Business Statistics

Probability
• Session 3
Distributions

5-1
 Random Variables
• A random variable is an assignment of
numbers to outcomes of a random
experiment.

• Alternatively, the value of a random

variable is a numerical event.

• Random Variables can be of two types:

discrete and continuous

5-2
 Discrete Random Variable
• Discrete Random Variable -- the set of all
possible values is at most a finite or a countably
infinite number of possible values.
• It implies that one that takes on a countable
number of values
• Examples:
– values on the roll of dice: 2, 3, 4, …, 12
– Number of new subscribers to a magazine
– Number of bad checks received by a restaurant
– Number of absent employees on a given day
• Discrete probability distributions are constructed
from probabilities of discrete random variables.
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-3
 Continuous Random Variables
• Continuous Random Variable -- takes on values
at every point over a given interval

• Continuous random variables are generated from

experiments in which things are “measured” not
“counted”.
• Examples:
– Current Ratio of a motorcycle distributorship
– Elapsed time between arrivals of bank customers
– Percent of the labor force that is unemployed
• Continuous probability distributions are
constructed from probabilities of continuous
random variables.
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-4
 Probability Distributions…
• A probability distribution is a table,
formula, or graph that describes the values
of a random variable and the probability
associated with these values.

• Since we’re describing a random variable

(which can be discrete or continuous) we
have two types of probability distributions:
– Discrete Probability Distribution
– Continuous Probability Distribution

7.5
 Probability Distributions Vs
Frequency Distributions
• A frequency distribution is a listing of the
observed frequencies of all outcomes of an
experiment that actually occurred when the
experiment was done.

• A probability distribution is a listing of the

probabilities of all the possible outcomes
that could result if the experiment were
done.

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-6
 Discrete Probaility Distribution --
Example

Distribution of Daily
Crises P
Number of r 0.5
Probability o
Crises 0.4
b
0 0.37 a 0.3
b
1 0.31 i
0.2
2 0.18 l 0.1
3 0.09 i
0
4 0.04 t 0 1 2 3 4 5
y
5 0.01 Number of Crises

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-7
 Requirements for a
Discrete Probability Function
• Probabilities are between 0 and 1,
inclusively
0  P( X)  1 for all X
• Total of all probabilities equals 1

 P( X )  1
over all x

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-8
 Example 1
• Probability distributions can be estimated
from relative frequencies. Consider the
discrete (countable) number of televisions
per household from US survey data… 1,218 ÷ 101,501 = 0.012

e.g. P(X=4) = P(4) = 0.076 = 7.6%

7.9
 Example 1
• E.g. what is the probability there is at least
one television but no more than three in any
given household?

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-10
 Example 7.1…
• E.g. what is the probability there is at least one
television but no more than three in any given
household?

“at least one television but no more than three”

P(1 ≤ X ≤ 3) = P(1) + P(2) + P(3) = .319 + .374 + .191 =
.884
7.11
 Mean of a Discrete Distribution =>
Expected Value of population
The population
mean is the   E X    X  P( X )
weighted average
X P(X) X  P( X)
of all of its values.
-1 .1 -.1
The weights are 0 .2 .0
the probabilities. 1 .4 .4
2 .2 .4
3 .1 .3
1.0
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-12
 Binomial Distribution
• The binomial distribution is the probability
distribution that results from doing a “binomial
experiment”.
• Experiment involves n identical trials
• Each trial has exactly two possible outcomes:
success and failure
• Each trial is independent of the previous trials
p is the probability of a success on any one trial
q = (1-p) is the probability of a failure on any one
trial
p and q are constant throughout the experiment
X is the number of successes in the n trials
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-13
 Binomial Random Variable…
• The random variable of a binomial experiment is defined as the
number of successes in the n trials, and is called the binomial
random variable.

• E.g. flip a fair coin 10 times…

– 1) Fixed number of trials  n=10

– 2) Each trial has two possible outcomes  {heads (success), tails (failure)}
– 3) P(success)= 0.50; P(failure)=1–0.50 = 0.50 
– 4) The trials are independent  (i.e. the outcome of heads on the first flip
will have no impact on subsequent coin flips).

