MTH213: Business Statistics

Chapter 6: The Normal Distribution

Zayed University

College of Natural and Health Sciences

Department of Mathematics and Statistics

Chapter 6 MTH213: Business Statistics 1 / 26

 Outline

1 Continuous Probability Distribution

2 Normal Distribution
Properties of Normal Distribution
Computing Normal Probabilities

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 Outline

Objectives

In this chapter, you learn:

To compute probabilities from the normal distribution.
How to use the normal distribution to solve business problems.
To use the normal probability plot to determine whether a set of
data is approximately normally distributed.

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 Continuous Probability Distribution

Continuous Probability Distribution

A continuous variable is a variable that can assume any value
on a continuum (can assume an uncountable number of values).
I Time required to complete a task
I Starting salary of a ZU business graduate
I Price of Etisalat stock
I Age of a randomly chosen employee.
These can potentially take on any value depending only on the
ability to precisely and accurately measure.
Use a continuous probability distribution to assign probabilities to
intervals of values.
The probability distribution of a continuous random variable is
specified by a function, f (x), such that:
1 f (x) ≥ 0, for all x.
2 The total area under the curve of f (x) is equal to 1.
The function f is called the probability density function (pdf).
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 • How many seconds Probability
Continuous elapse before 99% of the downloads are complete?
Distribution
• How would enhancing the streaming media technology used affect the answers to these
Continuous Probability Distribution
questions?
As in Chapter 5, you can use a probability distribution as a model. Reading this chapter
will help you learn about characteristics of continuous probability distributions and how to use
Distribution Shapes:
the normal, uniform, and exponential distributions to solve business problems.

Symmetric and bell-shaped (The normal distribution)

uous Probability
Symmetric andDistributions
rectangular (The uniform distribution)
A probability density function is a mathematical expression that defines the distribution of
theSkewed
values for a- continuous
either left or variable.
random right (The exponential
Figure 6.1 distribution)
graphically displays three probability
density functions.

ons

Values of X Values of X Values of X

Panel A Panel B Panel C
Normal Distribution Uniform Distribution Exponential Distribution

Panel A depicts a normal distribution. The normal distribution is symmetrical and bell-
shaped, implying that most values tend to cluster around the mean, which, due to the distribu-
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 Continuous Probability Distribution

Continuous Probability Distribution

Probability Properties
If X is continuous, then
The shaded area under the curve f (x) from x = a to x = b is the
probability that x could take any value in the range a to b.
P (X = c) = 0 for any real number c
P (a ≤ X ≤ b) = P (a < X < b) = P (X < b) − P (X < a)

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 Normal Distribution Properties of Normal Distribution

Normal Distribution
It is the most important continuous distribution:
1 Many random variables (Heights, weights, IQ, etc.) can be prop-
erly modeled as normally distributed.
2 Under certain conditions, many probability distributions can be
approximated by a normal distribution.
3 The normal distribution is the cornerstone distribution of statisti-
cal inference.
Normal Distribution
A random variable X with mean µ and standard deviation σ is said
to be normally distributed, abbreviated by N (µ, σ 2 ), if its probability
density function is given by
1 2 2
f (x) = √ e−(x−µ) /2σ , −∞ < x < ∞
2πσ
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 Normal Distribution Properties of Normal Distribution

Properties of Normal Distribution

The Normal Distribution has a bell-shaped curve:
I Measurements concentrate near the mean µ.
I Symmetric distribution (Mean=Median).
I The variance σ 2 summarizes the variability.
I It has two tails extending from −∞ to +∞.
I The total area under the curve is 1.
A random variable has a standard normal distribution provided
that µ = 0 and σ = 1; i.e. it follows N (0, 1).

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 observations whose z-scores
Normal between −1 and
lie Distribution 1. ForofaNormal
Properties normally distributed variable,
Distribution
that percentage is the same as the area under the standard normal curve between −1
Empirical Rule (The 68.26-95.44-99.74
and 1, which is 0.6826 or 68.26%. Proceeding similarly, we get the following rule.

Rule)The 68.26-95.44-99.74 Rule

ACT 6.6
Any normally distributed
Any normally distributed variable
variable hashas the following
the following properties:
properties.
1 68.26%
Property of1:the areaof under
68.26% theobservations
all possible normal curve is one
lie within within onede-
standard standard
viation to either side of the mean, that is, between μ − σ and μ + σ .
deviation of the mean, that is between µ − σ and µ + σ.
Property 2: 95.44% of all possible observations lie within two standard de-
2 95.44% of the area under the normal curve is within two standard
viations to either side of the mean, that is, between μ − 2σ and μ + 2σ .
deviations
Property 3:of99.74%
the mean, thatobservations
of all possible is between µ − three
lie within 2σ and µ +de-2σ.
standard
3 99.74%
viations of the area
to either under
side of thethat
the mean, normal curveμ −is3σwithin
is, between and μ +
three
3σ . standard
deviations of the mean, that is between
These properties are illustrated in Fig. 6.20. µ − 3σ and µ + 3σ.
GURE 6.20
4-99.74 rule
68.26% 95.44% 99.74%

−  +  − 2   + 2  − 3   + 3 x
−1 0 1 −2 0 2 −3 0 3 z

(a) (b) (c)

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 Normal Distribution Properties of Normal Distribution

Example
Suppose that the IQs are normally distributed with a mean of 100 and
a standard deviation of 16. In particular, we have µ = 100 and σ = 16.
Then we have:
1 About 68% of all people have IQs between 84 and 116.
2 About 95% of all people 6.3 Working with Normally Distributed Variables
have IQs between 68 and 132. 261

3 About 99.74% of
Interpretation all of
99.74% people have
all people IQsbetween
have IQs between 52 and52148,and 148.
as illustrated
in Fig. 6.21(c).
GURE 6.21
display of the
68.26% 95.44% 99.74%
4 rule for IQs

84 100 116 68 100 132 52 100 148 x

−1 0 1 −2 0 2 −3 0 3 z

(a) (b) (c)

ercise 6.101
n page 266
As 6illustrated
Chapter in the previous example,
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Business Statistics
 Normal Distribution Properties of Normal Distribution

Standard Normal Distribution

Every normal variable X with mean µ and standard deviation σ, can
be transformed to
X −µ
Z=
σ
where Z is a standard normal distribution, i.e. N (0, 1).

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 Normal Distribution Computing Normal Probabilities

Finding Normal Probabilities

Three facts help to calculate normal probabilities:
I The normal distribution is symmetrical.
I The total area under the curve of the density is equal to 1.
I Any normal distribution can be transformed into the “standard
normal distribution”.
To find P (a < X < b) when X is distributed normally:
I Translate x-values to z-values
I Use the Standard Normal Table

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 Normal Distribution Computing Normal Probabilities

Finding Normal Probabilities

To compute the probabilities related to the normal distribution, we

will be using in the course the following online calculator: Normal
Distribution Calculator

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 Normal Distribution Computing Normal Probabilities

Example
A new gas-electric hybrid car has recently hit the market. The distance
traveled on 1 gallon of fuel is normally distributed with a mean of 65
miles and a standard deviation of 4 miles.
a Find the probability that the car travels less than 60 miles per gallon.
P (X < 60) = 0.1056

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 Normal Distribution Computing Normal Probabilities

Example

b Find the probability that the car travels more than 75 miles per
gallon.
P (X > 75) = 0.0062

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 Normal Distribution Computing Normal Probabilities

Example

c Find the probability that the car travels between 55 and 70 miles
per gallon.
P (55 < X < 70) = 0.8881

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 Normal Distribution Computing Normal Probabilities

Exercises

1 Suppose the average time in Abu Dhabi to reach work is normally

distributed with an average of 32.5 minutes and a standard de-
viation of 7.2 minutes. Let’s choose a worker at random in Abu
Dhabi.
a what is the probability that he takes less than 30 minutes to reach
his work?
b what is the probability that he takes more than 40 minutes to reach
his work?
c Is there any chance that he will spend exactly 45 minutes to reach
his work?

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 Normal Distribution Computing Normal Probabilities

Exercises

2 If the average amount of time customers spent online at an Inter-

net retailer’s site is assumed to be normally distributed with mean
of 36 minutes and a standard deviation of 6 minutes. Find the
probability a customer spends
a less than 30 minutes on the site.
b more than 44 minutes on the site.
c between 33 and 42 minutes on the site.

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 Normal Distribution Computing Normal Probabilities

Backward Normal Calculations

We could find the observed value x of a given proportion or percentile

in N (µ, σ 2 ) by unstandardizing the z-value as follows:
1 Sketch the normal curve and then place the values of the mean
and the value of x on the x-scale and z-scale.
2 Find the cumulative area less than x.
3 Use the normal table to find the lower tail probability closest to
the one you need and read off the corresponding z-value.
4 Unstandardize
X = µ + Zσ

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 Normal Distribution Computing Normal Probabilities

Example
Refer to the gas-electric hybrid car example, find the distance that only
3% of such cars travel more than that distance.
We are looking for a, such that P (X > a) = 0.03. Using the online
calculator, one finds that
a = 72.523

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 Normal Distribution Computing Normal Probabilities

Exercises
1 The fill amount in 2-litre soft drink bottles is normally distributed,
with a mean of 2.0 litres and a standard deviation of 0.05 litre.
If bottles contain less than 1.90 litres, the manufacturer may be
subject to penalty by the state office of consumer affairs. Bottles
that have a net content above 2.10 litres may cause excess spillage
upon opening.
a What proportion of the bottles will contain between 1.90 and 2.0
litres?
b What proportion of the bottles will contain between 1.90 and 2.10
litres?
c What proportion of the bottles will contain below 1.90 litres or
above 2.10 litres?
d At least how much soft drink is contained in 99% of the bottles?
e 99% of the bottles contain an amount that is between which two
values (symmetrically distributed) around the mean?
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 Normal Distribution Computing Normal Probabilities

Exercises

2 Assume that human body temperatures are normally distributed

with a mean of 98.20 o F and a standard deviation of 0.68 o F.
a What is the minimum and maximum temperatures of the middle
95% of the human body?
b What temperature must a person have to be in top 20% temperature
range?

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 Normal Distribution Computing Normal Probabilities

Exercises

3 The monthly utility bills of 2-bedroom apartments in Abu Dhabi

are normally distributed, with a mean of 1200 Dhs and a standard
deviation of 300 Dhs.
a What percent of the bills are between 900 Dhs and 1500 Dhs?
b What are the minimum and the maximum values of the middle 95%
of utility bills?
c Find the value of the utility bill such that only 5% of utility bills is
larger than that.

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 Normal Distribution Computing Normal Probabilities

Exercises

4 In establishing warranties on HDTVs, the manufacturer wants

to set the limits so that few will need repair at the manufac-
turer’s expense. On the other hand, the warranty period must
be long enough to make the purchase attractive to the buyer.
The time until a repair is needed on a new HDTV is normally
distributed with mean 36.84 months with a standard deviation of
3.34 months. Where should the warranty limits be set so that only
4% of the HDTVs need repairs at the manufacturer’s expense?

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 Normal Distribution Computing Normal Probabilities

Exercises

5 In a large section of a statistics class, the points for the final exam
are normally distributed, with a mean of 72 and a standard devi-
ation of 9. Grades are to be assigned according to the following
rule: the top 10% receive A’s, the next 20% receive B’s, the mid-
dle 40% C’s, the next 20% received D’s, and the bottom 10%
receive F’s. Find the lowest score on the final exam that would
qualify a student for an A, a B, a C, and a D.

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 Normal Distribution Computing Normal Probabilities

Additional Resources
To find P (X < x) in Excel:
I Syntax:
NORM.DIST(x,µ,σ,1)
I Example:
NORM.DIST(80,75,7,1)= 0.7625

To find x such that P (X < x) = p in Excel:

I Syntax:
NORM.INV(p, µ,σ)
I Example:
NORM.INV(0.9,80,5)= 86.41

Online Calculators:
I Normal Distribution Calculator (1)
I Normal Distribution Calculator (2)
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