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OPRE 6301/SYSM 6303


Quantitative Introduction to Risk and
Uncertainty in Business
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Chapter Eight
Continuous Probability Distributions

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Probability Density Functions


Recall our Long-Distance Telephone Bills

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Probability Density Functions


Relative Frequency of Each Class

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Probability Density Functions

What if we want to determine the probability of a


bill chosen at random being between 50 and 80?
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Probability Density Functions


Relative Frequency divided by Class Width

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Probability Density Functions


Determine the area of the histogram bars of the
range of interest and add them together.

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Probability Density Functions


As the number of classes increases to a large
number, we can smooth the edges of the
rectangles to produce a smooth curve.

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Probability Density Functions


Requirements
Apply to a probability density
function f(x) whose range is

a xb
f ( x) 0 for all x between a and b
The total area under the curve
between a and b is 1.
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Uniform Probability
Distribution
Density Function
f ( x)

1
where a x b
ba

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Uniform Probability
Distribution
We can use the density function, f(x),
to determine the area under the curve
between two values x1 and x2
The area under the curve is the probability

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Uniform Probability
Distribution
Lets investigate
The amount of gasoline sold daily
at a service station is uniformly distributed
with a minimum of 2,000 gallons and
a maximum of 5,000 gallons

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Uniform Probability
Distribution
What is the probability that daily sales will fall
between 2,500 and 3,000 gallons?

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Uniform Probability
Distribution
What is the probability that the service station will
sell at least 4,000 gallons?

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Uniform Probability
Distribution
What is the probability that the service station will
sell exactly 2,500 gallons?

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Normal Probability
Distribution

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Normal Probability
Distribution
Same variance with different means

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Normal Probability
Distribution
Same means with different variances

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Normal Probability
Distribution
Calculating normal probabilities

Use the standard normal random variable, Z:

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Normal Probability
Distribution
Lets investigate
Daily demand for gasoline at another gas station
is normally distributed with a mean of 1,000
gallons and a standard deviation of 100 gallons.
The owner has 1,100 gallons available to sell.
What is the probability the owner will be able to
satisfy the days demand?
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Normal Probability
Distribution
Lets investigate

P( X 1,100) ?

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Normal Probability
Distribution
Lets investigate

P( Z 1.0) ?

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Normal Probability
Distribution
The Standard Normal Distribution Table
Z-table

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Normal Probability
Distribution
Lets investigate

P( Z 1.0) 0.8413
P( X 1,100) 0.8413
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Normal Probability
Distribution
Lets investigate

P( Z 1.8) 1 P( Z 1.8) 1 0.9641 0.0359


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Normal Probability
Distribution

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Normal Probability
Distribution
Finding a Z-value for a given probability value

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Normal Probability
Distribution

Z0.025 =1.96

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Normal Probability
Distribution

Z0.05 =1.645

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Normal Probability
Distribution

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