Course Name: Statistics for Business

Course Code: MBA 134

Total number of hours: 45 Hours
Credits: 3
Unit - II
Need for Probability in Business (Analysis of uncertainties)
1. What are the chances that sales will decrease if we increase prices?
2. What is the likelihood a new assembly method will increase productivity?
3. How likely is it that the project will be finished on time?
4. What is the chance that a new investment will be profitable?
5. Why Probability in Business?
Probability - Numerical measure of the likelihood that an event will occur
• Measures of the degree of uncertainty - Strength of belief / Degree of
chance or likelihood of occurrence in the occurrence of an uncertain
event
• Probability values - Scale from 0 to 1
• Near 0 - Event is unlikely to occur
• Near 1 - Event is almost certain to occur
For example, we consider the event “rain tomorrow,” we understand
• that when the weather report indicates “a near-zero probability of rain,” it
means almost no chance of rain.
• If a .90 probability of rain is reported- rain is likely to occur.
• A .50 probability indicates that rain is just as likely to occur as not
• View of probability as a numerical measure of the likelihood of an event
occurring
Experiment
Is a process that generates well-defined outcomes.
Ex.
Experiment Experimental outcomes
Toss a coin Head, Tail

Conduct a sales call Purchase, No purchase

Roll a die 1,2,3,4,5,6

Play a cricket game Win, lose, tie

Sample space

The sample space for an experiment is the set of all

experimental outcomes.

Ex. Tossing a coin

s= (head, tail)

Rolling a die
s=(1,2,3,4,5,6)

Workout- Game

An experimental outcome is also called as a sample point.

Characteristics:
1. Well - defined outcomes 2. On one trial, only one of the possible outcome
3. Outcome is based on chance Ex: Tossing a coin

S - Sample space 6 - Sample Points

Rolling a Dice
Counting Rules, Combinations and Permutations
Multiple-step experiment
The experiment of tossing two coins can be thought of as two-step experiment.
Sample space S= (H,H),(H,T),(T,H),(T,T)
Tossing two coin n1=2 and n2=2 then using counting rule (2)(2)=4.
Four experimental outcomes are possible
The counting rule for multiple-step experiment makes it possible to determine the
number of experimental outcomes without listing them.
Counting rule for multiple-step experiment
If an experiment can be described as a sequence of k steps with n1
possible outcomes on the first step , n2 possible outcomes on the second step
an so on , then the total number of experimental outcome is given by (n1) (n2)….
(nk)
The number of experimental outcomes involving tossing six coins is (2)(2)(2)(2)
(2)(2) = 64.
 Tree diagram
- Graphical
representation -
Visualizing a
multiple-step
experiment
Combinations
A second useful counting rule enables us to count the number of experimental outcomes when n objects
are to be selected from a set of N objects.
Simple random sampling uses a sample of size n from a population of size N to obtain data that can be
used to make inferences about the characteristics of a population.

 N N!
CnN   
 n  n !(N  n )!

where: N! = N(N - 1)(N - 2) . . . (2)(1)

n! = n(n - 1)(n - 2) . . . (2)(1)
0! = 1

Ex: In a group of five parts how many combinations of two parts can be selected 10 outcomes are
possible. If five parts are A,B,C,D,E then 10 combinations of outcomes are
Ex:1 A quality control procedure in which an inspector randomly selects two of five
parts to test for defects. In a group of five parts, how many combinations of two
parts can be selected? N = 5 and n = 2, we have

Thus, 10 outcomes are possible for the experiment of randomly selecting two parts
from a group of five. If we label the five parts as A, b, C, D, and E, 10
combinations or experimental outcomes can be identified as Ab, AC, AD, AE, bC,
bD, bE, CD, CE, and DE
Ex.2
Suppose that, from a population of 50 bank accounts, we want to take a random
sample of four accounts in order to learn about the population. How many
different random samples of four accounts are possible?.
Permutations - Third counting rule - to compute the number of experimental
outcomes when n objects are to be selected from a set of n objects where the
order of selection is important. The same n objects selected in a different order are
considered as a different experimental outcome.
The number of permutations of N objects taken n at a time is given by
 N N!
PnN  n !  
 n  (N  n )!

where: N! = N(N - 1)(N - 2) . . . (2)(1)

n! = n(n - 1)(n - 2) . . . (2)(1)
0! = 1
Ex. Same problem as combinations
Ordering is important ex:
AB,BA,AC,CA,AD,DA,AE,EA,BC.CB.BD.DB.BE.EB.CD.DC.CE.EC.DE.ED.
Assigning Probabilities
• Three approaches - classical, relative frequency, and subjective methods
• Classical method - All the experimental outcomes are equally likely
Ex: Tossing a coin, Rolling a Die
Classical Method
Appropriate when all the experimental outcomes are equally likely.

