Continuous Probability Distribution Review of continuous random variable, for examples:

heights and weights of adults length and width of leaves of the same species distance jumped by a C grade boy in several times distance jumped by a group of C grade boys actual weights of rice in 5 kg bags sold in supermarkets

There are many continuous probability distributions, such as, uniform distribution, normal distribution, the t distribution, the chi-square distribution, exponential distribution, and F distribution. In this lecture note, we will concentrate on the uniform distribution, and normal distribution. Uniform Distribution

here: a=lower limit of the range or interval, and b=upper limit of the range or interval. Note that in the above graph, since area of the rectangle = (length)(height) =1, and since length = (b - a), thus we can write: (b - a)(height) = 1 or height = f(X) = 1/(b - a). The following equations are used to find the mean and standard deviation of a uniform distribution:

Example: There are many cases in which we may be able to apply the uniform distribution. As an example, suppose that the research department of a steel factory believes that one of the company's rolling machines is producing sheets of steel of different thickness. The thickness is a uniform random variable with values between 150 and 200 millimeters. Any sheets less than 160 millimeters thick must be scrapped because they are unacceptable to the buyers. We want to calculate the mean and the standard deviation of the X (the thickness of the sheet produced by this machine), and the fraction of steel sheet produced by this machine that have to be scrapped. The following figure displays the uniform distribution for this example.

Note that for continuous distribution, probability is calculated by finding the area under the function over a specific interval. In other words, for continuous distributions, there is no probability at any one point. The probability of X>= b or of X<= a is zero because there is no area above b or below a, and area between a and b is equal to one.

The probability of the variables falling between any two points, such as c and d in figure 2, are calculated as follows: P (c <= x <="d)" c)/(b a))=? In this example c=a=150, d=160, and b=200, therefore: Mean = (a + b)/2 = (150 + 200)/2 = 175 millimeters, standard deviation is the square root of 208.3, which is equal to 14.43 millimeters, and P(c <= x <="d)" 150)/(200 150)="1/5" thus, of all the sheets made by this machine, 20% of the production must be scrapped.)=. Normal Distribution Applications to Business Administration The normal distribution has applications in many areas of business administration. For example:

Modern portfolio theory commonly assumes that the returns of a diversified asset portfolio follow a normal distribution. In operations management, process variations often are normally distributed. In human resource management, employee performance sometimes is considered to be normally distributed.

The normal distribution often is used to describe random variables, especially those having symmetrical, unimodal distributions. In many cases however, the normal distribution is only a rough approximation of the actual distribution. For example, the physical length of a component cannot be negative, but the normal distribution extends indefinitely in both the positive and negative directions. Nonetheless, the resulting errors may be negligible or within acceptable limits, allowing one to solve problems with sufficient accuracy by assuming a normal distribution. The normal distribution

The above curve is for a data set having a mean of zero. In general, the normal distribution curve is described by the following probability density function: Completely Described by Two Parameters The normal distribution can be completely specified by two parameters:

mean standard deviation

If the mean and standard deviation are known, then one essentially knows as much as if one had access to every point in the data set. The Empirical Rule The empirical rule is a handy quick estimate of the spread of the data given the mean and standard deviation of a data set that follows the normal distribution. The empirical rule states that for a normal distribution:

68% of the data will fall within 1 standard deviation of the mean 95% of the data will fall within 2 standard deviations of the mean Almost all (99.7%) of the data will fall within 3 standard deviations of the mean

Note that these values are approximations. For example, according to the normal curve probability density function, 95% of the data will fall within 1.96 standard deviations of the mean; 2 standard deviations is a convenient approximation. Important properties of the normal curve: (i) the curve is bell-shaped and symmetrical about the mean;
4

(ii) the mean, the median, mode are all equal; (iii) the spread of the curve is determined by the value of ; (iv) the area under the curve is 1. A Z score is the number of standard deviations that a value, X, is away from the mean. If the value of X is greater than the mean, the Z score is positive; if the value of X is less than the mean, the Z score is negative. The Z score or equation is as follows: Z = (X - Mean) /Standard deviation A standard Z table can be used to find probabilities for any normal curve problem that has been converted to Z scores. For the table, refer to the text. The Z distribution is a normal distribution with a mean of 0 and a standard deviation of 1. The following steps are helpfull when working with the normal curve problems: Graph the normal distribution, and shade the area related to the probability you want to find. Convert the boundaries of the shaded area from X values to the standard normal random variable Z values using the Z formula above. Use the standard Z table to find the probabilities or the areas related to the Z values

