Chapter

7
Continuous Distributions
Continuous Variables Describing a Continuous Distribution Uniform Continuous Distribution Normal Distribution Standard Normal Distribution Normal Approximation to the Binomial (Optional) Normal Approximation to the Poisson (Optional) Exponential Distribution Triangular Distribution

Continuous Variables
Events as Intervals
Discrete Variable each value of X has its own probability P(X). Continuous Variable events are intervals and probabilities are areas underneath smooth curves. A single point has no probability.

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Describing a Continuous Distribution

PDFs and CDFs
Probability Density Function (PDF) For a continuous random variable, the PDF is an equation that shows the height of the curve f(x) at each possible value of X over the range of X.
Normal PDF
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Describing a Continuous Distribution

PDFs and CDFs
Continuous PDFs: 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
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Normal PDF

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Describing a Continuous Distribution

PDFs and CDFs
Continuous CDFs: Denoted F(x) Shows P(X < x), the cumulative proportion of scores Useful for finding probabilities
Normal CDF
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Describing a Continuous Distribution

Probabilities as Areas
Continuous probability functions are smooth curves. Unlike discrete distributions, the area at any single point = 0. The entire area under any PDF must be 1. Mean is the balance point of the distribution.
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Describing a Continuous Distribution

Expected Value and Variance

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Uniform Continuous Distribution

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 U(a,b) Area = base x height = (b-a) x 1/(b-a) = 1

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Uniform Continuous Distribution

Characteristics of the Uniform Distribution

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Uniform Continuous Distribution

Characteristics of the Uniform Distribution
The CDF increases linearly to 1. CDF formula is (x-a)/(b-a)

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Uniform Continuous Distribution

Example: Anesthesia Effectiveness
An oral surgeon injects a painkiller prior to extracting a tooth. Given the varying characteristics of patients, the dentist views the time 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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Uniform Continuous Distribution

Example: Anesthesia Effectiveness
a + b 15 + 30 m= = = 22.5 minutes 2 2 s= (b a)2 = (30 15)2 = 4.33 minutes 12 12

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Find the probability that the anesthetic takes between 20 and 25 minutes. P(c < X < d) = (d c)/(b a) P(20 < X < 25) = (25 20)/(30 15) = 5/15 = 0.3333 or 33.33%

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Uniform Continuous Distribution

Example: Anesthesia Effectiveness

P(20 < X < 25)

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Normal Distribution
Characteristics of the Normal Distribution
Normal or Gaussian distribution was named for German mathematician Karl Gauss (1777 1855). Defined by two parameters, m and s Denoted N(m, s) Domain is < X < + Almost all area under the normal curve is included in the range m 3s < X < m + 3s
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Normal Distribution
Characteristics of the Normal Distribution

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Normal Distribution
Characteristics of the Normal Distribution
Normal PDF f(x) reaches a maximum at m and has points of inflection at m + s

Bell-shaped curve

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Normal Distribution
Characteristics of the Normal Distribution
Normal CDF

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Normal Distribution
Characteristics of the Normal Distribution
All normal distributions have the same shape but differ in the axis scales.
m = 42.70mm s = 0.01mm

m = 70 s = 10

Diameters of golf balls

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CPA Exam Scores

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Normal Distribution
What is Normal?
A normal random variable should: Be measured on a continuous scale. Possess clear central tendency. Have only one peak (unimodal). Exhibit tapering tails. Be symmetric about the mean (equal tails).

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Standard Normal Distribution

Characteristics of the Standard Normal
Since for every value of m and s, there is a different normal distribution, we transform a normal random variable to a standard normal distribution with m = 0 and s = 1 using the formula:

z= xm s

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Denoted N(0,1)
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Standard Normal Distribution

Characteristics of the Standard Normal

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Standard Normal Distribution

Characteristics of the Standard Normal
Standard normal PDF f(x) reaches a maximum at 0 and has points of inflection at +1. Shape is unaffected by the transformation. It is still a bellshaped curve.

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Standard Normal Distribution

Characteristics of the Standard Normal
Standard normal CDF

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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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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):

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Standard Normal Distribution

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Standard Normal Distribution

Normal Areas from Appendix C-1
Now find P(Z < 1.96):
.5000

.5000 - .4750 = .0250

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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).

.9500

So, P(-1.96 < Z < 1.96) = .4750 + .4750 = .9500 or 95% of the area under the curve.
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Standard Normal Distribution

Basis for the Empirical Rule
Approximately 95% of the area under the curve is between + 2s Approximately 99.7% of the area under the curve is between + 3s

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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,

.9500

P(Z < 1.96)

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P(Z < -1.96)

P(-1.96 < Z < 1.96)

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Standard Normal Distribution

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Standard Normal Distribution

Normal Areas from Appendices C-1 or C-2
Appendices C-1 and C-2 yield identical results. Use whichever table is easiest. Appendices C-1 and C-2 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.
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Finding z for a Given Area

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Standard Normal Distribution

Finding z for a Given Area
Look for an area of .4900 in Appendix C-1: Without interpolation, the closest we can get is z = 2.33
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Standard Normal Distribution

Finding z for a Given Area
Some important Normal areas:

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Standard Normal Distribution

Finding Normal Areas with Excel

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Standard Normal Distribution

Finding Normal Areas with Excel

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Standard Normal Distribution

Finding Normal Areas with Excel

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Standard Normal Distribution

Finding Normal Areas with Excel

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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 (i.e., find P(X < 86)?
zJohn = x m = 86 75 = 11/7 = 1.57 7 s So Johns score is 1.57 standard deviations about the mean.
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Standard Normal Distribution

Finding Areas by using Standardized Variables P(X < 86) = P(Z < 1.57) = .9418 (from Appendix C-2) So, John is approximately in the 94th percentile.