• Hence flipping a coin ten times is a binomial experiment since all

conditions were met.

7.14
 Binomial Distribution

• Probability n! X n X
function P( X )  p q for 0  X  n
X ! n  X  !

• Mean
value
  n p
• Variance  2
 n pq
and
standard    2
 n pq
deviation
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-15
 Pat Statsdud…
• Pat Statsdud is a (not good) student taking a
statistics course. Pat’s exam strategy is to
rely on luck for the next quiz. The quiz
consists of 10 multiple-choice questions.
Each question has five possible answers,
only one of which is correct. Pat plans to
guess the answer to each question.

• What is the probability that Pat gets no

answers correct?

• What is the probability that Pat gets two

answers correct? 7.16
 Pat Statsdud…
• Pat Statsdud is a (not good) student taking a
statistics course whose exam strategy is to
rely on luck for the next quiz. The quiz
consists of 10 multiple-choice questions.
Each question has five possible answers,
only one of which is correct. Pat plans to
guess the answer to each question.

• Algebraically then: n=10, and P(success) =

1/5 = .20

7.17
 Pat Statsdud…
• Pat Statsdud is a (not good) student taking a statistics course. Pat’s
exam strategy is to rely on luck for the next quiz. The quiz consists of
10 multiple-choice questions. Each question has five possible answers,
only one of which is correct. Pat plans to guess the answer to each
question.
• Is this a binomial experiment? Check the
conditions:
•  There is a fixed finite number of trials (n=10).
•  An answer can be either correct or incorrect.
 The probability of a correct answer
(P(success)=.20) does not change from question to
question.
•  Each answer is independent of the others.
7.18
 Pat Statsdud…
• n=10, and P(success) = .20
• What is the probability that Pat gets no
answers correct?
• I.e. # success, x, = 0; hence we want to know
P(x=0)

Pat has about an 11% chance of getting no answers correct

using the guessing strategy.
7.19
 Pat Statsdud…
• n=10, and P(success) = .20
• What is the probability that Pat gets two
answers correct?
• I.e. # success, x, = 2; hence we want to know
P(x=2)

Pat has about a 30% chance of getting exactly two answers

correct using the guessing strategy.

7.20
 Cumulative Probability…
• Thus far, we have been using the binomial
probability distribution to find probabilities
for individual values of x. To answer the
question:
• “Find the probability that Pat fails the quiz”
• requires a cumulative probability, that is,
P(X ≤ x)
• If a grade on the quiz is less than 50% (i.e. 5
questions out of 10), that’s considered a
failed quiz.
• Thus, we want to know what is: P(X ≤ 4) to
answer
7.21
 Pat Statsdud…
• P(X ≤ 4) = P(0) + P(1) + P(2) + P(3) + P(4)
• We already know P(0) = .1074 and P(2) =
.3020. Using the binomial formula to
calculate the others:
• P(1) = .2684 , P(3) = .2013, and P(4) =
.0881
• We have P(X ≤ 4) = .1074 + .2684 + … +
.0881 = .9672
• Thus, its about 97% probable that Pat will
fail the test using the luck strategy and
guessing at answers…
7.22
 Binomial Table…
• Calculating binomial probabilities by hand is
tedious and error prone. There is an easier
way. Refer to Table 1 in Appendix B. For the
Pat Statsdud example, n=10, so the first
important step is to get the correct table!

7.23
 Binomial Table…
• The probabilities listed in the tables are
cumulative,
• i.e. P(X ≤ k) – k is the row index; the
columns of the table are organized by
P(success) = p

7.24
 Binomial Table…
• “What is the probability that Pat fails the quiz”?
• i.e. what is P(X ≤ 4), given P(success) = .20 and
n=10 ?

P(X ≤ 4) = .967
7.25
 Binomial Table…
• “What is the probability that Pat gets no answers
correct?”
• i.e. what is P(X = 0), given P(success) = .20
and n=10 ?

