of x possible values of x possible values of x

N(3,16,) N(6,16,) N(9,16,)

0.08

0.08

0.08
probability of x

probability of x

probability of x
JJ II
0.04

0.04

0.04
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0.00

0.00

0.00
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−20 0 20 −20 0 20 −20 0 20
 HCBA 3102 STATISTICS FOR BUSINESS

0.4
Probability
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0.2
0.0

−4 −2 0 2 4

Z values
JJ II
J I Figure 4.4: Standard Normal curve
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 HCBA 3102 STATISTICS FOR BUSINESS
We determine probabilities based upon distance from the
mean (i.e., the number of standard deviations).
NOTE:
• The probability is the proportion of area under the stan-
dard normal curve.
©JKUAT-SODeL

• The probabilities have been computed and published un-

der the name Normal probability tables. What we get
when we use these tables is always the area between the
mean and z standard deviations from the mean.
• Because of symmetry

P (Z > 0) = P (Z < 0) = 0.5

JJ II
J I • Tables show probabilities rounded to 4 decimal places. e.g
J DocDoc I If Z < 1.96 then probability is 0.9750, we write P (Z <
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 HCBA 3102 STATISTICS FOR BUSINESS

0.4
Probability
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0.2
0.0

−4 −2 0 2 4

Z values
JJ II
J I Figure 4.5: Standard Normal with shaded area
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 HCBA 3102 STATISTICS FOR BUSINESS
1.96) = 0.9750
If Z > −1.96 then probability ≈ 0.9750, we write P (Z >
−1.96) = 0.9750

From the standard normal tables table (see later pages);

©JKUAT-SODeL

1. P (Z < 1.00) = 0.5398

2. P (Z < 2.97) = 0.9985 ⇒ P (Z > 2.97) = 0.0015
3. P (Z < 0) = 0.5000
4. P (Z < −1) = P (Z > 1) = 1 − 0.5398 = 0.4602
5. P (Z > 2) = 1 − P (Z < 2) = 1 − 0.9772 = 0.0.0228
JJ II P (Z > 1.42) =
J I P (Z > −2.542) =
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 HCBA 3102 STATISTICS FOR BUSINESS

0.4
Probability
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0.2
0.0

−4 −2 0 2 4

Z values
JJ II
J I Figure 4.6: Standard Normal with area z < 1.96 shaded
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 HCBA 3102 STATISTICS FOR BUSINESS

0.4
Probability

0.2
©JKUAT-SODeL

0.0

−4 −2 0 2 4

Z values

JJ II Example . The daily water usage per person in Thika is nor-

J I mally distributed with a mean of 20 gallons and a standard de-
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 HCBA 3102 STATISTICS FOR BUSINESS
viation of 5 gallons. What is the probability that a person from
Thika selected at random will use;
1. less than 20 gallons per day?
2. less than 25 gallons per day?
3. more than 30 gallons per day?
©JKUAT-SODeL

4. What percent of the population uses between 25 and 30

gallons?
Solution: We cannot read the probabilities directly. We must
standardize our values as follows
1. P (X < 20) = P X−µ < 20−20


σ 5
= P (Z < 0) = 0.5
2. P (X < 25) = P X−µ < 25−20


σ 5
= P (Z < 1) = 0.5398
3. P (X > 30) = P X−µ > 30−20


JJ II σ 5
= P (Z > 2) = 0.0228
4. P (25 < X < 30) = P 25−20 X−µ
< 30−20


J I 5
< σ 5
= P (1 <
J DocDoc I Z < 2) =??
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 HCBA 3102 STATISTICS FOR BUSINESS

Figure 4.7: Standard Normal showing the area beween Z=1 and
Z=2. Looking at this figure, it is not hard to see that P (1 <
Z < 2) = P (Z < 2) − P (Z < 1) = 0.9772 − 0.5398 = 0.4374 ⇒
43.74%
©JKUAT-SODeL

0.4
0.3
Probability

0.2
0.1

JJ II
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0.0

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 HCBA 3102 STATISTICS FOR BUSINESS

