8.2c ZA and Percentiles

5/15/2020 Print Preview
Chapter 8: Continuous Probability Distributions: 8-2c and Percentiles

Book Title: Statistics for Management and Economics
Printed By: JOB POLVORIZA (job.polvoriza.music@ust.edu.ph)
© 2018 Cengage Learning, Cengage Learning
8-2c and Percentiles
In Chapter 4, we introduced percentiles, which are measures of relative standing. The

values of are the 100(1 – A)th percentiles of a standard normal random variable. For
example, , which means that 1.645 is the 95th percentile: 95%of all values of Z
are below it, and 5% are above it. We interpret other values of similarly.
EXCEL Function
Instructions
We can use Excel to compute probabilities as well as values of X and Z. To compute

cumulative normal probabilities P(X < x), type (in any cell)
= NORMDIST([X], [μ], [σ], True)
(Typing “True” yields a cumulative probability. Typing “False” will produce the value
of the normal density function, a number with little meaning.)
If you type 0 for μ and 1 for σ, you will obtain standard normal probabilities.
Alternatively, type
NORMSDIST instead of NORMDIST and enter the value of z.
In Example 8.2, we found . To instruct Excel to

calculate this probability, we enter
= NORMDIST(1100, 1000, 100, True)
or
= NORMSDIST(1.00)
To calculate a value for , type
= NORMSINV([1 – A])
In Example 8.4, we would type
= NORMSINV(.95)
and produce 1.6449. We calculated .
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To calculate a value of x given the probability , enter
= NORMINV(1 – A, μ, σ)
The chapter-opening example would be solved by typing
= NORMINV(.99, 490, 61)
which yields 632.
Applications in Operations Management
Inventory Management
Kzenon/ Shutterstock.com
Every organization maintains some inventory, which is defined as a stock of items.

