Continous Probability Distribution PDF

Statistics for Business Analysis
Day 5
Session-I
CONTINUOUS PROBABILITY
DISTRIBUTIONS
Learning Objectives
To learn the concept of continuous random variable
To compute probabilities from the normal distribution
To use the normal probability plot to determine whether
a set of data is approximately normally distributed
To compute probabilities from the uniform distribution
To compute probabilities from the exponential
distribution
To compute probabilities from the normal distribution to
approximate probabilities from the binomial distribution
Created by: Prabhat Mittal

Email-Id: profmittal@yahoo.co.in
Probability Distributions
Probability
Distributions
Discrete Continuous
Probability Probability
Distributions Distributions
Binomial Normal
Poisson Uniform
Hypergeometric Exponential
Continuous Probability Distributions
A continuous random variable is a variable that

can assume any value on a continuum (can
assume an uncountable number of values)
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.
The Normal Distribution
Probability
Distributions
Continuous
Probability
Distributions
Normal
Uniform
Exponential

‘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
The random variable has an = Median
infinite theoretical range: = Mode
+ ∞ to − ∞
Many Normal Distributions
By varying the parameters µ and σ, we obtain

different normal distributions


Shape
f(X) Changing µ shifts the

distribution left or right.
Changing σ increases
or decreases the
σ spread.
µ X

The Normal Probability
Density Function
The formula for the normal probability density

function with X ~ Normal(µ, σ2) is
1 2
f(X) = e −(1/2)[(X−µ)/σ]
2πσ
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
Empirical Rules
What can we say about the distribution of values

around the mean? There are some general rules:
f(X)
µ ± 1σ encloses about
68% of X’s
σ σ
X
µ-1σ µ µ+1σ
68.26%
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%

The Standardized
Normal Distribution
Also known as the “Z” distribution

Mean is 0
Standard Deviation is 1
f(Z)
1
Z
0
Values above the mean have positive Z-values,
values below the mean have negative Z-values
The Standardized Normal
Any normal distribution (with any mean and

standard deviation combination) can be
transformed into the standardized normal
distribution (Z)
Need to transform X units into Z units

Translation to the Standardized

Normal Distribution
Translate from X to the standardized normal

(the “Z” distribution) by subtracting the mean
of X and dividing by its standard deviation:
X −µ
Z=
σ
The Z distribution always has mean = 0 and
standard deviation = 1
The Standardized Normal
Probability Density Function
The formula for the standardized normal
probability density function is
1 2
f(Z) = e −(1/2)Z
2π
Where e = the mathematical constant approximated by 2.71828

π = the mathematical constant approximated by 3.14159
Z = any value of the standardized normal distribution

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.

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)

Finding Normal Probabilities
Probability is the
Probability is measured by the area
area under the
curve! under the curve
f(X)
P (a ≤ X ≤ b)
= P (a < X < b)
(Note that the
probability of any
individual value is zero)
a b X

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
The Standardized Normal Table
The Cumulative Standardized Normal table

in the textbook (Appendix table E.2) gives the
probability less than a desired value for Z
(i.e., from negative infinity to Z)
0.9772
Example:
P(Z < 2.00) = 0.9772
0 2.00 Z

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

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 Standardized Normal Table
Suppose X is normal with

µ = 8.0 & σ =5.0
Find P(X < 8.6)
X
8.0
Created by: Prabhat Mittal 8.6
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)

Solution: Finding P(Z < 0.12)
Standardized Normal Probability P(X < 8.6)

Table (Portion) = P(Z < 0.12)
Z .00 .01 .02 .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

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
Probability Between
Two Values

standard deviation 5.0. Find P(8 < X < 8.6)
Calculate Z-values:
X −µ 8 −8
Z= = =0
σ 5
8 8.6 X
X − µ 8.6 − 8 0 0.12 Z
Z= = = 0.12
σ 5 P(8 < X < 8.6)
= P(0 < Z < 0.12)
Solution: Finding P(0 < Z < 0.12)
Standardized Normal Probability P(8 < X < 8.6)

