Business Statistics

Ken Black, Sanjeet Singh

Tenth Edition

Chapter 5

Discrete Distributions
Business Statistics 10e by Ken Black, Sanjeet Singh
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Learning Objectives
1. Define a random variable in order to differentiate between a
discrete distribution and a continuous distribution.
2. Determine the mean, variance, and standard deviation of a
discrete distribution.
3. Solve problems involving the binomial distribution using the
binomial formula and the binomial table.
4. Solve problems involving the Poisson distribution using the
Poisson formula and the Poisson table.
5. Solve problems involving the hypergeometric distribution
using the hypergeometric formula.

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5.1 Random Variables
A random variable is a variable whose value is numerical and is
determined by the outcomes of a chance experiment.
For example, suppose an experiment is to measure the number of
arrivals of automobiles at a turnpike tollbooth during a 30-second
period. The possible outcomes are 0 cars, 1 car, 2 cars, . . . , n cars.
These numbers (0, 1, 2, . . . , n) are the values of a random variable.
If we let x denote the number of cars that will arrive during 30-
second period, then x is a random variable. That is the number of
cars that will arrive is uncertain, and therefore, x a random variable.
There are two categories of random variables are
(1) discrete random variables and
(2) continuous random variables.

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5.2 Discrete Versus Continuous
Distributions (1 of 2)
A random variable is a variable that contains the outcomes of a chance
experiment
• A random variable is discrete if the set of all possible values is at most a finite or a
countably infinite number of possible values
Examples:
1. Randomly selecting 25 people who consume soft drinks and determining how many
people prefer diet soft drinks
2. Determining the number of defective items in a batch of 50 items
3. Counting the number of people who arrive at a store during a five-minute period
4. Sampling 100 registered voters and determining how many voted for the president in
the last election
• Discrete distributions have outcomes that generally take on whole number values; you
cannot have half a person who prefers diet soft drinks
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5.2 Discrete Versus Continuous Distributions
(2 of 2)

• A random variable is continuous if it can take on values at every point

over a given interval
Examples:
1. Sampling the volume of liquid nitrogen in a storage tank
2. Measuring the time between customer arrivals at a retail outlet
3. Measuring the lengths of newly designed automobiles
4. Measuring the weight of grain in a grain elevator at different points of time

• Discrete distributions (binomial, Poisson, hypergeometric) are constructed from

discrete random variables
• Continuous distributions (uniform, normal, exponential, and others) are constructed
from continuous random variables

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5.3 Describing a Discrete Distribution (1 of 4)
• A histogram is the most common graphical way of describing a discrete distribution
• An executive is considering out-of-town business travel for a given Friday. She
recognizes that at least one crisis could occur on the day that she is gone, and she is
concerned about that possibility. Table 5.2 shows a discrete distribution that contains
the number of crises that could occur during the day that she is gone and the probability
that each number will occur.
TABLE 5.2: Discrete Distribution of
Occurrence of Daily Crises

Number of Crises Probability

0 .37
1 .31
2 .18
3 .09
4 .04
5 .01

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5.3 Describing a Discrete Distribution (2 of 4)
Mean of Discrete Distributions
• The mean or expected value of a discrete distribution is the long-run average of occurrences

µ = E(x) = ∑[x ∙ P(x)] TABLE 5.3: Computing the Mean of

the Crises Data

where x P(x) x ∙ P(x)

E(x) = long-run average 0 .37 .00
x = an outcome 1 .31 .31

P(x) = probability of that outcome 2 .18 .36

3 .09 .27

• 4 .04 .16
In the long run, the mean or expected
number of crises on a given Friday for 5 .01 .05
this executive is 1.15 crises ∑[x ∙ P(x)] = 1.15
• However, there will never be exactly 1.15 μ = 1.15 crises
crises

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5.3 Describing a Discrete Distribution (3 of 4)
Variance and Standard Deviation of a Discrete Distribution
• The variance of a discrete distribution has the following formula:

σ 2 =  [( x  μ) 2 P( x)]

• The standard deviation is then calculated by taking the square root of

the variance:
     x    P  x 
2
 
where
x = an outcome
P(x) = probability of a given outcome
µ = mean of the distribution
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5.3 Describing a Discrete Distribution (4
of 4)
Variance and Standard Deviation of a Discrete Distribution
TABLE 5.4: Calculation of Variance and Standard Deviation on Crises Data

x P(x) (x − µ)2 (x − µ)2∙ P(x)

