5.0 Stats Chapter 9.8-9.12 Continuous Distributions

Statistics in Management
Chapter 9: Continuous
Distributions (9.8-9.12)
Jasmin Manseau
Part-Time Professor Telfer School of Management
Fall 2016
Copyright 2014 Pearson Canada Inc.
Review of Discrete and Continuous

Random Variables
A discrete random variable is a

variable that can take on a countable
number of possible values (integer).
Example: number of children, cars, etc.
A continuous random variable is a

variable that can take on any of the
possible values between two points.
Example: time, profits, etc.
More examples of Continuous

Random Variables
Time required to perform a job
Financial ratios
Product weights
Volume of soft drink in a 12-ounce can
Interest rates
Income levels
Distance between two points
3
Continuous Probability Distributions

The probability distribution can be
represented as a function: f(x)

f(x) is called a probability density function
Because X can take an infinite amount of
values, you cannot define the probability
at any exact point
So we cannot calculate P(X=x)
Note we can calculate the probability that x

is within a very small interval using
derivatives: f(x)dx

f(x)
The probability distribution

of a continuous random
variable is called the
probability density function
0 f(x) 1
x
5
Probability Density Function f(X)

Area under
the curve
MUST
equal 1
f(x)
f ( x )dx 1
Area under
the curve = 1
6
Probability Calculations
f(x)
The probability
is the area under
the curve
between a and b
x
b
P( a X b ) P( a X b ) f ( x )dx
a

We have to calculate the probability over an
interval:
P(X<a), or P(X>b) or P(a<X<b)
The probability is the area under the curve
between a and b
The total area under the curve MUST equal 1
The special case of P(X<x) (the probability that
X is less than or equal to some value) is called

the cumulative probability
The collection of the cumulative probability of
ALL possible values of X is a function defined
as the integral of f(x), F(x) = P(X<x)
F(x) is the cumulative probability

distribution
Cumulative Probability Distribution

F(x)
F(x)
1
F(b)
The calculation of
probabilities
between two
values a and b can
also be done using
the distribution
function
F(a)
a
F (a) P( X a)
P(a X b) P (a X b) F (b) F (a )
9
Useful rules to calculate probabilities

P( X 3 ) P( X 3 )
P ( X 3) 0 F (3) F (3) 0
P ( X 3) 1 P ( X 3) 1 P ( X 3)
P ( X 3) 1 P( X 3) 1 P( X 3)
P( 1 X 3 ) P( X 3 ) P( X 1 )
P( X 3 ) P( X 1 )
10
Continuous Uniform Probability

Distributions
The uniform distribution is a probability

distribution that has equal probabilities for
all possible outcomes of the random
variable.
f(x)
Area = 1
1
ba
Cumulative Continuous Uniform Probability Distribution
F(x)
1
12
Continuous Uniform Probability Distribution
f ( x)
1
(b a )
0
a xb
otherwise
where:
f(x) = Value of the density function at any
x value
a = Lower limit of the interval from a to b
b = Upper limit of the interval from a to b
Continuous Uniform Probability Distribution

Expected Value and Variance
Expected Value
ab
E( X )
2
Variance
( b a )2
Var ( X )
12
Example : Continuous Uniform Distribution

The time to complete a project activity is
distributed evenly between the interval of 10

to 20 days
Let f (x):
1
20 10
for 10 x 20
elsewhere
f ( x)
15
Example : Density Function

f(x)
1
10
10
16
20
Example : Probabilities
What is the probability that the time to
perform an activity is between 12 and 15

days?
f(x)
We must calculate the

area under the curve
between 12 and 15
1
10
10 12
17
15
20
1
3
P( 12 X 15 ) ( 15 12 )
30%
10 10
Example : Cumulative Density Function

What is the probability that the time to
perform an activity between 12 and 15

days?
F(x)
1
0,5
0,2
10 12 15
20
12 10
P( 12 X 15 ) F ( 15 ) F ( 12 ) 0 ,5
0 ,3
20 10
18
Example: E(X), Variance, SD