Table (Portion) = P(0 < Z < 0.12)
= P(Z < 0.12) – P(Z ≤ 0)
Z .00 .01 .02 = 0.5478 - .5000 = 0.0478
0.0 .5000 .5040 .5080 0.0478
0.5000
0.1 .5398 .5438 .5478
0.2 .5793 .5832 .5871
0.3 .6179 .6217 .6255 Z

0.00

0.12
Probabilities in the Lower Tail

standard deviation 5.0.
Now Find P(7.4 < X < 8)
X
8.0
7.4
Probabilities in the Lower Tail
(continued)
Now Find P(7.4 < X < 8)…

P(7.4 < X < 8)
= 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
7.4 8.0 X
is the same as P(0 < Z < 0.12) Z
-0.12 0
Numerical Problems
Ref. # 5-38 Page No.270: Given that a random variable,
X, has a normal distribution with mean 6.4 and standard
deviation 2.7, find
a. P(4.0 < X <5.0)
b. P(X > 2.0)
c. P(X < 7.2)
d. P(X < 3.0)
Ans.
a. .1150
b. .9484
c. .6165
d. .8960
Numerical Problems
Ref. # 5-46 Page No.271: Glenn Howell, VP of personnel for the
Standard Insurance Company, has developed a new training program,
that is entirely self-paced. New employees work various stages at
their own pace; completion occurs when the material is learned.
Howell’s program has been especially effective in speeding up the
raining process, as an employee’s salary during training is only 67%
of that earned upon completion of the program. In the last several
years, average completion time of the program was 44 days, and the
standard deviation was 12 days.
a. What is the probability that an employee will finish the program in 33 to 42
days?
b. What is the probability of finishing the program in fewer than 30 days?
c. Fewer than 25 or more than 60 days?
Ans.
a. .2537
b. .1210
c. .1489
Numerical Problems
Ref. # 5-48 Page No.271: R. V. Poppin, the concession stand manager
for the local hockey rink, just had 2 cancellations on his crew. This
means that if more than 72000 people come to tonight’s hockey game,
the lines for hot dogs will constitute a disgrace to Mr. Poppin and will
harm business at future games. Mr. Poppin knows from experience that
the number of people who come to the game is normally distributed with
mean 67000 and standard deviation 4000 people.
a. What is the probability that there will be more than 72000 people?
b. Suppose Mr. Poppin can hire two temporary employees to make sure
business won’t be harmed in the future at an additional cost of $200. if
be believes the future harm to business of having more than 72000 fans
at the game would be $5000, should he hire the employees? Explain
(Assume there will be no harm if 72000 or fewer fans show up, and that
the harm due to too many fans doesn’t depend on how many more than
72000 show up?
Ans.
a. 0.1056
b. Yes, the $200 cost is less than $528 expected loss to future business.
(Since P(x>72000) = 0.1056 than expected loss $5000*.1056 = $528)
Numerical Problems
Ref. # 5-49 Page No.272: Maurine Lewis, an
editor for a large publishing company, calculate
that it requires 11 months on average to
complete the publication process from
manuscript to finished book, with a standard
deviation of 2.4 months. She believes that the
normal distribution well describes the distribution
of publication times. Out of 19 books she will
handle this year, approximately how many will
complete the process in less than a year?
Ans.
• 13 as P (x<12) = .6615
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

Finding the X value for a
Known Probability
(continued)
Example:
standard deviation 5.0.
Now find the X value so that only 20% of all
values are below this X
0.2000
? 8.0 X
Created by: Prabhat Mittal ? 0 Z
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
? 8.0 X
-0.84 0 Z
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

Numerical Problems
Ref. # 5-39 Page No.270: In a normal distribution with a standard
deviation of 5.0, the probability that an observation selected at random
exceeds 21 is 0.14
a. Find the mean of the distribution
b. Find the value below which 4% of the values in the distribution lie.
Ans.
Find the value of Z such that P(X >21) = 0.14
or P(X < 21) = 0.86
The value of Z from the table +1.08 (+ sign because the area is on
right of mu)
a. µ = X- Zσ = 21- 1.08*5.0 = 15.6
b. X= 6.85 P (X< 6.85 ) = 4%

