Applied Statistics in

Business & Economics,

Vo Duc Hoang Vu
vu.vo@ueh.edu.vn
 Chapter 6
Discrete Probability Distributions

Chapter Contents

6.1 Discrete Distributions

6.2 Uniform Distribution
6.3 Bernoulli Distribution
6.4 Binomial Distribution
6.5 Poisson Distribution
6.6 Hypergeometric Distribution
6.7 Geometric Distribution (Optional)
6.8 Transformations of Random Variables (Optional)

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 Chapter 6
Discrete Probability Distributions

Chapter Learning Objectives (LOs)

LO1: Define a discrete random variable.

LO2: Solve problems using expected value and variance.
LO3: Define probability distribution, PDF, and CDF.
LO4: Know the mean and variance of a uniform discrete model.
LO5: Find binomial probabilities using tables, formulas, or Excel.

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 Chapter 6
Discrete Probability Distributions

Chapter Learning Objectives (LOs)

LO6: Find Poisson probabilities using tables, formulas, or Excel.

LO7: Use the Poisson approximation to the binomial (optional).
LO8: Find hypergeometric probabilities using Excel.
LO9: Calculate geometric probabilities (optional).
LO10: Select an appropriate discrete model from problem context.
LO11: Apply rules for transformations of random variables (optional).

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 Chapter 6
LO1 6.1 Discrete Distributions

LO1: Define a discrete random variable.

Random Variables

A random variable is a function or rule that assigns a numerical

value to each outcome in the sample space of a random
experiment.
Nomenclature:
- Capital letters are used to represent
random variables (e.g., X, Y).
- Lower case letters are used to represent
values of the random variable (e.g., x, y).
A discrete random variable has a countable number of distinct
values.

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 Chapter 6
LO1 6.1 Discrete Distributions
Probability Distributions

A discrete probability distribution assigns a probability to each value

of a discrete random variable X.
To be a valid probability distribution, each probability must be
between
0 P(xi) 1
and the sum of all the probabilities for the values of X must be equal
to unity.
n

P( x ) 1
i 1
i

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 Chapter 6
LO1 6.1 Discrete Distributions
Example: Coin Flips (Table 6.1)

When a coin is flipped 3 times, the sample space will be

S = {HHH, HHT, HTH, THH, HTT, THT, TTH, TTT}.

Possible Events x P(x)

TTT 0 1/8
If X is the number
of heads, then X HTT, THT, TTH 1 3/8
is a random
variable whose HHT, HTH, THH 2 3/8
probability HHH 3 1/8
distribution is as
follows: Total 1

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 Chapter 6
LO1 6.1 Discrete Distributions
Example: Coin Flips

Note that the values of X

need not be equally likely.
However, they must sum to
unity.

Note also that a discrete

probability distribution is
defined only at specific
points on the X-axis.

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 Chapter 6
LO2 6.1 Discrete Distributions

LO2: Solve problems using expected value and variance.

Expected Value

The expected value E(X) of a discrete random variable is the sum of

all X-values weighted by their respective probabilities.

If there are n distinct values of X, then

n
E ( X ) m xi P ( xi )
i 1
E(X) is a measure of central tendency.

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 Chapter 6
LO2 6.1 Discrete Distributions
Example: Service Calls

6
E ( X ) m xi P( xi )
E( X ) m
i 1

E(X) = = 0(.05) + 1(.10) + 2(.30) + 3(.25) + 4(.20) + 5(.10) = 2.75

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 Chapter 6
LO2 6.1 Discrete Distributions
Example: Service Calls
This particular probability
0.30 distribution is not
0.25
symmetric around the
mean m = 2.75.
0.20
Probability

0.15

0.10

0.05 However, the mean is

0.00 still the balancing point,
0 1 2 3 4 5
or fulcrum.
Number of Service Calls
m = 2.75

E(X) is an average and it does not have to be an observable point.

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 Chapter 6
LO2 6.1 Discrete Distributions
Variance and Standard Deviation

If there are n distinct values of X, then the variance of a discrete

random variable is:

n
V ( X ) 2 [ xi m ] 2 P ( xi )
i 1

The variance is a weighted average of the dispersion about the

mean and is denoted either as 2 or V(X).

