A PowerPoint Presentation Package to Accompany

Applied Statistics in Business &

Economics, 5th edition

David P. Doane and Lori E. Seward

Prepared by Lloyd R. Jaisingh

McGraw-Hill/Irwin Copyright © 2015 by The McGraw-Hill Companies, Inc. All rights reserved.
 Chapter 7
Continuous Probability Distributions

Chapter Contents

7.1 Continuous Probability Distributions

7.2 Uniform Continuous Distribution
7.3 Normal Distribution
7.4 Standard Normal Distribution
7.5 Normal Approximations
7.6 Exponential Distribution

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 Chapter 7
Continuous Probability Distributions

Chapter Learning Objectives (LO’s)

LO7-1: Define a continuous random variable.

LO7-2: Calculate uniform probabilities.
LO7-3: Know the form and parameters of the normal
distribution.
LO7-4: Find the normal probability for given z or x using tables
or Excel.
LO7-5: Solve for z or x for a given normal probability using
tables or Excel.

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 Chapter 7
Continuous Probability Distributions

Chapter Learning Objectives (LO’s)

LO6: Use the normal approximation to a binomial or a

Poisson distribution.
LO7: Find the exponential probability for a given x.
LO8: Solve for x for given exponential probability.

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 Chapter 7
LO7-1 7.1 Continuous Probability Distributions

LO7-1: Define a continuous random variable.

Events as Intervals( 區間 )
• Discrete Variable – each value of X has its own
probability P(X).
• Continuous Variable – events are intervals and
probabilities are areas under continuous curves. A
single point has no probability.

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 Chapter 7
LO7-1 7.1 Continuous Probability Distributions

PDF – Probability Density Function( 概率密度函數 )

Continuous PDF’s:
• Denoted f(x)
• Must be nonnegative
• Total area under
curve = 1
• Mean, variance and
shape depend on
the PDF parameters
• Reveals the shape
of the distribution.
• An example is the normal PDF.

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 Chapter 7
LO7-1 7.1 Continuous Probability Distributions

CDF – Cumulative Distribution Function( 累積分佈函數 )

Continuous CDF’s:
• Denoted F(x)
• Shows P(X ≤ x), the
cumulative proportion
of scores
• Useful for finding
probabilities
• An example is the normal CDF

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 Chapter 7
LO7-1 7.1 Continuous Probability Distributions

Probabilities as Areas
Continuous probability functions:
• Unlike discrete
distributions, the
probability at any
single point = 0.
• The entire area under
any PDF, by definition,
is set to 1.
• Mean is the balance The area under the curve
point of the distribution. between a and b
represents P(a < X < b).
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 Chapter 7
LO7-1 7.1 Continuous Probability Distributions

Expected Value and Variance

The mean and variance of a continuous random variable
are analogous to E(X) and Var(X ) for a discrete random
variable, Here the integral sign replaces the summation
sign. Calculus is required to compute the integrals( 積
分 ).

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 Chapter 7
LO7-2 7.2 Uniform Continuous Distribution
( 均勻分佈函數 )
LO7-2: Calculate uniform probabilities.

Characteristics of the Uniform

Distribution
If X is a random variable that is
uniformly distributed between
a and b, its PDF has
constant height.
• Denoted by U(a, b)
• Area =
base x height =

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 Chapter 7
LO7-2 7.2 Uniform Continuous Distribution

Characteristics of the Uniform Distribution

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 Chapter 7
LO7-2 7.2 Uniform Continuous Distribution

Example: Anesthesia( 麻醉 ) Effectiveness

• An oral surgeon injects a painkiller prior to extracting a tooth.
Given the varying characteristics of patients, the dentist views the
time (X) for anesthesia effectiveness as a uniform random variable
that takes between 15 minutes and 30 minutes.
• X is U(15, 30)
• a = 15, b = 30, find the mean and standard deviation.

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 Chapter 7
LO7-2 7.2 Uniform Continuous Distribution

Example: Anesthesia Effectiveness

• Find the probability that the effectiveness anesthetic takes
between 20 and 25 minutes. We need to find P(20 < X < 25
• P(20 < X < 25) = (25 – 20)/(30 – 15) = 5/15 = 0.3333 = 33.33%

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 Chapter 7
By Figure 7.5 , we conclude that

If X follow continues uniform distribution, Then the probability of X

falling in a one subinterval [c,d] in the interval [a,b] is only related to
the length of the subinterval, but not relate with position of interval
[a,b].

