Continuous Distributions

Whereas Chapter 5 focused on the characteristics and applications of discrete distributions, Chapter 6
concentrates on information about continuous distributions. This chapter presents the uniform
distribution, the normal distribution, and the exponential distribution.

6.1 The Uniform Distribution

The uniform distribution, sometimes referred to as the rectangular distribution, is a relatively simple
continuous distribution in which the same height, or f (x), is obtained over a range of values. Excel does
not have the capability of directly computing probabilities for the uniform distribution.

6.2 Normal Distribution

Probably the most widely known and used of all distributions is the normal distribution. It fits many
human characteristics, business variables, and living things in nature. Because of its many applications,
the normal distribution is an extremely important distribution.
FIGURE 6.4
The normal distribution is described or characterized by two parameters: the mean, µ, and the standard
deviation, σ . The values of µ and σ produce a normal distribution.

Standardized Normal Distribution

Every unique pair of µ and σ values defines a different normal distribution. A mechanism was developed
by which all normal distributions can be converted into a single distribution: the z distribution. This
process yields the standardized normal distribution (or curve). The conversion formula for any x value
of a given normal distribution follows.

A z score is the number of standard deviations that a value, x, is above or below the mean. If the value of
x is less than the mean, the z score is negative; if the value of x is more than the mean, the z score is
positive; and if the value of x equals the mean, the associated z score is zero. This formula allows
conversion of the distance of any x value from its mean into standard deviation units. The z distribution is
a normal distribution with a mean of 0 and a standard deviation of 1.

Demonstration Problem 6.3

What is the probability of obtaining a score greater than 750 on a GMAT test that has a mean of 540 and
a standard deviation of 100? Assume GMAT scores are normally distributed.

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66 Continuous Distributions

1. To compute probabilities from a normal distribution, go to an empty cell in an Excel worksheet and
from the Insert Function (fx), select the Statistical category and the function NORM.DIST.

2. Fill in the following arguments for the NORM.DIST function.

3. The result is the cumulative probability less than 750. To find the probability greater than 750,
subtract the resulting probability of 0.9821 from 1. The result is 0.0179.

Demonstration Problem 6.4

For the same GMAT examination, what is the probability of randomly drawing a score that is 590 or less?

1. To compute probabilities from a normal distribution, go to an empty cell in an Excel worksheet and
from the Insert Function (fx), select the Statistical category and fill in the appropriate arguments for
the function NORM.DIST or just type "=NORM.DIST(590,540,100,1)". The result is 0.6915.

Demonstration Problem 6.5

What is the probability of randomly obtaining a score between 350 and 630 on the GMAT exam?

1. To calculate what percentage of values would lie in-between 2 ages, you could subtract the
probability to the left of the smaller value from the probability to the left of the larger value. Using
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functions, the in-between formula for the percentage would be "=NORM.DIST(630,540,100,1)-

NORM.DIST(350,540,100,1)". The in-between percentage would be 0.78722.

Demonstration Problem 6.6

What is the probability of getting a score between 400 and 500 on the same GMAT exam?

1. Subtract the probability to the left of the smaller value from the probability to the left of the larger
value. Using functions, the in-between formula for the percentage would be
"=NORM.DIST(500,540,100,1)-NORM.DIST(400,540,100,1)". The in-between percentage would be
0.2638.

Demonstration Problem 6.7

Runzheimer International publishes business travel costs for various cities throughout the world. In
particular, they publish per diem totals, which 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
and motels. If 86.65% of the per diem costs in Buenos Aires, Argentina, are less than $449 and if the
standard deviation of per diem costs is $36, what is the average per diem cost in Buenos Aires? Assume
that per diem costs are normally distributed.

1. First, we need to find the z-value for 86.65%. Use Insert Function fx to access the Statistical
function NORM.S.INV. Input 0.8665 for the Probability. The resulting z-value is 1.11.

2. We can now use the z-value to solve for the unknown which is the population mean. Input the x-value

for

Demonstration Problem 6.8

The U.S. Environmental Protection Agency publishes figures on solid waste generation in the United
States. One year, the average number of waste generated per person per day was 3.58 pounds. Suppose
the daily amount of waste generated per person is normally distributed, with a standard deviation of 1.04
pounds. Of the daily amounts of waste generated per person, 67.72% would be greater than what
amount?.
68 Continuous Distributions

1. First, we need to find the z-value > 67.72%. The Normal Distribution tables are constructed for
probability to the left which in this case would be 100% - 67.72% = 32.28%. Use Insert Function fx
to access the Statistical function NORM.S.INV. Input 0.3228 for the Probability. The resulting z-
value is -0.46.