Numerical Problems
Ref. # 5-44 Page No.271: Jarrid Medical, Inc., is developing a
compact kidney dialysis machine, but its chief engineer, Mike Crowe,
is having trouble controlling the variability of the rate at which fluid
moves through the device. Medical standards require that the hourly
flow be 4 liter, plus or minus 0.1 liter, 80% pf the time. Mr. Crowe, in
testing the prototype, has found that 68% of the time, the hourly flow is
within 0.08 liter of 4.02 liters. Does the prototype satisfy the medical
standards?
Ans.
Given P( 4.02-0.08 <X < 4.02+0.08) = 68% & obtain µ & σ
then test the value of P(3.9 < X < 4.1) = 80%???
a. Since above P is 68% with in 4.02 ± 0.8 implying µ = 4.02, σ = 0.8

b. P(3.9 < X < 4.1) = 0.7745 i.e. 77.45% not 80%

Numerical Problems
Ref. # 5-50 Page No.272: The Quickie Sales Corporation has just been given
two conflicting estimates of sales for the upcoming quarter. Estimate I says that
sales (in millions of dollars) will be normally distributed with µ = 325 and σ = 60.
Estimate II says that sales will be normally distributed with µ = 300 and σ = 50.
The board of directors finds that each estimated appears to be equally believable
a priori. In order to determine which estimate should be used fro future
predictions, the board of directors has decided to meet again at the end of the
quarter to use updated sales information to make a statement about the
credibility of each estimate.
a. Assuming that estimate I is accurate, what is the probability that Quickie will
have quarterly sales in excess of $350 million?
b. Rework part (a) assuming that estimate II is correct.
c. At the end of the quarter, the board of directors finds that Quickie Sales Corp.
has had sales in excess of $350 million. Given this updated information, what is
the probability that Estimate I was originally the accurate one? (Use Bayes
Theorem)
d. Rework part © for Estimate II.
Ans.
a. 0.3385
b. 0.1587
c. P(E1:x > 350) = ?
Solution Ctd…
P(D | E1)P(E1)
P(E1 | D : X > 350) =
P(D | E1)P(E1) + P(D | E2)P(E2)
(0.3385)(0.5)
=
(0.3385)(0.5) + (0.1587)(0.5)
0.1692
= = 0.680
0.1692 + 0.0793
P(D | E2)P(E2)
P(E2 | D : X > 350) =
P(D | E1)P(E1) + P(D | E2)P(E2)
(0.1587)(0.5)
=
(0.3385)(0.5) + (0.1587)(0.5)
0.0793
= = 0.32
0.1692 + 0.0793

Evaluating Normality
Not all continuous random variables are

normally distributed
It is important to evaluate how well the data set
is approximated by a normal distribution

Evaluating Normality
(continued)
Construct charts or graphs
For small- or moderate-sized data sets, do stem-and-
leaf display and box-and-whisker plot look
symmetric?
For large data sets, does the histogram or polygon
appear bell-shaped?
Compute descriptive summary measures
Do the mean, median and mode have similar values?
Is the interquartile range approximately 1.33 σ?
Is the range approximately 6 σ?

Assessing Normality
(continued)
Observe the distribution of the data set

Do approximately 2/3 of the observations lie within
mean ± 1 standard deviation?
Do approximately 80% of the observations lie within
mean ± 1.28 standard deviations?
Do approximately 95% of the observations lie within
mean ± 2 standard deviations?
Evaluate normal probability plot
Is the normal probability plot approximately linear
with positive slope?