If n experimental outcomes are possible, a probability of 1/n is assigned to each experimental

outcome.
Ex. Tossing a coin and rolling a die

Relative frequency
When data are available to estimate the proportion of the time the experimental outcome will occur
if the experiment is repeated a large number of times.

Ex Number waiting Number of days outcome occurred Relative frequency

0 2 .10
1 5 .25
2 6 .30 3
4 .20 4 3 .15
total 20
Subjective method
Subjective probability result from intuition, educated guesses, and estimates. For instance, given a
patient’s health and extent of injuries, a doctor may feel a patient has 90% chance of a full recovery.
A business analyst may predict that the chance of the employees of a certain company going on
strike is .25

Ex.
The probability of your phone ringing during the class is is 0.1
This probability is most likely based on an educated guess. It is an example of subjective probability.
Event

Collection of outcomes having a common characteristic

E.g.: Even number

A = {2,4,6}
Event A occurs if an outcome in the set A occurs

Probability of an event
Sum of the probabilities of the outcomes of which it consists
P(A) = P(2) + P(4) + P(6)
• Permutation : Permutation means arrangement of things.
The word arrangement is used, if the order of things is
considered.
• Combination: Combination means selection of things. The
word selection is used, when the order of things has no
importance.
• Example: Suppose we have to form a number of
consisting of three digits using the digits 1,2,3,4, To form
this number the digits have to be arranged. Different
numbers will get formed depending upon the order in which
we arrange the digits. This is an example of Permutation.
• Now suppose that we have to make a team of 11 players out
of 20 players, This is an example of combination, because
the order of players in the team will not result in a change in
the team. No matter in which order we list out the players
the team will remain the same!
 Exercise
1. Tossing a coin three times
a. develop a tree diagram
b. list the experimental outcomes
c. What is the probability for each experimental outcome. What method you
use.
2. An experiment with three outcomes has been repeated 50 times and it was
learned that E1 occurred 20 times E2 occurred 13 times and E3 occurred 17
times. Assign probabilities to the outcomes. What method did you use?.
3. A decision maker subjectively assigned the following probabilities to the four
outcomes of an experiment P(E1)=.10, P(E2)=.15, P(E3)=.40 and P(E4)=.20. Are
the probability assignment valid?
 Complement of a Set

Venn
VennDiagram
Diagramillustrating
illustratingthe
theComplement
Complementof
ofan
anevent
event
 Basic Definitions (Continued)
 Intersection (And)  A  B
–
a set containing all elements in both A and B
 Union (Or)  A  B
–
a set containing all elements in A or B or
both
Complements - Probability of not A
P( A )  1  P( A)
Sets: A Intersecting with B

A
B

A B
 2-22

Sets: A Union B

A
B

A B
Example: Page_No: 191, 192
Ex.1 Study by personal manager of a software company. The study
shows 30% of the employees who left the firm within two years did so
primarily because they were dissatisfied with their salary, 20% left for
work assignment and 12% indicated dissatisfaction with both their
salary and work assignment.
What is the prob. that an employee who leaves within two years does
so because of dissatisfaction with salary, work assignment or both?
 2-25

Mutually Exclusive or Disjoint Sets

Sets have nothing in common

B
A
Ex. We have a sample space with five equally likely experimental outcomes. E1, E2,
E3,E4,E5 and let A=(E1, E2) B=(E3, E4) C=(E2, E3,E5)
a. Find P(A), P(B), P(C) b. Find P(A or B). Are A and B mutually exclusive
b. Find Ac, Cc, P(Ac) and P(Cc) d.P(A or Bc)

Ex.2 A survey of magazine subscribers showed that 45.8% rented a car during the
past 12 months for business reasons, 54% rented a car during the past 12
months for personal reasons, and 30% rented a car during the past 12 months
for both business and personal reasons.
1. What is the probability that a subscriber rented a car during the past 12
months for business or personal reasons?
2. What is the probability that a subscriber did not rent a car during the past 12
months for either business or personal reasons?
Conditional probability:
2.A conditional probability is the probability of one event, given that another event has occurred
P(A and B) The conditional probability of A given that B has occurred. A given B
P(A | B) 
P(B)
The conditional probability of B given that A has occurred. B given A
P(A and B)
P(B | A)  Where P(A and B) = joint probability of A and B
P(A)
The police force consists of 1200 officers, 960 men and 240 women. over the past two years, 324 officers on the police force
received promotions. 288 male officers had received promotions, but only 36 female officers had received promotions.
 Rules of Probability:
1. General Addition Rule
P(A or B) = P(A) + P(B) - P(A and B)

If A and B are mutually exclusive, then

P(A and B) = 0, so the rule can be simplified
P(A or B) = P(A) + P(B)
Rulesof
Rules ofconditional
conditionalprobability:
probability:

P( A  B)  P( A B) P( B)
P( A B)  P( A  B) so
P( B)  P( B A) P( A)

If events A and B are P ( A B )  P ( A)

statistically independent: so
P ( B A)  P ( B ) P( A B)  P( A)P(B)
From the marginal probabilities, we see
that 80% of the force is male, 20% of the
force is female, 27% of all officers
received promotions, and 73% were not
promoted
3. Multiplication Rule– for two events A and B

P(A and B)  P(A | B) P(B)

4. Two events A and B are statistically independent if
the probability of one event is unchanged by the
knowledge that other even occurred. That is:
P(A | B)  P(A) or P(B | A)  P(B)
5. Then the multiplication rule for two statistically
independent events is:
P(A and B)  P(A) P(B)
Consider the situation of a service station manager who knows from past experience
that 80% of the customers use a credit card when they purchase gasoline. What is the
probability that the next two customers purchasing gasoline will each use a credit
card?
• Consider a newspaper circulation department
• 84% of the households in a particular neighborhood subscribe to the daily
• edition of the paper. If we let D denote the event that a household subscribes to
the daily edition, P(D) = .84.
• In addition, it is known that the probability that a household that already holds
a daily subscription also subscribes to the Sunday edition (event s) is .75; that is,
P(s ∣ D) = .75.
• What is the probability that a household subscribes to both the Sunday and
daily editions of the newspaper? using the multiplication law, we compute the
desired P(s ∩ D) as

• We now know that 63% of the households subscribe to both the Sunday and
daily editions.
Some more definitions
Set - a collection of elements or objects of interest
Empty set (denoted by )
a set containing no elements


Universal set (denoted by S)

a set containing all possible elements


Complement (Not). The complement of A is

a set containing all elements of S not in A


Multiplication rule Examples

When asked to find the probability of A and B, we want to find out the probability of events A and B happening.
Suppose we roll one die followed by another and want to find the probability of rolling a 4 on the first die and
rolling an even number on the second die. Notice in this problem we are not dealing with the sum of both dice.
We are only dealing with the probability of 4 on one die only and then, as a separate event, the probability of an
even number on one die only.
P(4) = 1/6
P(even) = 3/6

So P(4 even) = (1/6)(3/6) = 3/36 = 1/12

While the rule can be applied regardless of dependence or

independence of events, we should note here that rolling a 4 on
one die followed by rolling an even number on the second die
are independent events. Each die is treated as a separate thing
and what happens on the first die does not influence or effect
what happens on the second die.

This is our basic definition of independent events: the outcome of

one event does not influence or effect the outcome of another
event.
Suppose you have a box with 3 blue marbles, 2 red marbles, and 4 yellow marbles. You are
going to pull out one marble, record its color, put it back in the box and draw another marble.
What is the probability of pulling out a red marble followed by a blue marble?
The multiplication rule says we need to find P(red) P(blue).
P(red) = 2/9 P(red blue) = (2/9)(3/9) = 6/81 = 2/27 Independent or not ?
P(blue) = 3/9

There are 11 marbles in a bag. Two are yellow, five are pink and four are green. Suppose you
pull out one marble, record its color, put it back in the bag and then pull out another marble.
What is the probability of P(yellow and pink)
Consider the same box of marbles as in the previous example. However in this case, we are
going to pull out the first marble, leave it out, and then pull out another marble. What is
the probability of pulling out a red marble followed by a blue marble?

We can still use the multiplication rule which says we need to find P(red) P(blue). But be
aware that in this case when we go to pull out the second marble, there will only be 8 marbles
left in the bag.

P(red) = 2/9
P(blue) = 3/8

P(red blue) = (2/9)(3/8) = 6/72 = 1/12

The events in this example were dependent. When the first marble was pulled out and kept
out, it effected the probability of the second event. This is what is meant by dependent
events.
Rule of Subtraction
The probability of an event ranges from 0 to 1.
The sum of probabilities of all possible events equals 1.
The rule of subtraction follows directly from these
properties.
Rule of Subtraction The probability that event A will occur is
equal to 1 minus the probability that event A
will not occur.
P(A) = 1 - P(A')
Suppose, for example, the probability that Bill will graduate
from college is 0.80. What is the probability that Bill will
not graduate from college? Based on the rule of
subtraction, the probability that Bill will not graduate is
1.00 - 0.80 or 0.20.
Summary
Two events are mutually exclusive or disjoint if they cannot
occur at the same time.
The probability that Event A occurs, given that Event B has
occurred, is called a conditional probability. The conditional
probability of Event A, given Event B, is denoted by the symbol
P(A|B).

The complement of an event is the event not occuring. The

probability that Event A will not occur is denoted by P(A').