3. We can now use the z-value to solve for the unknown which is the population mean. Input the x-value

for

6.3 Using the Normal Curve to Approximate Binomial Distribution

Problems
For certain types of binomial distribution problems, the normal distribution can be used to approximate
the probabilities. As sample sizes become large, binomial distributions approach the normal distribution
in shape regardless of the value of p.

To work a binomial problem by the normal curve requires a translation process. The first part of this
process is to convert the two parameters of a binomial distribution, n and p, to the two parameters of the
normal distribution, µ and σ. This process utilizes formulas from Chapter 5:

Modeling the Binomial Distribution in Excel

1. Open an empty worksheet in Excel and input the following:

2. The number in the sample (n)

is input into a separate cell. The reference to that cell in the probability formula has to be made
absolute with the function key F4 before it is copied down. The column with the text values for X in
the B column are necessary to create the bar chart of the distribution.
Chapter 6 69

3. To create the bar chart, select cells B1:B12, hold the Ctrl Key down and select D1:D12. Click on the
Insert tab. Select Column chart and 2D Column.

4. Right-click on the Legend and Delete and right-click on the gridlines and Delete.

5. This is the probability for n = 10 and p = 0.50. You can change either value and produce a new model
and bar chart.

6.4 Exponential Distribution

Another useful continuous distribution is the exponential distribution. It is closely related to the Poisson
distribution. Whereas the Poisson distribution is discrete and describes random occurrences over some
interval, the exponential distribution is continuous and describes a probability distribution of the times
between random occurrences. The following are the characteristics of the exponential distribution.
■ 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 as x gets larger.

The exponential probability distribution is determined by the following equation:

Demonstration Problem 6.11

A manufacturing firm has been involved in statistical quality control for several years. As part of the
production process, parts are randomly selected and tested. From the records of these tests, it has been
established that a defective part occurs in a pattern that is Poisson distributed on the average of 1.38
defects every 20 minutes during production runs. Use this information to determine the probability that
less than 15 minutes will elapse between any two defects.
1. To compute probabilities from an exponential distribution, select EXPON.DIST from the Insert
Function’s Statistical menu. In the EXPON.DIST dialog box, there are three lines to which you must
respond.
70 Continuous Distributions

2. The x value is calculated from the information given that the interval of interest is 15 minutes elapsed
out of 20 minutes, the is 15/20 = 0.75. λ is given as 1.38 and the cumulative value is input as 1. This
gives us the probability less than the x value.

3. The resulting probability is 0.645.

SUMMARY OF EXCEL COMMANDS USED IN CHAPTER 6

Excel can be used to compute cumulative probabilities for particular values of x

from either a normal distribution or an exponential distribution.
Calculation of probabilities from each of these distributions begins with the Insert
Function ( fx). To access the Insert Function, go to the Formulas tab on an
Excel worksheet. The Insert Function is on the far left of the menu bar. In the
Insert Function dialog box at the top, there is a pulldown menu where it says Or
select a category. From the pulldown menu associated with this command, select
Statistical.

Normal Distribution Probabilities

Select NORM.DIST from the Insert Function’s Statistical menu. In the
NORM.DIST dialog box, there are four lines to which you must respond.
 On the first line, X, enter the value of x.
 On the second line, Mean, enter the value of the mean.
 On the third line, Standard_dev, enter the value of the standard deviation.
 The fourth line, Cumulative, requires a logical response of either TRUE or
FALSE. Place TRUE in the slot to get the cumulative probabilities for all values
up to x. Place FALSE in the slot to get the value of the probability density
function for that combination of x, the mean, and the standard deviation. In
this chapter, we are more interested in the cumulative probabilities and will
enter TRUE most of the time.

Exponential Distribution Probabilities

Select EXPON.DIST from the Insert Function’s Statistical menu. In the
EXPON.DIST dialog box, there are three lines to which you must respond.
 On the first line, X, enter the value of x.
 On the second line, Lambda, enter the value of lambda.
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 The third line, Cumulative, requires a logical response of either TRUE or

FALSE. Place TRUE in the slot to get the cumulative probabilities for all values
up to x. Place FALSE in the slot to get the value of the probability density
function for that combination of x and lambda. In this chapter, we are more
interested in the cumulative probabilities and will enter TRUE most of the
time.