The Normal Probability Plot
Normal probability plot

Arrange data into ordered array
Find corresponding standardized normal quantile
values
Plot the pairs of points with observed data values on
the vertical axis and the standardized normal quantile
values on the horizontal axis
Evaluate the plot for evidence of linearity

The Normal Probability Plot

(continued)
A normal probability plot for data

from a normal distribution will be
approximately linear:
X
90
60
30
-2 -1 0 1 2 Z
Normal Probability Plot
(continued)
Left-Skewed Right-Skewed
X 90 X 90
60 60
30 30
-2 -1 0 1 2 Z -2 -1 0 1 2 Z
Rectangular
X 90 Nonlinear plots
indicate a deviation
60
from normality
30

-2 -1 0 1 2 Z
Numerical Problems
Example: The following ordered array (from left to right) depicts the
amount of money (in dollars) withdrawn from a cash machine by 25
customers at a local bank:
40, 50, 50, 50, 50, 70, 70, 80, 80, 90,100, 100 90,100, 100 90,100,
100, 110, 110, 120, 120, 130, 140, 140, 150, 160, 160, 200
Decide whether or not the data appear to be approximately normally

distributed by
• Evaluating the actual versus theoretical properties.
a. Constructing a normal probability plot.
Ans.
Look at the MS-Excel worksheet

Check for Normality
Mean 106.8 300
200 Largest
Median 100 200
135 Quartile 3
mode 100 100 Median
Midrange 120
100
80 Quartile 1
40 Smallest
midhinge 105 0
N= 25
VAR001
Interquartile range 50
Histogram
10
Standard
deviation 37.38
8
Range 160 4
Skewness 0.3849
Frequency
2
Std. Dev = 38.16
Mean = 106.8
Kurtosis 0.2019 0 N = 25.00

50.0 75.0 100.0 125.0 150.0 175.0 200.0
VAR001

Check for Normality

Check for
normality Results
Normal P-P Plot of VAR00001
median =mode = median =mode 1.00
mean ≠ mean
2/3 of observation in .75
mean± S.d. (69,144) 18 (App. Equal)
.50
4/5 of observation in
Expected Cum Prob
mean± 1.28S.d. (59,155) 19 (App. Equal)

.25
19/20 of observation
in mean± 2S.d. (32,182) 24 (App. Equal)
0.00
1.33 times of SD 49.7242 50 (App. Equal) 0.00 .25 .50 .75 1.00
Observed Cum Prob

6 times of SD 224.3197 160 (Not equal)
.38 (App.
Skewness = 0 Equal)
Normal Approximation to the
Binomial Distribution
The binomial distribution is a discrete distribution, but

the normal is continuous
The normal Approximation to the Binomial is very
convenient because it enables us to solve the problem
without extensive tables of the Bin. Distribution.
To use the normal to approximate the binomial,
accuracy is improved if you use a correction for
continuity adjustment
Example:
X is discrete in a binomial distribution, so P(X = 4) can be
approximated with a continuous normal distribution by finding
P(3.5 < X < 4.5)

(continued)
The closer p is to 0.5, the better the normal

approximation to the binomial
The larger the sample size n, the better the
normal approximation to the binomial
General rule:
The normal distribution can be used to approximate
the binomial distribution if
np ≥ 5
and
n(1 – p) ≥ 5
(continued)
The mean and standard deviation of the

binomial distribution are
µ = np
σ = np(1 − p)
Transform binomial to normal using the formula:

X −µ X − np
Z= =
σ np(1− p)

Using the Normal Approximation

to the Binomial Distribution
If n = 1000 and p = 0.2, what is P(X ≤ 180)?
Approximate P(X ≤ 180) using a continuity correction
adjustment:
P(X ≤ 180.5)
Transform to standardized normal:
X − np 180.5 − (1000)(0.2)
Z= = = −1.54
np(1− p) (1000)(0.2)(1− 0.2)
So P(Z ≤ -1.54) = 0.0618
180.5 200 X
Created by: Prabhat Mittal -1.54 0 Z
Statistics for Business Analysis
Day 5
Session-II
CONTINUOUS PROBABILITY
DISTRIBUTIONS
The Uniform Distribution

Probability
Distributions
Continuous
Probability
Distributions
Normal
Uniform
Exponential
The uniform distribution is a

probability distribution that has equal
probabilities for all possible
outcomes of the random variable
Also called a rectangular distribution