The standard deviation is the square root of the variance and is

denoted .

2
V (X )
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 Chapter 6
LO2 6.1 Discrete Distributions
Example: Bed and Breakfast
Distribution for room rentals is given in Table 6.4

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 Chapter 6
LO2 6.1 Discrete Distributions
Example: Bed and Breakfast

The histogram shows that the distribution is skewed to the left and
bimodal.

0.30

0.25

Probability 0.20
The mode is 7
rooms rented but 0.15

the average is only 0.10

4.71 room rentals. 0.05

0.00
0 1 2 3 4 5 6 7
Number of Rooms Rented

= 2.06 indicates considerable variation around m.

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 Chapter 6
LO3 6.1 Discrete Distributions

LO3: Define probability distribution, PDF, and CDF.

What is a PDF or CDF?

A probability distribution function (PDF) is a mathematical function

that shows the probability of each X-value.

A cumulative distribution function (CDF) is a mathematical function

that shows the cumulative sum of probabilities, adding from the
smallest to the largest X-value, gradually approaching unity.

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 Chapter 6
LO3 6.1 Discrete Distributions
What is a PDF or CDF?

Consider the following illustrative histograms:

CDF = P(X x)
0.25
PDF = P(X = x) 1.00
0.90
0.20 0.80
0.70
Probability

Probability
0.15 0.60
0.50
0.10 0.40
0.30
0.05 0.20
0.10
0.00 0.00
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Value of X Value of X

Illustrative PDF Cumulative CDF

(Probability Density Function) (Cumulative Density Function)

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 Chapter 6
LO4 6.2 Uniform Distribution

LO4: Know the mean and variance of a uniform discrete model.

Characteristics of the Uniform Discrete Distribution

The uniform distribution describes a random variable with a finite

number of integer values from a to b (the only two parameters).
Each value of the random variable is equally likely to occur.
Consider the following characteristics of the uniform discrete
distribution:

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 Chapter 6
LO4 6.2 Uniform Distribution
Characteristics of the Uniform Discrete Distribution

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 Chapter 6
LO4 6.2 Uniform Distribution
Example: Rolling a Die
The number of dots on the roll of a die form a uniform random
variable with six equally likely integer values: 1, 2, 3, 4, 5, 6
What is the probability of getting any of these on the roll of a die?

0.18 1.00
0.16 0.90

0.14 0.80
0.70
0.12

Probability
Probability

0.60
0.10
0.50
0.08
0.40
0.06
0.30
0.04 0.20
0.02 0.10
0.00 0.00
1 2 3 4 5 6 1 2 3 4 5 6
Number of Dots Showing on the Die Number of Dots Showing on the Die

PDF for one die CDF for one die

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 Chapter 6
LO4 6.2 Uniform Distribution
Example: Rolling a Die

The PDF for all x is: 1 1 1

P( x)
b a 1 6 11 6
Calculate the mean as:

a b 1 6
3.5
2 2
Calculate the standard deviation as:

2 2
(b a) 1 1

(6 1) 1 1
1.708
12 12
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 Chapter 6
6.3 Bernoulli Distribution
Bernoulli Experiments

A random experiment with only 2 outcomes is a Bernoulli experiment.

One outcome is arbitrarily labeled a success (denoted X = 1) and the
other a failure (denoted X = 0).
is the P(success), 1 is the P(failure).

Success is defined as the less likely outcome so that < .5 for

convenience.
Note that P(0) + P(1) = (1 ) + = 1 and 0 1.

The expected value (mean) and variance of a Bernoulli experiment is

calculated as:
E(X) = and V(X) = (1 - )

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 Chapter 6
LO5 6.4 Binomial Distribution

LO5: Find binomial probabilities using tables, formulas, or Excel.

Characteristics of the Binomial Distribution

The binomial distribution arises when a Bernoulli experiment is

repeated n times.

Each trial is independent so the probability of success remains

constant on each trial.
In a binomial experiment, we are interested in X = number of
successes in n trials. So, X = X1 + X2 + ... + Xn

The probability of a particular number of successes P(X) is

determined by parameters n and .