NOTE: If X is normally distributed with mean µ and vari-
ance σ 2 , we write this statement as X ∼ N (µ, σ 2 )
Quiz
©JKUAT-SODeL

1. Given that X ∼ N (34, 4),

(a) P (X < 40) =

(b) P (X > 30) =
(c) P (32 < X < 33) =
(d) P (30 < X < 35) =
JJ II
J I 2. An airline has a regular flight from one airport to another.
J DocDoc I The airline models the duration of a flight as a normally
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 HCBA 3102 STATISTICS FOR BUSINESS
distributed random variable with a mean of 185 minutes
and a variance of 36 minutes. Use this model to calculate,
to one decimal place, the percentage of these flights that
are completed in less than 3 hours. Answer = %
©JKUAT-SODeL

4.3. Normal distribution as an approximation

Under certain conditions the Normal distribution can be used
as an approximation to both the Poisson and Binomial distribu-
tions. A continuity correction must be used since a continuous
distribution is being used to approximate a discrete distribution.
Examples of continuity corrections are
JJ II
• P (X ≤ 7) becomes P (X < 7.5) while P (X < 7) becomes
J I
P (X < 6.5)
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 HCBA 3102 STATISTICS FOR BUSINESS
• P (12 ≤ X ≤ 13) becomes P (11.5 < X < 13.5).
The conditions for using the approximations are given below:
Distribution Normal distribution Condition

X ∼ B(n, p)
©JKUAT-SODeL

becomes X ∼ N (np, npq) for n large (> 30 say), np > 5, nq >

5and
X ∼ P o(λ)

becomes X ∼ N (λ, λ) for large λ(> 30 say) It can be shown

that the standard deviation of sample mean x̄ is

σ̂
√
JJ II n
J I
called the standard error of the mean (s.e).
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 HCBA 3102 STATISTICS FOR BUSINESS
Example . A recent study showed that 20% of JKUAT em-
ployees are landlords. A sample of 250 employees is taken. What
is the probability that less than 40 are landlords.

Solution: This is a binomial case with n = 240 and p = 0.2. We

need P (X < 40) . So, using the normal approximation,
©JKUAT-SODeL

!
X − np 39.5 − 250(.20)
P (X < 39.5) = P √ <p = P (Z < −1.66) =
npq 250(.20)(.80)

Exercise 1.  A recent study showed that 20% of JKUAT

JJ II employees are landlords. A sample of 250 employees is taken.
J I What is the probability that less than 40 are landlords.
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 HCBA 3102 STATISTICS FOR BUSINESS
Suggested materials for further reading
1. Wonnacott, T.H. and Wonnacott, R.J. (1990). Introduc-
tory Statistics for Business and Economics, 2nd Edition,
John Wiley and Sons Inc.
2. Gujarati, D.N. (2006). Basic Econometrics. 3rd Edition,
©JKUAT-SODeL

McGraw-Hill, Inc., New York.

3. Keller, G., Warrack, B. and Bartel, H. (1994). Statistics
for Management and Economics. 3rd Edition. Wadsworth
Publishing Company, Belmont California, USA.

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 HCBA 3102 STATISTICS FOR BUSINESS
The table below gives the probability p that a Standard Normal random
variable Z (ie. mean = 0 and variance = 1) is less than or equal to z.

