Mathematics for Business

1Part 5: Probability Theory

Probability Theory

• Introduction
• Basic Rules and Laws
• Random Variables and Expectation
• Probability Distributions
Introduction

1) Three fair coins are tossed once. Find the probability of the following. (i)
At least one tail, (ii) exactly one head, (iii) exactly two tails, (iv) exactly
three heads and (v) at least two tails.
2) If a dice is tossed, what is the probability the number appearing on top is
(i) odd number; (ii) less than 3 and (iii) an even number less than 5.
3) What is the probability of setting 2 red balls in a draw of two balls from a
box containing 4 white and 3 red balls?
4) What is the chance that a leap year selected at random will contain 53
Mondays?
5) From a pack of 52 cards, one card is drawn at random. Find the chance of
drawing a heart and a chance of not drawing a heart.
6) If two dice are thrown, what is the probability that the sum of numbers that
appeared on them is (a) greater than 8? (b) neither 7 nor 11?
Addition and Multiplication Rules

1) A construction company is bidding for two contracts A and B. The

probability that the company will get A is 3/5, the probability that the
company will get contract B is 1/3 and the probability that the company will
get both the contracts is 1/8. What is the probability that the company will
get contract A or B?
2) A fair dice is thrown. What is the chance that either an even number or a
number greater than 3 will turn up?
3) The probability that a contractor will not get a plumbing contract is 1/3
and the probability that he will get an electric contract is 4/9. If the
probability of setting at least one contract is 4/5, what is the probability that
he will get both the contracts?

4) A candidate is selected for an interview for three posts. For the fi rst post,
there are 3 candidates, for the second there are 4, and for the third there are
2. What are the chances of his getting at least one post?
Conditional Probability
1) A bag contains 8 red balls and 5 white balls. Two successive draws are made. Find
the probability that the first draw will give 3 white balls and the second 3 red balls.
2) Two parties are competing for the position on the Board of Directors of a
company. The probabilities that the first and second parties will win the position are
0.65 and 0.35, respectively. If the first party wins, the probability of introducing a
new product is 0.75 and the corresponding probability for the second party is 0.4.
What is the probability that the new product will be introduced?
3) There are three men aged 60, 65 and 70 years. The probability to live 5 years more
is 0.8 for a 60 year old, 0.6 for a 65 year old and 0.3 for a 70 year old person. Find
the probability that at least two of the three persons will remain 5 years hence.
4) The manufacturer of a certain product has installed three machines, A, B, and C,
all meant for producing a given product. All the three machines are equally efficient
and constitute 25%, 35%, and 40%, respectively, of a day’s total production. It has
been found that on an average machine A produces 1% defective items, B produces
2% defective items, and C produces 3% defective items. An item is drawn at random
from the combined output of all the three machines produced during a specified hour.
Find the probabilities that the item selected is produced a) by A b) by B, and c) by C.
Conditional Probabilities
5) A manager has drafted a scheme for the benefit of employees. To get an idea of
the support for the scheme, he randomly polls literate workers (L) and illiterate
workers (I). He polls 30 of each group with the following results:

(a) What is the probability that a literate worker selected randomly from the polled
group mildly supports the scheme?
(b) What is the probability that a worker (literate or illiterate) selected randomly
from the polled group strongly or mildly supports the scheme?
6) A manufacturing firm produces pipes in two plants I and II with daily production
1500 and 2000 pipes respectively. The fraction of defective pipes produced by the
two plants I and II are 0.006 and 0.008 respectively. If a pipe selected at random
from the day’s production is found to be defective, what is the probability that it has
come from plant I, Plant II.
Bayes’ Theorem

1) In a bolt factory Machines X, Y and Z manufacture, respectively, 20%, 35% and

45% of the total of their output 8%, 6% and 5%, respectively are defective bolts. One
bolt is drawn at random from the product and is found defective. What is the
probability that it is manufactured in the machine Z?
2) A dryer manufacturer purchases heating elements from the different suppliers:
Argostat, Bermrock and Thermotek. 30% of the heating elements are supplied by
Argostat, 50% by Bermrock and 20% by Thermtek. The elements are mixed in a
supply bin prior to inspection and installation. Based on the past experience, 10% of
the Argostat elements are defective, compared to only 5% of those supplied by
Bermrock and just 4% of those from Thermtek. An assembly worker randomly
selects an element for installation. What is the probability that the element was
supplied by Argostat?
3) A person has two coins, one is unbalanced and lands heads 60% of the time, the
other is fair and lands heads 50% of the time. He selects one of the coin and flips it.
The result is head. (i) What is the prior probability that the fair coin was selected? (ii)
Given additional information in the form of the single fl ip that came up as head,
what is the revised probability that the coin is the fair one.
Random Variables
1) A financial counselor conducts investment seminars with each seminar limited to
6 attendees. Because of the small size of the seminar group and each person receives
the personal attention, some of the attendees became clients followed by the seminar.
For the past 20 seminars, he has conducted.
X = The number of visitors who became clients, has had the following distribution.