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Standard Normal Distribution

Inverse Normal
You can manipulate the transformation formula to find the normal percentile values (e.g., 5th, 10th, 25th, etc.): x = m + zs
Here are some common percentiles

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Standard Normal Distribution

Using Excel Without Standardizing
Excels NORMDIST and NORMINV function allow you to evaluate areas without standardizing. For example, let m = 2.040 cm and s = .001 cm, what is the probability that a given steel bearing will have a diameter between 2.039 and 2.042cm? In other words, P(2.039 < X < 2.042) Excel only gives left tail areas, so break the formula into two, find P(X < 2.039) and P(X < 2.042), then subtract them to find the desired probability:
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Standard Normal Distribution

Using Excel Without Standardizing
P(X < 2.042) = .9773 P(X < 2.039) = .1587

P(2.039 < X < 2.042) = .9773 - .1587 = .8186 or 81.9%

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Normal Approximation to the Binomial

When is Approximation Needed?

Binomial probabilities are difficult to calculate when n is large. Use a normal approximation to the binomial. As n becomes large, the binomial bars become more continuous and smooth.

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Normal Approximation to the Binomial

When is Approximation Needed?
Rule of thumb: when np > 10 and n(1-p) > 10, then it is appropriate to use the normal approximation to the binomial. In this case, the binomial mean and standard deviation will be equal to the normal m and s, respectively. m = np s = np(1-p)

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Normal Approximation to the Binomial

Example Coin Flips
If we were to flip a coin n = 32 times and p = .50, are the requirements for a normal approximation to the binomial met? Are np > 5 and n(1-p) > 10? np = 32 x .50 = 16 n(1-p) = 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.
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Normal Approximation to the Binomial

Example Coin Flips
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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Normal Approximation to the Binomial

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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Normal Approximation to the Binomial

Continuity Correction
The table below shows some events and their cutoff point for the normal approximation.

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Normal Approximation to the Poisson

When is Approximation Needed?
The normal approximation to the Poisson works best when l is large (e.g., when l exceeds the values in Appendix B). Set the normal m and s equal to the Poisson mean and standard deviation. m=l s= l

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Normal Approximation to the Poisson

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? l = 42 which is too big to use the Poisson table. Use the normal approximation with m = l = 42 s = l = 42 = 6.48074

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Normal Approximation to the Poisson

Example Utility Bills
To find P(X > 50) calls, use the continuitycorrected 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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Exponential Distribution
Characteristics of the Exponential Distribution
If events per unit of time follow a Poisson distribution, the waiting time until the next event follows the Exponential distribution. Waiting time until the next event is a continuous variable.

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Exponential Distribution
Characteristics of the Exponential Distribution

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Exponential Distribution
Characteristics of the Exponential Distribution

Probability of waiting more than x

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Probability of waiting less than x

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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 l = 2.2 events/min and x = 0.50 min P(X > 0.50) = elx = e(2.2)(0.5) = .3329 or 33.29% chance of waiting more than 30 seconds for the next call.
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Exponential Distribution
Example Customer Waiting Time

P(X > 0.50)

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P(X < 0.50)

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

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Exponential Distribution
Inverse Exponential
P(X < x) = .90 or P(X > x) = .10 So, elx = .10 -lx = ln(.10) = -2.302585 x = 2.302585/l = 2.302585/2.2 = 1.0466 min. 90% of the calls will arrive within 1.0466 minutes (62.8 seconds).
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Exponential Distribution
Inverse Exponential
Quartiles for Exponential with l = 2.2

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Exponential Distribution
Mean Time Between Events

Exponential waiting times are described as Mean time between events (MTBE) = 1/l 1/MTBE = l = mean events per unit of time In a hospital, if an event is patient arrivals in an ER, and the MTBE is 20 minutes, then l = 1/20 = 0.05 arrivals per minute (or 3/hour).

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Exponential Distribution
Using Excel
In Excel, use =EXPONDIST(x,l,1) to return the left-tail area P(X < x).

Relation Between Exponential and Poisson

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Triangular Distribution
Characteristics of the Triangular Distribution
A simple distribution that can be symmetric or skewed. Ranges from a to b and has a mode or peak at c Denoted T(a,b,c)

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Triangular Distribution
Characteristics of the Triangular Distribution

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Triangular Distribution
Special Cases: Symmetric Triangular
A symmetric triangular distribution is centered at 0 Lower limit is identical to the upper limit except for the sign, with mode 0. Mean m = 0, standard deviation s = b/ 6 =2.45 This distribution closely resembles a standard normal distribution N(0,1) Generate random triangular data in Excel by summing RAND()+RAND()
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Applied Statistics in Business and Economics

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