0 .37 (0−1.15)2 = 1.32 (1.32)(.37) = .49
1 .31 (1−1.15)2 = 0.02 (0.02)(.31) = .01
2 .18 (2−1.15)2 = 0.72 (0.72)(.18) = .13
3 .09 (3−1.15)2 = 3.42 (3.42)(.09) = .31
4 .04 (4−1.15)2 = 8.12 (8.12)(.04) = .32
5 .01 (5−1.15)2 = 14.82 (14.82)(.01) = .15
∑[(x − µ)2 ∙ P(x)] = 1.41

The variance of  2  [( x   ) 2 P( x)] 1.41

The standard deviation is   1.41 1.19 crises

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5.4 | Bernoulli Distribution (1 of 2)
• The Bernoulli distribution is a discrete distribution having two
possible values (outcomes) for the random variable, X, labelled
by x = 0 and x = 1 in which x = 1 (“success”) occurs with
probability p and n = 0 (“failure”) occurs with probability q = 1 –
p, where 0 < p < 1. It therefore has the probability density
function as

which can also be written as

where p is a parameter of the Bernoulli distribution. We write

X ~ Ber(p).
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5.4 | Bernoulli Distribution (2 of 2)
Bernoulli trial The distribution of heads and tails in coin tossing is
an example of a Bernoulli distribution with p = q = ½, since 0 < p <
1. There are many examples of random variables that follow a
Bernoulli distribution. When X has a Bernoulli distribution (X ~
Ber(p)), it is easy to see that

Therefore, a Bernoulli random variable will always have an

expected value of p. Similarly, the variance of a Bernoulli random
variable will be

and

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5.5 Binomial Distribution (1 of 10)
Assumptions of the Binomial Distribution:
• The experiment involves n identical trials
• Each trial has only two possible outcomes denoted as success or as failure
• Each trial is independent of the previous trials
• The terms p and q remain constant throughout the experiment, where the
term p is the probability of getting a success on any one trial and the term
q = (1 − p) is the probability of getting a failure on any one trial
There are many binomial distributions, each characterized by the parameters
n (the sample size) and p (the probability of success)
Examples:
• Flipping a coin 10 times; probability of heads = .5
• With a known defective rate of 9%, checking 15 products for quality

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5.5 Binomial Distribution (2 of 10)
Solving a Binomial Problem
A survey of relocation administrators by Runzheimer International
revealed several reasons why workers reject relocation offers. Included in
the list were family considerations, financial reasons, and others.
• 4% of the respondents said they rejected relocation offers because they
received too little relocation help
• Suppose five workers who just rejected relocation offers are randomly
selected and interviewed
• Assuming the 4% figure holds for all workers rejecting relocation, what
is the probability that exactly one of the workers rejected the offer
because of too little relocation help?

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5.5 Binomial Distribution (3 of 10)
Solving a Binomial Problem, continued
One way to solve this problem would be to figure out all the possible sequences such that
there was exactly one worker who rejected the offer due to lack of relocation help (T)
• Let R stand for all other reasons
• There are five ways to get a sequence such that there is only one worker who rejects for
this reason
• Then, using the special multiplication rule for independent events, the probability of
the first sequence is:
(.04)(.96)(.96)(.96)(.96) = .03397

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5.5 Binomial Distribution (4 of 10)
Solving a Binomial Problem, continued
With five sequences with identical probability, the probability of
getting one worker will be 5(.04)1(.96)4 = 5(.03397) = .16987

A simpler way to determine the number of sequences is to use the

combination rule introduced in Chapter 4
n! 5!
n Cx   5
x !n  x ! 1!5  1!
x n x
• Multiplying the combinations by the probability of each, p q ,
gives the binomial formula
n!
P  x  n C x p x q n  x  p x q n  x
x !n  x !
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5.5 Binomial Distribution (5 of 10)
Example: A Gallup survey found that 65% of all financial
consumers were very satisfied with their primary financial
institution. Suppose that 25 financial consumers are sampled.
• If the Gallup survey result still holds true today, what is the probability
that exactly 19 are very satisfied with their primary financial
institution?
25!
P( x 19)  .6519.3525 19 .0908
19!(25  19)!

