Contemporary

Business Statistics, 3e
by
Williams, Sweeney, and Anderson

Slides by

JOHN
LOUCKS
St. Edward’s
University

© 2009 Cengage South-Western. All Rights Reserved 1

 Chapter 6
Continuous Probability Distributions
 Uniform Probability Distribution
 Normal Probability Distribution
 Exponential Probability Distribution
f (x) Exponential
Uniform
f (x)

f (x) Normal

x
x

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 Continuous Probability Distributions

 A continuous random variable can assume any

value in an interval on the real line or in a
collection of intervals.
 It is not possible to talk about the probability of the
random variable assuming a particular value.
 Instead, we talk about the probability of the random
variable assuming a value within a given interval.

© 2009 Cengage South-Western. All Rights Reserved 3

 Continuous Probability Distributions

 The probability of the random variable

assuming a value within some given interval
from x1 to x2 is defined to be the area under
the graph of the probability density function
between x1 and x2.
f (x) Exponential
Uniform
f (x)

f (x) Normal

x
x xx1122 x22
x11 x22 x11
x
x11 x22

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 Uniform Probability Distribution

 A random variable is uniformly distributed

whenever the probability is proportional to the
interval’s length.
 The uniform probability density function is:

ff ((xx)) =
= 1/(
1/(bb –– aa)) for
for aa <
< xx <
<bb
=
=0 0 elsewhere
elsewhere

where: a = smallest value the variable can assume

b = largest value the variable can assume

© 2009 Cengage South-Western. All Rights Reserved 5

 Uniform Probability Distribution

 Expected Value of x

E(
E(xx)) =
= ((aa +
+bb)/2
)/2

 Variance of x

Var(
Var(xx)) =
= ((b
b -- aa))22/12
/12

© 2009 Cengage South-Western. All Rights Reserved 6

 Uniform Probability Distribution

 Example: Slater's Buffet

Slater customers are charged for the amount of
salad they take. Sampling suggests that the amount
of salad taken is uniformly distributed between 5
ounces and 15 ounces.

© 2009 Cengage South-Western. All Rights Reserved 7

 Uniform Probability Distribution

 Uniform Probability Density Function

ff((xx)) =
= 1/10
1/10 for
for 5
5<< xx <
< 15
15
=
=0 0 elsewhere
elsewhere

where:
x = salad plate filling weight

© 2009 Cengage South-Western. All Rights Reserved 8

 Uniform Probability Distribution

 Expected Value of x

E(x) = (a + b)/2
= (5 + 15)/2
= 10

 Variance of x

Var(x) = (b - a)22/12
= (15 – 5)22/12
= 8.33

© 2009 Cengage South-Western. All Rights Reserved 9

 Uniform Probability Distribution

 Uniform Probability Distribution

for Salad Plate Filling Weight

f(x)

1/10

x
0 5 10 15
Salad Weight (oz.)

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 Uniform Probability Distribution

What is the probability that a customer

will take between 12 and 15 ounces of
salad?
f(x)

P(12 < x < 15) = 1/10(3) = .3

1/10

x
0 5 10 12 15
Salad Weight (oz.)

© 2009 Cengage South-Western. All Rights Reserved 11

 Normal Probability Distribution

 The normal probability distribution is the most

important distribution for describing a
continuous random variable.
 It is widely used in statistical inference.
 It has been used in a wide variety of
applications
including:
•Heights of people
•Test scores
•Rainfall amounts
•Scientific measurements

© 2009 Cengage South-Western. All Rights Reserved 12

 Normal Probability Distribution

 Normal Probability Density Function

1  (x  )2 / 2 2
f (x)  e
 2

where:
 = mean
 = standard deviation
 = 3.14159
e = 2.71828

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 Normal Probability Distribution

 Characteristics

The distribution is symmetric; its skewness

measure is zero.

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 Normal Probability Distribution

 Characteristics

The entire family of normal probability

distributions is defined by its mean  and its
standard deviation  .

Standard Deviation 

x
Mean 

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 Normal Probability Distribution

 Characteristics

The highest point on the normal curve is at the

mean, which is also the median and mode.

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 Normal Probability Distribution

 Characteristics

The mean can be any numerical value: negative,

zero, or positive.

x
-10 0 25

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 Normal Probability Distribution

 Characteristics

The standard deviation determines the width of the

curve: larger values result in wider, flatter curves.

 = 15

 = 25

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 Normal Probability Distribution

 Characteristics

Probabilities for the normal random variable are

given by areas under the curve. The total area
under the curve is 1 (.5 to the left of the mean and
.5 to the right).