10 20
E( X )
15
2
( 20 10 )2 100
Var ( X )
8 ,33
12
12
( X ) Var ( X ) 8 ,33 2 ,89
19
Normal (Gaussian) (Bell-Shaped) Probability Distribution

Several natural random phenomena follow a
normal distribution (size of a person, a person's

weight, ...)
The application areas are numerous and
normal distribution is widely used
Sampling theory (central limit theorem, ...)
Quality Management (Six Sigma, ...)
It has interesting mathematical properties:

symmetric distribution
average = mode = median
fully defined by two parameters
20
Normal (Gaussian) (Bell-Shaped)

Probability Distribution
Probability = 0.50
Probability = 0.50
Mean
Median
Mode
It is asymptotic to
the x-axis, i.e. it
goes on forever.
Normal Probability Density Formula

1
f x
e
2
x 2
1 / 2
pour x
where:
x = Any value of the continuous random
variable
= Population standard deviation
e = Base of the natural log = 2.71828
= Population mean
You can ace this

course without
ever using the
normal density
formula. Just
look everything
up in the tables.
Normal Distribution
Bell
shaped
Symmetrical
Mean, median and
mode are equal
Location is determined
by the mean,
Spread is determined by
the standard deviation,
The random variable has
an infinite theoretical
range:
+ to
f(x)
Mean
= Median
= Mode
A normal distribution can take many shapes
doesnt change, the curve flattens when

increases
If
f(x)
=0,5
=1
=2
24
A normal distribution can take many shapes
doesnt change, the curve moves without

changing shape to the left or right depending
on whether increases or decreases
If
f(x)
25
Properties of Normal Distribution

f(x)
Area under
the curve
equals 1
Area under
the curve = 1
26

f(x)
P(X )=0,5
Me
Mo
27
The normal
distribution is
symmetric
where = Me=
Mo

The 68-95-99.7 Rule (the Empirical Rule)
99,73% of observations of a
normal distribution lie in the
interval [-3 , +3 ]
99,73%
95,45%
68,27%
interval [-2 , +2 ]
interval [-1 , +1 ]
-2
-3
-
+2
+
+3
28
Finding Normal Probabilities

Probability is
is measured
the
Probability
by the area under
area under the
the
curve
curve!
f(x)
P (a x b)
a
The Standard Normal Distribution

Also known as the z distribution where:
Mean is defined to be 0
Standard Deviation is 1
f(z)
1
0
Values above the mean have positive z-values,

values below the mean have negative z-values
30
The Standard Normal
Any normal distribution (with any

mean and standard deviation
combination) can be transformed into
the standard normal distribution (z)
Need to transform x units into z

units
31
Translation to the Standard Normal

Distribution
and can take an infinite number
of possible values, the calculation of
probability of a normal distribution can be
done using a single table
It is thus not necessary to use the formula for
the density function
Although
Using a single table is possible with the
standard distribution Z
32
X
Z
Example
If x is distributed normally with mean of

100 and standard deviation of 50, the z
value for x = 250 is
x 250 100
z
3.0
50
This says that x = 250 is three standard

deviations (3 increments of 50 units) above
the mean of 100.
33
Example : Comparing x and z units

E(X) =
SD(X) =
x1=250
x
z1
E(Z) = 0
SD(Z) = 1
34
Z1= 3
x1 250 100
3.0
50
Note that the distribution is the same, only the scale has changed. We
can express the problem in original units (x) or in standardized units (z)
General Procedure for Finding Probabilities

To find P(a < X < b) when X is
distributed normally:
2.
Draw the normal curve for the problem in terms of X

Translate x-values to z-values
3.
Use the Standard Normal Table
1.
x, ,
z = (x - ) /
Table, calculator
or software
Two tables are

presented in your
volume
1. Areas Under the
Standard Normal
Curve when
z < 0, p. A-56
36
Two tables are

presented in your
volume
2. Areas Under the
Standard Normal
Curve when
z > 0, p. A-57
37
Example : how to use Z tables

