Business Statistics

Black, Bayley, Castillo

Third Canadian Edition

Chapter 6

Continuous Distributions

Copyright ©2020 John Wiley & Sons, Canada Ltd.

Learning Objectives
• Solve for probabilities in a continuous uniform distribution.
• Solve for probabilities in a normal distribution using z scores,
and for the mean, the standard deviation, or a value of x in a
normal distribution when given information about the area
under the normal curve.
• Solve problems from the discrete binomial distribution using the
continuous normal distribution and correcting for continuity.
• Solve for probabilities in an exponential distribution and
contrast the exponential distribution with the discrete Poisson
distribution.

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 Continuous Probability Distributions
• Fundamental difference separates discrete and continuous random
variables in terms of how probabilities are computed:
• Discrete random variables – the probability mass
function f (x) provides the probability that the random
variable assumes a particular value.
• Continuous random variables – the counterpart of the
probability mass function is the probability density
function, also denoted by f (x).
• The probability density function does not directly provide probabilities.
• We are computing the probability that the random variable assumes any
value in an interval.
• For continuous random variables, the probability of any particular value
of the random variable is zero.

6.1 The Uniform Distribution (1 of 3)

Uniform Distribution: A continuous distribution in which the same
height is obtained over a range of values Solving for the Height
and Length of a Uniform Distribution
• Area under a continuous
distribution is equal to 1
• Area of a rectangle =
(Length)(Height)
o (Length)(Height) = 1
o Length = (b − a), so 1 = (b − a)
1
o Height = .
(b − a)
FIGURE 6.1 Uniform Distribution

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 6.1 The Uniform Distribution (2 of 3)
The Mean and Standard Deviation of a Uniform Distribution
μ = (a + b) σ = (b − a )
2 12
• Example: As an example, suppose a production line is set up to
manufacture machine braces in lots of 5 per minute during a shift.
When the lots are weighed, variation among the weights is detected,
with lot weights ranging from 41 to 47 grams in a uniform
distribution. In this example, a = 41, b = 47, and the length of the
uniform distribution is b − a = 47 − 41 = 6.
1 1
o The height of the distribution is ( 47 − 41) = 6

o The mean of the distribution is ( 41 + 47 ) = 44

2
( 47 − 41) = 1.732
o The standard deviation of the distribution is
12
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6.1 The Uniform Distribution (3 of 3)

Determining Probabilities in a Uniform Distribution
x2 − x1
P ( x) =
b−a
where 𝑎 ≤ 𝑥1 ≤ 𝑥2 ≤ 𝑏
• Example: Again, suppose a production line is set up to manufacture
machine braces in lots of 5 per minute during a shift. When the lots
are weighed, variation among the weights is detected, with lot
weights ranging from 41 to 47 grams in a uniform distribution.
o What is the probability that a randomly selected brace weighs between
42 and 45 grams? 45 − 42
P ( x) = = .5000
47 − 41
o What is the probability that a randomly selected brace weighs more that
43 grams? 47 − 43
P ( x) = = .6667
47 − 41

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 6.2 Normal Distribution (1 of 6)
Characteristics of the Normal Distribution
• It is a continuous distribution
• It is a symmetrical distribution about its mean (The highest
point on the normal curve is at the mean, which is also the
median and mode of the distribution)
• It is asymptotic to the horizontal axis
• It is unimodal
• It is a family of curves The entire family of normal
distributions is differentiated by two parameters: the mean
and the standard deviation
• Area under the curve is 1
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6.2 Normal Distribution (2 of 6)

Probability Density Function of the Normal Distribution
2
1 ( x − μ )
f ( x) = e−1 2  
σ 2π  σ 
Where
μ = mean of x
σ = standard deviation of x
π = 3.14159…
e = 2.71828…
• Shows area under the normal curve for
a given mean and standard deviation FIGURE 6.5 Normal Curves for Three
Different Combinations of Means and
• Since it is difficult to use the formula, Standard Deviations
common to use a table or computer
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 6.2 Normal Distribution (3 of 6)
Standardized Normal Distribution
• The normal distribution is described by its mean and standard
deviation
• All normal distributions can be converted to a single
distribution, the z distribution, using the formula:
x−μ
z=
σ
• A z score is the number of standard deviations that a value, x, is
above or below the mean
• The z distribution is a normal distribution with a mean of 0 and
a standard deviation of 1
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6.2 Normal Distribution (4 of 6)

• The z distribution probability values are given in the
standard normal table
• Since the normal distribution is symmetric, the area under
the curve is the same whether z is positive or negative, so
only positive values of z are listed in the table
• The table areas (probabilities) are always positive