• On average, how many very satisfied customers would you expect to

get in a sample of 25?
o Calculate the mean, (25)(.65) = 16.25
o The average number of very satisfied customers is about 16
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5.5 Binomial Distribution (6 of 10)
Using the Binomial Table
Binomial distributions are described by their sample size and
probability, and can be summarized in a table
• Suppose that with n = 20 and p = .6, an analyst wants to know the
probability of less than 10 successes?
Excerpt from the n = 20 table:
P(x < 10) = .127, found by adding the probability of each
number less than 10

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5.5 Binomial Distribution (7 of 10)
TABLE 5.5: Solution to the x < 10 x .1 .2 .3 .4 .5 .6 .7 .8 .90

Problem Using the Binomial Table 0 .122 .012 .001 .000 .000 .000 .000 .000 .000

1 .270 .058 .007 .000 .000 .000 .000 .000 .000

n = 20 2 .285 .137 .028 .003 .000 .000 .000 .000 .000

Probability 3 .190 .205 .072 .012 .001 .000 .000 .000 .000

4 .090 .218 .130 .035 .005 .000 .000 .000 .000

5 .032 .175 .179 .075 .015 .001 .000 .000 .000

6 .009 .109 .192 .124 .037 .005 .000 .000 .000

7 .002 .055 .164 .166 .074 .015 .001 .000 .000

8 .000 .022 .114 .180 .120 .035 .004 .000 .000

9 .000 .007 .065 .160 .160 .071 .012 .000 .000

10 .000 .002 .031 .117 .176 .117 .031 .002 .000

11 .000 .000 .012 .071 .160 .160 .065 .007 .000

12 .000 .000 .004 .035 .120 .180 .114 .022 .000

13 .000 .000 .001 .015 .074 .166 .164 .055 .002

14 .000 .000 .000 .005 .037 .124 .192 .109 .009

15 .000 .000 .000 .001 .015 .075 .179 .175 .032

16 .000 .000 .000 .000 .005 .035 .130 .218 .090

17 .000 .000 .000 .000 .001 .012 .072 .205 .190

18 .000 .000 .000 .000 .000 .003 .028 .137 .285

19 .000 .000 .000 .000 .000 .000 .007 .058 .270

20 .000 .000 .000 .000 .000 .000 .001 .012 .122

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5.5 Binomial Distribution (8 of 10)
Using the Computer to Produce a Binomial Distribution
Both Excel and Minitab will print binomial table values or find a binomial
probability
• A study of bank customers stated that 64% of all financial consumers believe
banks are more competitive today than they were five years ago. Suppose 23
financial consumers are selected randomly. What is the probability that ten or
fewer believe this?
TABLE 5.7: Minitab Output for the Binomial
The Minitab (or Excel) output can give Problem, P(x ≤ 10 | n = 23 and p = .64)
the answer directly, or could be used to
generate a table for this sample size Cumulative Distribution Function
and probability Binomial with n = 23 and p = 0.64
x P(X ⇐ x)
10 0.0356916

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5.5 Binomial Distribution (9 of 10)
Mean and Standard Deviation of a Binomial Distribution
For a binomial distribution:
μ n p
σ  n p q

• Example: If 40% of all graduate business students at a large university

are women and if random samples of 10 graduate business students are
selected many times, how many would you expect to be women?
• Calculating the mean, (10)(.4), the expectation is that, on average, four
of the 10 students would be women
• The standard deviation would be (10)(.4)(.6) 1.5491

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5.5 Binomial Distribution (10 of 10)
Graphing Binomial Distributions
• A binomial distribution can be graphed by using all possible x
values and their associated probabilities:

Peak and skew of the

distribution change with
the value of p, the
probability of success
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5.6 Negative Binomial Distribution
Let r be a positive integer. Assume that independent Bernoulli trials,
each with success probability p, are conducted, and let X denote the
number of trials up to and including the rth success. Then X has the
negative binomial distribution with parameters r and p. We write X
~ NB(r, p). If X ~ NB(r, p), then the probability density function of
X is

It is worthwhile to note that smallest possible value for X is r, since

it takes at least r trials to get r successes.