The probability that Events A and B both occur is the

probability of the intersection of A and B. The probability of
the intersection of Events A and B is denoted by P(A ∩ B). If
Events A and B are mutually exclusive, P(A ∩ B) = 0.
• Prior probability
• Posterior probabilities
• Bayes’ theorem
Ex: 202

•Four candidates A, B, C, and D are running for a political office. Each

has an equal chance of winning: 25%. However, if candidate A drops out
of the race due to ill health, the probability will change: P(Win | One
candidate drops out) = 33.33%.
•If there is a pregnant women, the probability of having a boy or girl is
the same: 50%. However, if she already have one child (say, a boy), it
will change.
If first child is a boy, having another boy drop to one third (33.33%). The
reason for this is that the sample space for the event you have one
boy out of two is S = {BB, BG, GB}. If you have one boy, the only possible
As an application of bayes’ theorem, consider a manufacturing firm that receives shipments of parts from two different suppliers.
let a1 denote the event that a part is from supplier 1 and a2 denote the event that a part is from supplier 2. Currently, 65% of the
parts purchased by the company are from supplier 1 and the remaining 35% are from supplier 2. hence, if a part is selected at
random, we would assign the prior probabilities P(a1) = .65 and P(a2) = .35.
The quality of the purchased parts varies with the source of supply. historical data suggest that the quality ratings of the two
suppliers are as shown in Table 4.6. If we let g denote the event that a part is good and B denote the event that a part is bad, the
conditional probability values.
P(g | a1) = .98, P(B|a1)=.02 P(g | a2)= .95, P(B|a2)=.05
Suppose now that the parts from the two suppliers are used in the firm’s manufacturing process and that a machine breaks down
because it attempts to process a bad part. Given the information that the part is bad, what is the probability that it came from
supplier 1 and what is the probability that it came from supplier 2? Bayes’ theorem can be used to answer these questions.
Random Variables
A random variable is a numerical description of the outcome of an experiment.
It is a set of possible values from a random experiment.
Ex. Height, Weight or age etc
A discrete random variable may assume either a finite number of values or an
infinite sequence of values.
consider the experiment of cars arriving at a tollbooth. The random variable of
interest is x = the number of cars arriving during a one-day period. The possible
values for x come from the sequence of integers 0,1, 2, and so on.
A continuous random variable may assume any numerical value in an interval or collection of
intervals.
Discrete Probability Distributions
The probability distribution for a random variable describes how probabilities are
distributed over the values of the random variable.
We can describe a discrete probability distribution with a table, graph, or formula.
The probability distribution is defined by a probability function, denoted by f(x), which
provides the probability for each value of the random variable.
The required conditions for a discrete probability
function are: Ex. Probability distribution of TV sales
f(x) > 0 f(x) = 1 Number
Units Sold of Days x f(x)
0 80 0 .40
1 50 1 .25
2 40 2 .20
3 10 3 .05
4 20 4 .10
We define the random variable x to be the 200 1
number of dots on the upward face.
for this experiment, n = 6 values are possible for The use of the relative frequency
the random variable; x = 1, 2, 3, 4, 5, 6. method to develop discrete
probability distributions leads to
what is called an empirical
discrete distribution.
The expected value, or mean, of a random variable is a measure of its central location.
E(x) =  = xf(x)
The expected value is a weighted average of the values the random variable may assume
The variance summarizes the variability in the
values of a random variable.
Var(x) =  2 = (x - )2f(x)

The variance is a weighted average of the squared

deviations of a random variable from its mean. The
weights are the probabilities.

The standard deviation, , is defined as the positive

square root of the variance.
Expected Value

x f(x) xf(x)
0 .40 .00
1 .25 .25
2 .20 .40
3 .05 .15
4 .10 .40
E(x) = 1.20expected number of TVs sold
in a day
Variance

x x- (x - )2 f(x) (x - )2f(x)

0 -1.2 1.44 .40 .576

1 -0.2 0.04 .25 .010
2 0.8 0.64 .20 .128
3 1.8 3.24 .05 .162
TVs
4 2.8 7.84 .10 .784
squared
Variance of daily sales = s 2 = 1.660
Standard deviation of daily sales = 1.2884 TVs
Workout

Children Couples p(X)

0 1
1 4
2 3
3 2
4 2
Total 12
H.W
Probability distribution of a random variable y
Y f(y)
2 .20
4 .30
7 .40
8 .10
a. Compute E(y)
b. Compute Var(y) and s.d
Discrete probability distributions

- The binomial

- The Poisson
Binomial Probability Distributions
• A coin-tossing experiment is a simple example of an
important discrete random variable called the
binomial random variable.

