# QMB-03b

Oil and Offshore

Nov 8, 2013 (4 years and 6 months ago)

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Slide

2013

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SLIDES BY

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John
Loucks

St.
Edward’s Univ.

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Chapter 3, Part B

Probability Distributions

Uniform Probability Distribution

Normal Probability Distribution

Exponential Probability Distribution

f
(
x
)

x

Uniform

x

f
(
x
)

Normal

x

f
(
x
)

Exponential

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2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Continuous Random Variables

Examples of continuous random variables include the
following:

The
number of ounces

of soup placed in a can
labeled “8 ounces”

The
flight time

of an airplane traveling from
Chicago to New York

The

of the picture tube in a new television
set

The
drilling depth

required to reach oil in an
offshore drilling operation

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2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Continuous Probability Distributions

A
continuous random variable

can assume any value
in an interval on the real line or in a collection of
intervals.

It is not possible to talk about the probability of the
random variable assuming a particular value.

variable assuming a value within a given interval.

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2013

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Continuous Probability Distributions

The probability of the random variable assuming a
value within some given interval from
x
1

to
x
2

is
defined to be the
area under the graph

of the
probability density function

between

x
1

and

x
2
.

f
(
x
)

x

Uniform

x
1

x
2

x

f
(
x
)

Normal

x
1

x
2

x
1

x
2

Exponential

x

f
(
x
)

x
1

x
2

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2013

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A random variable is
uniformly distributed

whenever
the probability
that the variable will assume a value in
any interval of equal length is the same for each
interval.

The
uniform probability density function

is:

Uniform Probability Distribution

where:
a

= smallest value the variable can assume

b

= largest value the variable can assume

f
(
x
) = 1/(
b

a
) for
a

<

x

<

b

= 0 elsewhere

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Example: Flight Time

Uniform Probability Distribution

Let
x

denote the flight time of an airplane
traveling from Chicago to New York. Assume that the
minimum time is 2 hours and that the maximum time
is 2 hours 20 minutes.

Assume that sufficient actual flight data are
available to conclude that the probability of a flight
time between 120 and 121 minutes is the same as the
probability of a flight time within any other 1
-
minute
interval up to and including 140 minutes.

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2013

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Uniform Probability Density Function

Example: Flight Time

f
(
x
) = 1/20 for 120
<

x

<

140

= 0 elsewhere

where:

x

= flight time in minutes

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2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Uniform Probability Distribution for Flight Time

f
(
x
)

x

120

130

140

1/20

Flight Time (mins.)

Example: Flight Time

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2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

f
(
x
)

x

120

130

140

1/20

Flight Time (mins.)

Example: Flight Time

P(135
<

x

<

140) = 1/20(5) = .25

What is the probability that a flight will take

between 135 and 140 minutes?

135

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2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

f
(
x
)

x

120

130

140

1/20

Flight Time (mins.)

Example: Flight Time

P(124
<

x

<

136) = 1/20(12) = .6

What is the probability that a flight will take

between 124 and 136 minutes?

136

124

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2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Normal Probability Distribution

The
normal probability distribution

is the most
important distribution for describing a continuous
random variable.

It is widely used in statistical inference.

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2013

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Heights

of people

Normal Probability Distribution

It has been used in a wide variety of applications:

Scientific

measurements

Test

scores

Amounts

of rainfall

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2013

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Normal Probability Distribution

Normal Probability Density Function

2 2
( )/2
1
( )
2
x
f x e
 
 
 

= mean

= standard deviation

= 3.14159

e

= 2.71828

where:

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2013

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The distribution is
symmetric
, and is
bell
-
shaped
.

Normal Probability Distribution

Characteristics

x

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2013

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The entire family of normal probability

distributions is defined by its

mean

and its

standard deviation

.

Normal Probability Distribution

Characteristics

Standard Deviation

Mean

x

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2013

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The
highest point

on the normal curve is at the

mean
, which is also the
median

and
mode
.

Normal Probability Distribution

Characteristics

x

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2013

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Normal Probability Distribution

Characteristics

-
10

0

20

The mean can be any numerical value: negative,

zero, or positive.

x

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2013

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Normal Probability Distribution

Characteristics

= 15

= 25

The standard deviation determines the width of the

curve: larger values result in wider, flatter curves.

x

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2013

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Probabilities for the normal random variable are

given by
areas under the curve
. The total area

under the curve is 1 (.5 to the left of the mean and

.5 to the right).

Normal Probability Distribution

Characteristics

.5

.5

x

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2013

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Normal Probability Distribution

Characteristics

of values of a normal random variable

are within of its mean.

68.26%

+/
-

1 standard deviation

of values of a normal random variable

are within of its mean.

95.44%

+/
-

2 standard deviations

of values of a normal random variable

are within of its mean.

99.72%

+/
-

3 standard deviations

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2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Normal Probability Distribution

Characteristics

x

3

1

2

+ 1

+ 2

+ 3

68.26%

95.44%

99.72%

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2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Standard Normal Probability Distribution

A
random variable having a normal distribution

with
a mean of 0 and a standard deviation of 1 is

said
to have a
standard normal probability

distribution
.

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2013

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 1

0

z

The letter
z
is used to designate the standard

normal random variable.

Standard Normal Probability Distribution

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2013

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Converting to the Standard Normal Distribution

Standard Normal Probability Distribution

z
x

We can think of
z

as a measure of the number of

standard deviations
x

is from

.

