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Institute of
Accounts
Business and
Finance Uniform Probability Distribution
Normal Probability Distribution
Exponential Probability Distribution
f (x) Exponential
Uniform
f (x)

Normal
f (x)
x
x

x
COURSE CODE: COURSE DESCRIPTION: LECTURE No.:
BUS STAT Business Statistics MLN01E

Continuous Probability Distributions

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

x
x x1 xx1 2 x2
x1 x2
x
x1 x2

A random variable is uniformly distributed whenever

the probability is proportional to the intervals
length.
Expected Value of x
The uniform probability density function is: E(x) = (a + b)/2

f (x) = 1/(b a) for a < x < b

=0 elsewhere
Variance of x
Var(x) = (b - a)2/12
where: a = smallest value the variable can assume
b = largest value the variable can assume

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Example: Slater's Buffet

Uniform Probability Distribution Uniform Probability Density Function

Slater customers are charged
for the amount of salad they take. f(x) = 1/10 for 5 < x < 15
Sampling suggests that the =0 elsewhere
amount of salad taken is
uniformly distributed where:
between 5 ounces and 15 ounces. x = salad plate filling weight

Example: Slater's Buffet

Expected Value of x Uniform Probability Distribution

for Salad Plate Filling Weight
E(x) = (a + b)/2
= (5 + 15)/2 f(x)
= 10

Variance of x
1/10
Var(x) = (b - a)2/12
= (15 5)2/12 x
= 8.33 5 10 15
Salad Weight (oz.)

Example: Slater's Buffet

What is the probability that a customer
will take between 12 and 15 ounces of salad?
f(x)
We no longer talk about the probability of the random variable taking on a particular
value. Instead we talk about the probability of the random variable taking on a value
within some given interval.
The probability of a random variable taking on a value within some given interval is
defined to be the area under the graph of the probability density function over the
interval. This definition implies that the probability that a continuous random variable
takes on any particular value is zero because the area under the graph of f(x) at a single
point is zero.

P(12 < x < 15) = 1/10(3) = .3

1/10

x
5 10 12 15
Salad Weight (oz.)

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Normal Probability Distribution

It has been used in a wide variety of applications:

The normal probability distribution is the most
Heights
important distribution for describing a
of people
continuous random variable. Scientific
It is widely used in statistical inference. measurements

Normal Probability Distribution

It has been used in a wide variety of applications: Normal Probability Density Function

Test 1 ( x )2 /2 2
scores f (x) e
Amounts 2
of rainfall
where:
= mean
= standard deviation
= 3.14159
e = 2.71828

Normal Probability Distribution Normal Probability Distribution

Characteristics Characteristics

The distribution is symmetric, and is bell-shaped. The entire family of normal probability
distributions is defined by its mean and its
standard deviation .

Standard Deviation

x
Mean

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Normal Probability Distribution Normal Probability Distribution

Characteristics Characteristics
The highest point on the normal curve is at the The mean can be any numerical value: negative,
mean, which is also the median and mode. zero, or positive.

x x
-10 0 20

Normal Probability Distribution Normal Probability Distribution

Characteristics
The standard deviation determines the width of the
curve: larger values result in wider, flatter curves.
= 15
Characteristics
Probabilities for the normal random variable are
given by areas under the curve. The total area
under the curve is 1 (.5 to the left of the mean and
.5 to the right).

= 25 .5 .5

x x
= 50

Standard Normal Probability Distribution

A random variable having a normal distribution The letter z is used to designate the standard
with a mean of 0 and a standard deviation of 1 is normal random variable.
said to have a standard normal probability
distribution.
1

z
0

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Standard Normal Probability Distribution

Converting to the Standard Normal Distribution Standard Normal Probability Distribution

Pep Zone sells auto parts and supplies
x
z including a popular multi-grade motor

oil. When the stock of this oil drops toPep
Zone
We can think of z as a measure of the number of 20 gallons, a replenishment order is 5w-20
standard deviations x is from . placed.
Motor Oil

Example: Pep Zone Example: Pep Zone

Pep Pep
Zone Zone
5w-20 5w-20
Motor Oil Motor Oil

Standard Normal Probability Distribution Solving for the Stockout Probability

The store manager is concerned that sales are
being lost due to stockouts while waiting for an Step 1: Convert x to the standard normal distribution.
order. It has been determined that demand during
replenishment leadtime is normally distributed with z = (x - )/
a mean of 15 gallons and a standard deviation of 6 = (20 - 15)/6
gallons. = .83
The manager would like to know the probability
of a stockout, P(x > 20). Step 2: Find the area under the standard normal
curve between the mean and z = .83.

