Department of Mathematics

Fall 2017

Mathematics
for Business Students (MATH-201)
Worksheet Nr. (4) - Solution

Discrete Random Variable & Probability Distribution Function

Sample Space ( )
1
( , ) 0
4
1
( , ), ( , ) 1
4
1
( , ) 2
4

Problem 2
An electronics store sells a particular model of computer notebook. There are only four
notebooks in stock, and the manager wonders what today’s demand for this particular model
will be. She learns from the marketing department that the probability distribution for x, the
daily demand for the laptop, is as shown in the table. Find the mean, variance, and standard
deviation of x. Is it likely that five or more customers will want to buy a laptop today?

0 1 2 3 4 5
( ) 0.10 0.40 0.20 0.15 0.10 0.05
Solution

( ) ( ) ( )

0 0.10 (0)(0.10) = 0.00 (0) (0.10) = 0.00

1 0.40 (1)(0.40) = 0.40 (1) (0.40) = 0.40

2 0.20 (2)(0.20) = 0.40 (2) (0.20) = 0.80

3 0.15 (3)(0.15) = 0.45 (3) (0.15) = 1.35

4 0.10 (4)(0.10) = 0.40 (4) (0.10) = 1.60

5 0.05 (5)(0.05) = 0.25 (5) (0.05) = 1.25

= ( )= . ( )= .

= ( )= .

= ( )− = 5.4 − (1.9) = 1.79

= = √1.79 = 1.33

Problem 3
In a lottery conducted to benefit a local charity, 8000 tickets are to be sold at $10 each. The
prize is a $24,000 automobile. If you purchase two tickets, what is your expected gain?
Solution

Your gain may take one of two values:-

You will either lose $20 (i.e., your “gain” will be -$20) with probability

OR Win $23,980 with probability .

The probability distribution for the gain x is shown in the table:

7998 7998
−20 (−20)
8000 8000

2 2
23.98 (23.98)
8000 8000

= ( ) = −14

Problem 4
Determine the yearly premium for a $10,000 insurance policy covering an event that, over a
long period of time, has occurred at the rate of 2 times in 100. Let equal the yearly financial
gain to the insurance company resulting from the sale of the policy, and let equal the
unknown yearly premium. Calculate the value of such that the expected gain ( ) will

equal zero . Then is the premium required to break even. To this, the company would add

administrative costs and profit.

= ( )

−( + )
 = ( )= ( )

= +( + ) ⟹ + − = ⟹ =

Problem 5
A random variable can assume five values: 0, 1, 2, 3, 4. A portion of the probability
distribution is shown here

0 1 2 3 4
( ) 0.1 0.3 0.3 ? 0.1

a. Find ( ).
b. Construct a probability histogram for ( ).
c. Calculate the population mean, variance, and standard deviation.
d. What is the probability that is greater than 2?
e. What is the probability that is 3 or less?
Solution

a. ( ) = −( . + . + . + . )= .
b.
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
1 2 3 4 5
 ( ) ( ) ( )
0 0.1 (0)(0.1) = 0 (0) (0.1) = 0
1 0.3 (1)(0.3) = 0.3 (1) (0.3) = 0.3
2 0.3 (2)(0.3) = 0.6 (2) (0.3) = 1.2
3 0.2 (3)(0.2) = 0.6 (3) (0.2) = 1.8
4 0.1 (4)(0.1) = 0.4 (4) (0.1) = 1.6

( ) = 1.9 ( ) = 4.9

( )= ( ) = 1.9

= ( )− = 4.9 − (1.9) = 1.29

= = √1.29 = 1.136

d.
( > 3) = ( = 4) = 0.4
e.
( ≤ 3) = 1 − ( > 3) = 1 − 0.4 = 0.6

Problem 6

Let represent the number of times a customer visits a grocery store in a 1-week period.
Assume this is the probability distribution of :

0 1 2 3
( ) 0.1 0.4 0.4 0.1

Find the expected value of x, the average number of times a customer visits the store.
Solution

( ) ( )

0 0.1 (0)(0.1) = 0

1 0.4 (1)(0.4) = 0.4

2 0.4 (2)(0.4) = 0.8

3 0.1 (3)(0.1) = 0.3

( ) = 1.5

Problem 7

The maximum patent life for a new drug is 17 years. Subtracting the length of time required
by the FDA for testing and approval of the drug provides the actual patent life of the drug
that is, the length of time that a company has to recover research and development costs and
make a profit. Suppose the distribution of the lengths of patent life for new drugs is as shown
here:
Years, 3 4 5 6 7 8 9 10 11 12 13
( ) 0.03 0.05 0.07 0.10 0.14 0.20 0.18 0.12 0.07 0.03 0.01

a. Find the expected number of years of patent life for a new drug.
b. Find the standard deviation of .
Solution

( ) ( ) ( )

3 0.03 (3)(0.03) = 0.00 (3) (0.03) = 0.27

4 0.05 (4)(0.05) = 0.20 (4) (0.05) = 0.80

5 0.07 (5)(0.07) = 0.35 (5) (0.07) = 1.75

6 0.10 (6)(0.10) = 0.60 (6) (0.10) = 3.6

7 0.14 (7)(0.14) = 0.98 (7) (0.14) = 6.86

8 0.20 (8)(0.20) = 1.60 (8) (0.20) = 12.80

9 0.18 (9)(0.18) = 1.62 (9) (0.18) = 14.58

10 0.12 (10)(0.12) = 1.20 (10) (0.12) = 12

11 0.07 (11)(0.07) = 0.77 (11) (0.07) = 8.47

12 0.03 (12)(0.03) = 0.36 (12) (0.03) = 4.32

13 0.01 (13)(0.01) = 0.13 (13) (0.01) = 1.69

= ( )= . ( )= .

( )= ( ) = 7.81

= ( )− = 67.14 − (7.81) = 6.1439

= = √6.1439 = 2.48