• Other situations that are similar to the coin-tossing

experiment:
- A sociologist is interested in the proportion of
elementary school teachers who are men.
- A soft-drink marketer is interested in the
proportion of cola drinkers who prefer her brand.
Definition: A binomial experiment is one that has these
four characteristics:
1. The experiment consists of n identical trials.
2. Each trial results in one of two outcomes: one
outcome is called a success, S, and the other a failure,
F.
3. The probability of success on a single trial is equal
to p and remains the same from trial to trial. The
probability of failure is equal to (1 - p) = q.
4. The trials are independent.
Ex. An insurance sales person who visits 10 randomly
selected families. The outcome associated with each
visit is classified as a success if the family purchases
an insurance policy and a failure if the family does
not. From past experience, the sales person knows
the probability of a randomly selected family will
purchase policy is .10.

Check the properties of Binomial experiment.

1. The experiment consists of 10 identical trials, each
trial involves contacting one family.
2. Two outcomes are possible on each trial : the family
purchases a policy (success) or the family does not
purchase a policy (failure)
3. The probability of a purchase and a non purchase are
assumed to be the same for each sales call, with
p=.10 and 1-p=.90.
4. The trials are independent because the families are
randomly selected.
The Binomial Probability function

n! ( nx )
f (x)  p (1  p)
x

x !(n  x )!

x = the number of successes

p = the probability of a success on one trial
n = the number of trials
f(x) = the probability of x successes in n trials
Mean and Standard Deviation for the
Binomial Random Variable:

Mean: m = np

Variance: s 2 = npq

Standard deviation:
  npq
Binomial Formula. Suppose a binomial experiment consists
of n trials and results in x successes. If the probability of
success on an individual trial is P, then the binomial
probability is: b(x; n, P) = nCx * Px * (1 - P)n – x

EXAMPLE 2

Suppose a die is tossed 5 times. What is the probability of

getting exactly 2 fours?
Solution: This is a binomial experiment in which the number
of trials is equal to 5, the number of successes is equal to 2,
and the probability of success on a single trial is 1/6 or
about 0.167. Therefore, the binomial probability is:
b(2; 5, 0.167) = 5C2 * (0.167)2 * (0.833)3
b(2; 5, 0.167) = 0.161
Ex3. In city x, 30% of workers take public transportation daily. A. In a sample of 10
workers, what is the probability that exactly three workers take public
transportation daily. b. In sample of 10 workers, what is the probability that at
least three workers take public transportation daily.
n
a. f ( x)    ( p ) x (1  p ) n  x
 x

10!
f (3)  (.30) 3 (1  .30)10 3
3!(10  3)!

10(9)(8)
f (3)  (.30) 3 (1  .30) 7  .2668
3(2)(1)

b. P(x  3) = 1 - f (0) - f (1) - f (2)

10!
f (0)  (.30) 0 (1  .30)10  .0282
0!(10)!

10!
f (1)  (.30)1 (1  .30) 9  .1211
1!(9)!

10!
f (2)  (.30) 2 (1  .30)8  .2335
2!(8)!

P(x  3) = 1 - .0282 - .1211 - .2335 = .6172

Ex.4. A university found that 20% of its students
withdraw without completing the introductory
statistics course. Assume that 20 students registered
for the course.
1. Compute the probability that two or fewer will
withdraw.
2. Compute the probability that exactly four will
withdraw.
3. Compute the probability that more than three will
withdraw.
4. Compute the expected number of withdrawals.
a. f (0) + f (1) + f (2) = .0115 + .0576 + .1369 = .2060

b. f (4) = .2182

c. 1 - [ f (0) + f (1) + f (2) + f (3) ] = 1 - .2060 - .2054 = .5886

d.  = n p = 20 (.20) = 4
Ex.5
Nine percent of undergraduate students carry credit
card balances greater that 7000. Suppose 10
undergraduate students are selected randomly to be
interviewed about credit card usage.
a. Is the selection of 10 students a binomial
experiment? Explain?
b. What is the probability that two of the students will
have a credit balance greater than 7000.
c. What is the probability that none will have a credit
card balance greater than 7000.
d. What is the probability that at least three will have
a credit card balance greater than 7000.
Binomial n = 10 and p = .09

10! 10  x
f ( x)  x
(.09) (.91)
x !(10  x)!

a. Yes. Since they are selected randomly, p is the same from trial to trial and the trials are independent.

