TOPIC 7: PROBABILITY THEORY

The aim of this topic to introduce the basic principles of probability theory. It presents learners
with techniques of solving business problems using various probability methods.

Learning outcomes for topic 4.

After completing this topic, you should be able to

 Differentiate between mutually exclusive and independent events
 Formulate business problems using probability models
 Appropriately apply probability multiplication and addition theorems in solving business
methods

Topic contents.

Study unit 1: Types of probability events

Study unit 2: Probability theorems and applications of probability in business

Introduction
Probability is a numerical measure (between 0-1(inclusive))of the likelihood or chance of
occurrence of uncertain event

Approaches to probability theory:

Classical approach
It is based on the assumption that all the possible outcomes (finite number) of an experiment are
mutually exclusive and equally likely. It state that the probability of an outcome denoted as
number of favourable cases
=
P(A ) total number of possible outcomes

Example 1.

If a coin is tossed there are two equally likely results, a head or a tail hence the probability o f a
1
head = 2

Example 2
1
If a dice is cast then the probability of obtaining any one side is 6
Axiomatic approach
Introduced by Russian mathematician A.N Kolmogorov in the year 1933. Is based on the
following axioms:

i) The probability of an event ranges from 0-1 if an event cannot take place then the
probability is zero however if an event will certainly occur its probability is one.
ii) The probability of an entire sample space is 1 i.e. ΣP( A )=1
 iii) If A and B are mutually exclusive (or disjoint) events the probability of occurrence of
either A or B denoted by P( AUB ) is given by P( AUB )=P ( A )+P( B)

Study unit 1:Types of probability events

An experiment – is the process of making an observation or taking measurement

An event – is the outcome of an experiment
Mutually exclusive events- two events are said to be mutually exclusive or in compatible when
both cannot happen simultaneously in a single trial.

Events A, B, C are mutually exclusive if either A or B or C can occur

Independent events two or more events are said to be independent when the outcome of one
does not affect and is not affected by the other. For example if a coin is tossed twice the result of
the second throw would in no way be affected by the result of the first throw

Dependent events are events in which the occurrence or non occurrence of one event in
any one trial affects the probability of other events in other trials.

Equally likely events- events are said to be equally likely when one does not occur more often
than the others e.g an unbiased coin.

Simple and compound events in case of simple events we consider probability of the happening
or not happening of single events e.g. tossing of a coin. In compound events we consider the
joint occurrence of two or more events.

Activity 1: Give other 2 examples of different events explained in study unit 1

Study unit 2: Probability theorems and applications in business solutions

There are two important theorems of probability namely:

 The addition theorem and
 Multiplication theorem
Addition theorem
If two events A and B are mutually exclusive the probability of either A or B is the some of
individual probability of A and B symbolically:
P ( A or B )=P( A )+P (B )=P( AUB )

Non- mutually exclusive (partially overlapping) events these are events whose some of their
points are common
P ( A or B )=P( A )+P (B )−P( A and B)
P ( A U B )=P( A )+P(B )−P( A n B)
Example 1

From a sales force of 150 persons one will be selected to attend a special sales meeting. If 52 of
3
them are unmarried, 72 are college graduates and 4 of the 52 that are unmarried are college
graduates find the probability that the sales person selected at random will be neither single nor a
college graduate.

Solution
Let A and B be the events that a sales person selected is married and that he is a college graduate
respectively. Then it is given that
P( A )=
52
150
P( B )=
72
150 ( 34 )(52150 )=39150
P( AandB )=

The probability that a sales person selected at random will be neither single nor a college
graduate is
P ( Ā n { B̄¿ ) 1−P ( AUB )=1−( P ( A )+P ( B )−P ( AnB ) )

=1− (
52 72 39
+ −
150 150 150 30
= )
13

Example 2
The probability that a contractor will get a plumbing a contract is 2/3 and the probability that
5 4
he will not get electrical contract is 9 . If the probability of getting at least one contract is 5
what is the probability that he will get both?

