Business Statistics

Part 2:
Probability Concepts,
Probability Distributions

2
Part 2
Outline:
• Definitions
• Counting techniques – Permutations and Combinations.
• Probability - Different Views of Probability
• Elementary Properties of Probability.
• Conditional Probability.
• Addition and Multiplication Rules.
• Probability Distributions of Discrete Random Variable.
• Binomial Distribution.
• Poisson Distribution.
• Normal distribution.
• Uniform distribution.
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Definition :
Experiment: Is any procedure that can be infinitely repeated and
has a well-defined set of possible outcomes, known as the
sample space.
Outcome: Is a possible result of an experiment.
Event: Is a set of outcomes of an experiment (a subset of the
sample space) to which a probability is assigned.
Sample Space: Is a collection or a set of possible outcomes of a
random experiment. Is the set of all possible outcomes for an
event. For example, when rolling a single six-sided die, the die
could land on any of the integers from 1 to 6. So, the sample
space for this event is {1, 2, 3, 4, 5, 6}.
Counting techniques – Permutations and Combinations:
Factorials: Is a function that multiplies a number by every number
below it till 1. The factorial sign is an exclamation point and it
means to start with the number and multiply by each previous
integer until reaching 1.
For example, 5! = 5 * 4 * 3 * 2 * 1 = 120
4! = 4 * 3 * 2 * 1 = 24
n ! = n ⋅ ( n − 1 ) ⋅ … ⋅ 1. It represents the number of ways to
arrange n objects.

Factorial formula:
n! = n(n-1)(n-2)…………………….(3)(2)(1)
n! = n × (n - 1)!
Counting techniques – Permutations and
Combinations
Permutations:
:
Arrangement of given r things out of total n things when order
is strictly important. Permutations are used when order/sequence
of arrangement is needed.
n! r≤n
n Pr 
 n  r !
Example :
A sale-point requires two sales personnel whose chairs
(positions) are side by side. When they go for a break. Two of four
other sales personal take their places. If we make a distinction
between the two position. In how many ways the four sales
personal fill them.
Counting techniques – Permutations and
Combinations:
B
A C
D

A
B C
D

A
C B
D

A
D B
C

12/4/2024 Business Statistics - part2 - Dr. Amira Kamil 7

Counting techniques – Permutations and
Combinations:
n!
n Pr 
rn
n  r !
4! 4! 4.3.2!
4 P2     12
4  2! 2! 2!
Combinations:
Arrangement of given r things out of total n things when order is
not important. Combinations are used when only the number of
possible groups are to be found, and the order/sequence of
arrangements is not needed
n!
nCr  rn
r !  n  r !
Counting techniques – Permutations and
Combinations:
Example:
In a toy shop there are 10 different colours of balls, if we want
to make a packets of 6 balls, how many combinations of balls are
available?
Solution:
n!
nCr  r≤n
r !  n  r !
10 ! 10 ! 10 . 9 . 8 . 7 . 6!
10 C 6     210
6! 10  6 ! 6!. 4! 6!. 4 . 3 . 2 . 1
Probability:“Different Views of Probability”
Classical probability:
In classical probability, all the outcomes have equal odds of
happening. For example, rolling a dice or tossing a coin. The
formula of classical probability is as follows:
P(A)= f/N;
where: P(A)= classical probability, f= frequency or the number of
favourable outcomes and N= Number of total possible outcomes.
Probability:“Different Views of Probability”
Mutually Exclusive:
In probability theory, two events are said to be mutually
exclusive if they cannot occur at the same time or simultaneously.
In other words, mutually exclusive ...