z = 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08

0.00 0.5000 0.5040 0.5080 0.5120 0.5160 0.5199 0.5239 0.5279 0.5319
©JKUAT-SODeL

0.10 0.5398 0.5438 0.5478 0.5517 0.5557 0.5596 0.5636 0.5675 0.5714
0.20 0.5793 0.5832 0.5871 0.5910 0.5948 0.5987 0.6026 0.6064 0.6103
0.30 0.6179 0.6217 0.6255 0.6293 0.6331 0.6368 0.6406 0.6443 0.6480
0.40 0.6554 0.6591 0.6628 0.6664 0.6700 0.6736 0.6772 0.6808 0.6844
0.50 0.6915 0.6950 0.6985 0.7019 0.7054 0.7088 0.7123 0.7157 0.7190
0.60 0.7257 0.7291 0.7324 0.7357 0.7389 0.7422 0.7454 0.7486 0.7517
0.70 0.7580 0.7611 0.7642 0.7673 0.7704 0.7734 0.7764 0.7794 0.7823
0.80 0.7881 0.7910 0.7939 0.7967 0.7995 0.8023 0.8051 0.8078 0.8106
0.90 0.8159 0.8186 0.8212 0.8238 0.8264 0.8289 0.8315 0.8340 0.8365
1.00 0.8413 0.8438 0.8461 0.8485 0.8508 0.8531 0.8554 0.8577 0.8599
1.10 0.8643 0.8665 0.8686 0.8708 0.8729 0.8749 0.8770 0.8790 0.8810
1.20 0.8849 0.8869 0.8888 0.8907 0.8925 0.8944 0.8962 0.8980 0.8997
1.30 0.9032 0.9049 0.9066 0.9082 0.9099 0.9115 0.9131 0.9147 0.9162
1.40 0.9192 0.9207 0.9222 0.9236 0.9251 0.9265 0.9279 0.9292 0.9306
1.50 0.9332 0.9345 0.9357 0.9370 0.9382 0.9394 0.9406 0.9418 0.9429
JJ II 1.60 0.9452 0.9463 0.9474 0.9484 0.9495 0.9505 0.9515 0.9525 0.9535
1.70 0.9554 0.9564 0.9573 0.9582 0.9591 0.9599 0.9608 0.9616 0.9625
J I 1.80 0.9641 0.9649 0.9656 0.9664 0.9671 0.9678 0.9686 0.9693 0.9699
1.90 0.9713 0.9719 0.9726 0.9732 0.9738 0.9744 0.9750 0.9756 0.9761
J DocDoc I 2.00 0.9772 0.9778 0.9783 0.9788 0.9793 0.9798 0.9803 0.9808 0.9812

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 HCBA 3102 STATISTICS FOR BUSINESS
2.10 0.9821 0.9826 0.9830 0.9834 0.9838 0.9842 0.9846 0.9850 0.9854
2.20 0.9861 0.9864 0.9868 0.9871 0.9875 0.9878 0.9881 0.9884 0.9887
2.30 0.9893 0.9896 0.9898 0.9901 0.9904 0.9906 0.9909 0.9911 0.9913
2.40 0.9918 0.9920 0.9922 0.9925 0.9927 0.9929 0.9931 0.9932 0.9934
2.50 0.9938 0.9940 0.9941 0.9943 0.9945 0.9946 0.9948 0.9949 0.9951
2.60 0.9953 0.9955 0.9956 0.9957 0.9959 0.9960 0.9961 0.9962 0.9963
2.70 0.9965 0.9966 0.9967 0.9968 0.9969 0.9970 0.9971 0.9972 0.9973
2.80 0.9974 0.9975 0.9976 0.9977 0.9977 0.9978 0.9979 0.9979 0.9980
2.90 0.9981 0.9982 0.9982 0.9983 0.9984 0.9984 0.9985 0.9985 0.9986
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3.00 0.9987 0.9987 0.9987 0.9988 0.9988 0.9989 0.9989 0.9989 0.9990
3.10 0.9990 0.9991 0.9991 0.9991 0.9992 0.9992 0.9992 0.9992 0.9993
3.20 0.9993 0.9993 0.9994 0.9994 0.9994 0.9994 0.9994 0.9995 0.9995
3.30 0.9995 0.9995 0.9995 0.9996 0.9996 0.9996 0.9996 0.9996 0.9996
3.40 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997
3.50 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998 0.9998
Source: Generated using MS-EXCEL functions by Dr. J. M. K

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 HCBA 3102 STATISTICS FOR BUSINESS
Solutions to Exercises
Exercise 1. This is a binomial case with n = 240 and p = 0.2.
We need P (X < 40) . So, using the normal approximation,
!
X − np 39.5 − 250(.20)
P (X < 39.5) = P √ <p
npq 250(.20)(.80)
©JKUAT-SODeL

= P (Z < −1.66) = 0.0495

Exercise 1

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