Chapter 5

Statistics for Business and Economics (14e,
Metric Version)
Statistics for
Business and Economics
(14e)
Metric Version
Anderson, Sweeney, Williams, Camm, Cochran,
Fry, Ohlmann
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Metric Version)
Chapter 5: Discrete Probability

Distributions
5.1 - Random Variables
5.2 - Developing Discrete Probability Distributions
5.3 - Expected Value and Variance
5.4 - Bivariate Distributions, Covariance, and Financial
Portfolios
5.5 - Binomial Probability Distribution
5.6 - Poisson Probability Distribution
5.7 - Hypergeometric Probability Distribution
Metric Version)
Random Variables (1 of 2)
• A random variable (隨機變數) is a numerical description of

the outcome of an experiment.
• A discrete (間斷、不連續) random variable may assume

either a finite (有限) number of values or an infinite (無限)
sequence of values.
• Examples: number of computers sold in a store; number of
patients arrived in emergency room in an hour.
• A continuous (連續) random variable may assume any

numerical value in an interval or collection of intervals.
• Examples: company sales, distance between home and school.
3
Metric Version)
Random Variables (2 of 2)
Illustration Random Variable x Type

Family size x = Number of dependents Discrete
reported on tax return
Distance from home to x = Distance in kilometers from Continuous

stores on a highway home to the store site
Own dog or cat x = 1 if own no pet; Discrete

= 2 if own dog(s) only;
= 3 if own cat(s) only;
= 4 if own dog(s) and cat(s)
4
Metric Version)
Discrete Random Variable with a

Finite Number of Values
Example: JSL Appliances
Let x = number of TVs sold at the store in one day, where x
can take on 5 values (0, 1, 2, 3, 4)
We can count the TVs sold, and there is a finite upper limit
on the number that might be sold (which is the number of
TVs in stock).
5
Metric Version)
Discrete Random Variable with an
Infinite Number of Values
Let x = number of customers arriving in one day, where x
can take on the values 0, 1, 2, . . .
We can count the customers arriving, but there is no finite

upper limit on the number that might arrive.
6
Metric Version)
Discrete Probability Distributions
(間斷機率分配) (1 of 7)
• The probability distribution (機率分配) for a random variable

describes how probabilities are distributed over the values of
the random variable.
• We can describe a discrete probability distribution with a table,
graph, or formula.
Types of discrete probability distributions:
• First type: uses the rules of assigning probabilities to
experimental outcomes to determine probabilities for each
value of the random variable.
• Second type: uses a special mathematical formula to compute
the probabilities for each value of the random variable.
7
Metric Version)
Discrete Probability Distributions (2

of 7)
• The probability distribution is defined by a probability

function, denoted by f(x), that provides the probability for
each value of the random variable.
• The required conditions for a discrete probability function
are:
Metric Version)
Discrete Probability Distributions (3 of 7)
• There are three methods for assigning probabilities

to random variables:
• Classical method,
• Subjective method,
• Relative frequency method.
• The use of the relative frequency method to develop

discrete probability distributions leads to what is
called an empirical (實證) discrete distribution.
9
Metric Version)

Using past data on TV sales, a tabular representation of the
probability distribution for sales was developed.
Numbe r
Units Sold of Da ys 𝑥𝑥 𝑓𝑓(𝑥𝑥)
0 80 0 .40 = 80/200
1 50 1 0.25
2 40 2 0.20
3 10 3 0.05
4 20 4 0.10
. 200 . 1.00
Metric Version)
Discrete Probability Distributions (5

of 7)
Metric Version)
Probability of an event
• We can use the probability distribution table to find
the probability of an event.
P(a ≤ x ≤ b) =∑ f ( xi )
x∈( a ,b )
• Previous example:
P( x < 3) =P( x =0) + P( x =1) + P( x = 2) =0.85
P(2 ≤ x ≤ 4) = P( x =2) + P( x = 3) + P( x =4) =0.35
12
Metric Version)
• In addition to tables and graphs, a formula that

gives the probability function, f(x), for every value
of x is often used to describe the probability
distributions.
• Several discrete probability distributions specified
by formulas are the discrete-uniform (均勻、其
一), binomial (二項), Poisson (泊松), and
hypergeometric distributions (超幾何).
13
Metric Version)
Expected Value (期望值) (1 of 2)
• The expected value, or mean, of a random variable is

a measure of its central location.
• The expected value is a weighted average of the

values the random variable may assume. The
weights are the probabilities.
• The expected value does not have to be a value
the random variable can assume.
Metric Version)
Variance (變異數) and Standard
Deviation (標準差)
• The variance summarizes the variability in the
values of a random variable.
• The variance is a weighted average of the

squared deviations of a random variable from its
mean. The weights are the probabilities.
• The standard deviation, σ, is defined as the
positive square root of the variance.
Metric Version)
Linear Combination of Two
Random Variables
• ax+by where x and y are two random variables and
a >0, b> 0 are constants.
• E(ax+by) = aE(x) + bE(y) = aμx+bμy
• Var(ax+by) = a2Var(x)+b2Var(y) + 2abcov(x,y)

Var(ax+by) = a2Var(x)+b2Var(y) if x and y are
independent.
16
Metric Version)
Expected Value (2 of 2)

x f(x) xf(x)
0 .40 .00
1 .25 .25
2 .20 .40
3 .05 .15
4 .10 .40
Metric Version)
Variance
X x–μ (x – μ)2 f(x) (x–μ)2 f(x)
0 –1.2 1.44 .40 .576
1 –0.2 0.04 .25 .010
2 0.8 0.64 .20 .128
3 1.8 3.24 .05 .162
4 2.8 7.84 .10 .784
Variance of daily sales
= σ 2 = 1.660
Standard deviation of daily sales = 1.2884 TVs
Metric Version)
Bivariate Distributions (1 of 3)
A bivariate (雙變量) probability distribution is a probability

distribution involving two random variables.
For example, here are the daily sales at the DiCarlo Motors
automobile dealership in Saratoga, New York, and DiCarlo, another
dealership in Geneva, New York. The table shows the number of
cars sold at each of the dealerships over a 300-day period.
Metric Version)
Let us define x = number of cars sold at the Geneva dealership

and y = the number of cars sold at the Saratoga dealership. We
can now divide all of the frequencies by the number of
observations (300) to develop a bivariate empirical discrete
probability distribution for automobile sales at the two DiCarlo
dealerships.
Metric Version)
The table below shows the expected value for the mean total sales (s=x+y)
and the standard deviation of total sales for these two dealerships.
s f(s) sf(s) s – E(s) (s – E(s))2 (s – E(s))2 f(s)

0 .0700 .0000 –2.6433 6.9872 .4891
1 .1700 .1700 –1.6433 2.7005 .4591
2 .2300 .4600 –.6433 .4139 .0952
3 .2900 .8700 .3567 .1272 .0369
4 .1267 .5067 1.3567 1.8405 .2331
5 .0667 .3333 2.3567 5.5539 .3703
6 .0233 .1400 3.3567 11.2672 .2629
7 .0233 .1633 4.3567 18.9805 .4429
8 .0000 .0000 5.3567 28.6939 .0000
E(s) = 2.6433 Var(s) =
2.3895
A
Metric Version)
Covariance
The covariance and/or correlation coefficient are good
measures of association between two random variables.
= (2.3895 – 0.8696 – 1.25)/2

= 0.1350
A covariance of .1350 indicates that daily sales at DiCarlo’s

two dealerships have a positive relationship.
Alternative formula:
n
cov( x, y ) = ∑ [ xi − E ( x)][ yi − E ( y)] f ( xi , yi )
σ xy =
i =1
Metric Version)
Correlation
To get a better sense of the strength of the relationship, we
can compute the correlation coefficient.
The correlation coefficient of .1295 indicates there is a weak

positive relationship between the random variables representing
daily sales at the two DiCarlo dealerships. If the correlation
coefficient had equaled zero, we would have concluded that daily
sales at the two dealerships were independent.
Metric Version)
• The discrete uniform probability distribution is the

simplest example of a discrete probability
distribution given by a formula.
• The discrete uniform probability function is
where: n = the number of values the

random variable may assume
• The values of the random variable are equally likely.
Metric Version)
Expected Value and Variance

