Render - Qam13e - PPT - 02 Probabilities

Quantitative Analysis for Management
Thirteenth Edition, Global Edition
Chapter 2
Probability Concepts and
Applications
Copyright © 2018 Pearson Education, Ltd. All Rights Reserved

Learning Objectives (1 of 2)
After completing this chapter, students will be able to:
2.1 Understand the basic foundations of probability
analysis.
2.2 Use Bayes’ theorem to establish posterior probabilities.
2.3 Use Bayes’ theorem to establish further probability
revisions.
2.4 Describe and provide examples of both discrete and
continuous random variables.
2.5 Explain the difference between discrete and continuous
probability distributions.

Learning Objectives (2 of 2)
After completing this chapter, students will be able to:
2.6 Understand the binomial distribution.
2.7 Understand the normal distribution and use the normal
table.
2.8 Understand the F distribution.
2.9 Understand the exponential distribution and its relation
to queuing theory.
2.10Understand the Poisson distribution and its relation to
queuing theory.

Chapter Outline
2.1 Fundamental Concepts
2.2 Revising Probabilities with Bayes’ Theorem
2.3 Further Probability Revisions
2.4 Random Variables
2.5 Probability Distributions
2.6 The Binomial Distribution
2.7 The Normal Distribution
2.8 The F Distribution
2.9 The Exponential Distribution
2.10The Poisson Distribution

Introduction
• Life is uncertain; we are not sure what the future will bring
• Probability is a numerical statement about the likelihood
that an event will occur

Chapters in This Book That Use Probability
TABLE 2.1 Chapters in This Book That Use Probability
CHAPTER TITLE
3 Decision Analysis
4 Regression Models
5 Forecasting
6 Inventory Control Models
11 Project Management
12 Waiting Lines and Queuing Theory Models
13 Simulation Modeling
14 Markov Analysis
15 Statistical Quality Control
Module 3 Decision Theory and the Normal Distribution
Module 4 Game Theory

Two Basic Rules of Probability
• The probability, P, of any event or state of nature occurring
is greater than or equal to 0 and less than or equal to 1.
That is,
0 ≤ P(event) ≤ 1
A probability of 0 indicates that an event is never expected
to occur. A probability of 1 means that an event is always
expected to occur.
• The sum of the simple probabilities for all possible
outcomes of an activity must equal 1. Regardless of how
probabilities are determined, they must adhere to these
two rules.
Types of Probability (1 of 3)
• Objective Approach
– Relative frequency approach
Number of occurrences of the event

P (event) =
Total number of trials or outcomes

Diversey Paint Example (1 of 2)
• Historical demand for white latex paint at = 0, 1, 2, 3, or 4
gallons per day
• Observed frequencies over the past 200 days
TABLE 2.2 Relative Frequency Approach to Probability for
Paint Sales
QUANTITY DEMANDED (GALLONS) NUMBER OF DAYS PROBABILITY
0 40 0.20(= 40÷200)
1 80 0.40(= 80÷200)
2 50 0.25(= 50÷200)
3 20 0.10(= 20÷200)
4 10 0.05(= 10÷200)
Blank Total 200 Total 1.00(= 200÷200)

Diversey Paint Example (2 of 2)
• Historical demand for white latex paint at = 0, 1, 2, 3, or 4
gallons per day
• Observed
Individual probabilities
frequencies are all
overbetween 0 200 days
the past
and 1
0 ≤ P (event)
TABLE 2.2 Relative ≤1
Frequency Approach to Probability for
Paint
TotalSales
of all event probabilities equals 1
QUANTITY DEMANDED (GALLONS) NUMBER OF DAYS PROBABILITY
∑0 P (event) = 1.00 40 0.20(= 40÷200)
1 80 0.40(= 80÷200)
2 50 0.25(= 50÷200)
3 20 0.10(= 20÷200)
4 10 0.05(= 10÷200)
Blank Total 200 Total 1.00(= 200÷200)

• Objective Approach
– Classical or logical method
 Perform a series of trials
1  Number of ways of getting a head

P  head =
2  Number of possible outcomes(head or tail)
13  Number of chances of drawing a spade
P  spade  =
52  Number of possible outcomes
1
= = 0.25 = 25%
4

• Subjective Approach
– Based on the experience and judgment of the person
making the estimate
 Opinion polls
 Judgment of experts
 Delphi method

Mutually Exclusive and Collectively
Exhaustive Events (1 of 2)
• Events are said to be mutually exclusive if only one of
the events can occur on any one trial
– Tossing a coin will result in either a head or a tail
– Rolling a die will result in only one of six possible
outcomes

