Statistics for
Business and Economics
6th Edition
Chapter 6
Continuous Random Variables
and Probability Distributions
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-1
Chapter Goals
After completing this chapter, you should be
able to:
Explain the difference between a discrete and a
continuous random variable
Describe the characteristics of the uniform and normal
distributions
Translate normal distribution problems into standardized
normal distribution problems
Find probabilities using a normal distribution table
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-2
Chapter Goals
(continued)
After completing this chapter, you should be
able to:
Evaluate the normality assumption
Use the normal approximation to the binomial
distribution
Recognize when to apply the exponential distribution
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-3
Probability Distributions
Probability
Distributions
Ch. 5 Discrete Continuous Ch. 6
Probability Probability
Distributions Distributions
Binomial Uniform
Hypergeometric Normal
Poisson Exponential
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-4
Continuous Probability Distributions
A continuous random variable is a variable that
can assume any value in an interval
thickness of an item
time required to complete a task
temperature of a solution
height, in inches
These can potentially take on any value,
depending only on the ability to measure
accurately.
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-5
Probability as an Area
Shaded area under the curve is the
probability that X is between a and b
f(x)
P (a ≤ x ≤ b)
= P (a < x < b)
(Note that the probability
of any individual value is
zero)
a b x
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-6
The Uniform Distribution
Probability
Distributions
Continuous
Probability
Distributions
Uniform
Normal
Exponential
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-7
The Uniform Distribution
The uniform distribution is a probability
distribution that has equal probabilities for all
possible outcomes of the random variable
f(x)
Total area under the
uniform probability
density function is 1.0
xmin xmax x
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-8
The Uniform Distribution
(continued)
The Continuous Uniform Distribution:
1
if a x b
ba
f(x) =
0 otherwise
where
f(x) = value of the density function at any x value
a = minimum value of x
b = maximum value of x
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-9
Properties of the
Uniform Distribution
The mean of a uniform distribution is
ab
μ
2
The variance is
2
(b - a)
σ2
12
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-10
Uniform Distribution Example
Example: Uniform probability distribution
over the range 2 ≤ x ≤ 6:
1
f(x) = 6 - 2 = .25 for 2 ≤ x ≤ 6
f(x)
ab 26
μ 4
.25 2 2
(b - a)2 (6 - 2)2
σ
2
1.333
2 6 x 12 12
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-11
Expectations for Continuous
Random Variables
The mean of X, denoted μX , is defined as the
expected value of X
μX E(X)
The variance of X, denoted σX2 , is defined as the
expectation of the squared deviation, (X - μX)2, of a
random variable from its mean
σ 2X E[(X μX )2 ]
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-12
Linear Functions of Variables
(continued)
An important special case of the previous results is the
standardized random variable
X μX
Z
σX
which has a mean 0 and variance 1
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-13
The Normal Distribution
Probability
Distributions
Continuous
Probability
Distributions
Uniform
Normal
Exponential
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-14
The Normal Distribution
(continued)
‘Bell Shaped’
Symmetrical f(x)
Mean, Median and Mode
are Equal
Location is determined by the σ
mean, μ x
Spread is determined by the μ
standard deviation, σ
Mean
= Median
The random variable has an = Mode
infinite theoretical range:
+ to
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-15
The Normal Distribution
(continued)
The normal distribution closely approximates the
probability distributions of a wide range of random
variables
Distributions of sample means approach a normal
distribution given a “large” sample size
Computations of probabilities are direct and elegant
The normal probability distribution has led to good
business decisions for a number of applications
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-16
Many Normal Distributions
By varying the parameters μ and σ, we obtain
different normal distributions
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-17
The Normal Distribution
Shape
f(x) Changing μ shifts the
distribution left or right.
Changing σ increases
or decreases the
σ spread.
