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Statistics for Business and Economics Anderson Sweeney Williams Slides by John Loucks St. Edward’s University © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 1 Chapter 6 Continuous Probability Distributions n n n n f (x) Uniform Probability Distribution Normal Probability Distribution Normal Approximation of Binomial Probabilities Exponential Probability Distribution f (x) Exponential Uniform f (x) Normal x x x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 2 Continuous Probability Distributions n A continuous random variable can assume any value in an interval on the real line or in a collection of intervals. n It is not possible to talk about the probability of the random variable assuming a particular value. n Instead, we talk about the probability of the random variable assuming a value within a given interval. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 3 Continuous Probability Distributions n f (x) 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) x1 x2 Normal x1 xx12 x2 x x1 x2 x x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 4 Uniform Probability Distribution n A random variable is uniformly distributed whenever the probability is proportional to the interval’s length. n The uniform probability density function is: ff ((x) x) == 1/( b –– aa)) 1/(b == 00 for for aa << xx << bb elsewhere elsewhere where: a = smallest value the variable can assume b = largest value the variable can assume © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 5 Uniform Probability Distribution n Expected Value of x E( x) == ((a a ++ bb)/2 )/2 E(x) n Variance of x Var( x) == ((b b -- aa))22/12 Var(x) /12 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 6 Uniform Probability Distribution n 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. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 7 Uniform Probability Distribution n Uniform Probability Density Function ff(x) (x) == 1/10 1/10 for for 55 << xx << 15 15 == 00 elsewhere elsewhere where: x = salad plate filling weight © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 8 Uniform Probability Distribution n Expected Value of x E( x) = ((a a + bb)/2 )/2 E(x) = (5 + 15)/2 = 10 n Variance of x Var( x) = ((b b - aa))22/12 Var(x) = (15 – 5)22/12 = 8.33 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 9 Uniform Probability Distribution n Uniform Probability Distribution for Salad Plate Filling Weight f(x) 1/10 0 5 10 Salad Weight (oz.) 15 x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 10 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 0 5 10 12 Salad Weight (oz.) 15 x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 11 Area as a Measure of Probability n n n The area under the graph of f(x) and probability are identical. This is valid for all continuous random variables. The probability that x takes on a value between some lower value x1 and some higher value x2 can be found by computing the area under the graph of f(x) over the interval from x1 to x2. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 12 Normal Probability Distribution n n n 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 ‧ Rainfall amounts ‧ Test scores ‧ Scientific measurements n Abraham de Moivre, a French mathematician, published The Doctrine of Chances in 1733. n He derived the normal distribution. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 13 Normal Probability Distribution n Normal Probability Density Function 1 ( x )2 /2 2 f ( x) e 2 where: = = = e = mean standard deviation 3.14159 2.71828 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 14 Normal Probability Distribution n Characteristics The distribution is symmetric symmetric;; its skewness measure is zero. x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 15 Normal Probability Distribution n Characteristics The entire family of normal probability distributions is defined by its mean and its standard deviation . Standard Deviation Mean x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 16 Normal Probability Distribution n Characteristics The highest point on the normal curve is at the mean mean,, which is also the median and mode mode.. x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 17 Normal Probability Distribution n Characteristics The mean can be any numerical value: negative, zero, or positive. -10 0 25 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. x Slide 18 Normal Probability Distribution n Characteristics The standard deviation determines the width of the curve: larger values result in wider, flatter curves. = 15 = 25 x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 19 Normal Probability Distribution n Characteristics Probabilities for the normal random variable are given by areas under the curve curve.. The total area under the curve is 1 (.5 to the left of the mean and .5 to the right). .5 .5 x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 20 Normal Probability Distribution n Characteristics (basis for the empirical rule) 68.26% of values of a normal random variable are within +/+/- 1 standard deviation of its mean. 95.44% of values of a normal random variable are within +/ +/-- 2 standard deviations of its mean. 99.72% of values of a normal random variable +/- 3 standard deviations of its mean. are within +/- © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 21 Normal Probability Distribution n Characteristics (basis for the empirical rule) 99.72% 95.44% 68.26% + 3 + 1 – 3 – 1 – 2 + 2 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. x Slide 22 Standard Normal Probability Distribution n Characteristics A A random random variable variable having having aa normal normal distribution distribution with with aa mean mean of of 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.. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 23 Standard Normal Probability Distribution n Characteristics The letter z is used to designate the standard normal random variable. 0 z © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 24 Standard Normal Probability Distribution n Converting to the Standard Normal Distribution z x We can think of z as a measure of the number of standard deviations x is from . © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 25 Standard Normal Probability Distribution n 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. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 26 Standard Normal Probability Distribution n Example: Pep Zone It has been determined that demand during replenishment lead-time is normally distributed with a mean of 15 gallons and a standard deviation of 6 gallons. The manager would like to know the probability of a stockout during replenishment lead-time. In other words, what is the probability that demand during lead-time will exceed 20 gallons? P(x > 20) = ? © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 27 Standard Normal Probability Distribution n Solving for the Stockout Probability Step 1: Convert x to the standard normal distribution. z = ((x x - )/ = (20 - 15)/6 = .83 Step 2: Find the area under the standard normal curve to the left of z = .83. see next slide © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 28 Standard Normal Probability Distribution n z . Cumulative Probability Table for the Standard Normal Distribution .