Normal Distribution and

Parameter Estimation

Sections 6.1-6.3, 7.1-7.2

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-1
 Learning Objectives
In this chapter, you learn:
 How continuous distributions are different from discrete
distributions.
 How to compute probabilities from the normal
distribution
 How to use the normal distribution to solve business
problems

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-2
 Continuous Probability Distributions
 A continuous random variable is a variable that
can assume any value on an interval
 thickness of an item, weight, length
 time required to complete a task
 temperature
 height, in inches
 miles per gallon

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-3
 Probability Density
 A function f(x) ≥ 0 that shows the more likely
and less likely intervals of variable X.
 P(a ≤ X ≤ b) = area under f(x) from a to b

f(X)
P (a ≤ X ≤ b)
= P (a < X < b)
(Note that the probability
of any individual value is
zero)

a b X

Chap 5-4
 Probability is the area under the
density curve

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 Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-5
5-5
 The Normal Distribution
‘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 Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-6
 The Normal Distribution
Density Function

 The formula for the normal probability density function is

2
1  (X μ) 
1  
2  

f(X)  e
2π
Where e = the mathematical constant approximated by 2.71828
π = the mathematical constant approximated by 3.14159
μ = the population mean
σ = the population standard deviation
X = any value of the continuous variable

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-7
 Many Normal Distributions

By varying the parameters μ and σ, we obtain

different normal distributions

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-8
 The Normal Distribution
Shape

f(X) Changing μ shifts the

distribution left or right.

Changing σ increases
or decreases the
σ spread.

μ X

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-9
 The Standardized Normal

 Any normal distribution (with any mean μ and standard

deviation σ) can be transformed into the standardized
normal distribution (Z)

X μ
Z

σ
The standardized normal distribution (Z) has a mean
of 0 and a standard deviation of 1

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-10
 The Standardized
Normal Distribution

 Also known as the “Z” distribution

 Mean is 0
 Standard Deviation is 1
f(Z)

0 Z

Values above the mean have positive Z-values,

values below the mean have negative Z-values
Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-11
 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 Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-12
 The Standardized Normal Table

 The Cumulative Standardized Normal table

in the textbook (Appendix table E.2) gives the
probability less than a desired value of Z (i.e.,
from negative infinity to Z)

Example: 0.9772
P(Z < 2.00) = 0.9772

0 2.00 Z

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-13
 The Standardized Normal Table
(continued)

The column gives the value of

Z to the second decimal point
Z 0.00 0.01 0.02 …

The row shows 0.0

the value of Z 0.1
. The value within the
to the first .
decimal point . table gives the
2.0 .9772 probability from Z =  
up to the desired Z
value
2.0
P(Z < 2.00) = 0.9772

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-14
 General Procedure for
Finding Normal Probabilities

To find P(a < X < b) when X is

distributed normally:
 Draw the normal curve for the problem in
terms of X

 Standardize X by computing Z

 Use the Standardized Normal Table for Z

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-15
 Example
 Let X represent the time it takes (in seconds)
to download an image file from the internet.
 Suppose X is normal with a mean of 18.0
seconds and a standard deviation of 5.0
seconds. Find P(X < 18.6)

X
18.0
18.6
Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-16
 Finding Normal Probabilities
(continued)
 Let X represent the time it takes, in seconds to download an image file
from the internet.
 Suppose X is normal with a mean of 18.0 seconds and a standard
deviation of 5.0 seconds. Find P(X < 18.6)

X  μ 18.6  18.0
Z   0.12
σ 5.0

μ = 18 μ=0
σ=5 σ=1

18 18.6 X 0 0.12 Z

P(X < 18.6) P(Z < 0.12)

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-17
 Solution: Finding P(Z < 0.12)

Standardized Normal Probability P(X < 18.6)

Table (Portion) = P(Z < 0.12)
Z .00 .01 .02 0.5478
0.0 .5000 .5040 .5080

0.1 .5398 .5438 .5478

0.2 .5793 .5832 .5871
Z
0.00
0.3 .6179 .6217 .6255
0.12

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-18
 Finding Normal
Upper Tail Probabilities

 Suppose X is normal with mean 18.0

and standard deviation 5.0.
 Now Find P(X > 18.6)

