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5.

1 INTRODUCTION
that leads to the occurrence
(also called act, tial, operation, o r process) is an activity
Random experiment which is not likely to be known
until its completion, that
o n e of several possible outcomes
of one and only outcomes
is not pertectly predictable. This process
has the properties that (i) all possible
outcome
is, the not occur o n v a r i o u s
in advance, (11) it can be repeated,
and (iii) the s a m e outcomne may
be specified outcomes
known in advance. The variation among experimental
can
so that the actual outcome is not
repetitions random variation. The outcome of an experiment
may
caused by the ettects uncontrolled factors is called
of
in numerical or non-numerical value.
be expressed denoted by
outcomes, which are called events, and are
Each experiment may result in one or more

capital letters.

Sample Space
(events) for a random experiment is called the sample space (or
The set ot all possible distinct
outcomes

event spae) provided.


1. No two or more of these outcomes can occur simultaneously.
experiment is perförmed.
of the outcomes must occur, whenever the
2. Exactly one

space is denoted by the capital letter S.


Sample

5.2 EVENT TYPES


the sample space and
An event is the set (or collection) of one simple events of an experiment in
or more

characteristic. For example, for the above-defined sample space


S, the collection
having a specific common
H T.
(H, T). (T, H) is the event containing simple event as or

Mutualy Exclusive Events


then such events are
If two or more events cannot occur simultaneously in a single trial of an experiment,
called mutually excusive events or disjoint events. In other words,
two events are mutually exclusive if
occurrence of the other.
the occurrence of one of them prevents or rules out the

Symbolically,
a set A} is mutually exclusive if A; nAj
of events {A,
Ag, . .
.,
=
O(i* j). This
it is impossible to observe an event that is common
means the intersection of two events is a null set (Ø);
in both A, and A
Collectively Exhaustive Events
all possible events that from an
A list of events is said to be collectively exhaustive when can occur

experiment include every possible outcome. Symbolically, a set


of events {A. A, . ...
A, is collectively
exhaustive if the union of these events is identical with the sample space S. That is,
S = {A, UA2 U...UA,}.

Independent and Dependent Events


Twoevents are saidto be independentifinformation about one tells nothing about the occurrence of the other.
In other words, outcome of one event does not affect, and is not affected by, the other event. The outcomes
BUSINESS STATISTICS: PR0BLEMS AND SOLUTIONS
132
Increase in t h e population (in Des
toss.
coin independent of its preceding per year in the tis
CSSIve tosses of a are
(in per cent)
of increase in wheat production
per year in India is independent

Compound Events their simultaneous occurr


in connection with cach other,
then
Tence
W O or more
events occur
or (1) dependent.
evenis may be (i) independent
Called a compound event. These

Equally Likely Events a n equal


chance to occur. That is, one od
likely if each has
are said to be cqually cach n u m b e r may be expec
O r more
events
to the other. For example,
in prcference in the long run.
expected to
number of times
dnot be occur

die the same


O n the uppermost lace of a rolling
Complementary Events denoted by (read as E-bar) contains all te
then its complement
ltE
is any subset of the sample space,
If S denotes the sample space, then
of the space that
a r e not part of E.
clements sample
elements not in E}.
E =S - E ={All sample than or to Rs. 25 lakh, written as F
less equal
For example, if E represents companies with sales such events must be mut.
E {x: x> 25}. Obviously tuall
of the set
=

:AS 25}. then this set is a conmplement


exclusive and collective exhaustive.

5.3 DEFINITION OF PROBABILITY


0 an. (between
probability is a numerical
measure
that and
A general definition of probability states

chance of occurrence of an uncertain event. Conceptual approaches


inclusivel) of the likelihood or
follows
calculating the probability of an event are as

Classical Approach
This approach is based on the assumption that all the possible outcomes (finite in number) of an experimen
are mutually exdusive and equally likely. It states that, during a random experiment, if there are
possible outcomes where the favourable event A occurs and "b possible outcomes where the event A does
not occur and all these possible outcomes are mutually exclusive, exhaustive, and equiprobable, then the
probability that event A will occur is defined as

a Number of favourable outcomes A)


AA)a+b Total number of possible outcomes S)
Mlustrations If a fair dice is rolled, then on any trial, each event (face or number) is equally likely o
occur. Since there are six equally likely exhaustive events, each will occur 1/6 of the time, and therefore
the probability of any one event occurring is 1/6.
In general, for a random experiment with n mutually exclusive, exhaustive, equiprobable events.te
probability of any of the events is equal to 1/n.