.5 .5
x

© 2009 Cengage South-Western. All Rights Reserved 19

 Normal Probability Distribution

 Characteristics

68.26% of values of a normal random variable

are within+/- 1 standard deviation of its mea

95.44% of values of a normal random variable

are within +/- 2 standard deviations of its mea

99.72% of values of a normal random variable

are within +/- 3 standard deviations of its mea
me

© 2009 Cengage South-Western. All Rights Reserved 20

 Normal Probability Distribution

 Characteristics
99.72%
95.44%
68.26%


x
 – 3  – 1  + 1  + 3
 – 2  + 2
© 2009 Cengage South-Western. All Rights Reserved 21
 Standard Normal Probability Distribution

 Characteristics

A
A random
random variable
variable having
having aa normal
normal distribution
distribution
with
with aa mean
mean ofof 00 and
and aa standard
standard deviation
deviation of
of 11 is
is
said
said to
to have
have aa standard
standard normal
normal probability
probability
distribution
distribution..

© 2009 Cengage South-Western. All Rights Reserved 22

 Standard Normal Probability Distribution

 Characteristics

The letter z is used to designate the standard

normal random variable.



z
0

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 Standard Normal Probability Distribution

 Converting to the Standard Normal

Distribution
x 
z


We can think of z as a measure of the number of

standard deviations x is from .

© 2009 Cengage South-Western. All Rights Reserved 24

 Using Excel to Compute
Standard Normal Probabilities
 Excel has two functions for computing
probabilities and z values for a standard
normal distribution:
NORM S DIST
NORMSDIST is used to compute the cumulativ
probability given a z value.

NORMSINV
NORM S INV is used to compute the z value
given a cumulative probability.

The “S” in the function names reminds

us that they relate to the standard
normal probability distribution.

© 2009 Cengage South-Western. All Rights Reserved 25

 Using Excel to Compute
Standard Normal Probabilities
 Excel Formula Worksheet
A B
1 Probabilities: Standard Normal Distribution
2
3 P (z < 1.00) =NORMSDIST(1)
4 P (0.00 < z < 1.00) =NORMSDIST(1)-NORMSDIST(0)
5 P (0.00 < z < 1.25) =NORMSDIST(1.25)-NORMSDIST(0)
6 P (-1.00 < z < 1.00) =NORMSDIST(1)-NORMSDIST(-1)
7 P (z > 1.58) =1-NORMSDIST(1.58)
8 P (z < -0.50) =NORMSDIST(-0.5)
9

© 2009 Cengage South-Western. All Rights Reserved 26

 Using Excel to Compute
Standard Normal Probabilities
 Excel Value
WorksheetA B
1 Probabilities: Standard Normal Distribution
2
3 P (z < 1.00) 0.8413
4 P (0.00 < z < 1.00) 0.3413
5 P (0.00 < z < 1.25) 0.3944
6 P (-1.00 < z < 1.00) 0.6827
7 P (z > 1.58) 0.0571
8 P (z < -0.50) 0.3085
9

© 2009 Cengage South-Western. All Rights Reserved 27

 Using Excel to Compute
Standard Normal Probabilities
 Excel Formula Worksheet
A B
1 Finding z Values, Given Probabilities
2
3 z value with .10 in upper tail =NORMSINV(0.9)
4 z value with .025 in upper tail =NORMSINV(0.975)
5 z value with .025 in lower tail =NORMSINV(0.025)
6

© 2009 Cengage South-Western. All Rights Reserved 28

 Using Excel to Compute
Standard Normal Probabilities
 Excel Value Worksheet
A B
1 Finding z Values, Given Probabilities
2
3 z value with .10 in upper tail 1.28
4 z value with .025 in upper tail 1.96
5 z value with .025 in lower tail -1.96
6

© 2009 Cengage South-Western. All Rights Reserved 29

 Standard Normal Probability Distribution

 Example: Pep Zone

Pep Zone sells auto parts and supplies including
a popular multi-grade motor oil. When the stock of
this oil drops to 20 gallons, a replenishment order
is
placed.
The store manager is concerned that sales are
being lost due to stockouts while waiting for a
replenishment order.