Mutually Exclusive and Collectively
Exhaustive Events (2 of 2)
• Events are said to be collectively exhaustive if the list of
outcomes includes every possible outcome
• Both heads and tails as possible outcomes of coin flips
• All six possible outcomes of the roll of a die
OUTCOME OF ROLL PROBABILITY
1 1/
6
2 1/
6
3 1/
6
4 1/
6
5 1/
6
6 1/
6
Blank Total 1

Venn Diagrams
FIGURE 2.1 Venn Diagram FIGURE 2.2 Venn Diagram
for Events That Are for Events That Are Not
Mutually Exclusive Mutually Exclusive

Drawing a Card
• Draw one card from a deck of 52 playing cards
A = event that a 7 is drawn
B = event that a heart is drawn
P (a 7 is drawn) = P(A)= 4/52 = 1/13
P (a heart is drawn) = P(B) = 13/52 = 1/4
– These two events are not mutually exclusive since a 7
of hearts can be drawn
– These two events are not collectively exhaustive since
there are other cards in the deck besides 7s and hearts

Differences
DRAWS MUTUALLY COLLECTIVELY
EXCLUSIVE EXHAUSTIVE
1. Draws a spade and a club
2. Draw a face card and a number card
3. Draw an ace and a 3
4. Draw a club and a non-club
5. Draw a 5 and a diamond
6. Draw a red card and a diamond

Differences
DRAWS MUTUALLY COLLECTIVELY
EXCLUSIVE EXHAUSTIVE
1. Draws a spade and a club Yes No
2. Draw a face card and a number card Yes Yes
3. Draw an ace and a 3 Yes No
4. Draw a club and a non-club Yes Yes
5. Draw a 5 and a diamond No No
6. Draw a red card and a diamond No No

Unions and Intersections of Events (1 of 3)
• Intersection – the set of all outcomes that are common to
both events
Intersection of event A and event B = A and B
=A∩B
= AB
– Probability notation
P(Intersection of event A and event B) = P(A and B)
= P(A ∩ B)
= P(AB)
– Sometimes called joint probability

• Union – the set of all outcomes that are contained in either
of two events
Union of event A and event B = A or B
– Probability notation
P(Union of event A and event B) = P(A or B)

= P(A ∪ B)

• In the previous example
– Intersection of event A and event B
(A and B) = the 7 of hearts is drawn

P(A and B) = P(7 of hearts is drawn) = 1/52
– Union of event A and event B
(A or B) = either a 7 or a heart is drawn

P(A or B) = P(any 7 or any heart is drawn) = 16/52

Probability Rules (1 of 5)
• General rule for union of two events,
additive rule
P(A or B) = P(A) + P(B) − P(A and B)
– Union of two events, a 7 or a heart

P(A or B) = P(A) + P(B) − P(A and B)
= 4/52 + 13/52 − 1/52
= 16/52

• Conditional probability – probability that an event occurs
given another event has already happened
P ( AB )
P( A | B) =
P (B )
P ( AB ) = P ( A | B )P (B )
– Probability of a 7 given a heart has been drawn
1
P ( AB )
P( A | B) = = 52 = 1
P (B ) 13 13
52

Which sets are independent?
1. (a) Your education

(b) Your income level
2. (a) Draw a jack of hearts from a full 52-card deck
(b) Draw a jack of clubs from a full 52-card deck
3. (a) Chicago Cubs win the National League pennant
(b) Chicago Cubs win the World Series
4. (a) Snow in Santiago, Chile
(b) Rain in Beirut, Lebanon

Which sets are independent?

Dependent
1. (a) Your education events Independent
(b) Your income level events
2. (a) Draw a jack of hearts from a full 52-card deck
(b) Draw a jack of clubs from a full 52-card deck
3. (a) Lakers win the NBA championship
(b) Lakers win the Western Conference
Dependent
4. (a) Snow in Santiago, Chile events
(b) Rain in Beirut, Lebanon
Independent
events

• Independent one event has no effect on the other event
P(A | B) = P(A)
P(A and B) = P(A)P(B)
– For a fair coin tossed twice
A = event that a head is the result of the first toss

B = event that a head is the result of the second toss
P(A) = 0.5 and P(B) = 0.5

P(AB) = P(A)P(B) = 0.5(0.5) = 0.25

Independent Events (1 of 2)
• A bucket contains 3 black balls and 7 green balls
– Draw a ball from the bucket, replace it, and draw a
second ball
1. The probability of a black ball drawn on first draw
is:
P(B) = 0.30
2. The probability of two green balls drawn is:
P(GG) = P(G) × P(G) = 0.7 × 0.7 = 0.49