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) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 29 Standard Normal Probability Distribution n Solving for the Stockout Probability Step Step 3: 3: Compute Compute the the area area under under the the standard standard normal normal curve curve to to the the right right of of zz == .83. .83. P (z > .83) = 1 – P (z < .83) P(z P(z = 11-- .7967 = .2033 Probability of a stockout P(x > 20) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 30 Standard Normal Probability Distribution n Solving for the Stockout Probability Area = 1 - .7967 Area = .7967 = .2033 0 .83 z © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 31 Standard Normal Probability Distribution n 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? --------------------------------------------------------------(Hint: Given a probability, we can use the standard normal table in an inverse fashion to find the corresponding z value.) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 32 Standard Normal Probability Distribution n Solving for the Reorder Point Area = .9500 Area = .0500 0 z.05 z © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 33 Standard Normal Probability Distribution n Solving for the Reorder Point Step -value that Step 1: 1: Find Find the the zz-value 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 1.6 .9452 .9463 .9474 .9484 .9495 .9505 1.7 .9554 .9564 .9573 .9582 .9591 .9599 1.8 .9641 .9649 .9656 .9664 .9671 .9678 .9406 .9418 .9429 .9441 .9515 .9525 .9535 .9545 .9608 .9616 .9625 .9633 up.9706 .9686 We .9693look .9699 the.9756 complement 1.9 .9713 .9719 .9726 .9732 .9738 .9744 .9750 .9761 .9767 . . . . . . . of the . tail. area . . (1 - .05 = .95) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 34 Standard Normal Probability Distribution n Solving for the Reorder Point Step to the corresponding value of x. Step 2: 2: Convert Convert zz.05 .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 probability of a stockout during leadtime at (slightly less than) .05. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 35 Normal Probability Distribution n Solving for the Reorder Point Probability of no stockout during replenishment lead -time = .95 lead-time Probability of a stockout during replenishment lead -time = .05 lead-time 15 24.87 x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 36 Standard Normal Probability Distribution n 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. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 37 Normal Approximation of Binomial Probabilities When When the the number number of of trials, trials, nn,, becomes becomes large, large, evaluating evaluating the the binomial binomial probability probability function function by by hand hand or or with with aa calculator calculator is is difficult. difficult. The The normal normal probability probability distribution distribution provides provides an an easy -to-use approximation easy-to-use approximation of of binomial binomial probabilities probabilities where where np np >> 55 and and nn(1 (1 -- pp)) >> 55.. np(1 p) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 38 Normal Approximation of Binomial Probabilities Add Add and and subtract subtract aa continuity continuity correction correction factor factor because because aa continuous continuous distribution distribution is is being being used used to to approximate approximate aa discrete discrete distribution. distribution. For (x == 12) For example, example, PP(x 12) for for the the discrete discrete binomial binomial probability probability distribution distribution is is approximated approximated by by PP(11.5 (11.5 << xx << 12.5) 12.5) for for the the continuous continuous normal normal distribution. distribution. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 39 Normal Approximation of Binomial Probabilities n Example Suppose that a company has a history of making errors in 10% of its invoices. A sample of 100 invoices has been taken, and we want to compute the probability that 12 invoices contain errors. In this case, we want to find the binomial probability of 12 successes in 100 trials. So, we set: = np = 100(.1) = 10 np(1 p) = [100(.1)(.9)] ½ = 3 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 40 Normal Approximation of Binomial Probabilities n Normal Approximation to a Binomial Probability Distribution with n = 100 and p = .1 =3 P(11.5 < x < 12.5) (Probability of 12 Errors) = 10 11.5 12.5 x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 41 Normal Approximation of Binomial Probabilities n Normal Approximation to a Binomial Probability Distribution with n = 100 and p = .1 P(x < 12.5) = .7967 10 12.5 x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 42 Normal Approximation of Binomial Probabilities n Normal Approximation to a Binomial Probability Distribution with n = 100 and p = .1 P(x < 11.5) = .6915 10 x 11.5 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 43 Normal Approximation of Binomial Probabilities n The Normal Approximation to the Probability of 12 Successes in 100 Trials is .1052 P(x = 12) = .7967 - .6915 = .1052 10 11.5 12.5 x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 44 Exponential Probability Distribution n n n The exponential probability distribution is useful in describing the time it takes to complete a task. The exponential random variables can be used to describe: •Time between vehicle arrivals at a toll booth •Time required to complete a questionnaire •Distance between major defects in a highway In waiting line applications, the exponential distribution is often used for service times. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 45 Exponential Probability Distribution n A property of the exponential distribution is that the mean and standard deviation are equal. n The exponential distribution is skewed to the right. Its skewness measure is 2. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 46 Exponential Probability Distribution n Density Function 1 f ( x ) e xx// for x > 0 where: = expected or mean e = 2.71828 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 47 Exponential Probability Distribution n Cumulative Probabilities P( x x00) 1 e xxoo// where: x0 = some specific value of x © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 48 Exponential Probability Distribution n Example: Al’s Full-Service Pump The time between arrivals of cars at Al’s fullservice 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. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 49 Exponential Probability Distribution n Example: Al’s Full-Service Pump f(x) .4 2/3 = 1 - .5134 = .4866 P (x < 2) = 1 - 2.71828--2/3 P(x .3 .2 .1 x 0 1 2 3 4 5 6 7 8 9 10 Time Between Successive Arrivals (mins.) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 50 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 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 51 End of Chapter 6 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 52