P(X = 0) = P(X ≤ 0) = .107

7.26
 Binomial Table…
• “What is the probability that Pat gets two
answers correct?”
• i.e. what is P(X = 2), given P(success) = .20
and n=10 ?

P(X = 2) = P(X≤2) – P(X≤1) = .678 – .376 = .302

remember, the table shows cumulative probabilities…
7.27
 Poisson Distribution
• Describes discrete occurrences over a
continuum or interval
• A discrete distribution
• Describes rare events
• Each occurrence is independent any other
occurrences.
• The number of occurrences in each interval
can vary from zero to infinity.
• The expected number of occurrences must
hold constant throughout the experiment.

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-28
Poisson Distribution: Applications
• Arrivals at queuing systems
– airports -- people, airplanes, automobiles,
baggage
– banks -- people, automobiles, loan applications
– computer file servers -- read and write
operations
• Defects in manufactured goods
– number of defects per 1,000 feet of extruded
copper wire
– number of blemishes per square foot of painted
surface
– number of errors per typed page

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-29
 Poisson Distribution
• Probability function

P( X )  
X 
e for X  0,1, 2, 3,...
X!
where:
  long  run average
e  2. 718282... (the base of natural logarithms )
Here X is the number of occurrences per interval for which
the probability is being computed
 Mean value  Variance  Standard deviation

 
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.

5-30
 Poisson Distribution…
• The Poisson random variable is the number of
successes that occur in a period of time or an
interval of space in a Poisson experiment.
successes

• E.g. On average, 96 trucks arrive at a border

crossing
• every hour. time period

• E.g. The number of typographic errors in a new

textbook edition averages 1.5 per 100 pages.
successes (?!) interval
7.31
 Example
• The number of typographical errors in new
editions of textbooks varies considerably from
book to book. After some analysis he concludes
that the number of errors is Poisson distributed
with a mean of 1.5 per 100 pages. The instructor
randomly selects 100 pages of a new book. What
is the probability that there are no typos?
• That is, what is P(X=0) given that = 1.5?

“There is about a 22% chance of finding zero errors”

7.32
 Poisson Distribution…
• As mentioned on the Poisson experiment slide:

• The probability of a success is proportional to the

size of the interval

• Thus, knowing an error rate of 1.5 typos per 100

pages, we can determine a mean value for a 400
page book as:

• =1.5(4) = 6 typos / 400 pages.

7.33
 Example
• For a 400 page book, what is the probability that
there are no typos?

• P(X=0) =

“there is a very small chance there are no typos”

7.34
 Example 7.13…
• For a 400 page book, what is the probability that
there are five or less typos?

• P(X≤5) = P(0) + P(1) + … + P(5)

• This is rather tedious to solve manually. A better

alternative is to refer to Table 2 in Appendix B…
• …k=5,
• =6, and P(X ≤ k)
=(0.0025+0.0149+0.0446+0.0892+0.1339+0.1606) = 0.446

“there is about a 45% chance there are 5 or less typos”