b. f (2) = .1714

c. f (0) = .3894

d. 1 - f (0) - f (1) - f (2) = 1 - (.3894 + .3851 + .1714) = .0541

Example
The probability that a student is accepted to a
prestigious college is 0.3. If 5 students from the same
school apply, what is the probability that at most 2 are
accepted?
• Solution: To solve this problem, we compute 3
individual probabilities, using the binomial formula.
The sum of all these probabilities is the answer we
seek. Thus,
• b(x < 2; 5, 0.3) = b(x = 0; 5, 0.3) + b(x = 1; 5, 0.3) + b(x
= 2; 5, 0.3)
b(x < 2; 5, 0.3) = 0.1681 + 0.3601 + 0.3087
b(x < 2; 5, 0.3) = 0.8369
Less than 3
f(0)+f(1)+f(2)
Greater than or more than 3
1- f(0)+f(1)+f(2)+f(3)
At least 3 (p(x>=3))
1- f(0)+f(1)+f(2)
At most 3 (p(x<=3)
f(0)+f(1)+f(2)+f(3)
3 or fewer
f(0)+f(1)+f(2)+f(3)
Exactly 3
f(3)
Poisson Probability Distributions
• The Poisson probability distribution is a good model for
data that represent the number of occurrences of a
specified event in a given unit of time or space.
• Some examples of Poisson random variables:
- The number of calls received by a switchboard
during a given period of time.
- The number of customer arrivals at a checkout
counter during a given minute
- The number of machine breakdowns during a given
day
- The number of traffic accidents at a given
intersection during a given time period
• A Poisson experiment is a statistical experiment that
has the following properties:
• The experiment results in outcomes that can be
classified as successes or failures.
• The average number of successes (μ) that occurs in a
specified region is known.
• The probability that a success will occur is
proportional to the size of the region.
• The probability that a success will occur in an
extremely small region is virtually zero.
• Note that the specified region could take many forms.
For instance, it could be a length, an area, a volume, a
period of time, etc.
• Poisson Formula. Suppose we conduct a Poisson
experiment, in which the average number of
successes within a given region is μ. Then, the Poisson
probability is: P(x; μ) = (e-μ) (μx) / x!
• where x is the actual number of successes that result
from the experiment, and eis approximately equal to
2.71828.
Example 1

The average number of homes sold by the Acme Realty company is 2

homes per day. What is the probability that exactly 3 homes will be
sold tomorrow?
• Solution: This is a Poisson experiment in which we know the following:
• μ = 2; since 2 homes are sold per day, on average.
• x = 3; since we want to find the likelihood that 3 homes will be sold
tomorrow.
• e = 2.71828; since e is a constant equal to approximately 2.71828.
• We plug these values into the Poisson formula as follows:
• P(x; μ) = (e-μ) (μx) / x!
P(3; 2) = (2.71828-2) (23) / 3!
P(3; 2) = (0.13534) (8) / 6
P(3; 2) = 0.180

• Thus, the probability of selling 3 homes tomorrow is 0.180 .

Ex.2. An average 15 aircraft accidents occur each year.
a. Compute the mean number of accidents per month
b. Compute the probabilities of no accidents during a month
c. Compute the probability of exactly one accident per month
d. Compute the probability of more than one accident during a month.
a.  = 1.25 per month

1.250 e1.25
b. f (0)   .2865
0!
1.251 e1.25
c. f (1)   .3581
1!

d. P(More than 1) = 1 - f (0) - f (1) = 1 - 0.2865 - 0.3581 = .3554

Ex.3 Airline passengers arrive randomly and
independently at the passenger-screening facility at a
major international airport. The mean arrival rate is
10 passengers per minute.
a. Compute the probability of no arrivals in a one-
minute period.
b. Compute the probability that three or fewer
passengers arrive in a one-minute period.
c. Compute the probability of no arrivals in a 15
second period.
d. Compute the probability of at least one arrival in a
15 second period.
 100 e 10
a. f (0)   e 10  .000045
0!

b. f (0) + f (1) + f (2) + f (3)

f (0) = .000045 (part a)

101 e 10
f (1)   .00045
1!

Similarly, f (2) = .00225, f (3) = .0075

and f (0) + f (1) + f (2) + f (3) = .010245

c. 2.5 arrivals / 15 sec. period Use  = 2.5

2.50 e2.5
f (0)   .0821
0!

d. 1 - f (0) = 1 - .0821 = .9179

 Continuous Probability Distributions
 A continuous variable is a variable that can assume any value on a
continuum (can assume an uncountable number of values)
 thickness of an item time required to complete a task
 temperature of a solution height, in inches

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 74

a is the smallest value
b is the largest value
What is the probability that the flight time is between 120 and 130 minutes?
P(120 ≤ x ≤ 130)?
Consider the area
under the graph
of f (x) in the interval
The area under the graph of f(x) and from 120 to 130.
probability are identical! The area is
rectangular, and the
area of a rectangle= l
*b
Width of the interval
130 − 120 = 10
Height = value of the
probability density
area = width × height = 10(1/20) = 10/20 = .50. function f (x) = 1/20
 The Normal Distribution
 Bell Shaped
 Symmetrical

 Mean, Median and Mode are Equal

f(X)
Location is determined by the mean, μ
Spread is determined by the standard
deviation, σ σ
 Heights and weights of people, test X
scores, scientific measurements, amounts μ
of rainfall,
Mean
The random variable has an infinite = Median
theoretical range: +  to   = Mode

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 78

The Normal Distribution Density Function

 The formula for the normal probability density function is

2
1  (X  μ) 
1  
2 

f(X)  e 

2π
Where e = the mathematical constant approximated by 2.71828
π = the mathematical constant approximated by 3.14159
μ = the population mean
σ = the population standard deviation
X = any value of the continuous variable

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 79

By varying the parameters μ and σ, we obtain
different normal distributions
A
B
C

A and B have the same mean but different standard deviations.

