Problem 17 - Basic Statistics for Business and Economics

Question

A normal distribution has a mean of 50 and a standard deviation of 4 a. Compute the probability of a value between 44.0 and 55.0 . b. Compute the probability of a value greater than 55.0 . c. Compute the probability of a value between 52.0 and 55.0 .

Step-by-Step Solution

Answer

a: 0.8276, b: 0.1056, c: 0.2029

Step 1: Identify Key Parameters

First, identify the parameters of the normal distribution. We know that the mean, \( \mu \), is 50, and the standard deviation, \( \sigma \), is 4.

Step 2: Transform to Standard Normal Distribution

Transform the given values to standard normal variables (Z-scores) using the formula: \( Z = \frac{X - \mu}{\sigma} \).For 44: \( Z = \frac{44 - 50}{4} = -1.5 \)For 55: \( Z = \frac{55 - 50}{4} = 1.25 \)

Step 3: Compute Probability for Part (a)

Use the Z-scores obtained for 44 and 55 to find the probability that \( X \) is between 44 and 55.Using the standard normal distribution table:- Probability of \( Z \leq -1.5 \): 0.0668- Probability of \( Z \leq 1.25 \): 0.8944Thus, the probability between 44 and 55 is:\( P(44 < X < 55) = P(Z < 1.25) - P(Z < -1.5) = 0.8944 - 0.0668 = 0.8276 \)

Step 4: Compute Probability for Part (b)

Find the probability of a value greater than 55.Using the previous result for \( Z = 1.25 \), we have \( P(Z < 1.25) = 0.8944 \).Thus, the probability of \( X > 55 \) is:\( P(X > 55) = 1 - P(Z < 1.25) = 1 - 0.8944 = 0.1056 \)

Step 5: Transform 52 to Standard Normal Variable

Transform 52 to its Z-score for part (c) using the formula: \( Z = \frac{52 - 50}{4} = 0.5 \)

Step 6: Compute Probability for Part (c)

Using the Z-scores for 52 and 55:- Probability of \( Z < 0.5 \) (from standard normal table): 0.6915Thus, the probability between 52 and 55 is:\( P(52 < X < 55) = P(Z < 1.25) - P(Z < 0.5) = 0.8944 - 0.6915 = 0.2029 \)

Key Concepts

Understanding Z-score

The Z-score is a fascinating and crucial concept in statistics, especially when dealing with normal distributions. Essentially, a Z-score measures how many standard deviations a data point (X) is from the mean (\( \mu \)). This is calculated using the formula: \[ Z = \frac{X - \mu}{\sigma} \]where:

• \(X\) is the value in the dataset,
• \(\mu\) is the mean of the distribution, and
• \(\sigma\) is the standard deviation.

Z-scores help us understand where a specific value falls within the context of a normal distribution. A Z-score of 0 implies that the value is exactly at the mean, while a positive Z-score indicates a value above the mean and a negative Z-score indicates a value below the mean.
For instance, if we have a value of 44 in our normal distribution with a mean of 50 and a standard deviation of 4, the Z-score would be \(-1.5\). This tells us that 44 is 1.5 standard deviations below the mean.
Z-scores are handy for converting different normal distributions into the standard normal distribution, making it easier to compute probabilities.

The Role of Standard Deviation

The standard deviation, often denoted as \( \sigma \), is a key statistical metric that measures the amount of variation or dispersion in a dataset. It tells us how spread out the values in a data set are around the mean. A smaller standard deviation indicates that the values are closely clustered around the mean, while a larger standard deviation suggests a wider spread.In the context of normal distribution:

• About 68% of the data falls within one standard deviation (\( \mu \pm \sigma \)) of the mean.
• Approximately 95% falls within two standard deviations (\( \mu \pm 2\sigma \)).
• Nearly 99.7% lies within three standard deviations (\( \mu \pm 3\sigma \)).

In our example, the standard deviation is 4. This means that most values are inside the range of 46 to 54 (given a mean of 50). Understanding standard deviation is crucial because it directly affects the calculation of the Z-scores and the subsequent probability calculations. The smaller the \( \sigma \), the closer the values are to the mean, making the distribution more peaked.

Mastering Probability Calculation

Probability calculation in a normal distribution involves determining the likelihood that a given value or range of values occurs. We typically use Z-scores to transform our values into the standard normal distribution and then refer to the standard normal distribution table to find the probabilities.To calculate the probability of a certain range:

• Convert the boundary values into Z-scores.
• Use the Z-scores to find the cumulative probability for each boundary.
• Find the difference between these cumulative probabilities to get the probability for the range.

For instance, to find the probability of a value between 44 and 55, we convert these to Z-scores (-1.5 and 1.25, respectively). Using the Z-table, we find:- \( P(Z \leq 1.25) = 0.8944 \)- \( P(Z \leq -1.5) = 0.0668 \)The probability of lying between these two values is \( 0.8944 - 0.0668 = 0.8276 \).
Similarly, to find the probability of a value greater than 55, we calculate \( 1 - P(Z \leq 1.25) = 0.1056 \). These calculations illustrate how Z-scores and standard deviation come together to make sense of probability in normal distributions.