Solution

Let A and B denote the events that the contractor will get a plumbing and electrical contract
2 5 4
P( A )= P( B )=1− =
respectively. Given that 3 9 9
4
P( AUB )=
5
2 4 4 14
P ( AnB )=P( A )+P(B )−P( AUB )= + − = =0 . 31
3 9 5 45
Thus the probability that he will get both contracts is 0.31

Example 3
An MBA applies for a job in two firms X and Y the probability of him being selected in firm X
is 0.7 and being rejected at Y is 0.5. The probability of at least one of his applications being
rejected is 0.6. What is the probability that he will be selected by one of the firms?

Solution
Let A and B denote the events that the MBA will be selected in firm A and will be rejected in Y
respectively. Then given that
P( A )=0 .7 P ( Ā )=1−0 .7 =0. 3
P(B )=0 . 5 P( B̄)=1−0 . 5=0 . 5 P( Ā U B̄ )=0. 6
The probability that he will be selected by one of the firms is given by
P( AUB )=P ( A )+P( B)−P ( AnB )
P( AnB )=1−P( Ā U B̄)=1−0 .6=0.4
P( AUB )=0 .7+0. 5−0 . 4=0 .8
Thus the probability of an MBA being selected by one of the firms is 0.8

Multiplication theorem.

Joint probability: If A and B are independent events the probability will occur is given by
P( AB )=P( AnB)=P( A )×P( B )
Illustration: suppose we toss a coin twice the probability that both case the coin will turn up head
1 1 1
P( HH )=P( H )×P( H )= × =
is given by 2 2 4
Conditional probability: For independent events A and B the conditional probability denoted by
P ( A B) of event A given that event B has already occurred is simply the probability of Event A
symbolically written as
P ( A B )= P ( A ) probability of A known that event B has already
( AnB )
P =P ( A )
occurred P(B )
Example 3
The Data for the promotion and academic qualification of a company is given below

Promotional Academic qualification

Non MBA ( Ā )
status MBA(A) Total
Promoted(B) 0.14 0.26 0.4
Not Promoted ( 0.21 0.39 0.6
B̄ )
Total 0.35 0.65 1.0

a) Calculate the conditional

b) Calculate conditional probability that it is an MBA when a promoted employee has been
chosen
c) Find the probability that a promoted employee was an MBA

Solution
It is given that
 P( A )=0.35 P( Ā )=0.65
P(B )=0.4 P( B̄)=0.6 and P(AnB)=0.14
a) Probability of promotion after an MBA employee has been identified

P ( B A )= PP((AnBA ) ) = 00.. 1235 =0 . 34

b) If promoted employee is chosen then the probability that the person is an MBA is
P ( A B )= PP( AnB
(B )
) 0 .12
=
0 . 40
=0. 30

c) The probability that a promoted employee was an MBA is

P ( AnB )= P ( A )× P ( B A )= 0. 35×0 .34=0 . 12
P ( AnB )= P ( B )× P (
B)
A
=0 . 40×0 .30=0 .12

Self practice questions

Q1. The personnel department of a company has records which show the following analysis of
its 200 engineers

Age Bachelors Masters Total

degree only degree
Under 90 10 100
30
30-40 20 30 50
Over 40 40 10 50
Total 150 50 200

If one engineer is selected at random find

 The probability that he has only a bachelor’s degree
(Answer=0.75)

 The probability that he has a masters degree given that he is over 40 years (Answer=0.2)

 The probability that he is under 30 given that he has only a bachelor’s degree
(Answer=0.6)

Q2 Explain the difference between statistically independent and statistically dependent events.

Q3 Explain the meaning of the following terms

(i) Random variable
(ii) Statistical phenomenon
 (iii) Random event
(iv) Sample space

Q4 In a certain town, males and female form 50 percent of the population. It is known that 20
per cent of the females are unemployed and 5 percent of the females are unemployed. A
research student studying the employment situation selects unemployed person at
random. Find the probability that the person selected is
(a) Male (Answer=0.8) (b) Female (Answer= (0.2)