Independent Events (2 of 2)
• A bucket contains 3 black balls and 7 green balls
– Draw a ball from the bucket, replace it, and draw a
second ball
3. The probability of a black ball drawn on the second
draw if the first draw is green is:
P(B | G) = P(B) = 0.30
4. The probability of a green ball drawn on the second
draw if the first draw is green is:
P(G | G) = P(G) = 0.70

Dependent Events (1 of 3)
• An urn contains the following 10 balls:
– 4 are white (W) and lettered (L)
– 2 are white (W) and numbered (N)
– 3 are yellow (Y) and lettered (L)
– 1 is yellow (Y) and numbered (N)
P(WL) = 4/10 = 0.4 P(YL) = 3/10 = 0.3
P(WN) = 2/10 = 0.2 P(YN) = 1/10 = 0.1
P(W) = 6/10 = 0.6 P(L) = 7/10 = 0.7
P(Y) = 4/10 = 0.4 P(N) = 3/10 = 0.3

4 balls White (W)
and Lettered (L)
?
2 balls White (W)
The urn
contains
and Numbered (N) ?
10 balls
3 balls Yellow (Y)
and Lettered (L) ?
1 ball Yellow (Y) and
Numbered (N) ?
4 balls White (W) 4
and Lettered (L) Probability (WL ) =
10
2 balls White (W)

The urn 2
and Numbered (N) Probability (WN ) =
contains 10
10 balls
3 balls Yellow (Y) 3
and Lettered (L) Probability (WN ) =
10
1 ball Yellow (Y) and 3

Probability (YN ) =
Numbered (N) 10

• The conditional probability that the ball drawn is lettered,
given that it is yellow

• The conditional probability that the ball drawn is lettered,
given that it is yellow
P (YL ) 0.3
P (L | Y ) = = = 0.75
P (Y ) 0.4
• We can verify P(YL) using the joint probability formula

P(YL) = P(L | Y) × P(Y) = (0.75)(0.4) = 0.3

Revising Probabilities with Bayes’ Theorem
(1 of 7)
• Bayes’ theorem is used to incorporate additional

information and help create posterior probabilities from
original or prior probabilities
FIGURE 2.3 Using Bayes’ Process

(2 of 7)
• A cup contains two dice identical in appearance but one is

fair (unbiased) and the other is loaded (biased)
– The probability of rolling a 3 on the fair die is 1/6 or
0.166
– The probability of tossing the same number on the
loaded die is 0.60
– We select one by chance, toss it, and get a 3
– What is the probability that the die rolled was fair?
– What is the probability that the loaded die was rolled?

(3 of 7)
• The probability of the die being fair or loaded is

P(fair) = 0.50 P(loaded) = 0.50
And that
P(3|fair) = 0.166 P(3|loaded) = 0.60
• The probabilities of P(3 and fair) and P(3 and loaded) are
P(3 and fair) = P(3|fair) × P(fair)
= (0.166)(0.50) = 0.083
P(3 and loaded) = P(3|loaded) × P(loaded)
= (0.60)(0.50) = 0.300

(4 of 7)
The sum of these probabilities

gives us the unconditional
probability of tossing a 3
P(3) = 0.083 + 0.300 = 0.383

(5 of 7)
• If a 3 does occur, the probability that the die rolled was the
fair one is
• The probability that the die was loaded is

(5 of 7)
• If a 3 does occur, the probability that the die rolled was the
fair one is
P  fair and 3  0.083

P (fair | 3) = = = 0.22
P 3 0.383
• The probability that the die was loaded is
P  loaded and 3  0.300

P (loaded | 3) = = = 0.78
P 3 0.383

(6 of 7)
• These are the revised or

posterior probabilities for the
next roll of the die
• We use these to revise our
prior probability estimates

(7 of 7)
TABLE 2.3 Tabular Form of Bayes’ Calculations Given That

Event B Has Occurred
STATE OF P(B | STATE PRIOR JOINT POSTERIOR
NATURE OF NATURE) PROBABILITY PROBABILITY PROBABILITY
A P(B | A) ×P(A) =P(B and A) P(B and A)÷P(B) = P(A | B)
A′ P(B | A′) ×P(A′) =P(B and A′) P(B and A′)÷P(B) = P(A′ |
B)
Blank Blank Blank P(B) Blank
TABLE 2.4 Bayes’ Calculations Given That a 3 Is Rolled in

This Example
STATE OF P(3 | STATE PRIOR JOINT POSTERIOR
NATURE OF NATURE) PROBABILITY PROBABILITY PROBABILITY
Fair die 0.166 ×0.5 = 0.083 0.083÷0.383 = 0.22
Loaded die 0.600 ×0.5 = 0.300 0.300÷0.383 = 0.78
Blank Blank Blank P(3) = 0.383 Blank