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 6.2 Normal Distribution (5 of 6)
Using Probabilities to Solve for the Mean, the Standard Deviation, or an x
Value in a Normal Distribution
Example: Runzheimer International publishes business travel costs for various
cities throughout the world. In particular, they publish per diem totals that
represent the average costs for the typical business traveler, including three meals
a day in business-class restaurants and single-rate lodging in business-class
hotels. Suppose 86.65% of the per diem costs in Buenos Aires, Argentina, are less
than $449.
• Assuming that per diem costs are normally distributed and that the standard
deviation of per diem costs in Buenos Aires is $36, what is the average per
diem cost in Buenos Aires?
• In this case, we know the standard deviation and the x value but the mean is
unknown 449 − μ
z=
36
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6.2 Normal Distribution (6 of 6)

Using Probabilities to Solve for the Mean, the Standard Deviation, or an x
Value in a Normal Distribution
Example,
• We also know that 86.65% of the per diem costs are less than $449
• This is the area under the curve that corresponds with the z value
• To find the z value, note that the area .8665 includes the lower half of the
distribution .8665 − .5 = .3665
• Look in the body of the table to find the area

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 6.3 Using the Normal Curve to Approximate
Binomial Distribution Problems (1 of 7)
When the sample size is large, the binomial distribution approaches the
normal distribution in shape regardless of the value of p
FIGURE 6.8 The Binomial Distribution for n = 10 and p = .50

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6.3 Using the Normal Curve to Approximate

Binomial Distribution Problems (2 of 7)
FIGURE 6.9 The Binomial Distribution for n = 10 and p = .20

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 6.3 Using the Normal Curve to Approximate
Binomial Distribution Problems (3 of 7)
FIGURE 6.10 The Binomial Distribution for n = 100 and p = .20

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6.3 Using the Normal Curve to Approximate

Binomial Distribution Problems (4 of 7)
• For large n values, it is cumbersome to use the binomial formula, and tables
usually go only to an n value of 25
• As a rule of thumb, the normal approximation is good enough if both n∙p > 5
and n∙q > 5
• Since a discrete distribution is being approximated by a continuous
distribution, it is necessary to add a correction for continuity
• The distribution on the right is
discrete, as shown by the spaces
between the x value areas, even
though the shape is approximately
normal

FIGURE 6.13 Graph of a Portion of the Binomial

Problem: n = 60 and p = .30

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 6.3 Using the Normal Curve to Approximate
Binomial Distribution Problems (5 of 7)
• Consider a binomial distribution with n = 60 and p = .3
• Since np and nq are both greater than 5, can use
approximation
• μ = 60 (.3) = 18, and σ = 60 (.3)(.7 ) = 3.55
• What is the probability that there are more than 25
successes?
• To correct for continuity, we must use an x value of 24.5

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6.3 Using the Normal Curve to Approximate

Binomial Distribution Problems (6 of 7)

TABLE 6.3 Guidelines for the Correction

for Continuity

FIGURE 6.14 Graph of the Solution to the

Binomial Problem Worked by the Normal
Curve

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 6.3 Using the Normal Curve to Approximate
Binomial Distribution Problems (7 of 7)
24.5 − 18
z= = 1.83 TABLE 6.4 Probability Values for the Binomial
3.55
Problem: n = 60, p = .30, and x ≥ 25
• From the z table, area = .4664
• P(x > 25) = .5 − .4664 = .0336, or
3.36%
• Using the binomial formula would
have given a very similar value

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6.4 Exponential Distribution (1 of 4)

Exponential distribution: continuous and describes a probability
distribution of the times between random occurrences
• It is a continuous
distribution
• It is a family of distributions
• It is skewed to the right
• The x values range from
zero to infinity
• Its apex is always at x = 0
• The curve steadily decreases FIGURE 6.15 Graphs of Some Exponential
as x gets larger Distributions
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 6.4 Exponential Distribution (2 of 4)
Probability Density Function of the Exponential Distribution
f ( x ) = λ e− λ x
where x ≥ 0, > 0, e = 2.71828
• The parameter λ characterizes the exponential distribution
• Different values of λ give different shapes to the curve
• 1 1
μ = , and σ =
λ λ
Probabilities of the Right Tail of the Exponential Distribution
P ( x ≥ x0 ) = e − λ x0
Where x0 ≥ 0
• Can be computed with a calculator or table
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6.4 Exponential Distribution (3 of 4)

Example: Arrivals at a bank are Poisson distributed with a λ of
1.2 customers every minute
• What is the average time between arrivals and what is the
probability that at least 2 minutes will elapse between one
arrival and the next arrival?
• Since the interval for λ is 1 minute and we want to know
the probability that at least 2 minutes transpire between
arrivals (twice the λ interval), x0 is 2
• Interarrival times of random arrivals are exponentially
distributed

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 6.4 Exponential Distribution (4 of 4)
Example,
1 1
• The mean of this exponential distribution is μ = = = .833
λ 1.2
minutes (50 seconds)
• On average, .833 minutes, or 50 seconds, will
elapse between arrivals at the bank

• P ( x ≥ 2 λ = 1.2) = e −1.2(2) = .0907

• There is a 9.07% chance that
at least 2 minutes will elapse
between arrivals
FIGURE 6.16 Exponential Distribution
for λ = 1.2 and Solution for x ≥ 2

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