X
18.0
18.6
Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-19
 Finding Normal
Upper Tail Probabilities
(continued)
 Now Find P(X > 18.6) by the complement rule…

P(X > 18.6) = 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 Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-20
 Probabilities in the Lower Tail

 Suppose X is normal with mean 18.0

and standard deviation 5.0.
 Find P(17.4 < X < 18)

X
18.0
17.4

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-21
 Probabilities in the Lower Tail
(continued)

Find P(17.4 < X < 18)…

P(17.4 < X < 18)
= P(-0.12 < Z < 0) 0.0478
= P(Z < 0) – P(Z ≤ -0.12)
= 0.5000 - 0.4522 = 0.0478 0.4522

The Normal distribution is

symmetric, so this probability
17.4 18.0 X
is the same as P(0 < Z < 0.12) Z
-0.12 0

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-22
 “Empirical” Rules

What can we say about the distribution of values

around the mean? For any normal distribution:
f(X)

μ ± 1σ encloses about
68.26% of X’s
σ σ

μ-1σ μ μ+1σ X

68.26%
Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-23
 The Empirical Rule
(continued)

 μ ± 2σ covers about 95% of X’s

 μ ± 3σ covers about 99.7% of X’s

2σ 2σ 3σ 3σ
μ x μ x

95.44% 99.73%

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-24
 Example

 Page 203, #6.7(a,b,c)

#6.7d… Inverse problem… We know the

probability, but we need the value of X

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 5-25
 Given a Normal Probability
Find the X Value

 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 Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-26
 Finding the X value for a
Known Probability
(continued)

Example:
 Let X represent the time it takes (in seconds) to
download an image file from the internet.
 Suppose X is normal with mean 18.0 and standard
deviation 5.0
 Find X such that 20% of download times are less than
X.
0.2000

? 18.0 X
? 0 Z
Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-27
 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 … .03 .04 .05 Z value of -0.84

-0.9 … .1762 .1736 .1711

0.2000
-0.8 … .2033 .2005 .1977
-0.7 … .2327 .2296 .2266
? 18.0 X
-0.84 0 Z

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-28
 Finding the X value

2. Convert to X units using the formula:

X  μ  Zσ
 18.0  (0.84)5.0
 13.8

So 20% of the values from a distribution

with mean 18.0 and standard deviation
5.0 are less than 13.80

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 6-29
 Example

Now we can do #6.7d on p.203

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 5-30
 Example

The average household income in some country

is 900 coins, and the standard deviation is 200
coins. Assuming the Normal distribution of
incomes,
(a) Compute the proportion of “the middle class,”
whose income is between 600 and 1200 coins.
(b) The government decides to issue food stamps
to the poorest 3% of households. Below what
income will families receive food stamps?

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc. Chap 5-31
 Excel commands

 Normal probability
=NORM.DIST(x,mean,standard_dev,cumulative)

 Normal inverse problem, value of X

=NORM.INV(probability,mean,standard_dev)

Cumulative=1 asks for a probability P(X ≤ x).

Cumulative=0 asks for a density f(x).
 Chapter 7 (7.1-7.2)

Parameter Estimation
and Sampling Distributions

Chap 7-33
 Learning Objectives

In this chapter, you learn:

 Estimation of means, variances, proportions
 The concept of a sampling distribution
 To compute probabilities about the sample
mean and the sample proportion
 How to use the Central Limit Theorem

Chap 7-34
 Sampling Distributions
 A sampling distribution is a distribution of a
statistic computed from a sample of size n.

 A sample is random, collected from a

population. Hence, all statistics computed from
it are random variables.

Chap 7-35
 Example

 Assume there is a population …

A C D
 Population size N=4 B
 Random variable, X,
is age of individuals
 Values of X: 18, 20,
22, 24 (years)

Chap 7-36
 Example
(continued)

Population parameters:

μ
 X i P(x)
N .3
18  20  22  24 .2
  21
4 .1
0
σ
 i
(X  μ) 2

 2.236
18 20 22 24 x
N A B C D

Chap 7-37
 Example
(continued)

