QBM 101 Business Statistics

Department of Business Studies

Faculty of Business, Economics & Accounting
HELP University
 SUBJECT OUTLINE:
 Module 1: Introduction; organizing
and graphing data; numerical
descriptive measures

 Module 2: Probability, discrete random

variables; continuous random variables
and the normal distribution

 Module 3: Sampling distributions;

estimation; hypothesis testing

 Module 4: Simple linear regression

 CHAPTER 6: CONTINUOUS RANDOM
VARIABLES AND
THE NORMAL DISTRIBUTION

 6.1 Continuous probability

distribution and the normal
probability distribution
 6.2 Standardizing a normal
distribution
 6.3 Applications of the normal
distribution
 6.4 Determining the x and z values
when an area under the normal
distribution curve is known
CONTINUOUS PROBABILITY DISTRIBUTION

Two characteristics

1. The probability that x assumes a value

in any interval lies in the range 0 to 1.

2. The total probability of all the

(mutually exclusive) intervals within which
x can assume a value of 1.0.
NORMAL PROBABILITY DISTRIBUTION

A normal probability distribution, when

plotted, gives a bell-shaped curve such that:

1. The total area under the curve is 1.0.

2. The curve is symmetric about the
mean.
3. The two tails of the curve extend
indefinitely.
STANDARD NORMAL DISTRIBUTION

The normal distribution with μ = 0 and σ =

1 is called the standard normal
distribution.
AREA UNDER THE STANDARD NORMAL
CURVE
Reading statistical tables
EXAMPLES 6.1 & 6.2
P( Z  1.95)  0.9744

P(2.17  Z  0)  0.5  0.015  0.485

EXAMPLES 6.3
P( Z  2.32)  1  0.9898  0.0102

P( Z  1.54)  0.0618
EXAMPLES 6.4
P(1.19  Z  2.12)  0.9830  0.8830  0.1000

P(1.56  Z  2.31)  0.9896  0.0594  0.9302

EXAMPLES 6.4
P( Z  0.75)  1.0  0.2266  0.7734
Areas under the normal curve
EMPIRICAL RULE

k  1  68%
P(1.00  Z  1.00)  0.8413  0.1587  0.6826
EMPIRICAL RULE

k  2  95%
P(2.00  Z  2.00)  0.9772  0.0228  0.9544
EMPIRICAL RULE

k  3  99.7%
P(3.00  Z  3.00)  0.9987  0.0013  0.9974
EXAMPLE 6.5
P(0  Z  5.67)  0.5000

P( Z  5.35)  0.0000
Converting an x Value to a z Value
For a normal random variable X, a particular value
of x can be converted to its corresponding z value by
using the formula

x
z

where μ and σ are the mean and standard deviation
of the normal distribution of X, respectively.
 Equations
( x   )2
1 
f ( x | , ) 
2
e 2 2

 2
1
1  x2
f ( x |   0,   1)  e 2

2
EXAMPLE 6.6

Let X be a continuous random variable that has a

normal distribution with a mean of 50 and a
standard deviation of 10. Convert the following x
values to z values and find the probability to the
left of these points.
(a) x = 55
(b) x = 35
EXAMPLE 6.6
(a) x   55  50
z   .50
 10
P(X < 55) = P(Z < .50) = .6915
EXAMPLE 6.6
(b) x   35  50
z   1.5
 10
P(X < 35) = P(Z <-1.50) = .0668
EXAMPLE 6.7
Let X be a continuous random variable that is
normally distributed with a mean of 25 and a
standard deviation of 4.
Find the area
(a) between x = 25 and x = 32
(b) between x = 18 and x = 34
EXAMPLE 6.7
(a) between x = 25 and x = 32
X ~ N (   25,  2  42 )
P(25  X  32)
 25  25 32  25 
 P Z 
 4 4 
 P(0  Z  1.75)
 0.9599  0.5000
 0.4599
EXAMPLE 6.7
(a) between x = 18 and x = 34
X ~ N (   25,  2  42 )
P(18  X  34)
 18  25 34  25 
 P Z 
 4 4 
 P(1.75  Z  2.25)
 0.9878  0.0401
 0.9477
EXAMPLE 6.8
Let X be a normal random variable with its mean
equal to 40 and standard deviation equal to 5. Find
the following probabilities for this normal distribution
(a) P (X > 55)
(b) P (X < 49)
EXAMPLE 6.8