Suppose X is normal with mean 8.0 and
standard deviation 5.0. Find P(8 < x < 8.6)

Calculate z-values:
x1 8 8
z1
x 2 8.6 8
z2
0.12
38
8
x1=8 x2=8.6
z1=0 z2=0.12
Example : how to use Z table

Suppose X is normal with mean 8.0 and
standard deviation 5.0. Find P(8 < x < 8.6)

=0
=1
=8
=5
x1=8 x2=8.6
P(8 < x < 8.6)
39
z1=0 z2=0.12
P(0 < z < 0.12)
Example : how to use Z table

Standard Normal Probability Table, p. A-57 for z > 0
We are looking for z = 0 and z = 0.12
P(8 < x < 8.6) = P(0 < z < 0.12)

= P(z < 0.12) - P(z < 0)
= 0.5478 0.5 = 0.0478
0.00
0.12
Example : Upper Tail Probabilities

Suppose X is normal with mean 8.0
and standard deviation 5.0.

Now Find P(x > 8.6)
5
8
x1 = 8.6
41
Example : Upper Tail Probabilities

Now Find P(x > 8.6)
P(x > 8.6) = P(z > 0.12) = 1 P(z < 0.12)

= 1 - .5478 = .4522
1 - .5478 = .4522
0
0.12
42
Example : Normal distribution

A company produces batteries for the telecommunications industry.
Each battery lasts on average 8 hours with a standard deviation of 0.4
hours.
What is the probability that a battery will not last a full regular
workday (7.5 hours)?
0.1056
x 7.5 8
1.25
0.4
x=7
x=8
z=z=0
.5
1.25
From the standard normal table: P(z -1.25) = 0.1056
Then, P(x 7.5 hours) = 0.1056
43
Standard Normal: Another

Example
A mine in northern Ontario produces on average 50
tons of copper ore per day with a standard
deviation of 10 tons.
What is the probability of producing 45 - 50 tons
x=
z=-.
x 45 50
z
0.50
10
P(45<x<50) = P(-0.5<z<0) = 0.5 - P(z<-0.5) = 0.5-0.3085 = 0.1915
44
Going Backwards to Inverse the Normal

We can reverse the process if we are given
probabilities: P[X<x*] = A or P[X>x*] = A
1. Draw a normal curve for the problem and
identify the area covered by the given
probabilities
2. Use the Standard Normal Table to find
values of z
3. Convert in terms of x
x = + z
45
Table, calculator or
software
P, ,
The Inverse Normal Transformation: Example

For a certain surgical procedure, the time spent in
an operating room at a local hospital is normally
distributed with a mean of 50 minutes and a
standard deviation of 10 minutes.
What is the value of operating time such that
only 7% of operations are longer.
Find x such that P(X> x) =
0.07
We now must use the tables:
In the table z > 0 at page A57 : 1.0 - .07 = .93
46
Area under
curve = 0,07
0
Area under
curve = 0,93
The Inverse Normal Transformation: Example

We must find 0.93 in the table and find the
corresponding z
but z lies between 1.47 (p = .9292) and 1.48 (p = .
9306)
z?
47
We will select the value of z in between

z = 1.475
Finally:
x = + z = 50 + 1.475 x 10 = 64.75
Example: Stats in Action

A Service Canada office in Kelowna BC states that calls are
answered within a wait time average of 5 minutes. We also know

that the standard deviation is 6 minutes.
The office is targeting a wait time of less than 10 minutes
What percentages of citizen will wait more than 10 minutes?
Assuming a normal distribution:
We are looking for P(X>10) , z = (x-u)/o = (10-5)/6 = 5/6 = 0.83
From the table we find 0.7967 or approx. 80% wait less than 10 minutes
20% wait more than 10 minutes
What should we do?