(continued)
The Continuous Uniform Distribution:
1
if a ≤ X ≤ b
b−a
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

Properties of the
Uniform Distribution
The mean of a uniform distribution is

a+b
µ=
2
The standard deviation is
(b - a) 2
σ=
12

Uniform Distribution Example
Example: Uniform probability distribution

over the range 2 ≤ X ≤ 6:
1
f(X) = 6 - 2 = 0.25 for 2 ≤ X ≤ 6
f(X)
a+b 2+6
µ= = =4
0.25 2 2
(b - a) 2 (6 - 2) 2
σ= = = 1 .1547
X 12 12
2 6

Uniform Distribution Example
(continued)
Example: Using the uniform probability

distribution to find P(3 ≤ X ≤ 5):
P(3 ≤ X ≤ 5) = (Base)(Height) = (2)(0.25) = 0.5
f(X)
0.25
2 3 4 5 6 X

The Exponential Distribution

Probability
Distributions
Continuous
Probability
Distributions
Normal
Uniform
Exponential
Often 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

Defined by a single parameter, its mean λ

(lambda)
The probability that an arrival time is less than
some specified time X is
P(arrival time < X) = 1 − e − λX

where e = mathematical constant approximated by 2.71828
λ = the population mean number of arrivals per unit
X = any value of the continuous variable where 0 < X < ∞
Exponential Distribution
Example
Example: Customers arrive at the service counter at

the rate of 15 per hour. What is the probability that the
arrival time between consecutive customers is less
than three minutes?
The mean number of arrivals per hour is 15, so λ = 15

Three minutes is 0.05 hours
P(arrival time < .05) = 1 – e-λX = 1 – e-(15)(0.05) = 0.5276
So there is a 52.76% probability that the arrival time
between successive customers is less than three
minutes

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Statistics for Business Analysis

Created by: Prabhat Mittal

Continuous Probability Distributions

A continuous random variable is a variable that

These can potentially take on any value,

The Normal Distribution

By varying the parameters µ and σ, we obtain

Created by: Prabhat Mittal

The Normal Distribution

f(X) Changing µ shifts the

Created by: Prabhat Mittal

The formula for the normal probability density

Where e = the mathematical constant approximated by 2.71828

What can we say about the distribution of values

µ ± 2σ covers about 95% of X’s

Created by: Prabhat Mittal

Also known as the “Z” distribution

Any normal distribution (with any mean and

Need to transform X units into Z units

Created by: Prabhat Mittal

Translation to the Standardized

Translate from X to the standardized normal

Where e = the mathematical constant approximated by 2.71828

Created by: Prabhat Mittal

If X is distributed normally with mean of 100

Created by: Prabhat Mittal

100 200 X (µ = 100, σ = 50)

Note that the distribution is the same, only the

Created by: Prabhat Mittal

Finding Normal Probabilities

Created by: Prabhat Mittal

f(X) P( −∞ < X < µ) = 0.5

The Standardized Normal Table

The Cumulative Standardized Normal table

Created by: Prabhat Mittal

The column gives the value of

The row shows 0.0

Created by: Prabhat Mittal

General Procedure for

Translate X-values to Z-values

Use the Standardized Normal Table

Suppose X is normal with

P(X < 8.6) P(Z < 0.12)

Solution: Finding P(Z < 0.12)

Standardized Normal Probability P(X < 8.6)

0.1 .5398 .5438 .5478

Created by: Prabhat Mittal

Now Find P(X > 8.6)…

Suppose X is normal with mean 8.0 and

Standardized Normal Probability P(8 < X < 8.6)

0.3 .6179 .6217 .6255 Z

Created by: Prabhat Mittal

Probabilities in the Lower Tail

Suppose X is normal with mean 8.0 and

Now Find P(7.4 < X < 8)…

The Normal distribution is

Finding the X value for a

Steps to find the X value for a known

Created by: Prabhat Mittal

Find the Z value for

1. Find the Z value for the known probability

-0.9 … .1762 .1736 .1711

2. Convert to X units using the formula: