SLIDES Probability-Part3

Statistics for Business and Economics
Chapter 1 (cont.): Continuous Probability Distributions
Faculty of Economic Mathematics, University of Economics and Law

Outline
Continuous Probability Distributions
Uniform Probability Distribution
Normal Probability Distribution
Standard Normal Probability Distribution

Cumulative distribution function
Let X be a continuous random variable with probability function f(x). Then f(x) = 0
for every real number x.
Cumulative distribution function
The cumulative distribution function (CDF) of a random variable X is defined as
F : R → [0, 1]
x 7→ F(x) = P(X ≤ x)
▶ F is a non-decreasing function. F is continuous if and only if X is continuous.

▶ limx→−∞ F(x) = 0, and limx→∞ F(x) = 1.
▶ P(a < X ≤ b) = F(b) − F(a).
∫t
▶ There exists a function f(x) such that f(x) = F′ (x), or F(t) = −∞ f(x)dx.
∫b
▶ P(a < X ≤ b) = a f(x)dx.
Probability density function
Probability density function
dF
Let X be a continuous random variable with CDF F(x). Then the function f(x) = is
dx
called the probability density function of X.
Interpretation: The density function at a yields the rate of change of the CDF funtion
at a. And therefore, it yields the probability around a.
▶ The density function f of any continuous random variable is always non-negative.
That is, f(x) ≥ 0 for every x.
▶ The density function f of any continuous random variable satisfied:
∫ +∞
f(x)dx = 1.
−∞
Theorem
A function is a density probability function of a random variable if and only if f satisfies
the following two above properties.
Uniform probability distribution
Consider the random variable X representing the flight time of an airplane traveling
from Chicago to New York. Suppose the flight time can be any value in the interval
from 120 minutes to 140 minutes.
▶ With every 1 minute interval being equally likely, the random variable X is said to
have a uniform probability distribution.
▶ The probability density function of X is
{
1/20 if 120 ≤ x ≤ 140
f(x) =
0 elsewhere
Uniform probability density function


 1 if a ≤ x ≤ b
f(x) = b − a

0 elsewhere
Expected values and variances of continuous random variables
Given a continuous random variable X with probability density function f(x). Then
▶ the expected value of X is determined by
∫ ∞
E(X) = xf(x)dx,
−∞
▶ and the variance of X is determined by

∫ ∞
Var(X) = (x − E(X)2 f(x)dx.
−∞
Exercise
Find the expected value, the variance, and the deviation of the random variable X
representing the flight time of an airplane traveling from Chicago to New York.
Normal probability distribution
PDF functions of random variables having normal distribution
Definition
The normal probability distribution is a continuous random variable whose probability
density function has the form:
1 −1 x−µ 2
f(x) = √ e2( σ )
σ 2π
for some µ and σ > 0. Here, π = 3.14159..., and e = 2.71828...
▶ The expected value of X can be
determined by
E(X) = µ.
▶ The standard deviation of X can be

determined by
σX = σ.
Bell-shaped curves of normal probability density functions
Characteristics of normal distributions - part 1
1. The entire family of normal distributions is differentiated by two parameters: the

mean µ and the standard deviation σ.
2. The highest point on the normal curve is at the mean, which is also the median
and mode of the distribution.
3. The mean of the distribution can be any numerical value: negative, zero, or
positive.
4. Normal distributions with the same standard deviation but different means are the
same but plotted in different positions.
5. The normal distribution is symmetric, with the shape of the normal curve to the
left of the mean a mirror image of the shape of the normal curve to the right of
the mean. The tails of the normal curve extend to infinity in both directions and
theoretically never touch the horizontal axis. Because it is symmetric, the normal
distribution is not skewed; its skewness measure is zero.
1. The standard deviation determines how flat and wide the normal curve is. Larger
values of the standard deviation result in wider, flatter curves, showing more
variability in the data. Two normal distributions with the same mean but with
different standard deviations are shown here.
2. Probabilities for the normal random variable are given by areas under the normal
curve. The total area under the curve for the normal distribution is 1. Because
the distribution is symmetric, the area under the curve to the left of the mean is
0.50 and the area under the curve to the right of the mean is .50.
The percentage of values in some commonly used intervals are
▶ 68.3% of the values of a normal random variable are within plus or minus one
standard deviation of its mean.
▶ 95.4% of the values of a normal random variable are within plus or minus two
standard deviations of its mean.
▶ 99.7% of the values of a normal random variable are within plus or minus three
standard deviations of its mean.
Standard normal probability distribution
Definition
The standard normal probability distribution is the normal probability distribution with
a mean of zero and a standard deviation of one.
The standard normal

density function
1 z2
f(z) = √ e− 2
2π
The probability table of the standard normal probability distribution
P(Z ≥ a) = 1 − P(Z ≤ a) (1)

P(Z ≤ −a) = P(Z ≥ a) (2)
P(a ≤ Z ≤ b) = P(Z ≤ b) − P(Z ≤ a) (3)
Exercises: 10, 11, 12, 13, 14, 15,

16 (p. 285)
Computing probabilities for any normal probability distribution
Let X be a normal random variable with a mean µ and a standard deviation σ. Then
X−µ
Z=
σ
is a standard normal random variable.
Theorem
Let X be a normal random variable with a mean µ and a standard deviation σ and let
X−µ
Z= . Then
σ
( )
a−µ
P(X ≤ a) = P Z ≤ (4)
σ
Exercises: Solve the questions 10, 11, 12, 13, 14, 15, 16 (p. 285) for a normal
random variable with a random mean and a random standard deviation (which you
choose by yourself).
Teamwork for bonus point
▶ Team 1: Applications exercises 1 - 7 (p. 274-275)

▶ Team 2: Applications exercises 17 - 23 (p. 286-287)
▶ Team 3: Applications exercises 24 - 25 (p. 286-287) Applications Exercises 28 -
31 (p. 290)
▶ Team 4: Applications Exercises 34 - 38 (p. 293-294) and Supplementary exercise
39 - 40 (p.296).
▶ Team 5: Supplementary exercises: 41 - 47 (p. 296-299)
▶ Team 6: Supplementary exercises: 48 - 54 (p. 296-299)
▶ Any team: Case problem: p.299-300.
Files to submit (to LMS):
▶ A text that includes questions and answers to your team’s exercises.
▶ Group meeting minutes that include tasks with responsible people.
Thank you for your attention!

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Statistics for Business and Economics

Chapter 1 (cont.): Continuous Probability Distributions

Faculty of Economic Mathematics, University of Economics and Law

Continuous Probability Distributions

Uniform Probability Distribution

Normal Probability Distribution

Standard Normal Probability Distribution

▶ F is a non-decreasing function. F is continuous if and only if X is continuous.

Uniform probability density function

▶ and the variance of X is determined by

▶ The standard deviation of X can be

1. The entire family of normal distributions is differentiated by two parameters: the

The standard normal

P(Z ≥ a) = 1 − P(Z ≤ a) (1)

Exercises: 10, 11, 12, 13, 14, 15,

▶ Team 1: Applications exercises 1 - 7 (p. 274-275)

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