Need to hire more staff.
Interesting issue:
Wait times are always > 0 and may not therefore be Normally distributed
Solution:
Check whether a Normal Model is appropriate
48
How do I Know Whether My Data are

Normally Distributed?
Use a normal probability plot. If its a straight line, then the

data are normally distributed. Look at the bell shape
histogram as well.
49
20
20
Frequency
Frequency
LV Class = 3
10
0
15000
3 .6
25000
3 .7
3 .8
3 .9
4 .0
4 .1
4 .2
4 .3
TotCost3
LogCost3
Normal Probability Plot
Normal Probability Plot
.9 9 9
.9 9 9
.9 9
.9 9
.9 5
.9 5
Probability
Probability
5000
.8 0
.5 0
.2 0
.2 0
.0 5
.0 1
.0 0 1
.0 0 1
A v e ra ge : 1 0 6 5 5 .8
S td D e v : 3 6 9 9 .7 4
N o f d ata : 3 5 Copyright
25000
TotCost3
2014
A n d e rs o n -D a rl i n g N o rm a l i ty Te s t
A -S q u a re d : 2 .1 0 3
Pearson pCanada
-v al u e : 0.0Inc.
00
4 .5
.5 0
.0 1
1 5 0 00
4 .4
.8 0
.0 5
5000
50
10
3 .8
A v e ra g e : 4 .0 0 8 1 8
S td D e v : 0 .1 2 5 3 3 0
N o f d a ta : 3 5
4 .0
LogCost3
4 .2
4 .4
A n d e rs o n -D a rl i n g N o rm a l i ty Te s t
A -S q u a re d : 0 .7 0 8
p -v a l u e : 0 .0 5 9
Is it normal?
Stats Final Results 2014
16
14
12
10
8
6
4
2
0
Stats Final Results 2015

14
12
10
8
6
4
2
0
51
What Can Go Wrong?

Much business data follows a normal
distribution, but not everything does.

Falsely assuming normality can lead to
erroneous results particularly when
performing hypothesis tests on ADM2304.
Either:
State clearly that you are assuming a normal
distribution
Or:
Check out whether your data has a good normal
probability plot and bell-shaped histogram

52
Combining Normally Distributed Variables: Addition

Consider two independent variables, X1 and
X2 that have a normal distribution

X1 has: N(1,12) and X2 has: N(2,22)
Let Y = X1 + X2
Y the sum of these two variables gives a
normal variable that is also normally
distributed
Y has: N(1+2 , 12+22)
More generally, let Y = c1X1 + c2X2 + + cnXn
Y : N (c11 c2 2 cn n , c12 12 c22 22 cn2 n2 )

53
Combining Normally Distributed Variables: Subtraction
Consider two independent variables, X1 and
X2 that have a normal distribution

X1 has: N(1,12) and X2 has: N(2,22)
Let Y = X1 - X2
Y the sum of these two variables gives a
normal variable that is also normally
distributed
Y has: N(1-2 , 12+22)
More generally, let Y = c1X1 - c2X2 - - cnXn
Y : N (c11 c2 2 cn n , c12 12 c22 22 cn2 n2 )

54
Example : Portfolio Dispersion & Risk

Helen buys 8 shares of company X whose share
price has a variance of 4$2.
The total value (V = 8X) of Helens shares has a
variance of 64 * 4 = 256$2 and is also normally
distributed.
Bob buys 1 share in each of 8 different companies
where each of whose share prices has a variance
of 4$2.
The total value (V=X1+X2+X3++X8) of Bobs
shares has a variance of 4 + 4 + 4 + + 4 =
32$2, and is also normally distributed.
55
Example : Linear Combination of Normal

Random Variables
Daily sales of X in units of the product Roxfort
follow a normal distribution with an expected

value of 120 and a standard deviation of 10
Sales are independent from one day to the other
The company makes a 20$/unit, determine the
expected profits for a day.
X: number units sold in one day
Y: expected profits for a day
Y = 20X
56