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 Chapter 7
LO7-3 7.3 Normal Distribution

LO7-3: Know the form and parameters of the normal

distribution.
Characteristics of the Normal Distribution
• Normal or Gaussian (or bell shaped) distribution ( 正態分
佈 / 高斯分佈 ) was named for German mathematician Karl
Gauss (1777 – 1855).
• Defined by two parameters, µ and .
• Denoted N(µ, ).
• Domain is –  < X < +  (continuous scale).
• Almost all (99.7%) of the area under the normal curve is
included in the range µ – 3 < X < µ + 3.
• The distribution is symmetric and unimodal about the mean.
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 Chapter 7
LO7-3 7.3 Normal Distribution

Characteristics of the Normal Distribution

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 Chapter 7
LO7-3 7.3 Normal Distribution

Characteristics of the Normal Distribution

• Normal PDF f(x) reaches a maximum at µ and has
points of inflection at µ ± 

Bell-shaped curve

NOTE: All normal

distributions
have the same
shape but differ
in the axis scales.

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 Chapter 7
LO7-3 7.3 Normal Distribution

Characteristics of the Normal Distribution

• Normal CDF has a “lazy-S” shape. It approaches, but
never reaches 1.

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 Chapter 7
LO7-3 7.3 Normal Distribution

What is Normal?
• Many physical measurements in the real world
resemble normal distributions.
• To be regarded as a candidate for normality, a random
variable should:
• Be measured on a continuous scale.
• Possess a clear center.
• Have only one peak (unimodal).
• Exhibit tapering tails.
• Be symmetric about the mean (equal tails).

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 Chapter 7
LO7-3 7.3 Normal Distribution

What is Normal?
• When the range is large, we often treat a discrete
variable as continuous. For example, exam scores are
discrete (range from 0 to 100) but are often treated as
continuous data. Here are some examples of random
variables that might be expected to approximately
normally distributed.
• X = quantity of beverage in a 2-liter bottle of Diet Pepsi.
• X = cockpit noise level in a Boeing 777.
• X = diameter (in mm) of a manufactured steel ball
bearing.
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 Chapter 7
LO7-4 7.4 Standard Normal Distribution
LO7-4: Find the normal probability for a given z or x
using Tables or Excel.
Characteristics of the Standard Normal Distribution
• Since for every value of µ and , there is a different
normal distribution, we can transform a normal
random variable to a standard normal distribution with
µ = 0 and  = 1 using the formula.

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 Chapter 7
LO7-4 7.4 Standard Normal Distribution
LO7-4: Find the normal probability for a given z or x
using Tables or Excel.
Characteristics of the Standard Normal Distribution

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 Chapter 7
LO7-4 7.4 Standard Normal Distribution

Characteristics of the Standard Normal

• Standard normal PDF f(x) reaches a maximum at
z = 0 and has points of inflection at +1.
• Shape is unaffected by the transformation.
It is still a bell-shaped curve.

Figure 7.11

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 Chapter 7
LO7-4 7.4 Standard Normal Distribution

Characteristics of the Standard Normal

• A common scale
from -3 to +3 is used.
• Entire area under the
curve is unity.
• The probability of an
event P(z1 < Z < z2)
is a definite integral
of f(z).
• However, standard
normal tables or
Excel functions can
be used to find the
desired probabilities.
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 Chapter 7
LO7-4 7.4 Standard Normal Distribution

Normal Areas from Appendix C-1

• Appendix C-1 allows you to find the area under the
curve from 0 to z.
• For example, find P(0 < Z < 1.96): (see the table on the
next slide)

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 Chapter 7
LO7-4 7.4 Standard Normal Distribution

Normal Areas from Appendix C-1

• Appendix C-1 allows you to find the area under the
curve from 0 to z.

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 Chapter 7
LO7-4 7.4 Standard Normal Distribution

Normal Areas from Appendix C-1

• Now find P(-1.96 < Z < 1.96).
• Due to symmetry, P(-1.96 < Z) is the same as
P(Z < 1.96).
• So, P(-1.96 < Z < 1.96) = .4750 + .4750 = .9500 or
95% of the area under the curve.