B and C have different means and different standard deviations.
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 80
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 81
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 82
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 83
The Normal Distribution Shape

f(X) Changing μ shifts the

distribution left or right.

Changing σ increases
or decreases the
σ spread.

μ X

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 84

The Standardized Normal
 Any normal distribution (with
any mean and standard
deviation combination) can be
transformed into the
standardized normal
distribution (Z)
 To compute normal
probabilities need to transform
X units into Z units
 The standardized normal
distribution (Z) has a mean of 0
and a standard deviation of 1

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 85

Translation to the Standardized Normal
Distribution

 Translate from X to the standardized normal (the “Z”

distribution) by subtracting the mean of X and dividing by its
standard deviation:

X μ
Z
σ
The Z distribution always has mean = 0 and
standard deviation = 1
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 86
The Standardized Normal Probability Density
Function

 The formula for the standardized normal probability density

function is

1 (1/2)Z 2
f(Z)  e
2π

Where e = the mathematical constant approximated by 2.71828

π = the mathematical constant approximated by 3.14159
Z = any value of the standardized normal distribution

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 87

The Standardized Normal Distribution

 Also known as the “Z” distribution

 Mean is 0
 Standard Deviation is 1
f(Z)

0 Z

Values above the mean have positive Z-values.

Values below the mean have negative Z-values.

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 88

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 89
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 90
Example
 If X is distributed normally with mean of $100 and standard
deviation of $50, the Z value for X = $200 is

X  μ $200  $100
Z   2.0
σ $50
 This says that X = $200 is two standard deviations (2
increments of $50 units) above the mean of $100.

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 91

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 92
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 93
Comparing X and Z units

$100 $200 $X (μ = $100, σ = $50)

0 2.0 Z (μ = 0, σ = 1)
Note that the shape of the distribution is the same,
only the scale has changed. We can express the
problem in the original units (X in dollars) or in
standardized units (Z)

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 94

Finding Normal Probabilities

Probability is measured by the area under

the curve
f(X)
P (a ≤ X ≤ b)
= P (a < X < b)
(Note that the probability
of any individual value is
zero)

a b X

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 95

Probability as
Area Under the Curve

The total area under the curve is 1.0, and the curve is
symmetric, so half is above the mean, half is below

f(X) P(   X  μ)  0.5
P(μ  X   )  0.5

0.5 0.5

μ X
P(   X   )  1.0
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 96
The Standardized Normal Table

 The Cumulative Standardized Normal table in the textbook

(Appendix table E.2) gives the probability less than a desired
value of Z (i.e., from negative infinity to Z)

0.9772
Example:
P(Z < 2.00) = 0.9772

0 2.00 Z

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 97

The Standardized Normal Table
(continued)

The column gives the value of

Z to the second decimal point
Z 0.00 0.01 0.02 …

0.0
The row shows
the value of Z 0.1
. The value within the
to the first .
decimal point . table gives the
2.0 .9772 probability from Z =  
up to the desired Z
2.0 value
P(Z < 2.00) = 0.9772

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 98

General Procedure for Finding Normal
Probabilities

To find P(a < X < b) when X is

distributed normally:
 Draw the normal curve for the problem in
terms of X

 Translate X-values to Z-values

 Use the Standardized Normal Table

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 99

Finding Normal Probabilities
 Let X represent the time it takes (in seconds) to
download an image file from the internet.
 Suppose X is normal with a mean of18.0
seconds and a standard deviation of 5.0
seconds. Find P(X < 18.6)

X
18.0
18.6
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 100
 Finding Normal Probabilities
 Let X represent the time it takes, in seconds to download an image file
from the internet.
 Suppose X is normal with a mean of 18.0 seconds and a standard
deviation of 5.0 seconds. Find P(X < 18.6)
X  μ 18.6  18.0
Z   0.12
σ 5.0

μ = 18 μ=0
σ=5 σ=1

18 18.6 X 0 0.12 Z

P(X < 18.6) P(Z < 0.12)

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 101
Solution: Finding P(Z < 0.12)

Standardized Normal Probability P(X < 18.6)

Table (Portion) = P(Z < 0.12)
Z .00 .01 .02 0.5478
0.0 .5000 .5040 .5080

0.1 .5398 .5438 .5478

0.2 .5793 .5832 .5871
Z
0.00
0.3 .6179 .6217 .6255
0.12

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 102

Finding Normal
Upper Tail Probabilities

 Suppose X is normal with mean 18.0 and standard

deviation 5.0.
 Now Find P(X > 18.6)