General Form of Bayes’ Theorem (1 of 2)
• We can compute revised probabilities more directly by
using
P (B A)P ( A)
P( A B) =
P (B A)P ( A) + P (B A)P ( A)
Where
A’ = the complement of the event A;
for example, if A is the event “fair die,”
then A’ is “loaded die”

General Form of Bayes’ Theorem (2 of 2)
• Conditional probability − P ( AB )
P( A | B) =
P (B )
– From the previous example
Replace A with “fair die,” A’ with “loaded die,” B with “3
rolled”
P(fair die | 3 rolled)
P (3 fair)P (fair)
=
P (3 fair)P (fair) + P (3 loaded)P (loaded)
(0.166)(0.50) 0.083
= = = 0.22
 0.166  0.50  +  0.60  (0.50) 0.383

Further Probability Revisions (1 of 4)
• Additional information from a second experiment
– If you can afford it, perform experiments several times
– We roll the die again and again to get a 3
P(fair)=0.50 and P(loaded)=0.50

P(3,3|fair)=(0.166) (0.166)=0.027
P(3,3|loaded)=(0.6) (0.6)=0.36

P(3, 3 and fair) = P(3, 3 fair) × P(fair)
= (0.027)(0.5) = 0.013
P(3, 3 and loaded) = P(3, 3|loaded) × P(loaded)
= (0.36)(0.5) = 0.18

P(3, 3 and fair) = P(3, 3 fair) × P(fair)
= (0.027)(0.5) = 0.013
P(3, 3 and loaded) = P(3, 3|loaded) × P(loaded)
= (0.36)(0.5) = 0.18
P (3, 3 and fair) 0.013

P (fair 3, 3) = = = 0.067
P (3, 3) 0.193
P (3, 3 and loaded) 0.18
P (loaded 3, 3) = = = 0.933
P (3, 3) 0.193

• After the first roll of the die
probability the die is fair = 0.22
probability the die is loaded = 0.78
• After the second roll of the die

probability the die is fair = 0.067
probability the die is loaded = 0.933

Random Variables (1 of 3)
• A random variable assigns a real number to every
possible outcome or event in an experiment
X = number of refrigerators sold during the day
• Discrete random variables can assume only a finite or
limited set of values
• Continuous random variables can assume any one of an
infinite set of values

TABLE 2.5 Examples of Random Variables
EXPERIMENT OUTCOME RANDOM VARIABLES RANGE OF
RANDOM
VARIABLES
Stock 50 Christmas Number of Christmas X = number of Christmas trees sold 0, 1, 2, . . . , 50
trees trees sold
Inspect 600 items Number of acceptable Y = number of acceptable items 0, 1, 2, . . . , 600
items
Send out 5,000 Number of people Z = number of people responding to 0, 1, 2, . . . , 5,000
sales letters responding to the letters the letters
Build an apartment Percent of building R = percent of building completed 0 … R … 100

building completed after 4 after 4 months
months
Test the lifetime of Length of time the bulb S = time the bulb burns 0 … S … 80,000
a lightbulb lasts up to 80,000
(minutes) minutes

TABLE 2.6 Random Variables for Outcomes That Are Not
Numbers
EXPERIMENT OUTCOME RANGE OF RANDOM RANDOM
VARIABLES VARIABLES
Students respond to 1, 2, 3, 4, 5
Strongly agree (SA) 5 if SA
a questionnaire
Agree (A)  4 if A

Neutral (N) X = 3 if N
2 if D
Disagree (D) 
1 if SD
Strongly disagree (SD)
One machine is
Defective 0 if defective 0, 1
inspected Y =
Not defective 1 if not defective
Consumers 3 if good 1, 2, 3
respond to how
Good 
Z = 2 if average
they like a product Average 1 if poor

Poor

Probability Distributions (1 of 4)
• For discrete random variables, probability value assigned
to each event
– Statistics class of 100 students
– Quiz with five problems with 1 point for each correct
answer
– Lowest score = 1, highest score = 5
• Example follows the three rules:
1. Events are mutually exclusive and collectively
exhaustive
2. Individual probability values between 0 and 1
3. Total probability sums to 1
TABLE 2.7 Probability Distribution for Quiz Scores
RANDOM VARIABLE NUMBER PROBABILITY P(X)
(X) SCORE
5 10 0.1 = 10÷100
4 20 0.2 = 20÷100
3 30 0.3 = 30÷100
2 30 0.3 = 30÷100
1 10 0.1 = 10÷100
Total 100 1.0 = 100÷100
• Developed using relative frequency approach

