Chapter 2

Probability Concepts and

Applications

To accompany
Quantitative Analysis for Management, Tenth Edition,
by Render, Stair, and Hanna © 2008 Prentice-Hall, Inc.
Power Point slides created by Jeff Heyl © 2009 Prentice-Hall, Inc.
 Learning Objectives
After completing this chapter, students will be able to:
1. Describe the basic foundations of
probability analysis
2. Describe statistically dependent and
independent events
3. Describe and provide examples of both
discrete and continuous random variables
4. Explain the difference between discrete and
continuous probability distributions
5. Calculate expected values and variances
and use the normal table

© 2008 Prentice-Hall, Inc. 2–2

 Chapter Outline
2.1 Introduction
2.2 Fundamental Concepts
2.3 Mutually Exclusive and Collectively
Exhaustive Events
2.4 Statistically Independent Events
2.5 Statistically Dependent Events

© 2008 Prentice-Hall, Inc. 2–3

 Chapter Outline
2.6 Random Variables
2.7 Probability Distributions
2.8 The Binomial Distribution
2.9 The Normal Distribution

© 2008 Prentice-Hall, Inc. 2–4

 Introduction

 Life is uncertain, we are not sure

what the future will bring
 Risk and probability is a part of
our daily lives
 Probability is a numerical
statement about the likelihood
that an event will occur

© 2008 Prentice-Hall, Inc. 2–5

 Fundamental Concepts
Two basic rules regarding the mathematics of
probability:
1. The probability, P, of any event or state of
nature occurring is greater than or equal
to 0 and less than or equal to 1. That is:

0  P (event)  1

2. The sum of the simple probabilities for all

possible outcomes of an activity must
equal 1

© 2008 Prentice-Hall, Inc. 2–6

 Different Topics Covered
That Use Probability
CHAPTER TITLE
3 Decision Analysis
4 Regression Models
5 Forecasting
6 Inventory Control Models
13 Project Management
14 Waiting Lines and Queuing Theory Models
15 Simulation Modeling
16 Markov Analysis
17 Statistical Quality Control
Module 3 Decision Theory and the Normal Distribution
Module 4 Game Theory

Table 2.1
© 2008 Prentice-Hall, Inc. 2–7
 Diversey Paint Example
 Demand for white latex paint at Diversey Paint
and Supply has always been either 0, 1, 2, 3, or 4
gallons per day
 Over the past 200 days, the owner has observed
the following frequencies of demand
QUANTITY
NUMBER OF DAYS PROBABILITY
DEMANDED
0 40 0.20 (= 40/200)
1 80 0.40 (= 80/200)
2 50 0.25 (= 50/200)
3 20 0.10 (= 20/200)
4 10 0.05 (= 10/200)
Total 200 Total 1.00 (= 200/200)

© 2008 Prentice-Hall, Inc. 2–8

 Diversey Paint Example
 Demand for white latex paint at Diversey Paint
and Supply
Notice has always been either 0, 1, 2, 3, or 4
the individual
gallons perare
probabilities dayall between 0
and 1 the past 200 days, the owner has observed
 Over
the following
0 ≤ P frequencies
(event) ≤ 1 of demand
And the total of all event
QUANTITY equals 1
probabilities NUMBER OF DAYS PROBABILITY
DEMANDED
0 ∑ P (event) = 1.00
40 0.20 (= 40/200)
1 80 0.40 (= 80/200)
2 50 0.25 (= 50/200)
3 20 0.10 (= 20/200)
4 10 0.05 (= 10/200)
Total 200 Total 1.00 (= 200/200)

© 2008 Prentice-Hall, Inc. 2–9

 ILLUSTRATION

In the past 30 days, Roger’s Rural Roundup has

sold either 8, 9, 10, or 11 lottery tickets. It never
sold fewer than 8 or more than 11.

Required:
Assuming that the past is similar to the future,
find the probabilities for the number of tickets
sold if sales were 8 tickets on 10 days, 9 tickets on
12 days, 10 tickets on 6 days, and 11 tickets on 2
days.