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Example: Pep Zone

Standard Normal Probability Distribution

Pep Zone sells auto parts and supplies including

a popular multi
-
grade motor oil. When the stock of

this oil drops to 20 gallons, a replenishment order is

placed.

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Example: Pep Zone

Standard Normal Probability Distribution

The store manager is concerned that sales are
being lost due to stockouts while waiting for an
order. It has been determined that demand during
-
time is normally distributed with
a mean of 15 gallons and a standard deviation of 6
gallons.

The manager would like to know the probability
of a stockout,
P
(
x

> 20).

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

z

= (
x

-

)/

= (20
-

15)/6

= .83

Solving for the Stockout Probability

Example: Pep Zone

Step
1: Convert
x

to the standard normal distribution.

Step
2: Find the area under the standard normal

curve
between the mean and
z

= .83.

see next slide

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Probability Table for the

Standard Normal Distribution

z
.00
.01
.02
.03
.04
.05
.06
.07
.08
.09
.
.
.
.
.
.
.
.
.
.
.
.5
.1915
.1695
.1985
.2019
.2054
.2088
.2123
.2157
.2190
.2224
.6
.2257
.2291
.2324
.2357
.2389
.2422
.2454
.2486
.2517
.2549
.7
.2580
.2611
.2642
.2673
.2704
.2734
.2764
.2794
.2823
.2852
.8
.2881
.2910
.2939
.2967
.2995
.3023
.3051
.3078
.3106
.3133
.9
.3159
.3186
.3212
.3238
.3264
.3289
.3315
.3340
.3365
.3389
.
.
.
.
.
.
.
.
.
.
.
Example: Pep Zone

P
(0
<

z

<

.83)

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

P
(
z
> .83) = .5

P
(0
<

z

<

.83)

= 1
-

.2967

= .2033

Solving for the Stockout Probability

Example: Pep Zone

Step
3: Compute the area under the standard normal

curve
to the right of
z

= .83.

Probability

of a stockout

P
(
x

> 20)

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Solving for the Stockout Probability

Example: Pep Zone

0

.83

Area = .2967

Area = .5
-

.2967

= .2033

z

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Standard Normal Probability Distribution

If the manager of Pep Zone wants the probability
of a stockout to be no more than .05, what should the
reorder point be?

Example: Pep Zone

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Solving for the Reorder Point

0

Area = .4500

Area = .0500

z

z
.05

Example: Pep Zone

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Solving for the Reorder Point

Example: Pep Zone

Step
1: Find the
z
-
value that cuts off an area of .05

in
the right tail of the standard normal

distribution
.

z
.00
.01
.02
.03
.04
.05
.06
.07
.08
.09
.
.
.
.
.
.
.
.
.
.
.
1.5
.4332
.4345
.4357
.4370
.4382
.4394
.4406
.4418
.4429
.4441
1.6
.4452
.4463
.4474
.4484
.4495
.4505
.4515
.4525
.4535
.4545
1.7
.4554
.4564
.4573
.4582
.4591
.4599
.4608
.4616
.4625
.4633
1.8
.4641
.4649
.4656
.4664
.4671
.4678
.4686
.4693
.4699
.4706
1.9
.4713
.4719
.4726
.4732
.4738
.4744
.4750
.4756
.4761
.4767
.
.
.
.
.
.
.
.
.
.
.
We look up the area

(.5
-

.05 = .45)

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Solving for the Reorder Point

Example: Pep Zone

Step
2: Convert
z
.05

to the corresponding value of
x
.

x

=

+
z
.05

= 15 + 1.645(6)

= 24.87 or 25

A reorder point of 25 gallons will place the probability

of a stockout during leadtime at (slightly less than) .05.

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Solving for the Reorder Point

Example: Pep Zone

By raising the reorder point from 20 gallons to

25 gallons on hand, the probability of a stockout

decreases from about .20 to .05.

This is a significant decrease in the chance that Pep

Zone will be out of stock and unable to meet a

customer’s desire to make a purchase.

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Exponential Probability Distribution

The exponential probability distribution is useful in
describing the time it takes to complete a task.

The exponential random variables can be used to
describe:

Time between

vehicle arrivals

at a toll booth

Time required

to
complete a

questionnaire

Distance between

major defects

in a highway

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Density Function

Exponential Probability Distribution

where:

= mean

e

= 2.71828

f
x
e
x
(
)
/

1

for
x

>

0,

> 0

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Cumulative Probabilities

Exponential Probability Distribution

P
x
x
e
x
(
)
/

0
1
o

where:

x
0

= some specific value of
x

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Exponential Probability Distribution

The time between arrivals of cars

at Al’s full
-

service gas pump follows an exponential probability

distribution with a mean time between arrivals of

3 minutes. Al would like to know the

probability that the time between two successive

arrivals will be 2 minutes or less.

Example: Al’s Full
-
Service Pump

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Exponential Probability Distribution

x

f
(
x
)

.1

.3

.4

.2

1 2 3 4 5 6 7 8 9 10

Time Between Successive Arrivals (mins.)

Example: Al’s Full
-
Service Pump

P
(
x

<

2) = 1
-

2.71828
-
2/3

= 1
-

.5134 = .4866

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Slide

2013

or duplicated, or posted to a publicly accessible website, in whole or in part.

Relationship between the Poisson

and Exponential Distributions

The Poisson distribution

provides an appropriate description

of the number of occurrences

per interval

The exponential distribution

provides an appropriate description

of the length of the interval

between occurrences

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