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 Chapter 6
LO5 6.4 Binomial Distribution

Characteristics of the Binomial Distribution

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 Chapter 6
LO5 6.4 Binomial Distribution
Example: Quick Oil Change Shop

It is important to quick oil change shops to ensure that a cars service time
is not considered late by the customer.
Service times are defined as either late or not late.

X is the number of cars that are late out of the total number of cars
serviced.
Assumptions:
- cars are independent of each other
- probability of a late car is consistent

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 Chapter 6
LO5 6.4 Binomial Distribution
Example: Quick Oil Change Shop
What is the probability that exactly 2 of the next n = 10 cars
serviced are late (P(X = 2))?

P(car is late) = = .10

P(car is not late) = 1 - = .90

n!
P (x) x (1 ) n x
x !( n x ) !

10!
P(X = 2) = (.1)2(1-.10)10-2 = .1937
2!(10-2)!
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 Chapter 6
LO5 6.4 Binomial Distribution
Application: Uninsured Patients

On average, 20% of the emergency room patients at Greenwood

General Hospital lack health insurance.

In a random sample of 4 patients, what is the probability that at

least 2 will be uninsured?
X = number of uninsured patients (success)
P(uninsured) = = 20% or .20

P(insured) = 1 = 1 .20 = .80

n = 4 patients

The range is X = 0, 1, 2, 3, 4 patients.

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 Chapter 6
LO5 6.4 Binomial Distribution
Compound Events

Individual probabilities can be added to obtain any desired event

probability.

For example, the probability that the sample of 4 patients will

contain at least 2 uninsured patients is

HINT: What inequality means at least?

P(X 2) = P(2) + P(3) + P(4)

= .1536 + .0256 + .0016 = .1808

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 Chapter 6
LO5 6.4 Binomial Distribution
Compound Events
What is the probability that fewer than 2 patients have insurance?
HINT: What inequality means fewer than?

P(X < 2) = P(0) + P(1) = .4096 + .4096 = .8192

What is the probability that no more than 2 patients have insurance?
HINT: What inequality means no more than?
P(X < 2) = P(0) + P(1) + P(2)
= .4096 + .4096 + .1536 = .9728

Mean = m = n = 4x0.2 = 0.8 patients

Standard deviation = n (1 ) 4 .2(1 .2) 0.8 patients

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 Chapter 6
LO5 6.4 Binomial Distribution
Compound Events

It is helpful to sketch a diagram:

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Recognizing Binomial
Applications
There is a fixed number of trials (n)
There are only two outcomes for each trial:
success or failure
The probability of success for trial ()
remains constant
The trial are independent of each other.
The random variable (X) is the number of
successes

(#)
 Chapter 6
LO6 6.5 Poisson Distribution

LO6: Poisson Events Distributed over Time.

Called the model of arrivals, most Poisson applications model
arrivals per unit of time.
The events occur randomly and independently over a continuum of
time or space:

Each dot () is an occurrence of the event of interest.

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 Chapter 6
LO6 6.5 Poisson Distribution
Let X = the number of events per unit of time.
X is a random variable that depends on when the unit of time is
observed.
For example, we could get X = 3 or X = 1 or
X = 5 events, depending on where the randomly chosen unit of time
happens to fall.

The Poisson models only parameter is (Greek letter lambda)

where represents the mean number of events per unit of time or
space.
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 Chapter 6
LO6 6.5 Poisson Distribution
Characteristics of the Poisson Distribution

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 Chapter 6
LO6 6.5 Poisson Distribution
Example: Credit Union Customers
On Thursday morning between 9 A.M. and 10 A.M. customers arrive
and enter the queue at the Oxnard University Credit Union at a
mean rate of 1.7 customers per minute.

Find the PDF, mean and standard deviation:

x e (1.7) x e1.7
PDF = P( x)
x! x!
Mean = = 1.7 customers per minute.

Standard deviation = = 1.7 = 1.304 customers/min

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 Chapter 6
LO6 6.5 Poisson Distribution
Compound Events

Cumulative probabilities can be evaluated by summing individual X

probabilities.
What is the probability that two or fewer customers will arrive in a
given minute?

