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Statistics for Decision- Making in Business - Maricopa Community ...

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Density<br />

Without go<strong>in</strong>g <strong>in</strong>to detail here, cont<strong>in</strong>uous random variables have PDF‟s with area between the<br />

function and the horizontal axis equal to 1. Clearly, densities will have to be positive, as it is not<br />

possible to have negative probabilities.<br />

As an example, a distribution might look like this:<br />

1.2<br />

1<br />

0.8<br />

0.6<br />

0.4<br />

0.2<br />

0<br />

0 1 2<br />

Random Variable Values<br />

Practically speak<strong>in</strong>g, it appears to be most probable that the random variable will take on a value<br />

around 1. It is less likely that the random variable will take on values close to 0 or close to 2.<br />

This might be handy <strong>in</strong> situations where such criteria is desired.<br />

Notice that the area is also 1. If you divide the triangle <strong>in</strong>to 2 and use the area of a triangle<br />

<strong>for</strong>mula . /:<br />

<strong>Statistics</strong> <strong>for</strong> <strong>Decision</strong>-<strong>Mak<strong>in</strong>g</strong> <strong>in</strong> Bus<strong>in</strong>ess © Milos Podmanik Page 167

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