Example :
Daniel is trying to understand mutually exclusive events using dice.
Help Daniel understand what is the probability of a dice showing 4?
Solution
There are a total of 6 faces on a die, hence, the total number of
outcomes will be 6
The probability of a die showing 4 is P(4) = 1/6
Probability:“Different Views of Probability”
Relative Frequency Definition:
Relative frequency is the number of times a particular outcome
occurred divided by the total number of outcomes. Relative
frequencies are equal to experimental probabilities.
Elementary Properties of Probability:
Different elementary theorems on probability help us in understanding and
easy solving probability questions:
1. The sum of probability of happening and not happening of any given event is always
unity, i.e., equals 1.
P(E) + P(E’) = 1
2. The probability of an impossible event is always equal to 0.
P(E) = 0
3. The sure events always have 1 as a probability.
P(E) = 1
4. The probability of any event is always between 0 to 1.
0 < P(E) < 1
Elementary Properties of Probability:
Example:
There is a box of candies with 4 chocolate candies, 3 strawberry
candies, and 3 raspberry candies. What is the probability of
getting chocolate candy?
Solution:
The probability of getting a chocolate candy = P(A)
Total number of outcomes = 10
Number of favourable outcomes or desired outcomes = 4
Probability = P(A)
= 4/10 = ⅖ = 0.4
Conditional Probability:
Conditional probability is one of the important concepts
in probability and statistics. The "probability of A given B" (or) the
"probability of A with respect to the condition B" is denoted by the
conditional probability P(A | B) (or) P (A / B). Thus, P(A | B)
represents the probability of A which happens after event B has
happened already. the probability of an event may alter if there is
a condition given.
P A  B 
 
P AB 
P B 
P B   0

provided that the probability of B is not 0.

Conditional Probability:
Example :
The table below shows the occurrence of diabetes in 100 people. Let D and N
be the events where a randomly selected person "has diabetes" and "not
overweight". Then find:
1. P(D). 2. P(N). 3. P(D ∩ N’) 4. P(N’ ∩ D’) 5. P(D | N).
No
Diabetes (D) Diabetes Total
(D')

Not 5 45 50
overweight (N)

Overweight 17 33 50
(N')
22 78 100
Total
Conditional Probability:
Solution:
1. P(D) = n(D) / n(T) = 22/100 = 0.22

2. P(N) = n(N) / n(T) = 50/100 = 0.50

3. P(D ∩ N’) = n(D ∩ N’) / n(T) = 17/100 = 0.17

4. P(N’ ∩ D’) = n(N’ ∩ D’) / n(T) = 33/100 = 0.33

Conditional Probability:
5.
P D  N 
P D N  
PN 

From the given table, P(N) = (5+45) / 100 = 50/100 = 0.5

P(D ∩ N) = 5/100 = 0.05
By the conditional probability formula,
P(D | N) = 0.05 / 0.5
= 0.1
Joint Probability:
p(A and B). The probability of event A and event B occurring. It is
the probability of the intersection of two or more events. The
probability of the intersection of A and B may be written p(A ∩ B).

Example: the probability that a card is a four and red

=p(four and red) = 2/52=1/26 = 0.038
Marginal Probability:
probability of observing a specific value of a variable, integrated
over all possible values of other variables. It is calculated by
summing the probabilities of the observed data under a given
model.
Example:
Using the above example calculate; the marginal probability of:
" diabetes" and "not overweight“, “no diabetes" and "not overweight“,
“no diabetes" and " overweight“,
Solution:
5 45 33
P(DꓵN) + P(D’ꓵN) + P(D’ꓵN’)   
100 100 100
= 0.05 + 0.45 + 0.33 = 0.83
Addition Rule:
When calculating the probability of either one of two events from
occurring, it is as simple as adding the probability of each event and
then subtracting the probability of both of the events occurring:
P(A or B) = P(A U B) = P(A) + P(B) - P(A ꓵ B)

Example:
P(D or N) = P(D U N) = P(D) + P(N) - P(D ꓵ N)
22 50 5
   
100 100 100

= 0.22 + 0.50 - 0.05 = 0.67

Multiplication Rule:
When calculating probability, there are two rules to consider when
determining if two events are independent or dependent
If A and B are two events defined on a sample space, then:
P  A  B   P  B P  A B 

This rule may also be written as:

PA  B 
P A B   , P B   0
P B 

If A and B are independent, then

P  A  B   P  A * P B 