μ x
Given the mean μ and variance σ we define the normal
distribution using the notation
X ~ N(μ,σ 2 )
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-18
Finding Normal Probabilities
The probability for a range of values is
measured by the area under the curve
P(a X b) F(b) F(a)
a μ b x
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-19
Finding Normal Probabilities
(continued)
F(b) P(X b)
a μ b x
F(a) P(X a)
a μ b x
P(a X b) F(b) F(a)
a μ b x
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-20
The Standardized Normal
Any normal distribution (with any mean and variance
combination) can be transformed into the
standardized normal distribution (Z), with mean 0
and variance 1
f(Z)
Z ~ N(0 ,1) 1
0 Z
Need to transform X units into Z units by subtracting the
mean of X and dividing by its standard deviation
X μ
Z
σ
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-21
Example
If X is distributed normally with mean of 100
and standard deviation of 50, the Z value for
X = 200 is
X μ 200 100
Z 2.0
σ 50
This says that X = 200 is two standard
deviations (2 increments of 50 units) above
the mean of 100.
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-22
Comparing X and Z units
100 200 X (μ = 100, σ = 50)
0 2.0 Z (μ = 0, σ = 1)
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)
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-23
Finding Normal Probabilities
a μ b μ
P(a X b) P Z
σ σ
f(x) b μ a μ
F F
σ σ
a µ b x
a μ b μ
0 Z
σ σ
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-24
Probability as
Area Under the Curve
The total area under the curve is 1.0, and the curve is
symmetric, so half is above the mean, half is below
f(X) P( X μ) 0.5
P(μ X ) 0.5
0.5 0.5
μ X
P( X ) 1.0
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-25
Appendix Table 1
The Standardized Normal table in the textbook
(Appendix Table 1) shows values of the
cumulative normal distribution function
For a given Z-value a , the table shows F(a)
(the area under the curve from negative infinity to a )
F(a) P(Z a)
0 a Z
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-26
The Standardized Normal Table
Appendix Table 1 gives the probability F(a) for
any value a
Example: .9772
P(Z < 2.00) = .9772
0 2.00 Z
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-27
The Standardized Normal Table
(continued)
For negative Z-values, use the fact that the
distribution is symmetric to find the needed
probability:
.9772
.0228
Example:
0 2.00 Z
P(Z < -2.00) = 1 – 0.9772
= 0.0228 .9772
.0228
-2.00 0 Z
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-28
General Procedure for
Finding Probabilities
To find P(a < X < b) when X is
distributed normally:
Draw the normal curve for the problem in
terms of X
Translate X-values to Z-values
Use the Cumulative Normal Table
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-29
Finding Normal Probabilities
Suppose X is normal with mean 8.0 and
standard deviation 5.0
Find P(X < 8.6)
X
8.0
8.6
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-30
Finding Normal Probabilities
(continued)
Suppose X is normal with mean 8.0 and
standard deviation 5.0. Find P(X < 8.6)
X μ 8.6 8.0
Z 0.12
σ 5.0
μ=8 μ=0
σ = 10 σ=1
8 8.6 X 0 0.12 Z
P(X < 8.6) P(Z < 0.12)
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-31
Solution: Finding P(Z < 0.12)
Standardized Normal Probability P(X < 8.6)
Table (Portion) = P(Z < 0.12)
z F(z) F(0.12) = 0.5478
.10 .5398
.11 .5438
.12 .5478
Z
0.00
.13 .5517
0.12
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-32
Upper Tail Probabilities
Suppose X is normal with mean 8.0 and
standard deviation 5.0.
Now Find P(X > 8.6)
X
8.0
8.6
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-33
Upper Tail Probabilities
(continued)
Now Find P(X > 8.6)…
P(X > 8.6) = P(Z > 0.12) = 1.0 - P(Z ≤ 0.12)
= 1.0 - 0.5478 = 0.4522
0.5478
1.000 1.0 - 0.5478
= 0.4522
Z Z
0 0
0.12 0.12
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-34
Finding the X value for a
Known Probability
Steps to find the X value for a known
probability:
1. Find the Z value for the known probability
2. Convert to X units using the formula:
X μ Zσ
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-35
Finding the X value for a
Known Probability
(continued)
Example:
Suppose X is normal with mean 8.0 and
standard deviation 5.0.