1
Uniform distribution f (=
xi ) = , x 1, 2,...n
n
(n + 1)
• Expected value: E ( x) =
2
n2 − 1
• Variance: Var ( x) =
12
25
Metric Version)
Example: uniform distribution

• Drawing from five numbers: x={1, 2, 3, 4, 5}
• These five numbers are equally likely to be drawn.
f ( x) 1/=
= 5, x 1, 2,3, 4,5
• Expected value:
• Variance:
26
Metric Version)
Binomial (二項) Probability Distribution (1 of 11)
Four Properties of a Binomial Experiment

1. The experiment consists of a sequence of n
identical trials.
2. Two outcomes, success and failure, are possible on
each trial.
3. The probability of a success, denoted by p, does
not change from trial to trial. (This is referred to as
the stationarity assumption.)
4. The trials are independent.
27
Metric Version)
Binomial Probability Distribution (2 of 11)
• Our interest is in the number of successes occurring in

the n trials.
• Let x denote the number of successes occurring in the
n trials.
• Binomial Probability Function:
where:
x = the number of successes
p = the probability of a success on one trial
n = the number of trials
f(x) = the probability of x successes in n trials
n! = n(n – 1)(n – 2) ….. (2)(1)
Metric Version)
Binomial Probability Distribution (3

of 11)
Binomial Probability Function
Metric Version)
Example: flipping a coin ( 擲銅板)

• Flipping a coin three times: 3 trials (n = 3)
• Head is success (p = 0.5), tail is fail (1-p = 0.5)
• The probability of having 1 success in 3 trials: (HTT,
THT or TTH)
3! 2
f ( x= 1)= (0.5)(0.5) = 0.375
1!2!
30
Metric Version)
Example: Evans Electronics

Evans Electronics is concerned about a low retention
rate for its employees. In recent years, management
has seen a turnover of 10% of the hourly employees
annually.
Thus, for any hourly employee chosen at random,
management estimates a probability of 0.1 that the
person will not be with the company next year.
Choosing 3 hourly employees at random, what is the
probability that 1 of them will leave the company this
year?
31
Metric Version)

of 11)

• The probability of the first employee leaving and the
second and third employees staying, denoted (S, F, F), is
given by
p(1 – p)(1 – p)
• With a 0.10 probability of an employee leaving on any one
trial, the probability of an employee leaving on the first
trial and not on the second and third trials is given by
(0.10)(0.90)(0.90) = (0.10)(0.90)2 = 0.081
32
Metric Version)

Two other experimental outcomes result in one success and
two failures. The probabilities for all three experimental
outcomes involving one success follow.
Experimental Probability of
Outcome Experimental Outcome
(S, F, F) p(1 – p)(1 – p) = (.1)(.9)(.9) = .081

(F, S, F) (1 – p)p(1 – p) = (.9)(.1)(.9) = .081
(F, F, S) (1 – p)(1 – p)p = (.9)(.9)(.1) = .081
Total = .243
Metric Version)

Using the probability function with p = 0.10, n = 3, and x = 1
Metric Version)

of 11)
Metric Version)
Binomial Probabilities and Cumulative
Probabilities (累計機率)
• Statisticians have developed tables that give
probabilities and cumulative probabilities for a
binomial experiment random variable.
• These tables can be found in some statistics
textbooks.
• With modern calculators and the capability of
statistical software packages, such tables are almost
unnecessary.
36
Metric Version)
Using Tables of Binomial Probabilities
n x p = .05 p = .10 p = .15 p = .20 p = .25 p =.30 p = .35 p =.40 p =.45 p =.50
3 0 .8574 .7290 .6141 .5120 .4219 .3430 .2746 .2160 .1664 .1250
3 1 .1354 .2430 .3251 .3840 .4219 .4410 .4436 .4320 .4084 .3750
3 2 .0071 .0270 .0574 .0960 .1406 .1890 .2389 .2880 .3341 .3750
3 3 .0001 .0010 .0034 .0080 .0156 .0270 .0429 .0640 .0911 .1250
• The expected value is:
• The variance is:
• The standard deviation is:
Metric Version)

of 11)