Example Graduate Management Aptitude Test (GMAT) scores are widely used by graduate schools of business as an entrance requirement. Suppose that in one particular year, the mean score for the GMAT was 476, with a standard deviation of 107. Assuming that the GMAT scores are normally distributed, answer the following questions: Question 1. What is the probability that a randomly selected score from this GMAT falls between 476 and 650? <= x <="650)" the following figure shows a graphic representation of this problem.

Applying the Z equation, we get: Z = (650 - 476)/107 = 1.62. The Z value of 1.62 indicates that the GMAT score of 650 is 1.62 standard deviation above the mean. The standard normal table gives the probability of value falling between 650 and the mean. The whole number and tenths place portion of the Z score appear in the first column of the table. Across the top of the table are the values of the hundredths place portion of the Z score. Thus the answer is that 0.4474 or 44.74% of the scores on the GMAT fall between a score of 650 and 476. Question 2: What is the probability of receiving a score greater than 750 on a GMAT test that has a mean of 476 and a standard deviation of 107? i.e., P(X >= 750) = ?. This problem is asking for determining the area of the upper tail of the distribution. The Z score is: Z = ( 750 - 476)/107 = 2.56. From the table, the probability for this Z score is 0.4948. This is the probability of a GMAT with a score between 476 and 750. The rule is that when we want to find the probability in either tail, we must substract the table value from 0.50. Thus, the answer to this problem is: 0.5 - 0.4948 = 0.0052 or 0.52%. Note that P(X >= 750) is the same as P(X >750), because, in continuous distribution, the area under an exact number such as X=750 is zero. The following figure shows a graphic representation of this problem.

Question 3. What is the probability of receiving a score of 540 or less on a GMAT test that has a mean of 476 and a standard deviation of 107? i.e., P(X <= 540)="?."
6

we are asked to determine the area under the curve for all values less than or equal to 540. the z score is: z="(540" 476)/107="0.6." from the table, the probability for this z score is 0.2257 which is the probability of getting a score between the mean (476) and 540. the rule is that when we want to find the probability between two values of x on either side of the mean, we just add the two areas together. Thus, the answer to this problem is: 0.5 + 0.2257 = 0.73 or 73%. The following figure shows a graphic representation of this problem.

Question 4. What is the probability of receiving a score between 440 and 330 on a GMAT test that has a mean of 476 and a standard deviation of 107? i.e., P(330 < 440)="?." The solution to this problem involves determining the area of the shaded slice in the lower half of the curve in the following figure.

In this problem, the two values fall on the same side of the mean. The Z scores are: Z1 = (330 476)/107 = -1.36, and Z2 = (440 - 476)/107 = -0.34. The probability associated with Z = -1.36 is 0.4131, and the probability associated with Z = -0.34 is 0.1331. The rule is that when we want to find the probability between two values of X on one side of the mean, we just subtract the smaller area from the larger area to get the probability between the two values. Thus, the answer to this problem is: 0.4131 - 0.1331 = 0.28 or 28%.
7

Example Suppose that a tire factory wants to set a mileage guarantee on its new model called LA 50 tire. Life tests indicated that the mean mileage is 47,900, and standard deviation of the normally distributed distribution of mileage is 2,050 miles. The factory wants to set the guaranteed mileage so that no more than 5% of the tires will have to be replaced. What guaranteed mileage should the factory announce? i.e., P(X <= ?)="5%.<br"> In this problem, the mean and standard deviation are given, but X and Z are unknown. The problem is to solve for an X value that has 5% or 0.05 of the X values less than that value. If 0.05 of the values are less than X, then 0.45 lie between X and the mean (0.5 - 0.05), see the following graph.