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5.7 Poisson Distribution (1 of 9)
The Poisson distribution describes the occurrence of rare events
Assumptions of the Poisson Distribution:
• It is a discrete distribution
• It describes rare events
• Each occurrence is independent of the other occurrences
• It describes discrete occurrences over a continuum or interval
• The occurrences in each interval can range from zero to infinity
• The expected number of occurrences must hold constant throughout the
experiment
Examples:
• Number of telephone calls per minute at a small business
• Number of times a tire blows on a commercial airplane per week
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5.7 Poisson Distribution (2 of 9)
If a Poisson-distributed phenomenon is studied over a long period of time, a
long-run average can be determined, λ

 x e 
P( x) 
x!
where x = 0, 1, 2, 3,…
λ = long-run average
e = 2.718282

• The λ value must hold constant throughout a Poisson experiment

o The analyst must be careful not to apply a given lambda to intervals for which
lambda changes
o For example, the average number of customers arriving at a Macy’s store during a
one-minute interval will vary from hour to hour, day to day, and month to month
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5.7 Poisson Distribution (3 of 9)
Working Poisson Problems by Formula
Example: Suppose bank customers arrive randomly on weekday afternoons at an
average of 3.2 customers every 4 minutes. What is the probability of exactly 5
customers arriving in a 4-minute interval on a weekday afternoon?
• The lambda for this problem is 3.2 customers per 4 minutes
• The value of x is 5 customers per 4 minutes

(3.2)5 e  3.2
P( x 5)  .1140
5!
• The probability of 5 customers randomly arriving during a 4-minute interval
when the long-run average has been 3.2 customers per 4-minute interval
is .1140

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5.7 Poisson Distribution (4 of 9)
What to Do When Intervals Are Different
• Lambda and x intervals must be the same
Example: Suppose that on Saturday mornings, a specialty clothing store
averages 2.4 customer arrivals every 10 minutes. What is the probability that, on
a given Saturday morning, 2 customers will arrive at the store in a 6-minute
interval?
• λ = 2.4 customers/10 minutes
• x = 2 customers/6 minutes
• Must change the λ interval, NOT the x interval
• 0.6(2.4 customers) = 1.44 customers, and 0.6(10 minutes) = 6 minutes
• New λ = 1.44 customers/6 minutes
1.442 e  1.44
 P  x 2   .2456
2!
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5.7 Poisson Distribution (5 of 9)
Using the Poisson Tables
• For every new and different value of λ, there is a different Poisson
distribution, but the distribution is the same for every λ regardless of the
interval, so tables can be used
Example: Suppose that during the
noon hour in the holiday season, a
UPS store averages 2.3 customers
every minute and that arrivals at
such a store are Poisson distributed.
During such a season and time,
what is the probability that more
than 4 customers will arrive in a
given minute?

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5.7 Poisson Distribution (6 of 9)
Mean and Standard Deviation of a Poisson Distribution
• The mean of a Poisson distribution is λ, the long-run average of
occurrences
• The variance is also λ, so the standard deviation is
Graphing the Poisson Distribution
• The height and skew of the distribution are determined by λ

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5.7 Poisson Distribution (7 of 9)
Using the Computer to Generate TABLE 5.11: Minitab Output for the
Poisson Distribution λ = 1.9
Poisson Distributions Probability Density Function

• Both Minitab and Excel can generate Poisson Poisson with mean = 1.9

tables for any value of λ x P(X = x)

0 0.149569
1 0.284180
Example: One study by the National 2 0.269971
Center for Health Statistics claims that, on 3 0.170982
average, an American has 1.9 acute 4 0.081216
illnesses or injuries per year. If these cases 5 0.030862
are Poisson distributed, lambda is 1.9 per 6 0.009773
year. 7 0.002653