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 Chapter 7
LO7-4 7.4 Standard Normal Distribution

Basis for the Empirical Rule

• Approximately 68% of the area under the curve is
between + 1
• Approximately 95% of the area under the curve is
between + 2
• Approximately 99.7% of the area under the curve is
between + 3

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 Chapter 7
LO7-4 7.4 Standard Normal Distribution

Basis for the Empirical Rule

• Areas for the Empirical Rule

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 Chapter 7
LO7-4 7.4 Standard Normal Distribution

Normal Areas from Appendix C-2

• Appendix C-2 allows you to find the area under the
curve from the left of z (similar to Excel).
• For example, (see next slide for the table).

P(Z < 1.96) P(Z < -1.96) P(-1.96 < Z < 1.96)
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 Chapter 7
LO7-4 7.4 Standard Normal Distribution
Normal Areas from Appendix C-2

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 Chapter 7
LO7-5 7.4 Standard Normal Distribution
LO7-5: Solve for z or x for a given normal probability
using tables or Excel.
Normal Areas from Appendices C-1 or C-2
• Appendices C-1 and C-2 yield identical results.
• Use whichever table is easiest.

Finding z for a Given Area

• Appendices C-1 and C-2 can be used to find the
z-value corresponding to a given probability.
• For example, what z-value defines the top 1% of a
normal distribution?
• This implies that 49% of the area lies between 0 and z
which gives z = 2.33 by looking for an area of 0.4900
in Appendix C-1. 7-32
 Chapter 7
LO7-5 7.4 Standard Normal Distribution

Finding Areas by using Standardized Variables

• Suppose John took an economics exam and scored 86
points. The class mean was 75 with a standard
deviation of 7. What percentile is John in? That is, what
is P(X < 86) where X represents the exam scores?

• P(X < 86) = P(Z < 1.57) = .9418 (from Appendix C-2)
• So, John is approximately in the 94th percentile.
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 Chapter 7
LO7-5 7.4 Standard Normal Distribution
• Finding Areas by using Standardized Variables

NOTE: You can use Excel, Minitab, TI83/84 etc. to

compute these probabilities directly.

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 Chapter 7
LO7-5 7.4 Standard Normal Distribution

LO7-5: Solve for z or x for a normal probability using

tables or Excel.

• Inverse ( 逆 ) Normal
• How can we find the various normal percentiles (5th,
10th, 25th, 75th, 90th, 95th, etc.) known as the inverse
normal? That is, how can we find X for a given area?
We simply turn the standardizing transformation around:

• Solving for x in z = (x − μ)/ gives x = μ + zσ

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 Chapter 7
LO7-5 7.4 Standard Normal Distribution

• Inverse Normal
Using Table 7.7 (or looking up the areas in Excel) we
obtain the results shown in Table 7.9. Note that to find a
lower tail area (such as the lowest 5 percent), we must
use negative Z-values.

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 Chapter 7
LO7-5 7.4 Standard Normal Distribution

• Inverse Normal

• For example, suppose that John’s economics

professor has decided that any student who scores
below the 10th percentile must retake the exam.
• The exam scores are normal with μ = 75 and σ = 7.
• What is the score that would require a student to
retake the exam?
• We need to find the value of x that satisfies P(X <
x)
= .10.
• The z-score for with the 10th percentile is z =
−1.28.
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 Chapter 7
LO7-5 7.4 Standard Normal Distribution

• Inverse( 逆 ) Normal
• The steps to solve the problem are:

• Use Appendix C or Excel to find z = −1.28 to satisfy

P(Z < −1.28) = .10.
• Substitute the given information into z = (x − μ)/σ to
get −1.28 = (x − 75)/7
• Solve for x to get x = 75 − (1.28)(7) = 66.03 (or 66
after rounding)
• Students who score below 66 points on the
economics exam will be required to retake the exam.

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 Chapter 7
LO7-5 7.4 Standard Normal Distribution

• Inverse Normal

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 Chapter 7
LO7-6 7.5 Normal Approximations
LO7-6: Use the normal approximation to a binomial or a
Poisson.
Normal Approximation to the Binomial （二項）
• Binomial probabilities are difficult to calculate when n is large.
• Use a normal approximation to the binomial distribution.
• As n becomes large, the binomial bars become smaller and
continuity is approached.