Refer to the standard normal distribution table and search the body of the table for 0.45. Since the exact number is not found in the table, search for the closest number to 0.45. There are two values equidistant from 0.45-- 0.4505 and 0.4495. Move to the left from these values, and read the Z scores in the margin, which are: 1.65 and 1.64. Take the average of these two Z scores, i.e., (1.65 + 1.64)/2 = 1.645. Plug this number and the values of the mean and the standard deviation into the Z equation, you get: Z =(X - mean)/standard deviation or -1.645 =(X - 47,900)/2,050 = 44,528 miles. Thus, the factory should set the guaranteed mileage at 44,528 miles if the objective is not to replace more than 5% of the tires. Example A production machine has normally distributed daily output in units. The average daily output is 4000 and daily output standard deviation is 500. What is the probability that the production of one random day will be below 3580?
8

Problem Parameter Outline Population Mean = = "mu" = 4,000 Population Standard Deviation = = "sigma" = 500 x = 3,580 Probability x 3,580 = ? Sales are Normally distributed Normal curve is not standardized ( 0, 1) Problem Solving Steps We know that Production data is Normally distributed and can therefore be mapped on the Normal curve. We are trying to determine the probability that Production Output will be below 3,580 units on any given day. This probability corresponds to the percentage of area under the Normal curve that has an x value below (to the left of) 3,580. If we know how many standard deviations x = 3,580 is from the mean ( = 4,000), we can use the Z Score Chart what percentage of total area under the Normal curve is between x = 3,580 and the mean. Number of standard deviations x = 3,580 is from the mean = Zx=3,580 z=(x-)/ Zx=3,580 = (3,580 - 4,000) / 500 = -0.84 The point x = 3,580 is 0.84 standard deviations from the mean = 4,000. Because Zx=3,580 = -0.84 has a negative sign, that point is to the left of the mean. The Z Score Chart below shows that 30% (0.30) of the total area under the Normal curve will be between the mean and a point that 0.84 standard deviations from the mean. If 30% of the total area under the Normal curve is between x = 3,580 and the mean = 4,000, then 20% of the total area under the Normal curve must be outside this x value in the outer left tail of the Normal curve, as is shown in the graph of the Normal curve below. We obtain this percentage by subtracting 0.30 (30%) from 0.5. The mean divides the Normal
9

curve in half and each half on either side of the mean contains 50% of the total area under the Normal curve. This 20% of the area under the Normal curve that is to the left of x = 3,580 corresponds to the answer that that there is 20% probability that the Production Level will be less than 3,580 on any given day Answer: There is a 20% probability that the Production Level will fall below 3,580 units on any given day.

Example A salesperson has a mean daily sale of 51 units with a standard deviation of 5 units. What percentage of daily sales can be expected to be between 48 units AND 53 units? Weight is normally distributed for daily sales. Problem Parameter Outline Population Mean = = "mu" = 51 units Population Standard Deviation = = "sigma" = 5 units 48 units x 53 units Probability that 43 x 53 = ? units are Normally distributed Normal curve is not standardized ( 0, 1) Problem Solving Steps We know that Daily Sales data is Normally distributed and can therefore be mapped on the Normal curve. We are trying to determine the probability that Daily Sales will be between 48 and 53 on any given day. This probability corresponds to the percentage of area under the Normal curve that has an x value of 48 on the lower (left) side and an x value of 53 on the upper (right) side. If we know how many standard deviations x = 48 and x = 53 each are from the mean ( = 50), we can use the Z Score Charts to find what percentage of total area under the Normal curve is between
10