FIGURE 2.4 Class Distribution

FIGURE 2.4 Probability Distribution for Dr. Shannon’s Class
• Central tendency of the

distribution is the mean or
expected value
• Amount of variability is the
variance

Expected Value of a Discrete Probability
Distribution (1 of 2)
• Expected value is a measure of the central tendency of the
distribution
n
E  X    Xi P  Xi 
i 1
 X1P (X1 )  X2P (X2 )  ...  Xn P (Xn )
where
Xi = random variable’s possible values
P(Xi) = probability of each possible value of the random variable
n
å = summation sign indicating we are adding all n possible values

i=1
E(X) = expected value or mean of the random variable

Expected Value of a Discrete Probability
• For the quiz scores
n
E  X    Xi P  Xi 
i 1
 X1P (X1 )  X2 P (X2 )  X3 P (X3 )  X 4 P (X 4 )  X5 P (X5 )

 (5)(0.1) + (4)(0.2) + (3)(0.3) + (2)(0.3) + (1)(0.1)
 2.9

Variance of a Discrete Probability
n
 2  Variance   [Xi  E (X)]2 P (X i )
i 1
where
Xi = random variable’s possible values

E(Xi) = expected value of the random variable
[Xi − E(X)] = difference between each value of the random variable
and the expected value
E(X) = probability of each possible value of the random
variable

• For quiz scores
n
Variance   [X i  E (X)]2 P (X i )
i 1
Variance = (5 − 2.9)2(0.1) + (4 − 2.9)2(0.2) + (3 − 2.9)2(0.3)

+ (2 − 2.9)2(0.3) + (1 − 2.9)2(0.1)
= (2.1)2(0.1) + (1.1)2(0.2) + (0.1)2(0.3) + (−0.9)2(0.3)
+ (−1.9)2(0.1)
= 0.441 + 0.242 + 0.003 + 0.243 + 0.361
= 1.29

• Standard deviation is the square root of the variance
s = Variance = s 2
where
 square root
  standard deviation

• Standard deviation is the square root of the variance
s = Variance = s 2
where For this example

 square root
  Variance
  standard deviation
 1.29  1.14

Using Excel (1 of 2)
PROGRAM 2.1A Excel 2016 Output for the Dr. Shannon
Example

PROGRAM 2.1B Formulas in an Excel Spreadsheet for the
Dr. Shannon Example

Probability Distribution of a Continuous
Random Variable (1 of 3)
• The fundamental rules for continuous random variables
must be modified
– The sum of the probability values must still equal 1
– The probability of each individual value of the random
variable occurring must equal 0 or the sum would be
infinitely large
• The probability distribution is defined by a continuous
mathematical function called the probability density
function or just the probability function represented by f
(X)

FIGURE 2.5 Graph of Sample Density Function

• For any continuous distribution, the probability does not
change if a single point is added to the range of values that
is being considered.
• The following probabilities are all exactly the same:
P(5.22 < X < 5.26) = P(5.22 < X ≤ 5.26) = P(5.22 ≤ X < 5.26)
= P(5.22 ≤ X ≤ 5.26)

The Binomial Distribution (1 of 3)
• Many business experiments can be characterized by the
Bernoulli process
• The Bernoulli process is described by the binomial
probability distribution
1. Each trial has only two possible outcomes
2. The probability of each outcome stays the same from
one trial to the next
3. The trials are statistically independent
4. The number of trials is a positive integer

• The binomial distribution is used to find the probability of a
specific number of successes in n trials
We need to know
n = number of trials
p = the probability of success on any single trial
We let
r = number of successes
q = 1 − p = the probability of a failure

• The binomial formula is
n!
Probability of r success in n trials  p r q n r
r !(n  r )!
The symbol ! means factorial, and n! = n(n − 1)(n − 2)…(1)

4! = (4)(3)(2)(1) = 24
Also, 1! = 1 and 0! = 0 by definition

Solving Problems with the Binomial
Formula (1 of 3)
• Find the probability of getting 4 heads in 5 tosses of a coin
n = 5, r = 4, p = 0.5, and q = 1 − 0.5 = 0.5
5!
P(4 successes in 5 trials) = 0.5 4 0.55-4
4!(5-4)!
5(4)(3)(2)(1)
= (0.0625)(0.5) = 0.15625
4(3)(2)(1)1!