For example, grocery stores hold inventories of almost all the products they sell.
When the total number of products drops to a specified level, the manager arranges
for the delivery of more products. An automobile repair shop keeps an inventory of a
large number of replacement parts. A school keeps stock of items that it uses
regularly, including chalk, pens, envelopes, file folders, and paper clips. There are
costs associated with inventories.
These include the cost of capital, losses (theft and obsolescence), and warehouse
space, as well as maintenance and record keeping. Management scientists have
developed many models to help determine the optimum inventory level that
balances the cost of inventory with the cost of shortages and the cost of making
many small orders. Several of these models are deterministic—that is, they assume
that the demand for the product is constant. However, in most realistic situations,
the demand is a random variable. One commonly applied probabilistic model
assumes that the demand during lead time is a normally distributed random
variable. Lead time is defined as the amount of time between when the order is
placed and when it is delivered.
The quantity ordered is usually calculated by attempting to minimize the total costs,
including the cost of ordering and the cost of maintaining inventory. (This topic is
discussed in most management-science courses.) Another critical decision involves
the reorder point, which is the level of inventory at which an order is issued to its
supplier. If the reorder point is too low, the company will run out of product, suffering
the loss of sales and potentially customers who will go to a competitor. If the reorder
point is too high, the company will be carrying too much inventory, which costs
money to buy and store. In some companies, inventory has a tendency to walk out
the back door or become obsolete. As a result, managers create a safety stock,
which is the extra amount of inventory to reduce the times when the company has a
shortage. They do so by setting a service level, which is the probability that the
company will not experience a shortage. The method used to determine the reorder
point will be demonstrated with Example 8.6.
Example 8.6
Determining the Reorder Point
During the spring, the demand for electric fans at a large home-improvement store
is quite strong. The company tracks inventory using a computer system so that it
knows how many fans are in the inventory at any time. The policy is to order a new
shipment of 250 fans when the inventory level falls to the reorder point, which is
150. However, this policy has resulted in frequent shortages and thus lost sales
because both lead time and demand are highly variable. The manager would like to
reduce the incidence of shortages so that only 5% of orders will arrive after
inventory drops to 0 (resulting in a shortage). This policy is expressed as a 95%
service level. From previous periods, the company has determined that demand
during lead time is normally distributed with a mean of 200 and a standard deviation
of 50. Find the reorder point.
Solution:
The reorder point is set so that the probability that demand during lead time exceeds
this quantity is 5%. Figure 8.20 depicts demand during lead time and the reorder
point. As we did in the solution to the chapter-opening example, we find the
standard normal value such that the area to its right is .05. The standardized value
of the reorder point (ROP) is . To find ROP, we must unstandardize .
which we round up to 283. The policy is to order a new batch of fans when there are
283 fans left in inventory.
Figure 8.20
Distribution of Demand During Lead Time
Exercises
In Exercises 8.15 to 8.30, find the probabilities.
8.19. P(Z < 1.60)
8.20. P(Z < 1.61)
8.21. P(Z < 1.65)
8.22. P(Z < −1.39)
8.23. P(Z < −1.80)
8.24. P(Z < −2.16)
8.25. P(−1.30 < Z < .70)
8.26. P(Z > −1.24)
8.27. P(Z < 2.23)
8.28. P(Z > 1.87)
8.29. P(Z < 2.57)
8.30. P(1.04 < Z < 2.03)
8.31. P(−0.71 < Z < −0.33)
8.32. P(Z > 3.09)
8.33. P(Z > 0)
8.34. P(Z > 4.0)
8.35. Find .
8.36. Find .
8.37. Find .
8.38. Xis normally distributed with mean 100 and standard deviation 20. What is
the probability that X is greater than 145?
8.39. Xis normally distributed with mean 250 and standard deviation 40. What
value of X does only the top 15% exceed?
8.40. Xis normally distributed with mean 1,000 and standard deviation 250. What
is the probability that X lies between 800 and 1, 100?
8.41. Xis normally distributed with mean 50 and standard deviation 8. What value
of X is such that only 8% of values are below it?
8.42. The long-distance calls made by the employees of a company are normally
distributed with a mean of 6.3 minutes and a standard deviation of 2.2
minutes. Find the probability that a call
a. lasts between 5 and 10 minutes.
b. lasts more than 7 minutes.
c. lasts less than 4 minutes.
8.43. Refer to Exercise 8.42. How long do the longest 10% of calls last?
8.44. The lifetimes of lightbulbs that are advertised to last for 5,000 hours are
normally distributed with a mean of 5,100 hours and a standard deviation of
200 hours. What is the probability that a bulb lasts longer than the advertised
figure?
8.45. Refer to Exercise 8.44. If we wanted to be sure that 98% of all bulbs last
longer than the advertised figure, what figure should be advertised?
8.46. SAT scores are normally distributed with a mean of 1,000 and a standard
deviation of 300. Find the quartiles.
8.47. According to a PEW Research Center survey, the mean student loan at
graduation is $25,000. Suppose that student loans are normally distributed
with a standard deviation of $5,000. A graduate with a student loan is selected
at random. Find the following probabilities.
a. The loan is greater than $30,000.
b. The loan is less than $22,500.
c. The loan falls between $20,000 and $32,000.
8.48. The Tesla Model S 85D is an electric car that the manufacturer claims can
travel 270 miles on a single charge. However, the actual distance depends on
a number of factors including speed and whether the car is driven in the city or
on highways. Suppose that the distance is a normally distributed random
variable with a mean of 200 miles and a standard deviation of 20 miles. An
owner of this model intends to travel to a nearby city and return on the same
charge. If the total distance is 210 miles, what is the probability that car makes
it without running out of power?
8.49. Exercise 4.67 addressed the problem of setting an appropriate speed limit
on highways. Automotive experts believe that the “correct” speed is the 85th
percentile. Suppose that the speeds on a highway are normally distributed
with a mean of 68 and a standard deviation of 5. Find the “correct” speed.
8.50. Economists frequently make use of quintiles (i.e., the 20th, 40th, 60th, and
80th percentiles) particularly when discussing incomes. Suppose that in a
large city household incomes are normally distributed with a mean of $50,000
and a standard deviation of $10,000. An economist wishes to identify the
quintiles. Unfortunately, he did not pass his statistics course. Help him by
providing the quintiles.
8.51. The top-selling Red and Voss tire is rated 70,000 miles, which means
nothing. In fact, the distance the tires can run until they wear out is a normally
distributed random variable with a mean of 82,000 miles and a standard
deviation of 6,400 miles.
a. What is the probability that a tire wears out before 70,000 miles?
b. What is the probability that a tire lasts more than 100,000 miles?
8.52. The heights of 2-year-old children are normally distributed with a mean of
32 inches and a standard deviation of 1.5 inches. Pediatricians regularly
measure the heights of toddlers to determine whether there is a problem.
There may be a problem when a child is in the top or bottom 5% of heights.
Determine the heights of 2-year-old children that could be a problem.
8.53. Refer to Exercise 8.52. Find the probability of these events.
a. A 2-year-old child is taller than 36 inches.
b. A 2-year-old child is shorter than 34 inches.
c. A 2-year-old child is between 30 and 33 inches tall.
8.54. University and college students average 7.2 hours of sleep per night, with a
standard deviation of 40 minutes. If the amount of sleep is normally
distributed, what proportion of university and college students sleep for more
than 8 hours?
8.55. Refer to Exercise 8.54. Find the amount of sleep that is exceeded by only
25% of students.
8.56. The amount of time devoted to studying statistics each week by students
who achieve a grade of A in the course is a normally distributed random
variable with a mean of 7.5 hours and a standard deviation of 2.1 hours.
a. What proportion of A students study for more than 10 hours per week?
b. Find the probability that an A student spends between 7 and 9 hours

