Chapter 6 6-1

Basic Business Statistics

10th Edition

Chapter 6

The Normal Distribution

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc.. Chap 6-1

Learning Objectives

In this chapter, you learn:

To compute probabilities from the normal
distribution

To use the normal probability plot to determine
whether a set of data is approximately normally
distributed

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-2

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-2

Probability Distributions
Probability
Distributions

Ch. 5 Discrete Continuous Ch. 6

Probability Probability
Distributions Distributions

Binomial Normal

Poisson Uniform

Exponential

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-3

Continuous Probability Distributions

A continuous random variable is a variable that
can assume any value on a continuum (can
assume an uncountable number of values)

thickness of an item

time required to complete a task

temperature of a solution

height, in inches

These can potentially take on any value,

depending only on the ability to measure
accurately.
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-4

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-3

The Normal Distribution

Probability
Distributions

Continuous
Probability
Distributions

Normal

Uniform

Exponential

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-5

The Normal Distribution

‘Bell
Shaped’

Symmetrical f(X)

Mean, Median and Mode
are Equal
Location is determined by the σ
mean, µ X
Spread is determined by the µ
standard deviation, σ
Mean
The random variable has an = Median
infinite theoretical range: = Mode
+ ∞ to − ∞

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-6

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-4

The Normal Distribution (Gaussian)

Numerous continuous variables common in business

have distributions that closely resemble the normal
distribution.

The normal distribution can be used to approximate

various discrete probability distributions.

The normal distribution provides the basis for classical

statistical inference because of its relationship to the
Central Limit Theorem.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-7

Certain Properties

You can calculate the probability that various

values occur within certain ranges or intervals.
However, the exact probability of a particular
value from a continuous distribution is zero.

Its interquartile range is equal to 1.33 standard

deviations. Thus, the middle 50% of the values
are contained within an interval of 2/3 of a
standard deviation below the mean and 2/3 of a
standard deviation above the mean.
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-8

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-5

Many Normal Distributions

By varying the parameters µ and σ, we obtain

different normal distributions

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-9

The Normal Distribution

Shape

f(X) Changing µ shifts the

distribution left or right.

Changing σ increases
or decreases the
σ spread.

µ X

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-10

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-6

The Standardized Normal

Any normal distribution (with any mean and

standard deviation combination) can be
transformed into the standardized normal
distribution (Z)

Need to transform X units into Z units

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-11

Translation to the Standardized

Normal Distribution

Translate from X to the standardized normal

(the “Z” distribution) by subtracting the mean
of X and dividing by its standard deviation:

X −µ
Z=
σ
The Z distribution always has mean = 0 and
standard deviation = 1
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-12

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-7

The Standardized
Normal Distribution

Also known as the “Z” distribution

Mean is 0

Standard Deviation is 1
f(Z)

0 Z

Values above the mean have positive Z-values,

values below the mean have negative Z-values
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-13

Example

If X is distributed normally with mean of 100

and standard deviation of 50, the Z value for
X = 200 is

X − µ 200 − 100
Z= = = 2.0
σ 50

This says that X = 200 is two standard
deviations (2 increments of 50 units) above
the mean of 100.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-14

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-8

Comparing X and Z units

100 200 X (µ = 100, σ = 50)

0 2.0 Z (µ = 0, σ = 1)

Note that the distribution is the same, only the

scale has changed. We can express the problem in
original units (X) or in standardized units (Z)

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-15

Finding Normal Probabilities

Probability is the
Probability is measured by the area
area under the
curve! under the curve
f(X)
P (a ≤ X ≤ b)
= P (a < X < b)
(Note that the
probability of any
individual value is zero)

a b X

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-16

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-9

Normal Probability Density

Function

f(x)=

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-17

Probability as
Area Under the Curve
The total area under the curve is 1.0, and the curve is
symmetric, so half is above the mean, half is below

f(X) P( −∞ < X < µ) = 0.5

P(µ < X < ∞ ) = 0.5

0.5 0.5

µ X
P( −∞ < X < ∞) = 1.0
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-18

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-10

Empirical Rules

What can we say about the distribution of values

around the mean? There are some general rules:
f(X)

µ ± 1σ encloses about
68% of X’s
σ σ

X
µ-1σ µ µ+1σ
68.26%
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-19

The Empirical Rule

(continued)

µ ± 2σ covers about 95% of X’s

µ ± 3σ covers about 99.7% of X’s

2σ 2σ 3σ 3σ
µ x µ x

95.44% 99.73%

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-20

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-11

The Standardized Normal Table

The Cumulative Standardized Normal table

in the textbook (Appendix table E.2) gives the
probability less than a desired value for Z
(i.e., from negative infinity to Z)

0.9772
Example:
P(Z < 2.00) = 0.9772

0 2.00 Z

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-21

The Standardized Normal Table

(continued)

The column gives the value of

Z to the second decimal point
Z 0.00 0.01 0.02 …

The row shows 0.0

the value of Z 0.1
to the first . The value within the
.
decimal point . table gives the
2.0 .9772 probability from Z = − ∞
up to the desired Z
2.0
value
P(Z < 2.00) = 0.9772

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-22

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-12

General Procedure for

Finding Probabilities

To find P(a < X < b) when X is

distributed normally:

Draw the normal curve for the problem in

terms of X

Translate X-values to Z-values

Use the Standardized Normal Table

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-23

Finding Normal Probabilities

Suppose X is normal with mean 8.0 and

standard deviation 5.0

Find P(X < 8.6)

X
8.0
8.6
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-24

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-13

Finding Normal Probabilities

(continued)

Suppose X is normal with mean 8.0 and
standard deviation 5.0. Find P(X < 8.6)
X − µ 8.6 − 8.0
Z= = = 0.12
σ 5.0

µ=8 µ=0
σ = 10 σ=1

8 8.6 X 0 0.12 Z

P(X < 8.6) P(Z < 0.12)

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-25

Solution: Finding P(Z < 0.12)

Standardized Normal Probability P(X < 8.6)

Table (Portion) = P(Z < 0.12)
Z .00 .01 .02 .5478
0.0 .5000 .5040 .5080

0.1 .5398 .5438 .5478

0.2 .5793 .5832 .5871
Z
0.00
0.3 .6179 .6217 .6255
0.12

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-26

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-14

Upper Tail Probabilities

Suppose X is normal with mean 8.0 and

standard deviation 5.0.

Now Find P(X > 8.6)

X
8.0
8.6
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-27

Upper Tail Probabilities

(continued)

Now Find P(X > 8.6)…

P(X > 8.6) = P(Z > 0.12) = 1.0 - P(Z ≤ 0.12)
= 1.0 - 0.5478 = 0.4522

0.5478
1.000 1.0 - 0.5478
= 0.4522

Z Z
0 0
0.12 0.12
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-28

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-15

Probability Between
Two Values

Suppose X is normal with mean 8.0 and

standard deviation 5.0. Find P(8 < X < 8.6)

Calculate Z-values:

X −µ 8 −8
Z= = =0
σ 5
8 8.6 X
X − µ 8.6 − 8 0 0.12 Z
Z= = = 0.12
σ 5 P(8 < X < 8.6)
= P(0 < Z < 0.12)
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-29

Solution: Finding P(0 < Z < 0.12)

Standardized Normal Probability P(8 < X < 8.6)

Table (Portion) = P(0 < Z < 0.12)
= P(Z < 0.12) – P(Z ≤ 0)
Z .00 .01 .02 = 0.5478 - .5000 = 0.0478
0.0 .5000 .5040 .5080 0.0478
0.5000
0.1 .5398 .5438 .5478
0.2 .5793 .5832 .5871

0.3 .6179 .6217 .6255 Z

0.00
0.12
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-30

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-16

Probabilities in the Lower Tail

Suppose X is normal with mean 8.0 and

standard deviation 5.0.

Now Find P(7.4 < X < 8)

X
8.0
7.4

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-31

Probabilities in the Lower Tail

(continued)

Now Find P(7.4 < X < 8)…

P(7.4 < X < 8)
= P(-0.12 < Z < 0) 0.0478
= P(Z < 0) – P(Z ≤ -0.12)
= 0.5000 - 0.4522 = 0.0478 0.4522

The Normal distribution is

symmetric, so this probability
7.4 8.0 X
is the same as P(0 < Z < 0.12) Z
-0.12 0

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-32

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-17

Finding the X value for a

Known Probability

Steps to find the X value for a known

probability:
1. Find the Z value for the known probability
2. Convert to X units using the formula:

X = µ + Zσ

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-33

Finding the X value for a

Known Probability
(continued)

Example:

Suppose X is normal with mean 8.0 and
standard deviation 5.0.

Now find the X value so that only 20% of all
values are below this X

0.2000

? 8.0 X
? 0 Z
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-34

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-18

Find the Z value for

20% in the Lower Tail

1. Find the Z value for the known probability

Standardized Normal Probability
20% area in the lower
Table (Portion) tail is consistent with a
Z … .03 .04 .05 Z value of -0.84

-0.9 … .1762 .1736 .1711

0.2000
-0.8 … .2033 .2005 .1977
-0.7 … .2327 .2296 .2266
? 8.0 X
-0.84 0 Z

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-35

Finding the X value

2. Convert to X units using the formula:

X = µ + Zσ
= 8.0 + ( −0.84 )5.0
= 3.80

So 20% of the values from a distribution

with mean 8.0 and standard deviation
5.0 are less than 3.80

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-36

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-19

Evaluating Normality

Not all continuous random variables are

normally distributed

It is important to evaluate how well the data set
is approximated by a normal distribution

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-37

Evaluating Normality
(continued)

Construct charts or graphs

For small- or moderate-sized data sets, do stem-and-
leaf display and box-and-whisker plot look
symmetric?

For large data sets, does the histogram or polygon
appear bell-shaped?

Compute descriptive summary measures

Do the mean, median and mode have similar values?

Is the interquartile range approximately 1.33 σ?

Is the range approximately 6 σ?

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-38

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-20

Assessing Normality
(continued)

Observe the distribution of the data set

Do approximately 2/3 of the observations lie within
mean ± 1 standard deviation?

Do approximately 80% of the observations lie within
mean ± 1.28 standard deviations?

Do approximately 95% of the observations lie within
mean ± 2 standard deviations?

Evaluate normal probability plot

Is the normal probability plot approximately linear
with positive slope?

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-39

The Normal Probability Plot

Normal probability plot

Arrange data into ordered array

Find corresponding standardized normal quantile
values

Plot the pairs of points with observed data values on
the vertical axis and the standardized normal quantile
values on the horizontal axis

Evaluate the plot for evidence of linearity

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-40

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-21

The Normal Probability Plot

(continued)

A normal probability plot for data

from a normal distribution will be
approximately linear:

X
90

60

30

-2 -1 0 1 2 Z

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-41

Normal Probability Plot

(continued)

Left-Skewed Right-Skewed
X 90 X 90
60 60
30 30
-2 -1 0 1 2 Z -2 -1 0 1 2 Z

Rectangular
X 90 Nonlinear plots
indicate a deviation
60
from normality
30
-2 -1 0 1 2 Z
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-42

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-22

Learning Objectives
In this chapter, you learn:

To compute probabilities from the uniform
distribution

To compute probabilities from the exponential
distribution

To compute probabilities from the normal
distribution to approximate probabilities from the
binomial distribution

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-43

Probability Distributions
Probability
Distributions

Ch. 5 Discrete Continuous Ch. 6

Probability Probability
Distributions Distributions

Binomial Normal

Poisson Uniform

Exponential

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-44

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-23

The Uniform Distribution

Probability
Distributions

Continuous
Probability
Distributions

Normal

Uniform

Exponential

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-45

The Uniform Distribution

The uniform distribution is a

probability distribution that has equal
probabilities for all possible
outcomes of the random variable

Also called a rectangular distribution

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-46

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-24

The Uniform Distribution

(continued)

The Continuous Uniform Distribution:

1
if a ≤ X ≤ b
b−a
f(X) =
0 otherwise

where
f(X) = value of the density function at any X value
a = minimum value of X
b = maximum value of X

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-47

Properties of the
Uniform Distribution

The mean of a uniform distribution is

a+b
µ=
2

The standard deviation is

(b - a) 2
σ=
12

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-48

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-25

Uniform Distribution Example

Example: Uniform probability distribution

over the range 2 ≤ X ≤ 6:
1
f(X) = 6 - 2 = 0.25 for 2 ≤ X ≤ 6

f(X)
a+b 2+6
µ= = =4
0.25 2 2

(b - a) 2 (6 - 2) 2
σ= = = 1 .1547
X 12 12
2 6

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-49

Uniform Distribution Example

(continued)

Example: Using the uniform probability

distribution to find P(3 ≤ X ≤ 5):

P(3 ≤ X ≤ 5) = (Base)(Height) = (2)(0.25) = 0.5

f(X)

0.25

2 3 4 5 6 X

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-50

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-26

The Exponential Distribution

Probability
Distributions

Continuous
Probability
Distributions

Normal

Uniform

Exponential

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-51

The Exponential Distribution

Often used to model the length of time

between two occurrences of an event (the
time between arrivals)

Examples:

Time between trucks arriving at an unloading dock

Time between transactions at an ATM Machine

Time between phone calls to the main operator

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-52

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-27

The Exponential Distribution

Defined by a single parameter, its mean λ

(lambda)

The probability that an arrival time is less than
some specified time X is

P(arrival time < X) = 1 − e − λX

where e = mathematical constant approximated by 2.71828
λ = the population mean number of arrivals per unit
X = any value of the continuous variable where 0 < X < ∞
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-53

Exponential Distribution
Example

Example: Customers arrive at the service counter at

the rate of 15 per hour. What is the probability that the
arrival time between consecutive customers is less
than three minutes?

The mean number of arrivals per hour is 15, so λ = 15

Three minutes is 0.05 hours

P(arrival time < .05) = 1 – e-λX = 1 – e-(15)(0.05) = 0.5276

So there is a 52.76% probability that the arrival time
between successive customers is less than three
minutes
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-54

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-28

Normal Approximation to the

Binomial Distribution

The binomial distribution is a discrete

distribution, but the normal is continuous

To use the normal to approximate the binomial,
accuracy is improved if you use a correction for
continuity adjustment

Example:

X is discrete in a binomial distribution, so P(X = 4)
can be approximated with a continuous normal
distribution by finding
P(3.5 < X < 4.5)
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-55

Normal Approximation to the

Binomial Distribution
(continued)

The closer p is to 0.5, the better the normal

approximation to the binomial

The larger the sample size n, the better the
normal approximation to the binomial

General rule:

The normal distribution can be used to approximate
the binomial distribution if

np ≥ 5
and
n(1 – p) ≥ 5
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-56

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-29

Normal Approximation to the

Binomial Distribution
(continued)

The mean and standard deviation of the

binomial distribution are
µ = np
σ = np(1 − p)

Transform binomial to normal using the formula:

X −µ X − np
Z= =
σ np(1− p)

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-57

Using the Normal Approximation

to the Binomial Distribution

If n = 1000 and p = 0.2, what is P(X ≤ 180)?

Approximate P(X ≤ 180) using a continuity correction
adjustment:
P(X ≤ 180.5)

Transform to standardized normal:
X − np 180.5 − (1000)(0.2)
Z= = = −1.54
np(1− p) (1000)(0.2 )(1− 0.2)

So P(Z ≤ -1.54) = 0.0618

180.5 200 X
-1.54 0 Z
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-58

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.

 Chapter 6 6-30

Chapter Summary

Presented key continuous distributions

normal, uniform, exponential

Found probabilities using formulas and tables

Recognized when to apply different distributions

Applied distributions to decision problems

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 6-59

Basic Business Statistics, 10/e © 2006 Prentice Hall, Inc.