7.35
Poisson Distribution: Probability Table


X 0.5 1.5 1.6 3.0 3.2 6.4 6.5 7.0 8.0
0 0.6065 0.2231 0.2019 0.0498 0.0408 0.0017 0.0015 0.0009 0.0003
1 0.3033 0.3347 0.3230 0.1494 0.1304 0.0106 0.0098 0.0064 0.0027
2 0.0758 0.2510 0.2584 0.2240 0.2087 0.0340 0.0318 0.0223 0.0107
3 0.0126 0.1255 0.1378 0.2240 0.2226 0.0726 0.0688 0.0521 0.0286
4 0.0016 0.0471 0.0551 0.1680 0.1781 0.1162 0.1118 0.0912 0.0573
5 0.0002 0.0141 0.0176 0.1008 0.1140 0.1487 0.1454 0.1277 0.0916
6 0.0000 0.0035 0.0047 0.0504 0.0608 0.1586 0.1575 0.1490 0.1221
7 0.0000 0.0008 0.0011 0.0216 0.0278 0.1450 0.1462 0.1490 0.1396
8 0.0000 0.0001 0.0002 0.0081 0.0111 0.1160 0.1188 0.1304 0.1396
9 0.0000 0.0000 0.0000 0.0027 0.0040 0.0825 0.0858 0.1014 0.1241
10 0.0000 0.0000 0.0000 0.0008 0.0013 0.0528 0.0558 0.0710 0.0993
11 0.0000 0.0000 0.0000 0.0002 0.0004 0.0307 0.0330 0.0452 0.0722
12 0.0000 0.0000 0.0000 0.0001 0.0001 0.0164 0.0179 0.0263 0.0481
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0081 0.0089 0.0142 0.0296
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0037 0.0041 0.0071 0.0169
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0016 0.0018 0.0033 0.0090
16 0.0000 0.0000 0.0000 0.0000 0.0000 0.0006 0.0007 0.0014 0.0045
17 0.0000 0.0000 0.0000 0.0000 0.0000 0.0002 0.0003 0.0006 0.0021
18 0.0000 0.0000 0.0000 0.0000 0.0000 0.0001 0.0001 0.0002 0.0009

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-36
 Poisson Distribution: Using the
Poisson Tables

  1. 6
X 0.5 1.5 1.6 3.0
0 0.6065 0.2231 0.2019 0.0498
1 0.3033 0.3347 0.3230 0.1494
2
3
0.0758
0.0126
0.2510
0.1255
0.2584
0.1378
0.2240
0.2240
P( X  4 )  0. 0551
4 0.0016 0.0471 0.0551 0.1680
5 0.0002 0.0141 0.0176 0.1008
6 0.0000 0.0035 0.0047 0.0504
7 0.0000 0.0008 0.0011 0.0216
8 0.0000 0.0001 0.0002 0.0081
9 0.0000 0.0000 0.0000 0.0027
10 0.0000 0.0000 0.0000 0.0008
11 0.0000 0.0000 0.0000 0.0002
12 0.0000 0.0000 0.0000 0.0001

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-37
 
Poisson X
0
0.5
0.6065
1.5
0.2231
1.6
0.2019
3.0
0.0498

Distribution: 1
2
0.3033
0.0758
0.3347
0.2510
0.3230
0.2584
0.1494
0.2240
3 0.0126 0.1255 0.1378 0.2240
Using the 4
5
0.0016
0.0002
0.0471
0.0141
0.0551
0.0176
0.1680
0.1008

Poisson 6
7
0.0000
0.0000
0.0035
0.0008
0.0047
0.0011
0.0504
0.0216
8 0.0000 0.0001 0.0002 0.0081
Tables 9
10
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0027
0.0008
11 0.0000 0.0000 0.0000 0.0002
12 0.0000 0.0000 0.0000 0.0001

  1. 6
P( X  5)  P( X  6)  P( X  7)  P( X  8)  P( X  9)
. 0047. 0011. 0002 . 0000 . 0060

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-38
 
X 0.5 1.5 1.6 3.0
Poisson 0
1
0.6065
0.3033
0.2231
0.3347
0.2019
0.3230
0.0498
0.1494
2 0.0758 0.2510 0.2584 0.2240
Distribution: 3
4
0.0126
0.0016
0.1255
0.0471
0.1378
0.0551
0.2240
0.1680

Using the 5
6
0.0002
0.0000
0.0141
0.0035
0.0176
0.0047
0.1008
0.0504
7 0.0000 0.0008 0.0011 0.0216
Poisson 8
9
0.0000
0.0000
0.0001
0.0000
0.0002
0.0000
0.0081
0.0027

Tables 10
11
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0008
0.0002
12 0.0000 0.0000 0.0000 0.0001

  1. 6
P( X  2 )  1  P( X  2 )  1  P( X  0 )  P( X  1)
 1. 2019. 3230 . 4751

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-39
 Poisson Approximation
of the Binomial Distribution
• Binomial probabilities are difficult to
calculate when n is large.
• Under certain conditions binomial
probabilities may be approximated by
Poisson probabilities.
If n  20 and n  p  7, the approximation is acceptable .

