1 1 Slide © 2006 Thomson/South-Western Chapter 6 Continuous Probability Distributions n Uniform Probability Distribution n Normal Probability Distribution n Exponential Probability Distribution f ( x ) x x Uniform x Normal x x Exponential

2 2 Slide © 2006 Thomson/South-Western Continuous Probability Distributions n A continuous random variable can assume any value in an interval on the real line or in a collection of intervals. n It is not possible to talk about the probability of the random variable assuming a particular value. n Instead, we talk about the probability of the random variable assuming a value within a given interval.

3 3 Slide © 2006 Thomson/South-Western Continuous Probability Distributions n The probability of the random variable assuming a value within some given interval from x 1 to x 2 is defined to be the area under the graph of the probability density function between x 1 and x 2. f ( x ) x x Uniform x1 x1x1 x1 x1 x1x1 x1 x2 x2x2 x2 x2 x2x2 x2 x Normal x1 x1x1 x1 x1 x1x1 x1 x2 x2x2 x2 x2 x2x2 x2 x1 x1x1 x1 x1 x1x1 x1 x2 x2x2 x2 x2 x2x2 x2 Exponential x x x1 x1x1 x1 x1 x1x1 x1 x2 x2x2 x2 x2 x2x2 x2

4 4 Slide © 2006 Thomson/South-Western Normal Probability Distribution n The normal probability distribution is the most important distribution for describing a continuous random variable. n It is widely used in statistical inference.

5 5 Slide © 2006 Thomson/South-Western Heights of people Heights Normal Probability Distribution n It has been used in a wide variety of applications: Scientific measurements measurementsScientific

6 6 Slide © 2006 Thomson/South-Western Amounts of rainfall Amounts Normal Probability Distribution n It has been used in a wide variety of applications: Test scores scoresTest

7 7 Slide © 2006 Thomson/South-Western Normal Probability Distribution n Normal Probability Density Function  = mean  = standard deviation  = e = where:

8 8 Slide © 2006 Thomson/South-Western The distribution is symmetric; its skewness The distribution is symmetric; its skewness measure is zero. measure is zero. The distribution is symmetric; its skewness The distribution is symmetric; its skewness measure is zero. measure is zero. Normal Probability Distribution n Characteristics x

9 9 Slide © 2006 Thomson/South-Western The entire family of normal probability The entire family of normal probability distributions is defined by its mean  and its distributions is defined by its mean  and its standard deviation . standard deviation . The entire family of normal probability The entire family of normal probability distributions is defined by its mean  and its distributions is defined by its mean  and its standard deviation . standard deviation . Normal Probability Distribution n Characteristics Standard Deviation  Mean  x

10 Slide © 2006 Thomson/South-Western The highest point on the normal curve is at the The highest point on the normal curve is at the mean, which is also the median and mode. mean, which is also the median and mode. The highest point on the normal curve is at the The highest point on the normal curve is at the mean, which is also the median and mode. mean, which is also the median and mode. Normal Probability Distribution n Characteristics x

11 Slide © 2006 Thomson/South-Western Normal Probability Distribution n Characteristics The mean can be any numerical value: negative, The mean can be any numerical value: negative, zero, or positive. zero, or positive. The mean can be any numerical value: negative, The mean can be any numerical value: negative, zero, or positive. zero, or positive. x

12 Slide © 2006 Thomson/South-Western Normal Probability Distribution n Characteristics  = 15  = 25 The standard deviation determines the width of the curve: larger values result in wider, flatter curves. The standard deviation determines the width of the curve: larger values result in wider, flatter curves. x

13 Slide © 2006 Thomson/South-Western Probabilities for the normal random variable are Probabilities for the normal random variable are given by areas under the curve. The total area given by areas under the curve. The total area under the curve is 1 (.5 to the left of the mean and under the curve is 1 (.5 to the left of the mean and.5 to the right)..5 to the right). Probabilities for the normal random variable are Probabilities for the normal random variable are given by areas under the curve. The total area given by areas under the curve. The total area under the curve is 1 (.5 to the left of the mean and under the curve is 1 (.5 to the left of the mean and.5 to the right)..5 to the right). Normal Probability Distribution n Characteristics.5.5 x

14 Slide © 2006 Thomson/South-Western Normal Probability Distribution n Characteristics of values of a normal random variable of values of a normal random variable are within of its mean. are within of its mean. of values of a normal random variable of values of a normal random variable are within of its mean. are within of its mean.68.26%68.26% +/- 1 standard deviation of values of a normal random variable of values of a normal random variable are within of its mean. are within of its mean. of values of a normal random variable of values of a normal random variable are within of its mean. are within of its mean %95.44% +/- 2 standard deviations of values of a normal random variable of values of a normal random variable are within of its mean. are within of its mean. of values of a normal random variable of values of a normal random variable are within of its mean. are within of its mean.99.72%99.72% +/- 3 standard deviations

15 Slide © 2006 Thomson/South-Western Normal Probability Distribution n Characteristics x  – 3   – 1   – 2   + 1   + 2   + 3  68.26% 95.44% 99.72%

16 Slide © 2006 Thomson/South-Western Standard Normal Probability Distribution A random variable having a normal distribution A random variable having a normal distribution with a mean of 0 and a standard deviation of 1 is with a mean of 0 and a standard deviation of 1 is said to have a standard normal probability said to have a standard normal probability distribution. distribution. A random variable having a normal distribution A random variable having a normal distribution with a mean of 0 and a standard deviation of 1 is with a mean of 0 and a standard deviation of 1 is said to have a standard normal probability said to have a standard normal probability distribution. distribution.