© 2009 Cengage South-Western. All Rights Reserved 30

 Standard Normal Probability Distribution

 Example: Pep Zone

It has been determined that demand
during
replenishment lead-time is normally
distributed
with a mean
The of 15would
manager gallons
likeand a standard
to know the
deviation
probability
of
of 6 gallons. during replenishment lead-time.
a stockout
In
other words, what is the probability that
demand P(x > 20) = ?
during lead-time will exceed 20 gallons?
© 2009 Cengage South-Western. All Rights Reserved 31
 Standard Normal Probability Distribution

 Solving for the Stockout Probability

Step 1: Convert x to the standard normal distributio

z = (x - )/
= (20 - 15)/6
= .83

Step 2: Find the area under the standard normal

curve to the left of z = .83.

see next slide

© 2009 Cengage South-Western. All Rights Reserved 32

 Standard Normal Probability Distribution

 Cumulative Probability Table for

the Standard Normal Distribution
z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
. . . . . . . . . . .
.5 .6915 .6950 .6985 .7019 .7054 .7088 .7123 .7157 .7190 .7224
.6 .7257 .7291 .7324 .7357 .7389 .7422 .7454 .7486 .7517 .7549
.7 .7580 .7611 .7642 .7673 .7704 .7734 .7764 .7794 .7823 .7852
.8 .7881 .7910 .7939 .7967 .7995 .8023 .8051 .8078 .8106 .8133
.9 .8159 .8186 .8212 .8238 .8264 .8289 .8315 .8340 .8365 .8389
. . . . . . . . . . .

P(z
< .83)

© 2009 Cengage South-Western. All Rights Reserved 33

 Standard Normal Probability Distribution

 Solving for the Stockout Probability

Step
Step 3:
3: Compute
Compute thethe area
area under
under the
the standard
standard norm
norm
curve
curve to
to the
the right
right of
of zz =
= .83.
.83.

P(z > .83) = 1 – P(z < .83)

= 1- .7967
= .2033

Probability
of a P(x >
stockout 20)

© 2009 Cengage South-Western. All Rights Reserved 34

 Standard Normal Probability Distribution

 Solving for the Stockout Probability

Area = 1 - .7967
Area = .7967
= .2033

z
0 .83

© 2009 Cengage South-Western. All Rights Reserved 35

 Standard Normal Probability Distribution

 Standard Normal Probability Distribution

If the manager of Pep Zone wants the
probability
of a stockout during replenishment lead-time
to be
no more than .05, what should the reorder
point be?

© 2009 Cengage South-Western. All Rights Reserved 36

 Standard Normal Probability Distribution

 Solving for the Reorder Point

Area = .9500

Area = .0500

z
0 z.05

© 2009 Cengage South-Western. All Rights Reserved 37

 Standard Normal Probability Distribution

 Solving for the Reorder Point

Step
Step 1:
1: Find
Find the
the zz-value
-value that
that cuts
cuts off
off an
an area
area of
of .05
.05
in
in the
the right
right tail
tail of
of the
the standard
standard normal
normal
distribution.
distribution.
z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
. . . . . . . . . . .
1.5 .9332 .9345 .9357 .9370 .9382 .9394 .9406 .9418 .9429 .9441
1.6 .9452 .9463 .9474 .9484 .9495 .9505 .9515 .9525 .9535 .9545
1.7 .9554 .9564 .9573 .9582 .9591 .9599 .9608 .9616 .9625 .9633
1.8 .9641 .9649 .9656 .9664 .9671 .9678
We look up
.9686 .9693 .9699 .9706
the
1.9 .9713 .9719 .9726 .9732 .9738 .9744 .9750 .9756 .9761 .9767
complement
. . . . . . . . of the
. tail. area.
(1 - .05 = .95)

© 2009 Cengage South-Western. All Rights Reserved 38

 Standard Normal Probability Distribution

 Solving for the Reorder Point

Step
Step 2:
2: Convert
Convert zz.05 to the corresponding value of x.
.05 to the corresponding value of x.

x =  + z.05
.05

= 15 + 1.645(6)
= 24.87 or 25

A reorder point of 25 gallons will place the probabili

of a stockout during leadtime at (slightly less than)

© 2009 Cengage South-Western. All Rights Reserved 39

 Standard Normal Probability Distribution

 Solving for the Reorder Point

By raising the reorder point from 20 gallons to
25 gallons on hand, the probability of a stockout
decreases from about .20 to .05.
This is a significant decrease in the chance that
Pep Zone will be out of stock and unable to meet a
customer’s desire to make a purchase.

© 2009 Cengage South-Western. All Rights Reserved 40

 Using Excel to Compute
Normal Probabilities
 Excel has two functions for computing
cumulative probabilities and x values for any
normal distribution:
NORMDIST
NORMDIST is is used
used to
to compute
compute the
the cumulative
cumulative
probability
probability given
given an
an xx value.
value.

NORMINV
NORMINV isis used
used to
to compute
compute the
the xx value
value given
given
aa cumulative
cumulative probability.
probability.