Now find the X value so that only 20% of all
values are below this X
.2000
? 8.0 X
? 0 Z
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-36
Find the Z value for
20% in the Lower Tail
1. Find the Z value for the known probability
Standardized Normal Probability 20% area in the lower
Table (Portion) tail is consistent with a
z F(z) Z value of -0.84
.82 .7939 .80
.20
.83 .7967
.84 .7995
? 8.0 X
.85 .8023 -0.84 0 Z
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-37
Finding the X value
2. Convert to X units using the formula:
X μ Zσ
8.0 ( 0.84)5.0
3.80
So 20% of the values from a distribution
with mean 8.0 and standard deviation
5.0 are less than 3.80
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-38
Assessing Normality
Not all continuous random variables are
normally distributed
It is important to evaluate how well the data is
approximated by a normal distribution
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-39
The Normal Probability Plot
Normal probability plot
Arrange data from low to high values
Find cumulative normal probabilities for all values
Examine a plot of the observed values vs. cumulative
probabilities (with the cumulative normal probability
on the vertical axis and the observed data values on
the horizontal axis)
Evaluate the plot for evidence of linearity
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-40
The Normal Probability Plot
(continued)
A normal probability plot for data
from a normal distribution will be
approximately linear:
100
Percent
0
Data
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-41
Normal Distribution Approximation
for Binomial Distribution
Recall the binomial distribution:
n independent trials
probability of success on any given trial = P
Random variable X:
Xi =1 if the ith trial is “success”
Xi =0 if the ith trial is “failure”
E(X) μ nP
Var(X) σ nP(1- P) 2
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-42
Normal Distribution Approximation
for Binomial Distribution
(continued)
The shape of the binomial distribution is
approximately normal if n is large
The normal is a good approximation to the binomial
when nP(1 – P) > 9
Standardize to Z from a binomial distribution:
X E(X) X np
Z
Var(X) nP(1 P)
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-43
Normal Distribution Approximation
for Binomial Distribution
(continued)
Let X be the number of successes from n independent
trials, each with probability of success P.
If nP(1 - P) > 9,
a nP b nP
P(a X b) P Z
nP(1 P) nP(1 P)
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-44
Binomial Approximation Example
40% of all voters support ballot proposition A. What
is the probability that between 76 and 80 voters
indicate support in a sample of n = 200 ?
E(X) = µ = nP = 200(0.40) = 80
Var(X) = σ2 = nP(1 – P) = 200(0.40)(1 – 0.40) = 48
( note: nP(1 – P) = 48 > 9 )
76 80 80 80
P(76 X 80) P Z
200(0.4)(1 0.4) 200(0.4)(1 0.4)
P( 0.58 Z 0)
F(0) F( 0.58)
0.5000 0.2810 0.2190
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-45
The Exponential Distribution
Probability
Distributions
Continuous
Probability
Distributions
Normal
Uniform
Exponential
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-46
The Exponential Distribution
Used to model the length of time between two
occurrences of an event (the time between
arrivals)
Examples:
Time between trucks arriving at an unloading dock
Time between transactions at an ATM Machine
Time between phone calls to the main operator
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-47
The Exponential Distribution
(continued)
The exponential random variable T (t>0) has a
probability density function
λt
f(t) λ e for t 0
Where
is the mean number of occurrences per unit time
t is the number of time units until the next occurrence
e = 2.71828
T is said to follow an exponential probability distribution
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-48
The Exponential Distribution
Defined by a single parameter, its mean (lambda)
The cumulative distribution function (the probability that
an arrival time is less than some specified time t) is
λt
F(t) 1 e
where e = mathematical constant approximated by 2.71828
= the population mean number of arrivals per unit
t = any value of the continuous variable where t > 0
Statistics for Business and Economics, 6e © 2007 Pearson Education, Inc. Chap 6-49