X ~ N (   40,  2  52 )
(a) P( X  55)
 55  40 
 PZ  
 5 
 P( Z  3)
 1  0.9987
 0.0013
EXAMPLE 6.8

X ~ N (   40,  2  52 )
(b) P( X  49)
 49  40 
 PZ  
 5 
 P( Z  1.8)
 0.9641
EXAMPLE 6.9
Let X be a continuous random variable that has a
normal distribution with μ = 50 and σ = 8. Find the
probability P (30 ≤ X ≤ 39).

X ~ N (   50,  2  82 )
P(30  X  39)
 30  50 39  50 
 P Z 
 8 8 
 P(2.50  Z  1.38)
 0.0838  0.0062
 0.0776
Example 6.11

According to the Kaiser Family Foundation, U.S. workers

who had employer-provided health insurance paid an
average premium of $4129 for family coverage during
2011 (USA TODAY, October 10, 2011). Suppose that the
premiums for family coverage paid this year by all such
workers are normally distributed with a mean of $4129
and a standard deviation of $600. Find the probability
that such premium paid this year by a randomly selected
such worker is between $3331 and $4453.
EXAMPLE 6.11
X ~ N (   4129,  2  6002 )
P(3331  X  4453)
 3331  4129 4453  4129 
 P Z 
 600 600 
 P(1.33  Z  0.54)
 0.7054  0.0918
 0.6136  61.36%
EXAMPLE 6.12

A racing car is one of the many toys manufactured

by Mack Corporation. The assembly times for this
toy follow a normal distribution with a mean of 55
minutes and a standard deviation of 4 minutes.
The company closes at 5 p.m. every day. If one
worker starts to assemble a racing car at 4 p.m.,
what is the probability that she will finish this job
before the company closes for the day?
EXAMPLE 6.12

X ~ N (   55,   4 )
2 2

P( X  60)
 60  55 
 PZ  
 4 
 P( Z  1.25)
 0.8944
EXAMPLE 6.13
Hupper Corporation produces many types of soft
drinks, including Orange Cola. The filling machines
are adjusted to pour 12 ounces of soda into each 12-
ounce can of Orange Cola. However, the actual amount
of soda poured into each can is not exactly 12 ounces;
it varies from can to can. It has been observed that the
net amount of soda in such a can has a normal
distribution with a mean of 12 ounces and a standard
deviation of .015 ounce.
(a) What is the probability that a randomly selected
can of Orange Cola contains 11.97 to 11.99 ounces of
soda?
(b) What percentage of the Orange Cola cans contain
12.02 to 12.07 ounces of soda?
EXAMPLE 6.13
X ~ N (   12,  2  0.0152 )
(a) P(11.97  X  11.99)
 11.97  12 11.99  12 
 P Z 
 0.015 0.015 
 P(2.00  Z  0.67)
 0.2514  0.0228
 0.2286
EXAMPLE 6.13
X ~ N (   12,  2  0.0152 )
(b) P(12.02  X  12.07)
 12.02  12 12.07  12 
 P Z 
 0.015 0.015 
 P(1.33  Z  4.67)
 1  0.9082
 0.0918
EXAMPLE 6.14
Suppose the life span of a calculator manufactured
by Calculators Corporation has a normal
distribution with a mean of 54 months and a
standard deviation of 8 months. The company
guarantees that any calculator that starts
malfunctioning within 36 months of the purchase
will be replaced by a new one. About what
percentage of calculators made by this company are
expected to be replaced?
EXAMPLE 6.14

X ~ N (   54,  2  82 )
(b) P( X  36)
 36  54 
 PZ  
 8 
 P( Z  2.25)
 0.0122
 1.22%
Two approaches:

(i)Look for the nearest value of p in

the standard normal table

(ii) Refer to the t or inverse z table –

last row, where df = infinity
* Only for selected values of p
EXAMPLE 6.18

It is known that the life of a calculator

manufactured by Calculators Corporation has a
normal distribution with a mean of 54 months and
a standard deviation of 8 months. What should the
warranty period be to replace a malfunctioning
calculator if the company does not want to replace
more than 1% of all the calculators sold?
EXAMPLE 6.18
X ~ N (   54,  2  82 )
P( X  x0 )  0.01
 x0  54 
PZ    0.01
 8 
x0  54
 2.326
8
x0  8(2.326)  54  35.392
EXAMPLE 6.19
According to the College Board, the mean combined
(mathematics and critical reading) SAT score for
all college-bound seniors was 1012 with a standard
deviation of 213 in 2011. Suppose that the current
distribution of combined SAT scores for all college-
bound seniors is approximately normal with a
mean of 1012 and a standard deviation of 213.
Jennifer is one of the college-bound seniors who
took this test. It is found that 10% of all current
college-bound seniors have SAT scores higher than
Jennifer. What is Jennifer’s SAT score?
EXAMPLE 6.19
X ~ N (   1012,  2  2132 )
P( X  a)  0.10
 a  1012 
PZ    0.10
 213 
a  1012
 1.282
213
a  1.282(213)  1012
 1285.07
EXERCISE 1
Suppose that the current distribution of combined SAT
scores for all college-bound seniors is approximately
normal with a mean of 1012 and a standard deviation of
213.
(a) Find the probability that a randomly selected student
scores more than 1300.
(b) Find the probability that a randomly selected student
scores between 800 and 1200.
(c) Find the minimum mark of the top 5% scorers.
(d) Find the maximum mark of the bottom 10% scorers.
(e) Five students are selected at random. Find the
probability that exactly three of them score between 800
and 1200.
Let X be the SAT score.
X ~ N (   1012,   213 )
2 2

(i) P( X  1300)
 1300  1012 
 PZ  
 213 
 P( Z  1.35)
 1  0.9115
 0.0885
X ~ N (   1012,   213 )
2 2

(ii) P(800  X  1200)

 800  1012 1200  1012 
 P Z 
 213 213 
 P  1.00  Z  0.88 
 0.8106  0.1587
 0.6519
Minimum mark of the top 5% scorers.
(iii) P( X   )  0.05
   1012 
PZ    0.05
 213 
  1012
1.645 
213
  (213)(1.645)  1012  1362.39
Maximum mark of the bottom 10% scorers.
(iv) P( X   )  0.10
   1012 
PZ    0.10
 213 
  1012
1.282 
213
  (213)(1.282)  1012  738.93
Let Y be the number of students who
score between 800 and 1200.
Y ~ B(n  5, p  0.6519)
(v) P(Y  3)
5 3
 C3 (0.6519) (1  0.6519)
5 3

 0.3357
EXERCISE 2
The IQ (intelligent quotient) score of all the people in a
particular country follows a normal distribution, with an
average of 100 and a standard deviation of 15. Let X be the
random variable that represents the IQ2 score2 of a person in
that country. Hence, X ~ N (   100,   15 ).

(i) What is the probability that a randomly selected person

has an IQ score between 85 and 110?
(ii) A person with an IQ score above 140 is considered
“genius”. Approximately how many percent of the entire
population belongs to this “genius” group?
(iii) It is known that 5% of the population scores above w.
Determine the value of w.
(iv) Find the probability that if five people are selected at
random, all five have an IQ score between 85 and 110.
(v) Find the probability that the mean IQ score for five
randomly selected people is between 85 and 110.
(i) 0.5899, (ii) 0.38%, (iii) 124.68, (iv) 0.0714, (v) 0.9194
Summary

X ~ N ( , 2 )
Z ~ N (0,1)
x
z P ( a  X  b)

P( X  x) a X  b 
 P   
 X  x      
 P  
    a b 
 P Z 
 x     
 PZ  
  
 SUMMARY
 Normal probability distribution
 Converting to the standard normal
 Calculating probability
 Finding the cut-off point (top 5% or
bottom 10%)
 Combination and merge with other
concepts: binomial distribution (C5)
and sampling distribution (C7)