© 2008 Prentice-Hall, Inc. 2 – 10

 Types of Probability
Determining objective probability
 Relative frequency
 Typically based on historical data

Number of occurrences of the event

P (event) =
Total number of trials or outcomes

 Classical or logical method

 Logically determine probabilities without trials

1 Number of ways of getting a head

P (head) =
2 Number of possible outcomes (head or tail)
© 2008 Prentice-Hall, Inc. 2 – 11
 Types of Probability

Subjective probability is based on

the experience and judgment of the
person making the estimate
 Opinion polls
 Judgment of experts
 Delphi method- panel of experts
assembled to make predictions (Chap 5)
 Other methods

© 2008 Prentice-Hall, Inc. 2 – 12

 Mutually Exclusive Events

Events are said to be mutually

exclusive if only one of the events can
occur on any one trial
 Tossing a coin will result
in either a head or a tail
 Rolling a die will result in
only one of six possible
outcomes

© 2008 Prentice-Hall, Inc. 2 – 13

 Collectively Exhaustive Events

Events are said to be collectively

exhaustive if the list of outcomes
includes every possible outcome
 Both heads and
OUTCOME
tails as possible OF ROLL
PROBABILITY
outcomes of 1 1
/6
coin flips 2 1
/6
 All six possible 3 1
/6
4
outcomes 1
/6
5
of the roll 1
/6
6
of a die /6
1

Total 1
© 2008 Prentice-Hall, Inc. 2 – 14
 Drawing a Card

Draw one card from a deck of 52 playing cards

P (drawing a 7) = 4/52 = 1/13

P (drawing a heart) = 13/52 = 1/4

 These two events are not mutually exclusive

since a 7 of hearts can be drawn
 These two events are not collectively
exhaustive since there are other cards in the
deck besides 7s and hearts

© 2008 Prentice-Hall, Inc. 2 – 15

 Table of Differences

MUTUALLY COLLECTIVELY
DRAWS
EXCLUSIVE EXHAUSTIVE
1. Draws a spade and a club Yes No
2. Draw a face card and a Yes Yes
number card
3. Draw an ace and a 3 Yes No
4. Draw a club and a nonclub Yes Yes
5. Draw a 5 and a diamond No No
6. Draw a red card and a No No
diamond

© 2008 Prentice-Hall, Inc. 2 – 16

Adding Mutually Exclusive Events

We often want to know whether one or a

second event will occur
 When two events are mutually
exclusive, the law of addition is –

P (event A or event B) = P (event A) + P (event B)

P (spade or club) = P (spade) + P (club)

= 13/52 + 13/52
= 26/52 = 1/2 = 0.50 = 50%

© 2008 Prentice-Hall, Inc. 2 – 17

Adding Not Mutually Exclusive Events

The equation must be modified to account

for double counting
 The probability is reduced by
subtracting the chance of both events
occurring together
P (event A or event B) = P (event A) + P (event B)
– P (event A and event B both occurring)
P (A or B) = P (A) + P (B) – P (A and B)
P(five or diamond) = P(five) + P(diamond) – P(five and diamond)
= 4/52 + 13/52 – 1/52
= 16/52 = 4/13

© 2008 Prentice-Hall, Inc. 2 – 18

 Venn Diagrams

P (A and B)

P (A) P (B) P (A) P (B)

Events that are mutually Events that are not

exclusive mutually exclusive

P (A or B) = P (A) + P (B) P (A or B) = P (A) + P (B)

– P (A and B)
Figure 2.1 Figure 2.2
© 2008 Prentice-Hall, Inc. 2 – 19
 Statistically Independent Events

Events may be either independent or

dependent
 For independent events, the occurrence
of one event has no effect on the
probability of occurrence of the second
event

© 2008 Prentice-Hall, Inc. 2 – 20

Which Sets of Events Are Independent?

1. (a) Your education

Dependent events
(b) Your income level

2. (a) Draw a jack of hearts from a full 52-card deck Independent

(b) Draw a jack of clubs from a full 52-card deck events

3. (a) Chicago Cubs win the National League pennant Dependent

(b) Chicago Cubs win the World Series events

4. (a) Snow in Santiago, Chile

Independent events
(b) Rain in Tel Aviv, Israel

© 2008 Prentice-Hall, Inc. 2 – 21

 Three Types of Probabilities
under both statistical independence and statistical dependence
 Marginal (or simple)
simple probability is just the
probability of an event occurring
P (A)
 Joint probability is the probability of two or more
events occurring and is the product of their
marginal probabilities for independent events
P (AB) = P (A) x P (B)
 Conditional probability is the probability of event
B given that event A has occurred
P (B | A) = P (B)
 Or the probability of event A given that event B
has occurred
P (A | B) = P (A)
© 2008 Prentice-Hall, Inc. 2 – 22
Marginal (or simple)
simple probability
 If we toss a fair die, the marginal
probability of a 2 landing face up is P
(die is a 2) = 1/6 = 0.166
 Because each separate toss is an
independent event (that is, what we get
on the first toss has absolutely no effect
on any later tosses), the marginal
probability for each possible outcome is
1/6

© 2008 Prentice-Hall, Inc. 2 – 23

 Joint Probability Example

The probability of tossing a 6 on the first

roll of the die and a 2 on the second roll
P (6 on first and 2 on second)
= P (tossing a 6) x P (tossing a 2)
= 1/6 x 1/6 = 1/36 = 0.028

© 2008 Prentice-Hall, Inc. 2 – 24

 Conditional probability

Expressed as P ( B/A) or “the probability of event

B, given that event A has occurred.” Similarly, P ( A/B)
would mean “the conditional probability
of event A, given that event B has taken place.”