Random Variables
E(Y) = E(20X) = 20 E(X) = 20120 = 2400$
Var(Y) = Var(20X) = 202Var(X) = 400102 =
40000$2
(Y) = 200$
57

Random Variables
Determine the probability that profits for a
day are more than 3000$, P (Y > 3000)
f(x)
f(z)
2400
58
3000 Y
3000 2400
P( Y 3000 ) P( Z
)
200
P ( Z 3) 1 0,9987 0,0013

Random Variables
Determine the expected number of units sold and
the variance for a 6-day week sales

Let T = X1 + X2 + X3 + X4 + X5 + X6
E(T) = E[X1 + X2 + X3 + X4 + X5 + X6]
= E[X1] +E[X2] +E[X3] +E[X4] +E[X5] +E[X6]= 6

E[X]
= 6 120 = 720 units
Var(T) = Var[X1 + X2 + X3 + X4 + X5 + X6]
= Var[X1] +Var[X2] +Var [X3]+... +Var[X6]
= 6 Var[X] = 6 102 = 600
59

Random Variables
Determine the expected profits and variance
for a 6-day week sales

Let W: the expected profits for a week
W = 20T
E(W) = E(20T) = 20E(T) = 20 720 = 14,400$
Var(W) = Var(20T) = 202Var(T)
= 202 600 = 240,000
60
Excel
We can use Excel
Generally,
To find P(X<x) whe given x
=NORM.DIST(x, mean, standard dev, cumulative
To find x when given P(X<x)

=NORM.INV(probability, mean, standard dev)
There are also equations for the Standard Normal
Distribution
61
Exponential distribution
The exponential distribution allows us to
calculate the probability of elapsed time

between successive events
For example, it is used in operations
management to model the waiting time of
customers, length of service, etc.
It is also used to estimate the reliability of
systems (operation without system failure),
establish security standards for products, etc.
The exponential distribution is memoryless
The past has no bearing on future behavior. Every instant is
62
like the beginning of new random period, which has the

same distribution regardless of how much time has already
elapsed.
Exponential and Poisson:

We Must be Careful, they Have a Relationship!
Poisson distribution
describes the
number of events in
a given interval of
time (or space).
Poisson
63
Exponential distribution
describes the interval of
time (or space) between
events.
Exponential
Exponential and Poisson Relationship
Meteorites hitting communications satellite
# of events
Per unit time
Poisson
64
Time interval
Between events
Time
Exponential
Exponential Probability Formula

A continuous random variable that is
exponentially distributed has the probability
density function given by:
if x 0
otherwise
f ( x)
e x
f(x)
x
where:
E(X) =1/ = The mean time between events ( >0)
= average number of events per unit of time
e = 2.71828
Copyright
2014 Pearson
Canada Inc.
is called
lambda)
Exponential Probability Distribution

Expected Value, Variance and SD
1
E( X )
1
Var ( X )
2
( X ) Var ( X )
66
Exponential Distributions
f(x)
Lambda = 3.0 (Mean = 0.333)
Lambda = 2.0 (Mean = 0.5)

Lambda = 1.0 (Mean = 1.0)
Lambda = 0.50 (Mean = 2)
67
Values of x
Cumulative Exponential Probability

Distribution
The distribution function, F (x) gives the
probability that the time that will elapse before
the next event to be less than x:
if x 0
otherwise
F ( x) P( X x)
1 e x
Note that:
P( X x ) 1 P( X x ) e x
Example of Exponential Distribution

Customers make purchases on a Web site once
every 10 secs on average.

What is the chance that we will have to wait
more than one minute before the next

purchase?
69
Example of Exponential Distribution

Plan: Determine which model to use.
Do:
Exponential, then find
Lambda = 0.1 (customer/second)
Calculate cumulative probability P(X < 60).

