BF1206 BUSINESS STATISTICS

WEEK 5: THE PROBABILITY DISTRIBUTION FOR A DISCRETE RANDOM VARIABLE

In this chapter, you learn:

• The properties of a probability distribution
• To compute the expected value, variance, and standard deviation of a
probability distribution
• To compute probabilities from binomial and Poisson distributions
• How to use the binomial and Poisson distributions to solve business
problems

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NUMERICAL VARIABLES

 Numerical variables are classified as discrete or

continuous.
• Continuous – outcomes that come from a measuring process;
for example, your height.
• Discrete – outcomes that come from a counting process,
such as the number of magazines.
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EXPECTED VALUE OF A DISCRETE RANDOM VARIABLES

 The mean μ of a probability distribution is the expected value of its random variable.

μ = 𝐸(𝑋) = 𝑋𝑖 𝑃 𝑋𝑖
𝑖=1

where 𝑋𝑖 = the ith outcome of the discrete random variable X

𝑃 𝑋𝑖 = probability of occurrence of the ith outcome of X
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EXPECTED VALUE OF A DISCRETE RANDOM VARIABLES

 The expected value for the probability distribution of the number of

home mortgages per week.
Home Mortgages Probability The mean number
Approved per Week (𝑋𝑖 ) 𝑃 𝑋𝑖 𝑋𝑖 𝑃 𝑋𝑖 of mortgages
approved per week.
0 0.10 (0)(0.10) = 0.0 The actual number
1 0.10 (1)(0.10) = 0.1 of mortgages must
2 0.20 (2)(0.20) = 0.4 be an integer value.

3 0.30 (3)(0.30) = 0.9

4 0.15 (4)(0.15) = 0.6
5 0.10 (5)(0.10) = 0.5
6 0.05 (6)(0.05) = 0.3 4

1.00 μ = 𝐸(𝑋) = 2.8

 VARIANCE OF A DISCRETE RANDOM VARIABLE

Variance: 𝜎2 = 𝑋𝑖 − 𝐸 𝑋 2
𝑃 𝑋𝑖
𝑖=1

Standard deviation: 𝜎 = 𝜎 2

where 𝑋𝑖 = the ith outcome of the discrete random variable X

𝑃 𝑋𝑖 = probability of occurrence of the ith outcome of X
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VARIANCE AND STANDARD DEVIATION OF A DISCRETE RANDOM
VARIABLE

𝑋𝑖 𝑃 𝑋𝑖 𝑋𝑖 − 𝐸 𝑋 2 𝑃 𝑋𝑖 × 𝑋𝑖 − 𝐸 𝑋 2

0 0.10 2
0 − 2.8 =
1 0.10 2
1 − 2.8 =
2 0.20 2 − 2.8 2 =
3 0.30 2
3 − 2.8 =
4 0.15 4 − 2.8 2 =
5 0.10 2
5 − 2.8 =
6 0.05 2
6 − 2.8 =
𝜎2 = 𝑁
𝑖=1 𝑋𝑖 − 𝐸 𝑋 2𝑃
𝑋𝑖 = 2.46

∴ standard deviation: 𝜎= 𝜎 2 = 2.46 = 1.57 6

 BINOMIAL DISTRIBUTION

 Binomial distribution has four essential properties:

1. The sample consists of a fixed number of observations, n
2. Each observation is classified into one of two mutually exclusive: success and failure
3. The probability of an observation being classified as success, p, and failure, 1- p.
4. The outcome (i.e, success or failure) of any observation is independent of the outcome
of any other observation.

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BINOMIAL DISTRIBUTION: RULE OF COMBINATIONS

 Combination: the number of ways of selecting X objects out of n objects.

 It is given by:
𝑛
𝑛!
𝑋𝐶 =
𝑋! 𝑛 − 𝑋 !
 Example: with n = 4 and X = 3. there are

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BINOMIAL DISTRIBUTION: RULE OF COMBINATIONS

 Probability is the numerical measure of the likelihood that an event will occur

𝑃(𝑋) = 𝑛𝑥𝐶 𝑃 𝑋 (1 − 𝑝)𝑛−𝑋

Where P(X) = probability of X successes given n and p

n = number of observations
p = probability of success
1 – p= probability of failure
X = number of successes in the sample

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BINOMIAL DISTRIBUTION: RULE OF COMBINATIONS

 Examples:
1. P(X=3), Given n = 4 and p = 0.1
If the likelihood of a tagged order form is 0.1, what is the probability that there are three tagged order forms in the sample of four?

2. P(X≥3), Given n = 4 and p = 0.1

If the likelihood of a tagged order form is 0.1, what is the probability that there are three or more order forms in the sample of four?

3. P(X<3), Given n = 4 and p = 0.1

If the likelihood of a tagged order form is 0.1, what is the probability that there are fewer than three order forms in the sample of four? 10
BINOMIAL DISTRIBUTION: RULE OF COMBINATIONS

 Solutions:

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THE MEAN AND STANDARD DEVIATION OF THE BINOMIAL
DISTRIBUTION

 The mean of the binomial distribution

μ = 𝐸 𝑋 = 𝑛𝑝

 The standard deviation of the binomial distribution

𝜎 = 𝜎2 = 𝑉𝑎𝑟(𝑋) = 𝑛𝑝(1 − 𝑝)

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THE MEAN AND STANDARD DEVIATION OF THE BINOMIAL
DISTRIBUTION

Example:
In a recent month, the percentage of correct orders of this type filled at Burger King
was approximately 88%. Suppose that you and two friends go to the drive-thru window
at Burger King and each of you place three orders.
i. What is the probability that all three orders will be filled completely?
ii. What is the probability that non of the three orders will be filled completely?
iii. What is the probability that at least two of the three will be filled completely?
iv. What is the average and standard deviation of the number of orders filled 13

accurately?
THE MEAN AND STANDARD DEVIATION OF THE BINOMIAL
DISTRIBUTION

Solution:

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POISSON DISTRIBUTION

 A poisson distribution is the counts of the times a particular event

occurs in a given area of opportunity.

 Examples are the number of network failures in a day, or the number of fleas on the
body of a dog.

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POISSON DISTRIBUTION

𝑒 −𝞴 𝞴𝑋
𝑃(𝑋) =
𝑋!

Where P(X) = probability of X events in an area of opportunity

𝞴 = expected number of events
e = mathematical constant
X = number of events

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POISSON DISTRIBUTION EXAMPLE

 The number of faults per month that arise in the

gearboxes of buses is known to follow a Poisson
distribution with a mean of 2.5 faults per month. What is
the probability that:
i. No faults are found?
ii. At least one fault is found?
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 POISSON DISTRIBUTION EXAMPLE

 Solution:

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