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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.)
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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
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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