studying.
c. What proportion of A students spend fewer than 3 hours studying?
d. What is the amount of time below which only 5% of all A students spend
studying?
8.57. The number of pages printed before replacing the cartridge in a laser
printer is normally distributed with a mean of 11,500 pages and a standard
deviation of 800 pages. A new cartridge has just been installed.
a. What is the probability that the printer produces more than 12,000
pages before this cartridge must be replaced?
b. What is the probability that the printer produces fewer than 10,000
pages?
8.58. Refer to Exercise 8.57. The manufacturer wants to provide guidelines to

potential customers advising them of the minimum number of pages they can
expect from each cartridge. How many pages should it advertise if the
company wants to be correct 99% of the time?
8.59. The mean monthly income of graduates of professional and Ph.D. degrees
is $6,000 according to a recent PEW Research Center survey. If these
incomes are normally distributed with a standard deviation of $1,200,
a. What proportion of incomes is greater than $4,900?

b. Calculate the proportion of incomes that fall between $3,800 and

$5,700.
c. Calculate the proportion of incomes that are less than $6,500.
8.60. A golfer playing a new course encounters a hole that requires a drive of
145 yards to successfully clear a pond. She knows that her drives are
normally distributed with a mean of 155 yards and a standard deviation of 9
yards. What is the probability that after her drive her golf ball will be at the
bottom of the pond?
8.61. Battery manufacturers compete on the basis of the amount of time their
products last in cameras and toys. A manufacturer of alkaline batteries has
observed that its batteries last for an average of 26 hours when used in a toy
racing car. The amount of time is normally distributed with a standard
deviation of 2.5 hours.
a. What is the probability that the battery lasts between 24 and 28 hours?
b. What is the probability that the battery lasts longer than 28 hours?
c. What is the probability that the battery lasts less than 24 hours?
8.62. Because of the relatively high interest rates, most consumers attempt to
pay off their credit card bills promptly. However, this is not always possible. An
analysis of the amount of interest paid monthly by a bank’s Visa cardholders
reveals that the amount is normally distributed with a mean of $27 and a
standard deviation of $7.
a. What proportion of the bank’s Visa cardholders pay more than $30 in
interest?
b. What proportion of the bank’s Visa cardholders pay more than $40 in
interest?
c. What proportion of the bank’s Visa cardholders pay less than $15 in
interest?
d. What interest payment is exceeded by only 20% of the bank’s Visa