17 Slide © 2006 Thomson/South-Western  0 z The letter z is used to designate the standard The letter z is used to designate the standard normal random variable. normal random variable. The letter z is used to designate the standard The letter z is used to designate the standard normal random variable. normal random variable. Standard Normal Probability Distribution

18 Slide © 2006 Thomson/South-Western n Converting to the Standard Normal Distribution Standard Normal Probability Distribution We can think of z as a measure of the number of standard deviations x is from .

19 Slide © 2006 Thomson/South-Western Standard Normal Probability Distribution n Standard Normal Density Function z = ( x –  )/   = e = where:

20 Slide © 2006 Thomson/South-Western Standard Normal Probability Distribution n Example: Pep Zone 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. Pep Zone 5w-20 Motor Oil

21 Slide © 2006 Thomson/South-Western The store manager is concerned that sales are being The store manager is concerned that sales are being lost due to stockouts while waiting for an order. It has been determined that demand during replenishment lead-time 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). (Demand exceeding 20 gallons) Standard Normal Probability Distribution Pep Zone 5w-20 Motor Oil n Example: Pep Zone

22 Slide © 2006 Thomson/South-Western z = ( x -  )/  z = ( x -  )/  = ( )/6 = ( )/6 =.83 =.83 z = ( x -  )/  z = ( x -  )/  = ( )/6 = ( )/6 =.83 =.83 n Solving for the Stockout Probability Step 1: Convert x to the standard normal distribution. Pep Zone 5w-20 Motor Oil Step 2: Find the area under the standard normal curve to the left of z =.83. curve to the left of z =.83. Step 2: Find the area under the standard normal curve to the left of z =.83. curve to the left of z =.83. see next slide see next slide Standard Normal Probability Distribution

23 Slide © 2006 Thomson/South-Western n Cumulative Probability Table for the Standard Normal Distribution Pep Zone 5w-20 Motor Oil P ( z <.83) Standard Normal Probability Distribution

24 Slide © 2006 Thomson/South-Western P ( z >.83) = 1 – P ( z.83) = 1 – P ( z <.83) = = =.2033 =.2033 P ( z >.83) = 1 – P ( z.83) = 1 – P ( z <.83) = = =.2033 =.2033 n Solving for the Stockout Probability Step 3: Compute the area under the standard normal curve to the right of z =.83. curve to the right of z =.83. Step 3: Compute the area under the standard normal curve to the right of z =.83. curve to the right of z =.83. Pep Zone 5w-20 Motor Oil Probability of a stockout of a stockout P ( x > 20) Standard Normal Probability Distribution

25 Slide © 2006 Thomson/South-Western n Solving for the Stockout Probability 0.83 Area =.7967 Area = =.2033 =.2033 z Pep Zone 5w-20 Motor Oil Standard Normal Probability Distribution

26 Slide © 2006 Thomson/South-Western n Standard Normal Probability Distribution If the manager of Pep Zone wants the probability of a stockout to be no more than.05, what should the reorder point be? Pep Zone 5w-20 Motor Oil Standard Normal Probability Distribution

27 Slide © 2006 Thomson/South-Western n Solving for the Reorder Point Pep Zone 5w-20 Motor Oil 0 Area =.9500 Area =.0500 z z.05 Standard Normal Probability Distribution

28 Slide © 2006 Thomson/South-Western n Solving for the Reorder Point Pep Zone 5w-20 Motor Oil Step 1: Find the z -value that cuts off an area of.05 in the right tail of the standard normal in the right tail of the standard normal distribution. distribution. Step 1: Find the z -value that cuts off an area of.05 in the right tail of the standard normal in the right tail of the standard normal distribution. distribution. We look up the complement of the tail area ( =.95) Standard Normal Probability Distribution

29 Slide © 2006 Thomson/South-Western n Solving for the Reorder Point Pep Zone 5w-20 Motor Oil Step 2: Convert z.05 to the corresponding value of x. x =  + z.05  x =  + z.05   = (6) = or 25 = or 25 x =  + z.05  x =  + z.05   = (6) = or 25 = or 25 A reorder point of 25 gallons will place the probability A reorder point of 25 gallons will place the probability of a stockout during leadtime at (slightly less than).05. of a stockout during leadtime at (slightly less than).05. Standard Normal Probability Distribution

30 Slide © 2006 Thomson/South-Western n Solving for the Reorder Point Pep Zone 5w-20 Motor Oil By raising the reorder point from 20 gallons to By raising the reorder point from 20 gallons to 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 This is a significant decrease in the chance that Pep Zone will be out of stock and unable to meet a customer’s desire to make a purchase. Standard Normal Probability Distribution