Formula (2 of 3)
TABLE 2.8 Binomial Distribution for n = 5, p = 0.50
NUMBER OF HEADS 5!
(r) PROBABILITY = (0.5)r(0.5)5 − r
r !(5 – r)!
5!
0 0.03125 = 0!  5 – 0 ! (0.5)0(0.5)5 − 0
5!
1 0.15625 = 1!  5 – 1! (0.5)1(0.5)5 − 1
5!
2 0.31250 = 2!  5 – 2 ! (0.5)2(0.5)5 − 2
5!
3 0.31250 = 3!  5 – 3 ! (0.5)3(0.5)5 − 3
5!
4 0.15625 = 4!  5 – 4 ! (0.5)4(0.5)5 − 4
5!
5 0.03125 = 5!  5 – 5 ! (0.5)5(0.5)5 − 5

Formula (3 of 3)
FIGURE 2.6 Binomial Distribution for n = 5, p = 0.50

Solving Problems with Binomial Tables (1 of 4)
• MSA Electronics is experimenting with the manufacture of
a new transistor
– Every hour a random sample of 5 transistors is taken
– The probability of one transistor being defective is 0.15
– What is the probability of finding 3, 4, or 5 defective?
n = 5, p = 0.15, and r = 3, 4, or 5

TABLE 2.9 (partial) A Sample Table for the Binomial
Distribution
P
n r 0.05 0.10 0.15
5 0 0.7738 0.5905 0.4437
Blank
1 0.2036 0.3281 0.3915
Blank
2 0.0214 0.0729 0.1382
Blank
3 0.0011 0.0081 0.0244
Blank
4 0.0000 0.0005 0.0022
Blank
5 0.0000 0.0000 0.0001
We find the three probabilities in the table for

n = 5, p = 0.15, and r = 3, 4, and 5 and add them together

TABLE 2.9 (partial) A Sample Table for the Binomial
Distribution
P
n or more
P(3 r 0.05 = P(3) + P0.10
defects) (4) + P(5) 0.15
5 0 0.7738 0.5905 0.4437
1 0.2036
= 0.0244 +0.3281
0.0022 + 0.0001
0.3915
2 0.0214= 0.0267 0.0729 0.1382
3 0.0011 0.0081 0.0244
4 0.0000 0.0005 0.0022
5 0.0000 0.0000 0.0001
We find the three probabilities in the table for

n = 5, p = 0.15, and r = 3, 4, and 5 and add them together

• Expected value is
Expected value (mean) = np

Variance = np(1 − p)
• For the MSA example
Expected value = np 5(0.15) = 0.75

Variance = np(1 − p) = 5(0.15)(0.85) = 0.6375

PROGRAM 2.2A Excel Output for the Binomial Example

PROGRAM 2.2B Function in an Excel 2016 Spreadsheet for
Binomial Probabilities

The Normal Distribution (1 of 4)
• One of the most popular and useful continuous probability
distributions
– The probability density function
 ( x   )2
1 2 2
f(X) = e
 2
– Completely specified by the mean, μ, and the standard

deviation, σ

FIGURE 2.7 Normal Distribution with Different Values for μ

FIGURE 2.8 Normal Distribution with Different Values for σ

• Symmetrical with the midpoint representing the mean
• Shifting the mean does not change the shape
• Values on the X axis measured in the number of standard
deviations away from the mean
• As standard deviation becomes larger, curve flattens
• As standard deviation becomes smaller, curve becomes
steeper

Using the Standard Normal Table (1 of 4)
Step 1
• Convert the normal distribution into a standard normal
distribution
– Mean of 0 and a standard deviation of 1
– The new standard random variable is Z
X 
Z=

where
X = value of the random variable we want to measure
μ = mean of the distribution
σ = standard deviation of the distribution
Z = number of standard deviations from X to the mean, μ
• For μ = 100, σ = 15, find the probability that X is less than
130
X  130  100
Z= =
 15
30
= = 2 std dev
15
FIGURE 2.9 Normal Distribution Showing the Relationship

Between Z Values and X Values
Step 2
• Look up the probability from a table of normal curve areas
• Use Appendix A or Table 2.10
• Column on the left is Z value
• Row at the top has second decimal places for Z values

TABLE 2.10 (partial) Standardized Normal Distribution
Function
AREA UNDER THE NORMAL CURVE
Z 0.00 0.01 0.02 0.03
1.8 0.96407 0.96485 0.96562 0.96638
1.9 0.97128 0.97193 0.97257 0.97320
2.0 0.97725 0.97784 0.97831 0.97882
2.1 0.98214 0.98257 0.98300 0.98341
2.2 0.98610 0.98645 0.98679 0.98713
For Z = 2.00
P(X < 130) = P(Z < 2.00) = 0.97725
P(X > 130) = 1 − P(X ≤ 130) = 1 − P(Z ≤ 2)
= 1 − 0.97725 = 0.02275
Haynes Construction Company (1 of 7)
• Builds three- and four-unit apartment buildings
– Total construction time follows a
normal distribution FIGURE 2.10 Normal
Distribution for Haynes
– For triplexes, μ = 100 days Construction
and σ = 20 days
– Contract calls for
completion in 125 days
– Late completion will
incur a severe
penalty fee
– Probability of completing in 125 days?