cardholders?
8.63. It is said that sufferers of a cold virus experience symptoms for 7 days.
However, the amount of time is actually a normally distributed random variable
whose mean is 7.5 days and whose standard deviation is 1.2 days.
a. What proportion of cold sufferers experience fewer than 4 days of

symptoms?
b. What proportion of cold sufferers experience symptoms for between 7

and 10 days?
8.64. How much money does a typical family of four spend at a McDonald’s
restaurant per visit? The amount is a normally distributed random variable
with a mean of $16.40 and a standard deviation of $2.75.
a. Find the probability that a family of four spends less than $10.
b. What is the amount below which only 10% of families of four spend at
McDonald’s?
8.65. The final marks in a statistics course are normally distributed with a mean
of 70 and a standard deviation of 10. The professor must convert all marks to
letter grades. She decides that she wants 10%A’s, 30%B’s, 40%C’s, 15%D’s,
and 5%F’s. Determine the cutoffs for each letter grade.
8.66. Mensa is an organization whose members possess IQs that are in the top
2% of the population. It is known that IQs are normally distributed with a mean
of 100 and a standard deviation of 16. Find the minimum IQ needed to be a
Mensa member.
8.67. The daily withdrawals from an ATM located at a service station is normally
distributed with a mean of $50,000 and a standard deviation of $8,000. The
operator of the ATM puts $64,000 in cash at the beginning of the day. What is
the probability that the ATM will run out of money?
8.68. According to the Statistical Abstract of the United States, 2012 (Table 721),
the mean family net worth of families whose head is between 35 and 44 years
old is approximately $325,600. If family net worth is normally distributed with a
standard deviation of $100,000, find the probability that a randomly selected
family whose head is between 35 and 44 years old has a net worth greater
than $500,000.
8.69. A retailer of computing products sells a variety of computer-related

products. One of his most popular products is an HP laser printer. The
average weekly demand is 200. Lead time for a new order from the
manufacturer to arrive is 1 week. If the demand for printers were constant, the
retailer would reorder when there were exactly 200 printers in inventory.
However, the demand is a random variable. An analysis of previous weeks
reveals that the weekly demand standard deviation is 30. The retailer knows
that if a customer wants to buy an HP laser printer but he has none available,
he will lose that sale plus possibly additional sales. He wants the probability of
running short in any week to be no more than 6%. How many HP laser
printers should he have in stock when he reorders from the manufacturer?
8.70. The demand for a daily newspaper at a newsstand at a busy intersection is

known to be normally distributed with a mean of 150 and a standard deviation
of 25. How many newspapers should the newsstand operator order to ensure
that he runs short on no more than 20% of days?
8.71. Every day a bakery prepares its famous marble rye. A statistically savvy
customer determined that daily demand is normally distributed with a mean of
850 and a standard deviation of 90. How many loaves should the bakery
make if it wants the probability of running short on any day to be no more than
30%?
8.72. Refer to Exercise 8.71. Any marble ryes that are unsold at the end of the
day are marked down and sold for half-price. How many loaves should the
bakery prepare so that the proportion of days that result in unsold loaves is no
more than 60%?
8.73. The annual rate of return on a mutual fund is normally distributed with a
mean of 14% and a standard deviation of 18%.
a. What is the probability that the fund returns more than 25% next year?
b. What is the probability that the fund loses money next year?
8.74. In a survey of consumer finances, it was determined that the average

household debt is $250,000. If household debt is normally distributed with a
standard deviation of $30,000 determine the quintiles.
Applications in Operations Management
PERT/CPM
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Banana Stock/Jupiter Images
In the Applications in Operations Management box, we introduced PERT/CPM. The