x = 48 and x = 53. Number of standard deviations x = 48 is from the mean = Zx=48 z=(x-)/ Zx=48 = (48 - 50) / 5 = -0.60 The point x = 48 is 0.60 standard deviations from the mean = 50. Because Zx=48 = -0.60 has a negative sign, that point is to the left of the mean. The 2nd Z Score Chart shows that 22.5% (0.225) of the total area under the Normal curve will be between the mean and a point (x = 48) that 0.60 standard deviations from the mean. If 22.5% of the total area under the Normal curve is between x = 48 and the mean (x = 50), 27.5% of the total area under the Normal curve must exist in the outer left tail to the left of x = 48. Number of standard deviations x = 53 is from the mean = Zx=53 z=(x-)/ Zx=53 = (53 - 50) / 5 = 0.40 The point x = 53 is 0.40 standard deviations from the mean = 50. Because Zx=53 = 0.40 has a positive sign, that point is to the right of the mean. The total area under the Normal curve between x = 48 and x = 53 equals the area to the left of X = 53 (65.5%) MINUS the area to the left x = 48 (27.5%). 65.5% - 27.5% = 38% 38% of the total area under the Normal curve exists between x = 48 and x = 53. Answer: There is a 38% probability that Daily Sales will fall between 48 units and 53 units on any given day.

Answer: There is a 38% probability that Daily Sales will fall between 48 units and 53 units on any given day.

Problem 3
11

Example: Using the Normal Distribution to Determine the Lower 10% Limit of Delivery Times A pizza deliveryman's delivery time is normally distributed with a mean of 20 minutes and a standard deviation of 4 minutes. What delivery time will be beaten by only 10% of all deliveries? Problem Parameter Outline Population Mean = = "mu" = 20 minute Population Standard Deviation = = "sigma" = 4 minutes x=? Probability that (delivery time x) = 10% = 0.10 Delivery time is Normally distributed Normal curve is not standardized ( 0, 1) Problem Solving Steps We know that Delivery Time data is Normally distributed and can therefore be mapped on the Normal curve. We are trying to determine Delivery Time will be lower than 90% of all Delivery Times. This probability corresponds to the x value at which 90% of area under the Normal curve has a greater value and is to the right this x value. This x value must therefore be in the left tail of the Normal curve. If we know that 90% of the area under the Normal curve is to the right of this x value, then we know that 40% of the total area under the Normal curve is between this x value and the mean. The remaining 50% of the area under the Normal curve makes up the half the Normal curve that is on the opposite side (the right side) of the mean. If we know that 40% of the area under the Normal curve is between this x value and the mean, we can use the Z Score Chart to determine how many standard deviations this x value is from the mean. The Z Score Chart below shows this x value to be 1.28 standard deviations from the mean. If we know how many standard deviations this x value is from the mean, we can use the following formula to calculate the x value, as follows: z=(x-)/ x=z*+
12

x = (-1.28) * 4 + 20 = 14.87 The delivery time of 14.87 minutes is faster (smaller) than 90% of all delivery times Answer: The delivery time of 14.87 minutes is faster (smaller) than 90% of all delivery Example Salespeople of a large sales force received an annual bonus based upon performance. The size of the bonuses was Normally distributed with a mean of $40,000 and a standard deviation of $5000. What size bonus is exceeded by 90% of all other bonuses? Problem Parameter Outline Population Mean = = "mu" = $40,000 Population Standard Deviation = = "sigma" = $5,000 x=? Probability that (Bonus x) = 90% = 0.90 Bonus is Normally distributed Normal curve is not standardized ( 0, 1) Problem Solving Steps We know that Bonus data is Normally distributed and can therefore be mapped on the Normal curve. We are trying to determine Bonus amount will be lower than 90% of all other Bonuses. This probability corresponds to the x value at which 90% of area under the Normal curve has a greater value and is to the right this x value. This x value must therefore be in the left tail of the Normal curve. If we know that 90% of the area under the Normal curve is to the right of this x value, then we know that 40% of the total area under the Normal curve is between this x value and the mean. The remaining 50% of the area under the Normal curve makes up the half the Normal curve that is on the opposite side (the right side) of the mean. If we know that 40% of the area under the Normal curve is between this x value and the mean, we can use the Z Score Chart to determine how many standard deviations this x value is from the mean. The Z Score Chart shows this x value to be 1.28 standard deviations from the mean.
13

If we know how many standard deviations this x value is from the mean, we can use the following formula to calculate the x value, as follows: z=(x-)/ x=z*+ x = (-1.28) * 5,000 + 40,000 = 33,600 A Bonus of $33,600 smaller than 90% of all Bonus amounts. Answer: A Bonus of $33,600 smaller than 90% of all Bonus amounts

14