X
18.0
18.6
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 103
Finding Normal
Upper Tail Probabilities
(continued)
 Now Find P(X > 18.6)…
P(X > 18.6) = P(Z > 0.12) = 1.0 - P(Z ≤ 0.12)
= 1.0 - 0.5478 = 0.4522

0.5478
1.000 1.0 - 0.5478
= 0.4522

Z Z
0 0
0.12 0.12
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 104
Finding a Normal Probability Between Two
Values

 Suppose X is normal with mean 18.0 and standard deviation

5.0. Find P(18 < X < 18.6)
Calculate Z-values:

X  μ 18  18
Z  0
σ 5
18 18.6 X
X  μ 18.6  18 0 0.12 Z
Z   0.12
σ 5 P(18 < X < 18.6)
= P(0 < Z < 0.12)

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 105

Solution: Finding P(0 < Z < 0.12)

Standardized Normal Probability P(18 < X < 18.6)

Table (Portion) = P(0 < Z < 0.12)
= P(Z < 0.12) – P(Z ≤ 0)
Z .00 .01 .02 = 0.5478 - 0.5000 = 0.0478
0.0 .5000 .5040 .5080 0.0478
0.5000
0.1 .5398 .5438 .5478
0.2 .5793 .5832 .5871

0.3 .6179 .6217 .6255 Z

0.00
0.12
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 106
Probabilities in the Lower Tail

 Suppose X is normal with mean 18.0 and standard

deviation 5.0.
 Now Find P(17.4 < X < 18)

X
18.0
17.4

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 107

Probabilities in the Lower Tail
(continued)

Now Find P(17.4 < X < 18)…

P(17.4 < X < 18)
= P(-0.12 < Z < 0)
0.0478
= P(Z < 0) – P(Z ≤ -0.12)
= 0.5000 - 0.4522 = 0.0478
0.4522

The Normal distribution is

symmetric, so this probability
17.4 18.0 X
is the same as P(0 < Z < 0.12) Z
-0.12 0

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 108

Empirical Rule

What can we say about the distribution of values

around the mean? For any normal distribution:

f(X)
μ ± 1σ encloses about
68.26% of X’s
σ σ

μ-1σ μ μ+1σ X

68.26%
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 109
The Empirical Rule
(continued)

 μ ± 2σ covers about 95.44% of X’s

 μ ± 3σ covers about 99.73% of X’s

2σ 2σ 3σ 3σ
μ x μ x

95.44% 99.73%

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 110

Given a Normal Probability
Find the X Value

 Steps to find the X value for a known probability:

1. Find the Z value for the known probability
2. Convert to X units using the formula:

X  μ  Zσ

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 111

Finding the X value for a Known Probability
(continued)

Example:
 Let X represent the time it takes (in seconds) to
download an image file from the internet.
 Suppose X is normal with mean 18.0 and standard
deviation 5.0
 Find X such that 20% of download times are less than
X.
0.2000

? 18.0 X
? 0 Z

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 112

Find the Z value for
20% in the Lower Tail
1. Find the Z value for the known probability
 20% area in the lower
Standardized Normal Probability
Table (Portion) tail is consistent with a
Z value of -0.84
Z … .03 .04 .05
-0.9 … .1762 .1736 .1711
0.2000
-0.8 … .2033 .2005 .1977
-0.7 … .2327 .2296 .2266
? 18.0 X
-0.84 0 Z

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 113

Finding the X value

2. Convert to X units using the formula:

X  μ  Zσ
 18.0  (0.84)5.0
 13.8

So 20% of the values from a distribution

with mean 18.0 and standard deviation
5.0 are less than 13.80

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 114

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 115
 P(x ≤ 6), is defined to
be the area under the
curve from x = 0 to x
= 6.
The probability that
the loading time will
be 18 minutes or
less,
P(x ≤ 18), is the area
under the curve from
x = 0 to x = 18.
The probability
that the loading time
will be between 6
minutes and 18
minutes, P(6 ≤ x ≤
18), is given
by the area under the
curve from x = 6 to x
= 18.
Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 116
 suppose that x represents
the loading time for a truck
at the Schips loading dock
and follows such a
distribution.
If the mean, or average,
loading time is 15 minutes
(m = 15), the appropriate
probability density function
for x is

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 117

What is the probability of a flight time between 128 and 136 minutes?
The width of the interval is 136 − 128 = 8.
with the uniform height of f (x) = 1/20, P(128 ≤ x ≤ 136) = 8(1/20) = .40

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 118

Copyright © 2016 Pearson Education, Ltd. Chapter 6, Slide 119