• Poisson approximation
Use   n  p.
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-40
 Poisson Approximation
of the Binomial Distribution
Binomial
Binomial
Poisson n  10, 000
Poisson n  50
X   1. 5 p . 03 Error
X   3. 0 p . 0003 Error
0 0.0498 0.0498 0.0000
0 0.2231 0.2181 -0.0051
1 0.1494 0.1493 0.0000
1 0.3347 0.3372 0.0025
2 0.2240 0.2241 0.0000
2 0.2510 0.2555 0.0045
3 0.2240 0.2241 0.0000
3 0.1255 0.1264 0.0009
4 0.1680 0.1681 0.0000
4 0.0471 0.0459 -0.0011
5 0.0141 0.0131 -0.0010 5 0.1008 0.1008 0.0000
6 0.0035 0.0030 -0.0005 6 0.0504 0.0504 0.0000
7 0.0008 0.0006 -0.0002 7 0.0216 0.0216 0.0000
8 0.0001 0.0001 0.0000 8 0.0081 0.0081 0.0000
9 0.0000 0.0000 0.0000 9 0.0027 0.0027 0.0000
10 0.0008 0.0008 0.0000
11 0.0002 0.0002 0.0000
12 0.0001 0.0001 0.0000
13 0.0000 0.0000 0.0000

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
5-41
 Uniform Distribution

 1
b  a for a  x b
 1
f ( x)  
 0 ba

for all other values f (x)


Area = 1
a x b

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
6-42
 Example 8.1(a)…
• 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.
f(x)

2,000 5,000 x

• Find the probability that daily sales will fall

between 2,500 and 3,000 gallons.
• Algebraically: what is P(2,500 ≤ X ≤ 3,000) ?
8.43
 Example 8.1(a)…
• P(2,500 ≤ X ≤ 3,000) = (3,000 – 2,500) x =
.1667

f(x)

2,000 5,000 x

• “there is about a 17% chance that between 2,500

and 3,000 gallons of gas will be sold on a given
day” 8.44
 Characteristics of the Normal
Distribution
• Continuous distribution
• Symmetrical distribution
• Asymptotic to the
horizontal axis
• Unimodal
• A family of curves 1/2 1/2
• Area under the curve
sums to 1.  X
• Area to right of mean is
1/2.
• Area to left of mean is
1/2.

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
6-45
 Probability Density Function
of the Normal Distribution
 x 
2

 
1
1 
f ( x)    
 2 e
2

Where:
  mean of X
  standard deviation of X
 = 3.14159 . . .
e  2.71828 . . .  X

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
6-46
 Normal Curves for Different
Means and Standard Deviations

5 5

  10

20 30 40 50 60 70 80 90 100 110 120

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
6-47
 Standardized Normal Distribution
• A normal distribution with
– a mean of zero, and
 1
– a standard deviation of
one
• Z Formula
– standardizes any normal 0
distribution
• Z Score
– computed by the Z
Formula X 
– the number of standard Z
deviations which a value 
is away from the mean
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
6-48
 Z Table
Second Decimal Place in Z
Z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09

0.00 0.0000 0.0040 0.0080 0.0120 0.0160 0.0199 0.0239 0.0279 0.0319 0.0359
0.10 0.0398 0.0438 0.0478 0.0517 0.0557 0.0596 0.0636 0.0675 0.0714 0.0753
0.20 0.0793 0.0832 0.0871 0.0910 0.0948 0.0987 0.1026 0.1064 0.1103 0.1141
0.30 0.1179 0.1217 0.1255 0.1293 0.1331 0.1368 0.1406 0.1443 0.1480 0.1517

0.90 0.3159 0.3186 0.3212 0.3238 0.3264 0.3289 0.3315 0.3340 0.3365 0.3389
1.00 0.3413 0.3438 0.3461 0.3485 0.3508 0.3531 0.3554 0.3577 0.3599 0.3621
1.10 0.3643 0.3665 0.3686 0.3708 0.3729 0.3749 0.3770 0.3790 0.3810 0.3830
1.20 0.3849 0.3869 0.3888 0.3907 0.3925 0.3944 0.3962 0.3980 0.3997 0.4015