• Compute Z
FIGURE 2.10 Normal
X  125 – 100 Distribution for Haynes
Z= = Construction
 20
25
= = 1.25
20
– From Appendix A,
for Z = 1.25
area = 0.89435

• Compute Z
The probability is about 0.89
that Haynes will not violateFIGURE
the 2.10 Normal
contract
X   125 – 100 Distribution for Haynes
Z= =
 20 Construction
25
= = 1.25
20
– From Appendix A,
for Z = 1.25
area = 0.89435

• If finished in 75 days or less, bonus = $5,000
– Probability of bonus?
FIGURE 2.11 Probability That
X  75 – 100 Haynes Will Receive the Bonus by
Z 
 20 Finishing in 75 Days or Less
–25
  –1.25
20
– Because the distribution

is symmetrical,
equivalent to Z = 1.25
so area = 0.89435
• If finished in P75
(Xdays or =less,
> 125) bonus
1.0 − P(X ≤= 125)
$5,000
– Probability of bonus? = 1.0 − 0.89435 = 0.10565
The probability of completing the contract
FIGURE 2.11 Probability in
That Haynes
X  75 days
75 – 100 Will Receive
or less is about 11%the Bonus by Finishing in
Z 
 20 75 Days or Less
–25
  –1.25
20
– Because the distribution

is symmetrical,
equivalent to Z = 1.25
so area = 0.89435
• Probability of completing between 110 and 125 days?
P(110 < X < 125) = P(X ≤ 125) − P(X < 110)
– P(X ≤ 125) = 0.89435
FIGURE 2.12 Probability That
X  110 – 100 Haynes Will Complete in 110 to
Z  125 Days
 20
10
  0.5
20
For Z = 0.5
area = 0.69146

• Probability of completing between 110 and 125 days?
P(110 ≤ X < 125) = 0.89435 − 0.69146
≤ 125) − P(X < 110)
P(110 < X < 125) = P=(X0.20289
– P(X ≤ The
125)probability
= 0.89435of completing between 110 and
125 days is about 20% FIGURE 2.12 Probability That
X   110 – 100 Haynes Will Complete in 110 to
Z  125 Days
 20
10
  0.5
20
For Z = 0.5
area = 0.69146

Standard Normal Distribution
TABLE 2.10 (partial) Standardized Normal Distribution
Function
AREA UNDER THE NORMAL CURVE
Z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
0.5 .69146 .69497 .69847 .70194 .70540 .70884 .71226 .71566 .71904 .72240
0.6 .72575 .72907 .73237 .73536 .73891 .74215 .74537 .74857 .75175 .75490
0.7 .75804 .76115 .76424 .76730 .77035 .77337 .77637 .77935 .78230 .78524
0.8 .78814 .79103 .79389 .79673 .79955 .80234 .80511 .80785 .81057 .81327
0.9 .81594 .81859 .82121 .82381 .82639 .82894 .83147 .83398 .83646 .83891
1.0 .84134 .84375 .84614 .84849 .85083 .85314 .85543 .85769 .85993 .86214
1.1 .86433 .86650 .86864 .87076 .87286 .87493 .87698 .87900 .88100 .88298
1.2 .88493 .88686 .88877 .89065 .89251 .89435 .89617 .89796 .89973 .90147
1.3 .90320 .90490 .90658 .90824 .90988 .91149 .91309 .91466 .91621 .91774
1.4 .91924 .92073 .92220 .92364 .92507 .92647 .92785 .92922 .93056 .93189
1.5 .93319 .93448 .93574 .93699 .93822 .93943 .94062 .94179 .94295 .94408

Using Excel
PROGRAM 2.3A Excel 2016
Output for the Normal
Distribution Example
PROGRAM 2.3B Function in

an Excel 2016 Spreadsheet
for the Normal Distribution
Example

The Empirical Rule (1 of 2)
• For a normally distributed random variable with mean μ
and standard deviation σ
– Approximately 68% of values will be within ±1σ of the
mean
– Approximately 95% of values will be within ±2σ of the
mean
– Almost all (99.7%) of values will be within ±3σ of the
mean

The Empirical Rule (2 of 2)
FIGURE 2.13 Approximate
Probabilities from the Empirical
Rule