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 Chapter 7
LO7-6 7.5 Normal Approximations

It proves Central Limit Theorem ( 中心極限定理 )

• From population we randomly sampling, When sample n is large
enough , the distribution will approach N(0,1). How to prove it by
mathematics ？

• Z = (x bar – miu ） / （ sigma/ square root of n)

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 Chapter 7
LO7-6 7.5 Normal Approximations

Normal Approximation to the Binomial

• Rule of thumb: when n ≥ 10 and n(1- ) ≥ 10, then it is appropriate

to use the normal approximation to the binomial distribution.
• In this case, the mean and standard deviation for the binomial
distribution will be equal to the normal µ and , respectively.

Example Coin Flips

• If we were to flip a coin n = 32 times and  = .50, are the

requirements for a normal approximation to the binomial
distribution met?
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 Chapter 7
LO7-6 7.5 Normal Approximations

Example Coin Flips

• n = 32 x .50 = 16
n(1- ) = 32 x (1 - .50) = 16
• So, a normal approximation can be used.
• When translating a discrete scale into a continuous
scale, care must be taken about individual points.
• For example, find the probability of more than 17
heads in 32 flips of a fair coin.
• This can be written as P(X  18).
• However, “more than 17” actually falls between 17
and 18 on a discrete scale.

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 Chapter 7
LO7-6 7.5 Normal Approximations

Example Coin Flips

• Since the cutoff point for “more than 17” is halfway between 17 and 18, we
add 0.5 to the lower limit and find P(X > 17.5).
• This addition to X is called the Continuity Correction.
• At this point, the problem can be completed as any normal distribution
problem.

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 Chapter 7
LO7-6 7.5 Normal Approximations

Example Coin Flips

P(X > 17) = P(X ≥ 18) 

P(X ≥ 17.5) = P(Z >
0.53) = 0.2981

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 Chapter 7
LO7-6 7.5 Normal Approximations

Normal Approximation to the Poisson

• The normal approximation to the Poisson distribution works best
when  is large (e.g., when  exceeds the values in Appendix B).
• Set the normal µ and  equal to the mean and standard deviation for
the Poisson distribution.

Example Utility Bills

• On Wednesday between 10A.M. and noon customer billing

inquiries arrive at a mean rate of 42 inquiries per hour at
Consumers Energy. What is the probability of receiving more than
50 calls in an hour?
•  = 42 which is too big to use the Poisson table.
• Use the normal approximation with  = 42 and  = 6.48074
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 Chapter 7
LO7-6 7.5 Normal Approximations

Example Utility Bills

• To find P(X > 50) calls, use the continuity-corrected cutoff point halfway
between 50 and 51 (i.e., X = 50.5).
• At this point, the problem can be completed as any normal distribution
problem.

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 Chapter 7
LO7-7 7.6 Exponential Distribution

LO7-7: Find the exponential probability for a given x.

Characteristics of the Exponential Distribution

• If events per unit of time follow a Poisson distribution, the time until
the next event follows the Exponential distribution.
• The time until the next event is a continuous variable.

NOTE: Here
we will find
probabilities
> x or ≤ x.

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 Chapter 7
LO7-7 7.6 Exponential Distribution

Characteristics of the Exponential Distribution

Probability of waiting less than or Probability of waiting more than x

equal to x

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 Chapter 7
LO7-7 7.6 Exponential Distribution

Example Customer Waiting Time

• Between 2P.M. and 4P.M. on Wednesday, patient

insurance inquiries arrive at Blue Choice insurance at a
mean rate of 2.2 calls per minute.
• What is the probability of waiting more than 30 seconds
(i.e., 0.50 minutes) for the next call?
• Set  = 2.2 events/min and x = 0.50 min
• P(X > 0.50) = e–x = e–(2.2)(0.5) = .3329 or 33.29% chance of
waiting more than 30 seconds for the next call.

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 Chapter 7
LO7-7 7.6 Exponential Distribution

Example Customer Waiting Time

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 Chapter 7
LO7-8 7.6 Exponential Distribution

LO7-8: Solve for x for given exponential probability.

Inverse Exponential
• If the mean arrival rate is 2.2 calls per minute, we want the 90 th
percentile for waiting time (the top 10% of waiting time).
• Find the x-value
that defines the
upper 10%.

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 Chapter 7
LO7-8 7.6 Exponential Distribution

Inverse Exponential

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 Chapter 7
LO7-8 7.6 Exponential Distribution

Mean Time Between Events

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 Chapter 7
LO7-8 7.6 Exponential Distribution

Mean Time Between Events

Example: Flat Panel Displays

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