Since events are independent the occurrence of one

in no way affects the outcome of another, P(A/B) = P(A)
and P(B/A) = P(B).

© 2008 Prentice-Hall, Inc. 2 – 25

 Independent Events
A bucket contains 3 black balls and 7 green balls
 We draw a ball from the bucket, replace it, and
draw a second ball

1. A black ball drawn on first draw

P (B) = 0.30 (a marginal probability)
2. Two green balls drawn
P (GG) = P (G) x P (G) = 0.7 x 0.7 = 0.49
(a joint probability for two independent events)

© 2008 Prentice-Hall, Inc. 2 – 26

 Independent Events
A bucket contains 3 black balls and 7 green balls
 We draw a ball from the bucket, replace it, and
draw a second ball
3. A black ball drawn on second draw if the first
draw is green
P (B | G) = P (B) = 0.30
(a conditional probability but equal to the marginal
because the two draws are independent events)
4. A green ball is drawn on the second if the first
draw was green
P (G | G) = P (G) = 0.70
(a conditional probability as in event 3)

© 2008 Prentice-Hall, Inc. 2 – 27

 ILLUSTRATION

An urn contains 8 red chips, 10 green chips, and

2 white chips. A chip is drawn and replaced, and
then a second chip drawn. What is the probability of
a. a white chip on the first draw?
b. a white chip on the first draw and a red on the
second?
c. two green chips being drawn?
d. a red chip on the second, given that a white chip was
drawn on the first?

© 2008 Prentice-Hall, Inc. 2 – 28

© 2008 Prentice-Hall, Inc. 2 – 29
Statistically Dependent Events
The marginal probability of an event occurring is
computed the same
P (A)

Calculating conditional probabilities is slightly more

complicated. The probability of event A given that
event B has occurred is
P (AB)
P (A | B) = P (B)

The formula for the joint probability of two events is

P (AB) = P (B | A) P (A)

© 2008 Prentice-Hall, Inc. 2 – 30

 When Events Are Dependent

Assume that we have an urn containing 10 balls of

the following descriptions
 4 are white (W) and lettered (L)
 2 are white (W) and numbered (N)
 3 are yellow (Y) and lettered (L)
 1 is yellow (Y) and numbered (N)

P (WL) = 4/10 = 0.4 P (YL) = 3/10 = 0.3

P (WN) = 2/10 = 0.2 P (YN) = 1/10 = 0.1
P (W) = 6/10 = 0.6 P (L) = 7/10 = 0.7
P (Y) = 4/10 = 0.4 P (N) = 3/10 = 0.3

© 2008 Prentice-Hall, Inc. 2 – 31

 When Events Are Dependent

4 balls
White (W) 4
and Probability (WL) =
10
Lettered (L)

2 balls
Urn contains White (W) 2
10 balls Probability (WN) =
and 10
Numbered (N)
3 balls
Yellow (Y) 3
Probability (YL) =
and 10
Lettered (L)
1 ball Yellow (Y) 1
Figure 2.3 and Numbered (N) Probability (YN) =
10
© 2008 Prentice-Hall, Inc. 2 – 32
 When Events Are Dependent

The conditional probability that the ball drawn

is lettered, given that it is yellow, is

P (YL) 0.3
P (L | Y) = = = 0.75
P (Y) 0.4

Verify P (YL) using the joint probability formula

P (YL) = P (L | Y) x P (Y) = (0.75)(0.4) = 0.3

© 2008 Prentice-Hall, Inc. 2 – 33

 Joint Probabilities
for Dependent Events
A class contains 30 students. Ten are female (F) and U.S.
citizens (U); 12 are male (M) and U.S. citizens;
6 are female and non-U.S. citizens (N); 2 are male and
non-U.S. citizens.

A name is randomly selected from the class roster and it

is female. What is the probability that the
student is a U.S. citizen?

© 2008 Prentice-Hall, Inc. 2 – 34

Solution

© 2008 Prentice-Hall, Inc. 2 – 35

END OF CHAPTER 2

© 2008 Prentice-Hall, Inc. 2 – 36