2.00 0.4772 0.4778 0.4783 0.4788 0.4793 0.4798 0.4803 0.4808 0.4812 0.4817

3.00 0.4987 0.4987 0.4987 0.4988 0.4988 0.4989 0.4989 0.4989 0.4990 0.4990
3.40 0.4997 0.4997 0.4997 0.4997 0.4997 0.4997 0.4997 0.4997 0.4997 0.4998
3.50 0.4998 0.4998 0.4998 0.4998 0.4998 0.4998 0.4998 0.4998 0.4998 0.4998

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
6-49
 Table Lookup of a
Standard Normal Probability
P(0  Z  1)  0. 3413
Z 0.00 0.01 0.02

0.00 0.0000 0.0040 0.0080

0.10 0.0398 0.0438 0.0478
0.20 0.0793 0.0832 0.0871

1.00 0.3413 0.3438 0.3461

1.10 0.3643 0.3665 0.3686

1.20 0.3849 0.3869 0.3888
-3 -2 -1 0 1 2 3

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
6-50
 Applying the Z Formula

X is normally distributed with  = 485, and  = 105

P( 485  X  600)  P(0  Z  1.10) . 3643
For X = 485, Z 0.00 0.01 0.02
X- 485  485
Z=  0 0.00 0.0000 0.0040 0.0080
 105 0.10 0.0398 0.0438 0.0478

1.00 0.3413 0.3438 0.3461

For X = 600,
X-
600  485 1.10 0.3643 0.3665 0.3686
Z=   1.10
 105 1.20 0.3849 0.3869 0.3888

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
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 Normal Approximation
of the Binomial Distribution
• The normal distribution can be used to
approximate binomial probabilities
• Procedure
– Convert binomial parameters to normal
parameters
– Does the interval  ± 3 lie between 0 and n?
If so, continue; otherwise, do not use the
normal approximation.
– Correct for continuity
– Solve the normal distribution problem

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
6-52
 Normal Approximation of Binomial:
Parameter Conversion
• Conversion equations
  n p
  n pq
• Conversion example:
Given that X has a binomial distribution , find
P( X  25| n  60 and p . 30 ).
  n  p  (60)(. 30)  18
  n  p  q  (60)(. 30)(. 70)  3. 55
Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
6-53
Normal Approximation of Binomial:
Interval Check

  3  18  3(355
. )  18  10.65
  3  7.35
  3  28.65

0 10 20 30 40 50 60 70
n

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
6-54
Normal Approximation of Binomial:
Correcting for Continuity

Values The binomial probability ,

Being Correction
Determined P( X  25| n  60 and p . 30 )
is approximated by the normal probability
X +.50
X -.50 P(X  24.5|   18 and   3. 55).
X -.50
X +.05
X -.50 and +.50
X +.50 and -.50

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
6-55
Normal Approximation of Binomial:
Graphs

0.12
0.10
0.08
0.06
0.04
0.02
0
6 8 10 12 14 16 18 20 22 24 26 28 30

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
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Normal Approximation of Binomial:
Computations
X P(X)
The normal approximation,
P(X  24.5|   18 and   355
. )
25 0.0167
 24.5  18 
26 0.0096
 P Z  
27 0.0052  355
. 
28 0.0026
29 0.0012  P( Z  183
. )
30 0.0005
31 0.0002 .5  P 0  Z  183
. 
32 0.0001
33 0.0000 .5.4664
Total 0.0361
.0336

Business Statistics, 4e, by Ken Black. © 2003 John Wiley & Sons.
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 Choosing the Correct Probability
Distribution
• Binomial Distribution:
– No. of trials are fixed before experiment begins,
– each trial is independent,
– can result in two mutually exclusive outcomes.
• Poisson Distribution:
– Each trial is independent.
– Rare occurrence of events for some interval
– The mean value remains constant for the given
interval throughout the experiment
• Normal Distribution
– The normal curve is continuous, symmetrical,
unimodal. 5-58