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Quantitative Introduction to Risk and

Uncertainty in Business

8-1

Chapter Eight

Continuous Probability Distributions

8-2

2/21/2016

Recall our Long-Distance Telephone Bills

8-3

Relative Frequency of Each Class

8-4

2/21/2016

bill chosen at random being between 50 and 80?

8-5

Relative Frequency divided by Class Width

8-6

2/21/2016

Determine the area of the histogram bars of the

range of interest and add them together.

8-7

As the number of classes increases to a large

number, we can smooth the edges of the

rectangles to produce a smooth curve.

8-10

2/21/2016

Requirements

Apply to a probability density

function f(x) whose range is

a xb

f ( x) 0 for all x between a and b

The total area under the curve

between a and b is 1.

8-13

Uniform Probability

Distribution

Density Function

f ( x)

1

where a x b

ba

8-15

2/21/2016

Uniform Probability

Distribution

We can use the density function, f(x),

to determine the area under the curve

between two values x1 and x2

The area under the curve is the probability

8-18

Uniform Probability

Distribution

Lets investigate

The amount of gasoline sold daily

at a service station is uniformly distributed

with a minimum of 2,000 gallons and

a maximum of 5,000 gallons

8-19

2/21/2016

Uniform Probability

Distribution

What is the probability that daily sales will fall

between 2,500 and 3,000 gallons?

8-20

Uniform Probability

Distribution

What is the probability that the service station will

sell at least 4,000 gallons?

8-21

2/21/2016

Uniform Probability

Distribution

What is the probability that the service station will

sell exactly 2,500 gallons?

8-22

Normal Probability

Distribution

8-23

2/21/2016

Normal Probability

Distribution

Same variance with different means

8-24

Normal Probability

Distribution

Same means with different variances

8-25

2/21/2016

Normal Probability

Distribution

Calculating normal probabilities

8-26

Normal Probability

Distribution

Lets investigate

Daily demand for gasoline at another gas station

is normally distributed with a mean of 1,000

gallons and a standard deviation of 100 gallons.

The owner has 1,100 gallons available to sell.

What is the probability the owner will be able to

satisfy the days demand?

8-27

10

2/21/2016

Normal Probability

Distribution

Lets investigate

P( X 1,100) ?

8-28

Normal Probability

Distribution

Lets investigate

P( Z 1.0) ?

8-30

11

2/21/2016

Normal Probability

Distribution

The Standard Normal Distribution Table

Z-table

8-31

Normal Probability

Distribution

Lets investigate

P( Z 1.0) 0.8413

P( X 1,100) 0.8413

8-32

12

2/21/2016

Normal Probability

Distribution

Lets investigate

8-33

Normal Probability

Distribution

8-34

13

2/21/2016

Normal Probability

Distribution

Finding a Z-value for a given probability value

8-35

Normal Probability

Distribution

Z0.025 =1.96

8-37

14

2/21/2016

Normal Probability

Distribution

Z0.05 =1.645

8-39

Normal Probability

Distribution

8-40

15

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