Now consider all possible samples of size n=2

16 Sample
1st 2nd Observation
Obs Means
18 20 22 24
1st 2nd Observation
18 18,18 18,20 18,22 18,24 Obs 18 20 22 24
20 20,18 20,20 20,22 20,24 18 18 19 20 21
22 22,18 22,20 22,22 22,24
20 19 20 21 22
24 24,18 24,20 24,22 24,24
16 possible samples 22 20 21 22 23
(sampling with
replacement)
24 21 22 23 24

Chap 7-38
 Example
(continued)

Sampling Distribution of All Sample Means

16 Sample Means Sample Means

Distribution
1st 2nd Observation _
Obs 18 20 22 24 P(X)
.3
18 18 19 20 21
.2
20 19 20 21 22
.1
22 20 21 22 23
0 _
24 21 22 23 24 18 19 20 21 22 23 24 X
Chap 7-39
 Sampling Distribution of the
Sample Mean
Sample mean has the following mean and standard deviation:

μ X  E (X)  μ  population mean

 population standard deviation

σX  
n sample size

Sample mean is unbiased because E (X)  μ

Its standard deviation is also called the standard error
of the sample mean. It decreases as the sample size
Chap 7-40 increases.
 Sample Mean for a Normal Population

 If a population is normal with mean μ and

standard deviation σ, the sampling distribution
of X is also normal with

σ
μX  μ and σX 
n

Chap 7-41
 Sampling Distribution Properties

Normal Population


μx  μ Distribution

μ x
(i.e. x is unbiased ) Normal Sampling
Distribution
(has the same mean)

μx
x
Chap 7-42
 Sampling Distribution Properties
(continued)

As n increases, Larger
σ x decreases sample size

Smaller
sample size

μ x
Chap 7-43
 Sample Mean
for non-Normal Populations

 Central Limit Theorem:

 Even if the population is not normal,
 …sample means are approximately normal
as long as the sample size is large enough.

Chap 7-44
 Central Limit Theorem

the sampling
As the n↑ distribution of
sample the sample
size gets mean becomes
large almost normal
enough… regardless of
shape of
population

x
Chap 7-45
 Sample Mean
if the Population is not Normal
(continued)

Population Distribution
Sampling distribution
properties:
Central Tendency
μx  μ
μ x
Variation Sampling Distribution
σ (becomes normal as n increases)
σx  Larger
n Smaller
sample size
sample
size

μx x
Chap 7-46
 How Large is Large Enough?

 For most distributions, n > 30 will give a

sampling distribution that is nearly normal
 For fairly symmetric distributions, n > 15
 For normal population distributions, the
sampling distribution of the mean is always
normally distributed

Chap 7-47
 Z-value for Sampling Distribution
of the Mean
 Z-value for the sampling distribution of X :

(X  μ X ) ( X  μ)
Z 
σX σ
n

where: X = sample mean

μ = population mean
σ = population standard deviation
n = sample size

Statistics for Managers Using Microsoft Excel® 7e Copyright ©2014 Pearson Education, Inc.
Chap 7-48
 Example

 Suppose a population has mean μ = 8 and

standard deviation σ = 3. Suppose a random
sample of size n = 36 is selected.

 What is the probability that the sample mean is

between 7.8 and 8.2?

Chap 7-49
 Example
(continued)

Solution:
 Even if the population is not normally distributed,
the central limit theorem can be used (n > 30)
 … so the sampling distribution of is
approximately normal x
 … with mean = 8
μx
 …and standard deviation
σ 3
σx    0.5
n 36
Chap 7-50
 Example
(continued)
Solution (continued):
 
 7.8 - 8 X -μ 8.2 - 8 
P(7.8  X  8.2)  P   
 3 σ 3 
 36 n 36 
 P(-0.4  Z  0.4)  0.6554 - 0.3446  0.3108

Population Sampling Standard Normal

Distribution Distribution Distribution
???
? ??
? ? Sample Standardize
? ? ?
?
7.8 8.2 -0.4 0.4
μ8 X μX  8 x μz  0 Z

Chap 7-51
 Examples

 # 7.28, page 264

 # 7.26, page 264

Chap 7-52
 Chapter Summary

In this chapter we discussed

 Continuous random variables

 Normal distribution

 Sampling distributions

 The sampling distribution of the mean

 For normal populations

 Using the Central Limit Theorem

 Calculating probabilities using sampling distributions

Chap 7-53