Find: (i) The probability that nobody will become a client. (ii) The probability that at
least 4 will become client.
2) X is a discrete random variable having the following probability distribution:

Find a) the value of k; b) the value of P(X > 6); c) the value of P(X ≥ 2)
Expectation and Variance
Again, consider the following distributions, compute expectation and standard
deviation
1)

2)

3)

4)

5) A discrete random variable can have the values x = 3, x = 8 and x = 10, and the
respective probabilities are 0.2, 0.7 and 0.1. Determine the mean, variance and
standard deviation.
6) A music shop is promoting a sale in which the purchases of a compact disc can
roll a die, then deduct a dollar from the retail price for each dot shows on the rolled
die. It is equally likely that the die will come up any integer from 1 through 6. The
owner of a music shop pays $5 for each compact disc, than prices $9. During this
special promotion, what will be the shop’s average profit per compact disc sold?
Binomial Distribution
(i) Trials are independent and carried over under identical conditions for a fixed
number of times.
(ii) There are only two possible outcomes namely success and failure.
(iii) The success probabilities should be constant for all trials.
P(X) = nCx px qn-x; x = 0, 1, 2, … n
Mean = np; Variance = npq;
Examples
1) Researchers find that 60% of VCR owners understand how to program
their VCR. Assuming a Bernoulli process and 3 randomly selected VCR
owner, what is the probability of exactly 2 successes in 3 trials?
2) Of the 41,636 residents of Tamil Nadu, 20% were born outside Tamil
Nadu. A group of 5 people is to be randomly selected from the state and the
discrete random variable is: x is the number of persons in the group who
were born in outside Tamil Nadu. Find
(i) The probability for exactly 2 persons born outside Tamil Nadu.
(ii) The probability for at least three persons born outside Tamil Nadu.
Examples
3) The screws produced by a certain machine were checked by examining samples of
12. The following table shows the distribution of 128 samples according to the no. of
defective items they contained.

Fit a Binomial distribution and find the expected frequencies if the chance of
machine being defective is 1/2. Find the mean and variance of the fitted distribution.
4) If the probability of defective bolts be 1/10, find the following for the binomial
distribution of defective bolts in a total of 400. (i) The mean (ii) The variance
5) On an average, a machine produces 25% defective items. Find the probabilities
that a random sample of 4 items consists of (a) no defective item, (b) one defective
item (c) two defective items and d) four defective items.
6) A packet of 10 electronic components is known to include 3 defectives. If 4
components are randomly chosen and tested, what is the probability of finding
among them not more than one defective?
Poisson Distribution
The probability that an event will occur exactly x times over a given span of time is

Examples: Customer arrivals at a service point during a given period of time, such as
(i) The number of vehicles approaching the petrol bunk.
(ii) The number of persons entering into a restaurant.
(iii) The number of calls received by a company switchboard.
(iv) Number of defects in manufactured products.
(v) The number of births, deaths, marriages, divorcees, suicides, etc. over a given
period of time.
Mean = l , Variance = l
Example: For a discrete random variable that is Poisson distributed with l = 2,
Evaluate the following: (i) P(X = 0) (ii) P(X ≤ 2) (iii) P(X > 2)
Examples
1) In the year 2004, there were about 530 motor vehicle thefts for every 100,000
registrations. Assuming that
(i) a Poisson distribution.
(ii) a community with a comparable theft rate and 1000 registered motor vehicles.
(iii) x = number of vehicles stolen during the year in that community, determine the
following: (i) E(X); (ii) P(X = 3); and (iii) P(3 ≤ X ≤ 5)
2) In a state, the divorce rate has been reported as 4.2 divorces per 1000 population.
Assuming that this rate applies to a small community of just 500 people is Poisson
distributed and that x = the number of divorces in this community during the coming
year. Determine the following: (i) P(X = 1) and (ii) P(X > 1)
3) Over the past year, a University’s computer system has been struck by a virus at
an average rate of 0.4 viruses per week. The University’s information technology
manager estimate that each time a virus occurs, it cost the University `1000 to
remove the virus and repair the damages it has caused. Assuming a Poisson
distribution, what is the probability that the University will have the good fortune of
being virus-free during the upcoming week? During this same week, what is the
expected amount of money that the University will have to spend for virus removal
and repair?
Normal Distribution
Examples
1) Media researchers report the average daily TV viewing time for adult males to be
4.28 hours. Assume a normal distribution with a standard deviation of 1.30 hours.
What is the probability that a randomly selected adult male watches TV less than 2
hours per day?
2) Following their production, industrial generator shafts are tested for static and
dynamic balance and the necessary weight is added and predrilled holes in order to
bring each shaft within balance specifications. From the past experience, the amount
of weight added to a shaft has been normally distributed with an average of 35 grams
and a standard deviation of 9 grams. What is the probability that a randomly selected
shaft will require between 35 and 40 grams of weight for proper balance? What is the
probability that a randomly selected shaft will require at least 50 grams of weight for
proper balance?
3) A sample of 100 dry battery cells tested to fi nd the length of life produced the
following results: m = 12 hours s = 3 hours Assuming the data are normally
distributed, what % of battery cells are expected to have life.
(i) >15 hours. (ii) <6 hours. (iii) >10 and <14 hours.
4) In a college, the average score on the mathematics portion was 511 with 21.77%
of the students secured more than 600, then find s.