© 2009 Cengage South-Western. All Rights Reserved 41

 Using Excel to Compute
Normal Probabilities
 Excel Formula Worksheet
A B
1 Probabilities: Normal Distribution
2
3 P (x > 20) =1-NORMDIST(20,15,6,TRUE)
4
5 Finding x Values, Given Probabilities
6
7 x value with .05 in upper tail =NORMINV(0.95,15,6)
8

© 2009 Cengage South-Western. All Rights Reserved 42

 Using Excel to Compute
Normal Probabilities
 Excel Value Worksheet
A B
1 Probabilities: Normal Distribution
2
3 P (x > 20) 0.2023
4
5 Finding x Values, Given Probabilities
6
7 x value with .05 in upper tail 24.87
8

Note: P(x > 20) = .2023 here using Excel, while our
previous manual approach using the z table yielded
.2033 due to our rounding of the z value.

© 2009 Cengage South-Western. All Rights Reserved 43

 Exponential Probability Distribution

 The exponential probability distribution is

useful in describing the time it takes to
 complete a task. random variables can be used
The exponential
to describe:
•Time between vehicle arrivals at a toll booth
•Time required to complete a questionnaire
•Distance between major defects in a highway

© 2009 Cengage South-Western. All Rights Reserved 44

 Exponential Probability Distribution

 Density Function

1
f ( x )  e  x /  for x > 0,  > 0


where:  = mean
e = 2.71828

© 2009 Cengage South-Western. All Rights Reserved 45

 Exponential Probability Distribution

 Cumulative Probabilities

P ( x  x0 ) 1  e  xo / 

where:
x0 = some specific value of x

© 2009 Cengage South-Western. All Rights Reserved 46

 Using Excel to Compute
Exponential Probabilities

The EXPONDIST function can be used to compute

exponential probabilities.

The EXPONDIST function has three arguments:

1st
st The value of the random variable x

2nd
nd 1/ the inverse of the
mean
3rd
rd “TRUE” or “FALSE”number of
occurrences
We will always enter in an interval
“TRUE” because we’re
seeking a cumulative
probability.
© 2009 Cengage South-Western. All Rights Reserved 47
 Using Excel to Compute
Exponential Probabilities
 Excel Formula Worksheet
A B
1 Probabilities: Exponential Distribution
2
3 P (x < 18) =EXPONDIST(18,1/15,TRUE)
4 P (6 < x < 18) =EXPONDIST(18,1/15,TRUE)-EXPONDIST(6,1/15,TRUE)
5 P (x > 8) =1-EXPONDIST(8,1/15,TRUE)
6

© 2009 Cengage South-Western. All Rights Reserved 48

 Using Excel to Compute
Exponential Probabilities
 Excel Value Worksheet
A B
1 Probabilities: Exponential Distribution
2
3 P (x < 18) 0.6988
4 P (6 < x < 18) 0.3691
5 P (x > 8) 0.5866
6

© 2009 Cengage South-Western. All Rights Reserved 49

 Exponential Probability Distribution

 Example: Al’s Full-Service Pump

The time between arrivals of cars at Al’s full-
service gas pump follows an exponential probability
distribution with a mean time between arrivals of 3
minutes. Al would like to know the probability that
the time between two successive arrivals will be 2
minutes or less.

© 2009 Cengage South-Western. All Rights Reserved 50

 Exponential Probability Distribution

 Example: Al’s Full-Service Pump

f(x)

.4 P(x < 2) = 1 - 2.71828-2/3

-2/3 = 1 - .5134 = .4
.3
.2
.1
x
0 1 2 3 4 5 6 7 8 9 10
Time Between Successive Arrivals (mins.)

© 2009 Cengage South-Western. All Rights Reserved 51

 Using Excel to Compute
Exponential Probabilities
 Excel Formula Worksheet
A B
1 Probabilities: Exponential Distribution
2
3 P (x < 2) =EXPONDIST(2,1/3,TRUE)
4

© 2009 Cengage South-Western. All Rights Reserved 52

 Using Excel to Compute
Exponential Probabilities
 Excel Value Worksheet
A B
1 Probabilities: Exponential Distribution
2
3 P (x < 2) 0.4866
4

© 2009 Cengage South-Western. All Rights Reserved 53

 Relationship between the Poisson
and Exponential Distributions

The Poisson distribution

provides an appropriate description
of the number of occurrences
per interval

The exponential distribution

provides an appropriate description
of the length of the interval
between occurrences

© 2009 Cengage South-Western. All Rights Reserved 54

 End of Chapter 6

© 2009 Cengage South-Western. All Rights Reserved 55