What does the Poisson probability 8 0.000630

9 0.000133
distribution for this lambda look like?
10 0.000025

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5.7 Poisson Distribution (8 of 9)
Approximating Binomial Problems by the Poisson
Distribution
• Binomial problems with large sample sizes and small values of p can be
approximated by the Poisson distribution
o If n > 20 and n∙p < 7, the approximation can be used
• Example: The following binomial distribution problem can be worked by
using the Poisson distribution: n = 50 and p = .03. What is the probability that
x = 4?
o First find the mean of the binomial distribution, np, which will be used for
the λ value
  (50)(.30) 1.5
1.54 e  1.5
 P( x 4)  .0471
4!
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5.7 Poisson Distribution (9 of 9)
Approximating Binomial Problems by the Poisson
Distribution,
• The Poisson approximation gave a probability of .0471
• Using the binomial formula would give a probability of .0459

Binomial Poisson approximation

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5.8 | Geometric Distribution (1 of 2)
Assume that a sequence of independent Bernoulli trials is
conducted, each having a probability p, 0 < p < 1, of being success.
Let X represent the number of trials up to and including the first
success. Then X is said to have geometric distribution with
parameter p. We write X ~ Geom(p). If X ~ Geom(p), then the
probability density function of X is

This distribution formula follows from the fact that in order for X to
equal x, it is necessary and sufficient that x – 1 trials are failures
and that the xth trial results in a success. It can be easily seen that
geometric distribution is a special case of negative binomial
distribution when r = 1.
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5.8 | Geometric Distribution (2 of 2)
Mean and Variance of the Geometric Distribution

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5.9 Hypergeometric Distribution (1 of 4)
• Like the binomial distribution, the hypergeometric distribution has two
outcomes, success or failure
• Unlike the binomial distribution, the analyst must know the size of the
population and the probability of success in the population
• Should be used instead of binomial when sampling is done without
replacement and the sample is greater than or equal to 5% of the population.

Characteristics of the Hypergeometric Distribution:

• It is a discrete distribution
• Each outcome consists of either a success or a failure
• Sampling is done without replacement
• The population, N, is finite and known
• The number of successes in the population, A, is known
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5.9 Hypergeometric Distribution (2 of 4)
Hypergeometric formula P( x)  A
C x N  A Cn  x
N Cn

where N = population size, n = sample size, A = number of successes in the

population, and x is the number of successes in the sample

• Hypergeometric distributions are characterized by three parameters, N, A, and

n, so creating tables is nearly impossible
Example: Twenty-four people, of whom 8 are women, apply for a job. If 5 of the
applicants are sampled randomly, what is the probability that exactly 3 of those
sampled are women?
• Small, finite population
• Sample size is 21% of the population
• Hypergeometric is the appropriate distribution
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5.9 Hypergeometric Distribution (3 of 4)
• Example: Twenty-four people, of whom 8 are women, apply for a job.
If 5 of the applicants are sampled randomly, what is the probability that
exactly 3 of those sampled are women?
o A, the number of occurrences in the population, is 8
o After evaluating each counting rule in the formula,

(56)(120)
P ( x 4)  .1581
(42,504)

• In a sample of 5, there is a 15.81% chance that three will be women.

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5.9 Hypergeometric Distribution (4 of 4)
Using the Computer to Generate Hypergeometric
Distribution Probabilities
• Both Excel and Minitab can find hypergeometric probabilities for given values
of N, A, n, and x
• For the previous example problem, Minitab and Excel gave the following
outputs:

TABLE 5.13: Minitab Output for TABLE 5.14: Excel Output for a
Hypergeometric Problem Hypergeometric Problem

Probability Density Function

Hypergeometric with N = 24 , M = 8 and n = 5
The probability of x = 3 when N = 24 , n = 5 ,
and A = 8 is: 0.158103
x P(X = x)
3 0.158103

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Chapter Case: Patanjali Ayurved – A
Giant for Natural Products
• Patanjali Ayurved is an Indian multinational consumer packaged goods
company based in Haridwar.
• World renowned Yoga Guru Baba Ramdev established Patanjali
Ayurved Limited in 2006 along with Balkrishna, with the objective of
establishing the “science” of Ayurveda in accordance with ancient
wisdom and in coordination with the latest technology.
• The company manufactures more than 2,500 products, including 45
types of cosmetic products and 30 types of food products. According to
Patanjali, all the products manufactured by the company are made from
natural ingredients.
• Some of the most popular products of Patanjali Ayurved are cow’s
Ghee, pure Ghee, Shuddh Shilajeet, Special Chyawanprash, and Tulsi
Ghanvati.
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Copyright
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