Chapter 6 Continuous Probability Distributions

Uniform Probability Distribution Normal Probability Distribution Exponential Probability Distribution f(x)

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Continuous Probability Distributions

A continuous random variable can assume any value in an interval on the real line or in a collection of intervals. It is not possible to talk about the probability of the random variable assuming a particular value. Instead, we talk about the probability of the random variable assuming a value within a given interval. The probability of the random variable assuming a value within some given interval from x1 to x2 is defined to be the area under the graph of the probability density function between x1 and x2.

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Normal Probability Distribution

The normal probability distribution is the most important distribution for describing a continuous random variable. It has been used in a wide variety of applications: Heights and weights of people Test scores Scientific measurements Amounts of rainfall It is widely used in statistical inference

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Normal Probability Distribution

Normal Probability Density Function

1 ( x )2 / 2 2 f ( x) e 2
where:

= population mean = population standard deviation = 3.14159

e = 2.71828

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Slide 4

Normal Probability Distribution

Graph of the Normal Probability Density Function f(x)

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x
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Slide 5

Normal Probability Distribution

Characteristics of the Normal Probability Distribution The distribution is symmetric, and is often illustrated as a bell-shaped curve. Two parameters, (mean) and (standard deviation), determine the location and shape of the distribution. The highest point on the normal curve is at the mean, which is also the median and mode. The mean can be any numerical value: negative, zero, or positive. continued
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Slide 6

Normal Probability Distribution

Characteristics of the Normal Probability Distribution The standard deviation determines the width of the curve: larger values result in wider, flatter curves. = 10

= 50

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Slide 7

Normal Probability Distribution

Characteristics of the Normal Probability Distribution The total area under the curve is 1 (.5 to the left of the mean and .5 to the right). Probabilities for the normal random variable are given by areas under the curve.

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Slide 8

Normal Probability Distribution

Characteristics of the Normal Probability Distribution 68.26% of values of a normal random variable are within +/- 1 standard deviation of its mean. 95.44% of values of a normal random variable are within +/- 2 standard deviations of its mean. 99.72% of values of a normal random variable are within +/- 3 standard deviations of its mean.

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Slide 9

Standard Normal Probability Distribution

A random variable that has a normal distribution with a mean of zero and a standard deviation of one is said to have a standard normal probability distribution. The letter z is commonly used to designate this normal random variable. Converting to the Standard Normal Distribution

We can think of z as a measure of the number of standard deviations x is from .

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Slide 10

Example: Pep Zone

Standard Normal Probability Distribution Pep Zone sells auto parts and supplies including a popular multi-grade motor oil. When the stock of this oil drops to 20 gallons, a replenishment order is placed. The store manager is concerned that sales are being lost due to stock outs while waiting for an order. It has been determined that lead time demand is normally distributed with a mean of 15 gallons and a standard deviation of 6 gallons. The manager would like to know the probability of a stockout, P(x > 20).

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Example: Pep Zone

Step 1 Convert x into standard z-value z = (x - )/ = (20 - 15)/6 = .83

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Fall 2010 Slide 12

Example: Pep Zone

Using the Standard Normal Probability Table

.00 .01 .02 .03 .04 .05 .06 .07 .08 .09

.0 .0000 .0040 .0080 .0120 .0160 .0199 .0239 .0279 .0319 .0359 .1 .0398 .0438 .0478 .0517 .0557 .0596 .0636 .0675 .0714 .0753 .2 .0793 .0832 .0871 .0910 .0948 .0987 .1026 .1064 .1103 .1141 .3 .1179 .1217 .1255 .1293 .1331 .1368 .1406 .1443 .1480 .1517 .4 .5 .6 .7 .8 .9 .1554 .1591 .1628 .1664 .1700 .1736 .1772 .1808 .1844 .1879 .1915 .1950 .1985 .2019 .2054 .2088 .2123 .2157 .2190 .2224 .2257 .2291 .2324 .2357 .2389 .2422 .2454 .2486 .2518 .2549 .2580 .2612 .2642 .2673 .2704 .2734 .2764 .2794 .2823 .2852 .2881 .2910 .2939 .2967 .2995 .3023 .3051 .3078 .3106 .3133 .3159 .3186 .3212 .3238 .3264 .3289 .3315 .3340 .3365 .3389
Fall 2010 Slide 13

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Example: Pep Zone

Step 2 Find area under curve from z = 0

to

z = 0.83

Area = .2967

Area = .5 0 .83
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z
Fall 2010 Slide 14

Example: Pep Zone

Step 3 : Find Probability of Stockout (shortage) The Standard Normal table shows an area of .2967 for the region between the z = 0 and z = .83 lines below. The shaded tail area is .5 - .2967 = .2033. The probability of a stock-out is .2033. Area = .2967 Area = .5 - .2967 = .2033 Area = .5 0 .83 z
Fall 2010 Slide 15

P ( x > 20 ) = .2033

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Example: Pep Zone (Inverse z-transform)

FINDING REORDER POINT (x) FOR SPECIFIED SERVICE LEVEL OF 95% SHORATGES OCCURRENCE 5% If the manager of Pep Zone wants the probability of a stockout to be no more than .05, what should the reorder point be?

z0.05

What is the value of is 0.45

z for which Area under curve

Area = .5 Area = .45 z.05 0 Let z.05 represent the z value cutting the .05 tail area.
Business StatisticsThomson/South-Western 2003 http://groups.yahoo.com/group/bus-stat-ibm-fall10 Fall 2010 Slide 16

Example: Pep Zone (Inverse z-transform)

How to find value of z for specific AREA UNDER CURVE We now look-up the .4500 area in the Standard Normal Probability table to find the corresponding z.05 value.
z . .00 . .01 . .02 . .03 . .04 . .05 . .06 . .07 . .08 . .09 .

1.5 .4332 .4345 .4357 .4370 .4382 .4394 .4406 .4418 .4429 .4441 1.6 .4452 .4463 .4474 .4484 .4495 .4505 .4515 .4525 .4535 .4545 1.7 .4554 .4564 .4573 .4582 .4591 .4599 .4608 .4616 .4625 .4633 1.8 .4641 .4649 .4656 .4664 .4671 .4678 .4686 .4693 .4699 .4706 1.9 .4713 .4719 .4726 .4732 .4738 .4744 .4750 .4756 .4761 .4767 . . . . . . . . . . .

z.05 = 1.645 is a reasonable estimate.

Business StatisticsThomson/South-Western 2003 http://groups.yahoo.com/group/bus-stat-ibm-fall10 Fall 2010 Slide 17

Example: Pep Zone (Inverse z-transform)

How to find re-order point ?

What is the value of

z0.05

x 15 1.645 6

z for which Area under curve

is 0.45, answer =

1.645

Area = .5 Area = .45 z.05 0 Let z.05 represent the z value cutting the .05 tail area.
Business StatisticsThomson/South-Western 2003 http://groups.yahoo.com/group/bus-stat-ibm-fall10 Fall 2010 Slide 18

Example: Pep Zone (Inverse z-transform)

Finding re-order point

The corresponding value of x is given by

x = + z.05 = 15 + 1.645(6) = 24.87 A reorder point of 24.87 gallons will place the probability of a stock-out during lead time at .05 Perhaps Pep Zone should set the reorder point at 25 gallons to keep the probability under .05
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