P(X < 2) = P(0) + P(1) + P(2)

= .1827 + .3106 + .2640 = .7573
What is the probability of at least three customers (the complimentary
event)?

P(X > 3) = 1 - P(X < 2) = 1 - .7573 =.2427

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LO8 6.6 Hypergeometric Distribution

LO8: Find hypergeometric probabilities using Excel.

Characteristics of the Hypergeometric Distribution

The hypergeometric distribution is similar to the binomial

distribution.
However, unlike the binomial, sampling is without replacement from
a finite population of N items.

The hypergeometric distribution may be skewed right or left and is

symmetric only if the proportion of successes in the population is
50%.

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LO8 6.6 Hypergeometric Distribution
Characteristics of the Hypergeometric Distribution

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LO8 6.6 Hypergeometric Distribution
Example: Damaged iPods

In a shipment of 10 iPods, 2 were damaged and 8 are good.

The receiving department at Best Buy tests a sample of 3 iPods at random
to see if they are defective.
Let the random variable X be the number of damaged iPods in the sample.

N = 10 (number of iPods in the shipment)

n = 3 (sample size drawn from the shipment)
s = 2 (number of damaged iPods in the
shipment (successes in population))
Ns = 8 (number of non-damaged iPods in
the shipment)
x = number of damaged iPods in the sample
(successes in sample)
nx = number of non-damaged iPods in the sample
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LO8 6.6 Hypergeometric Distribution
Example: Damaged iPods

This is not a binomial problem because is not constant.

What is the probability of getting a damaged iPod on the first draw from the
sample?
1 = 2/10

Now, what is the probability of getting a damaged iPod on the second

draw?
2 = 1/9 (if the first iPod was damaged) or
= 2/9 (if the first iPod was undamaged)
What about on the third draw?

3 = 0/8 or
= 1/8 or
= 2/8
depending on what happened in the first two draws.
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LO8 6.6 Hypergeometric Distribution
Using the Hypergeometric Formula
Since there are only 2 damaged iPods in the population, the only possible values of
x are 0, 1, and 2. Here are the probabilities:

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LO8 6.6 Hypergeometric Distribution
Using Software: Excel
Since the hypergeometric formula and tables are tedious and impractical, use
Excels hypergeometric function to find probabilities.

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LO8 6.6 Hypergeometric Distribution
Binomial Approximation to the Hypergeometric
Both the binomial and hypergeometric involve samples of size n
and treat X as the number of successes.
The binomial samples with replacement while the hypergeometric
samples without replacement.

Rule of Thumb
If n/N < 0.05 it is safe to use the binomial approximation to the
hypergeometric, using sample size n and success probability = s/N.

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LO9 6.7 Geometric Distribution

LO9: Calculate Geometric probabilities.

Characteristics of the Geometric Distribution
The geometric distribution describes the number of Bernoulli trials
until the first success.
X is the number of trials until the first success.
X ranges from {1, 2, . . .} since we must have at least one trial to
obtain the first success. However, the number of trials is not fixed.
is the constant probability of a success on each trial.

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LO9 6.7 Geometric Distribution
Characteristics of the Geometric Distribution

Example: Telefund Calling

At Faber University, 15% of the alumni make a donation or pledge during
the annual telefund.
What is the probability that the first donation will occur on the 7th call?

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LO9 6.7 Geometric Distribution
Example: Telefund Calling

What is ? = .15
The PDF is: P(x) = (1 )x1

P(7) = .15(1.15)71 = .15(.85)6 = .0566

What are the mean and standard deviation of this distribution?

m = 1/ = 1/(.15) = 6.67 calls

= 1 = 1-.15
= 6.15
2 (.15)2

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LO11 6.8 Transformation of Random Variables

LO11: Apply rules for transformations of random variables.

Linear Transformations

A linear transformation of a random variable X is performed by

adding a constant or multiplying by a constant.

Rule 1: maX+b = amX + b (mean of a transformed

variable)
Rule 2: aX+b = aX (standard deviation of a
transformed variable)
Rule 3: mX+Y = mX + mY (mean of a two random
variables X and Y)
Rule 4: X+Y = (standard deviation of sum
if X and Y are independent)

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