Relative Frequency Approach


This approach is based on the assumption that a random
times under identical conditions where trials are
experiment can be repeated a large number
independent to each other. While conducting a
experiment we may or may not observe the desired event. But as the experiment is repeated manyrando" ümes
that event may occur some proportion of time. Thus, the
approach calculates the proportion ofthe ume l
therelative frequency) with which the evet occurs over an infinite number of repetitions ofthe expernentun
identical condiions

Whustrations If a dice is tossed n times and s denotes the number of times event A (i.e., number 4, 3,
occurs, then the ratio MA) = ds}n gives the proportion of times event A occurs in n trials, and are
als
called relative frequencies of the event in n trials.
Although our estimate about RA) may change
every trial, yet we will find that the proportion ds)/ n tends to cluster around a unique central value as
FUNDAMENTALS OF PROBABILITY 133

number of urials n becomes even larger. This unique central value (also called probability of event A) is
defined as

RA) = im 9
n n
where d) represents the number oftimes that an event soccurs inn trials of an experiment.

Subjective Approach
This subjective approach of calculating probability is always based on the degree of beliefs, convictions,
and experience concerning the likelihood of occurrence of a random event. It is thus a way to quantify an
individual's beliefs, assessment, and judgment about a random phenomenon. Probability assigned for the
occurrence of an event may be based on just guess or on having some idea about the relative frequency of
past occurrences of the event. This approach must be used when either sufficient data are not available or
sources of information giving different results are not. known.

4 FUNDAMENTAL RULES OF PROBABILITY


1. Each probability should fall between 0 and 1, that is, 0 s AA) S 1, for all , where RA) is read as
"probability of event A;. In other words, the probability of an event is restricted to the range zero
to one inclusive, where "0" represents an impossible event and "1" represents a certain event.
For example, probability of the number seven occurring on rolling a dice, R7), is 0, because
this number is impossible for this
an event experiment.
2. AS)= PA) +
AA) + RA) l, where RS) is read as "probability of a certain event."|
+ =

This rule states that the sum of probabilities of all simple events constituting the sample space is
equal to one. This also implies that if a random experiment is conducted, one of its outcomes in
its sample space is certain to occur.
Similarly, the probability of an impossible event or an empty set is zero. That is HD) = 0.
3. If events A and Ap are two elements in S and if occurrence of A implies that Ag occurs, that is,
if A is a subset of Aq. then the probability of A, is less than or equal to the probability of Ag That
is, PA) s PA).
4. PA) = 1 - RA), that is, the probability of an event that does not occur is equal to one minus the

probability of the event that does occur (the probability rule for complementary events).

5.5 COUNTING RULES FOR DETERMINING THE NUMBER OF OUTCOMES


Multistap Experiments
Ifan experimentispertormed in k stages with n, ays to accomplish the first stage, n, ways to accomplish the second
stage,.., and n, ways to accomplish the kh stage, then the number of ways to accomplish the experiment is
n X n X X n

Ilustrations
1. Tossing of two coins can be thought of as a two-step experiment in which each coin can land in one
of two ways: head (H) and tail (T). Since the experiment involves two steps, forming the pair of faces
(H or T). the total number of simple events in S will be
S {(H, H), (H, T), (T, H), (T, T)
The elements of S indicate that there are 2 x 2 = 4 possible outcomes.

When the number ofalternativeevents in each ofthe several trials is same, that is, n = n = = n
thenthe multistep method gives n X n X X n =
For example, if the coins involved in a coin-tossing experiment are four, then the number of
experimental outcomes will be 2 x 2 x2 x2 =2* =16.
2. Suppose a person can take three routes from city A to city B, four from city B to city C, and three
from city C to city D, then the possible routes for reaching from city A to D, while he must travel from
A to B to C to D, are (A to B) x (B to C) x (C to D) = 3 x 4 x 3 = 36 ways.

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