see next slide

Example: Pep Zone Example: Pep Zone

Pep Pep
Zone Zone
5w-20 5w-20
Motor Oil Motor Oil

Probability Table for the Solving for the Stockout Probability

Standard Normal Distribution
Step 3: Compute the area under the standard normal
curve to the right of z = .83.
z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
. . . . . . . . . .
.5 .6915 .6950 .6985 .7019 .7054 .7088 .7123 .7157 .7190 .7224 P(z > .83) = .5 P(0 < z < .83)
.6 .7257 .7291 .7324 .7357 .7389 .7422 .7454 .7486 .7517 .7549 = 1- .7967
.7 .7580 .7611 .7642 .7673 .7704 .7734 .7764 .7794 .7823 .7852
= .2033
.8 .7881 .7910 .7939 .7967 .7995 .8023 .8051 .8078 .8106 .8133
.9 .8159 .8186 .8212 .8238 .8264 .8289 .8315 .8340 .8365 .8389
Probability
of a stockout P(x > 20)
P(0 < z < .83)

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Example: Pep Zone Example: Pep Zone

Pep Pep
Zone Zone
5w-20 5w-20
Motor Oil Motor Oil

Solving for the Stockout Probability Standard Normal Probability Distribution

If the manager of Pep Zone wants the
probability of a stockout to be no more than .05,
Area = .5 - .2967 what should the reorder point be?
Area = .2967
= .2033

z
0 .83

Example: Pep Zone Example: Pep Zone

Pep Pep
Zone Zone
5w-20 5w-20
Motor Oil Motor Oil

Solving for the Reorder Point Solving for the Reorder Point
Step 1: Find the z-value that cuts off an area of .05
in the right tail of the standard normal
Area = .4500 distribution.
z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
Area = .0500 . . . . . . . . . . .
1.5 .9332 .9345 .9357 .9370 .9382 .9394 .9406 .9418 .9429 .9441
1.6 .9452 .9463 .9474 .9484 .9495 .9505 .9515 .9525 .9535 .9545
1.7 .9554 .9564 .9573 .9582 .9591 .9599 .9608 .9616 .9625 .9633
z 1.8 .9641 .9649 .9656 .9664 .9671 .9678 .9686 .9693 .9699 .9706
0 z.05 1.9 .9713 .9719 .9726 We
.9732 look.9738
up the.9744
area .9750 .9756 .9761 .9767
. . . . (.5. - .05 =..45) . . . . .

Example: Pep Zone Example: Pep Zone

Pep Pep
Zone Zone
5w-20 5w-20
Motor Oil Motor Oil

Solving for the Reorder Point Solving for the Reorder Point
By raising the reorder point from 20 gallons to
Step 2: Convert z.05 to the corresponding value of x. 25 gallons on hand, the probability of a stockout
decreases from about .20 to .05.
This is a significant decrease in the chance that Pep
x = + z.05
Zone will be out of stock and unable to meet a
= 15 + 1.645(6) customers desire to make a purchase.
= 24.87 or 25

A reorder point of 25 gallons will place the probability

of a stockout during leadtime at (slightly less than) .05.

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Exponential Probability Distribution

The exponential probability distribution is useful in Density Function

describing the time it takes to complete a task.
1
The exponential random variables can be used to f ( x ) e x / for x > 0, > 0
describe:

Time between Time required Distance between where: = mean

vehicle arrivals to complete major defects e = 2.71828
at a toll booth a questionnaire in a highway

Exponential Probability Distribution

The time between arrivals of cars
Cumulative Probabilities
at Als full-service gas pump follows
P ( x x0 ) 1 e xo / an exponential probability distribution
with a mean time between arrivals of
3 minutes. Al would like to know the
where:
probability that the time between two successive
x0 = some specific value of x
arrivals will be 2 minutes or less.

Exponential Probability Distribution

The Poisson distribution
f(x) provides an appropriate description
of the number of occurrences
.4 P(x < 2) = 1 - 2.71828-2/3 = 1 - .5134 = .4866 per interval
.3
.2
.1 The exponential distribution
x provides an appropriate description
of the length of the interval
1 2 3 4 5 6 7 8 9 10
between occurrences
Time Between Successive Arrivals (mins.)