purpose of this powerful management-science procedure is to determine the critical
path of a project. The expected value and variance of the completion time of the
project are based on the expected values and variances of the completion times of
the activities on the critical path. Once we have the expected value and variance of
the completion time of the project, we can use these figures to determine the
probability that the project will be completed by a certain date. Statisticians have
established that the completion time of the project is approximately normally
distributed, enabling us to compute the needed probabilities.
8.75. Refer to Exercise 7.67. Find the probability that the project will take
more than 60 days to complete.
8.76. The mean and variance of the time to complete the project in Exercise
2
7.68 was 145 minutes and 31 minutes . What is the probability that it will
take less than 2.5 hours to overhaul the machine?
8.77. Refer to Exercise 7.69. Find the probability of the following events.
a. The launch of the new product takes more than 105 days.
b. The launch of the new product takes more than 92 days.
c. The launch of the new product takes between 95 and 112 days.
8.78. Refer to Exercise 7.70. Find the quartiles of the time to complete the
research project.
Chapter 8: Continuous Probability Distributions: 8-2c and Percentiles

Book Title: Statistics for Management and Economics
Printed By: JOB POLVORIZA (job.polvoriza.music@ust.edu.ph)
© 2018 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means -
graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder.

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5/15/2020 Print Preview

Chapter 8: Continuous Probability Distributions: 8-2c and Percentiles

8-2c and Percentiles

In Chapter 4, we introduced percentiles, which are measures of relative standing. The

We can use Excel to compute probabilities as well as values of X and Z. To compute

= NORMDIST([X], [μ], [σ], True)

NORMSDIST instead of NORMDIST and enter the value of z.

In Example 8.2, we found . To instruct Excel to

= NORMDIST(1100, 1000, 100, True)

To calculate a value for , type

In Example 8.4, we would type

and produce 1.6449. We calculated .

To calculate a value of x given the probability , enter

The chapter-opening example would be solved by typing

= NORMINV(.99, 490, 61)

which yields 632.

Applications in Operations Management

Every organization maintains some inventory, which is defined as a stock of items.

Determining the Reorder Point

In Exercises 8.15 to 8.30, find the probabilities.

8.19. P(Z < 1.60)

8.20. P(Z < 1.61)

8.21. P(Z < 1.65)

8.22. P(Z < −1.39)

8.23. P(Z < −1.80)

8.24. P(Z < −2.16)

8.25. P(−1.30 < Z < .70)

8.26. P(Z > −1.24)

8.27. P(Z < 2.23)

8.28. P(Z > 1.87)

8.29. P(Z < 2.57)

8.30. P(1.04 < Z < 2.03)

8.31. P(−0.71 < Z < −0.33)

8.32. P(Z > 3.09)

8.33. P(Z > 0)

8.34. P(Z > 4.0)

a. lasts between 5 and 10 minutes.

b. lasts more than 7 minutes.

c. lasts less than 4 minutes.

a. The loan is greater than $30,000.

b. The loan is less than $22,500.

c. The loan falls between $20,000 and $32,000.

8.53. Refer to Exercise 8.52. Find the probability of these events.

a. A 2-year-old child is taller than 36 inches.

b. A 2-year-old child is shorter than 34 inches.

c. A 2-year-old child is between 30 and 33 inches tall.

b. Find the probability that an A student spends between 7 and 9 hours

c. What proportion of A students spend fewer than 3 hours studying?

8.58. Refer to Exercise 8.57. The manufacturer wants to provide guidelines to

a. What proportion of incomes is greater than $4,900?

b. Calculate the proportion of incomes that fall between $3,800 and

c. Calculate the proportion of incomes that are less than $6,500.

d. What interest payment is exceeded by only 20% of the bank’s Visa

a. What proportion of cold sufferers experience fewer than 4 days of

b. What proportion of cold sufferers experience symptoms for between 7

8.69. A retailer of computing products sells a variety of computer-related

8.70. The demand for a daily newspaper at a newsstand at a busy intersection is

8.74. In a survey of consumer finances, it was determined that the average

Applications in Operations Management

Banana Stock/Jupiter Images

In the Applications in Operations Management box, we introduced PERT/CPM. The

b. The launch of the new product takes more than 92 days.

Chapter 8: Continuous Probability Distributions: 8-2c and Percentiles

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