The F Distribution (1 of 4)
• It is a continuous probability distribution
– The F statistic is the ratio of two sample variances
– F distributions have two sets of degrees of freedom
– Degrees of freedom are based on sample size and
used to calculate the numerator and denominator
df1 = degrees of freedom for the numerator
df2 = degrees of freedom for the denominator
– The probabilities of large values of F are very small

FIGURE 2.14 The F Distribution

• Consider the example
df1 = 5
df2 = 6
 = 0.05
From Appendix D, we get

F, df1, df2 = F0.05, 5, 6 = 4.39
This means
P(F > 4.39) = 0.05
The probability is only 0.05 F will exceed 4.39

FIGURE 2.15 F Value for 0.05 Probability with 5 and 6
Degrees of Freedom

Using Excel
PROGRAM 2.4A Excel
2016 Output for the F
Distribution
PROGRAM 2.4B
Functions in an Excel
2016 Spreadsheet for the
F Distribution

The Exponential Distribution (1 of 2)
• Also called the negative exponential distribution
– A continuous distribution often used in queuing models
– Probability function given by
f ( X )  e  x
where
X = random variable (service times)
μ = average number of units the service facility can handle in a
specific period of time
e = 2.718 (the base of natural logarithms)

The Exponential Distribution (2 of 2)
FIGURE 2.16 Exponential Distribution
1
Expected value = = Average service time

1
Variance =
2
P(X  t )  1 e t

Arnold’s Muffler Shop (1 of 3)
• Installs new mufflers on automobiles and small trucks
– Can install 3 new mufflers per hour
– Service time is exponentially distributed
• What is the probability that the time to install a new muffler
would be ½ hour or less?
X = Exponentially distributed service time

μ = average number of units the served per time period = 3 per hour
t = ½ hour = 0.5 hour
P(X ≤ 0.5) = 1 − e−3(0.5) = 1 − e −1.5 = 1 = 0.2231 = 0.7769

FIGURE 2.17 Probability That the Mechanic Will Install a
Muffler in 0.5 Hour

• Similarly
 1
 1 3 
P  X    1 e 3
 1  e 1  1  0.3679  0.6321
 3
2
 2 3 
P  X    1 e 3
 1  e 2  1  0.1353  0.8647
 3
• And
P(X > 0.5) = 1 − P(X ≤ 0.5) = 1 − 0.7769 = 0.2231

Using Excel
PROGRAM 2.5A Excel 2016 Output for the Exponential
Distribution
PROGRAM 2.5B Function in an Excel 2016 Spreadsheet for

the Exponential Distribution

The Poisson Distribution (1 of 3)
• A discrete probability distribution
– Often used in queuing models to describe arrival rates
over time
– Probability function given by
 x e
P( X ) 
X!
where
P(X) = probability of exactly X arrivals or occurrences
 = average number of arrivals per unit of time
(the mean arrival rate)
e = 2.718, the base of natural logarithms
X = number of occurrences (0, 1, 2, 3, …)

• From Appendix C for λ = 2
e  x
P( X ) 
X!
e 2 20 (0.1353)1
P (0)    0.1353  14%
0! 1
e 2 21 e 2 2 0.1353(2)
P (1)     0.2706  27%
1! 1 1
e 2 22 e 2 4 0.1353(4)
P (2)     0.2706  27%
2! 2(1) 2

FIGURE 2.18 Sample Poisson Distributions with λ = 2 and λ = 4

Using Excel
PROGRAM 2.6A Excel 2016 Output for the Poisson
Distribution
PROGRAM 2.6B Functions in an Excel 2016 Spreadsheet

for the Poisson Distribution

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Quantitative Analysis for Management

Thirteenth Edition, Global Edition

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved

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Number of occurrences of the event

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Blank Total 200 Total 1.00(= 200÷200)

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Blank Total 200 Total 1.00(= 200÷200)

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1  Number of ways of getting a head

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Union of event A and event B = A or B

P(Union of event A and event B) = P(A or B)

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(A and B) = the 7 of hearts is drawn

– Union of event A and event B

(A or B) = either a 7 or a heart is drawn

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P(A or B) = P(A) + P(B) − P(A and B)

– Union of two events, a 7 or a heart

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Which sets are independent?

1. (a) Your education

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Which sets are independent?

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A = event that a head is the result of the first toss

P(A) = 0.5 and P(B) = 0.5

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P(GG) = P(G) × P(G) = 0.7 × 0.7 = 0.49

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2 balls White (W)

1 ball Yellow (Y) and 3

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• We can verify P(YL) using the joint probability formula

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• Bayes’ theorem is used to incorporate additional

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• A cup contains two dice identical in appearance but one is

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• The probability of the die being fair or loaded is

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The sum of these probabilities

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• The probability that the die was loaded is

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