Either: 1 - P(X < 60) = 1 (1-e-0.1*60 ) = 0.0025
Or: e-0.1*60 = 0.0025
Report: The chance of having to wait more than
1 minute is 0.25%.
We expect that it should be small, on average
a purchase is every 10 seconds.
70
Example 2: Exponential
Distribution
The lifespan of a Z201 alternator made by
the company Celco follows an exponential
distribution
The lifespan of a Z201 alternator is 500
hours
Let X: the lifespan of a Z201 alternator
E (X) = 500 hours
Determine the value of the parameter
= 1/500 = 0.002 failure per hour
71
Distribution
Determine the probability density function
and the cumulative distribution function
f ( x ) 0 ,002e 0 ,002 x
F ( x ) 1 e 0 ,002 x
72
Distribution
Determine the probability that a generator
has a life expectancy less than the

expected lifespan
P( X 500 ) 1 e ( 0 ,002 )( 500 )
1 e 1
1 0 ,3679
0 ,6321
73
Distribution
An alternator has been operating for 250
hours, determine the probability that the

alternator has a lifespan of less than 250 hours
P( X 250 ) 1 e ( 0 ,002 )( 250 )

1 e 0 ,5
1 0 ,6065
0 ,3935
The exponential distribution is memoryless, it
74
doesnt care how long the alternator has been

operating already.
Distribution
From 1000 alternators, how many are likely
to have a lifespan greater than 345 hours?
P( X 345 ) 1 P( X 345 ) 1 1 e ( 0 ,002 )( 345 )

e 0 ,69 0 ,5016
So 1000*0,5016 = 501,6 . Approximately 502
alternators are likely to have a lifespan greater
than 345 hours.
75

5.0 Stats Chapter 9.8-9.12 Continuous Distributions

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5.0 Stats Chapter 9.8-9.12 Continuous Distributions

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Statistics in Management

Copyright 2014 Pearson Canada Inc.

Review of Discrete and Continuous

A discrete random variable is a

Example: number of children, cars, etc.

A continuous random variable is a

Example: time, profits, etc.

Copyright 2014 Pearson Canada Inc.

More examples of Continuous

Continuous Probability Distributions

represented as a function: f(x)

Note we can calculate the probability that x

Copyright 2014 Pearson Canada Inc.

Continuous Probability Distributions

The probability distribution

Probability Density Function f(X)

Copyright 2014 Pearson Canada Inc.

Continuous Probability Distributions

P(X<a), or P(X>b) or P(a<X<b)

The probability is the area under the curve

X is less than or equal to some value) is called

F(x) is the cumulative probability

Copyright 2014 Pearson Canada Inc.

Cumulative Probability Distribution

Useful rules to calculate probabilities

Continuous Uniform Probability

The uniform distribution is a probability

Copyright 2014 Pearson Canada Inc.

Cumulative Continuous Uniform Probability Distribution

Continuous Uniform Probability Distribution

Copyright 2014 Pearson Canada Inc.

Continuous Uniform Probability Distribution

Copyright 2014 Pearson Canada Inc.

Example : Continuous Uniform Distribution

distributed evenly between the interval of 10

Example : Density Function

perform an activity is between 12 and 15

We must calculate the

Example : Cumulative Density Function

perform an activity between 12 and 15

Example: E(X), Variance, SD

( X ) Var ( X ) 8 ,33 2 ,89

Normal (Gaussian) (Bell-Shaped) Probability Distribution

normal distribution (size of a person, a person's

It has interesting mathematical properties:

Normal (Gaussian) (Bell-Shaped)

Normal Probability Density Formula

Copyright 2014 Pearson Canada Inc.

You can ace this

A normal distribution can take many shapes

doesnt change, the curve flattens when

A normal distribution can take many shapes

doesnt change, the curve moves without

Properties of Normal Distribution

Properties of Normal Distribution

Properties of Normal Distribution

Finding Normal Probabilities

The Standard Normal Distribution

Values above the mean have positive z-values,

The Standard Normal

Any normal distribution (with any

Need to transform x units into z

Translation to the Standard Normal

Using a single table is possible with the