• The expected value is:
• The variance is:
• The standard deviation is:
Metric Version)
Binomial Distribution
p = 0 .1, n = 3
x f(x) xf(x)
0 0.729 0
1 0.243 0.243
2 0.027 0.054
3 0.001 0.003
total 1 0.3
40
Metric Version)
Binomial Distribution: Flipping a coin

p=0 .5, n = 3
f(x)
x f(x) xf(x) 0.4
0 0.125 0 0.35
1 0.375 0.375 0.3
2 0.375 0.75
0.25
0.2
3 0.125 0.375 0.15
total 1 1.5 0.1
0.05
0
0 1 2 3
41
Metric Version)
Practice Question:
Uniform Distribution
• Rolling a fair die:
1
𝑓𝑓 𝑥𝑥 = , x = 1, 2, 3, 4, 5, 6
6
1. P(x > 3)?
2. P(x ≤ 4)?
42
Metric Version)
Practice Question:
Binomial Distribution
• Consider a binomial distribution with n = 10 and p =
0.3.
1. P(x ≥ 7) = ?
2. P(2<x<6) = ?
43
Metric Version)
Poisson Probability Distribution (1 of 6)
• A Poisson (泊松) distributed random variable is often

useful in estimating the number of occurrences over a
specified interval of time or space.
• It is a discrete random variable that may assume an infinite
sequence of values (x = 0, 1, 2, . . . ).
• Examples of Poisson distributed random variables:
• number of knotholes in 5 linear meters of pine board
• number of vehicles arriving at a toll booth in one hour
• Bell Labs used the Poisson distribution to model the arrival

of phone calls.
44
Metric Version)
Two Properties of a Poisson Experiment

1. The probability of an occurrence is the same for any two intervals
of equal length.
2. The occurrence or nonoccurrence in any interval is independent of
the occurrence or nonoccurrence in any other interval.
Poisson Probability Function:

where:
x = the number of occurrences in an interval
f(x) = the probability of x occurrences in an interval
μ = mean number of occurrences in an interval
e = 2.71828
x! = x(x – 1)(x – 2) . . . (2)(1)
Metric Version)
Poisson Probability Function

• Because there is no stated upper limit for the number of
occurrences, the probability function f(x) is applicable for
values x = 0, 1, 2, … without limit.
• In practical applications, x will eventually become large
enough so that f(x) is approximately zero and the probability
of any larger values of x becomes negligible.
46
Metric Version)
Example: Mercy Hospital

Patients arrive at the emergency room of Mercy Hospital at the
average rate of 6 per hour on weekend evenings.
What is the probability of 4 arrivals in 30 minutes on a weekend
evening?
Using the probability function with 𝜇𝜇 = 6/hour = 3/half-hour and

x=4
Metric Version)
Metric Version)
A property of the Poisson distribution is that the mean and variance

are equal.

Variance for Number of Arrivals during 30-Minute periods
Metric Version)
Practice Question:
Poisson Distribution
• In Taoyuan airport, airline passengers arrive randomly
and independently at the passenger-screening facility.
The mean arrival rate is 8 per minute.
1. Probability of three or fewer passengers arrive in a one-
minute period.
2. Probability of no arrivals in a 15 second period.
3. Probability of at least one arrival in a 15 second period.
50
Metric Version)
Hypergeometric Probability Distribution
(1 of 7)
• The hypergeometric (超幾何) distribution is closely related to

the binomial distribution.
• However, for the hypergeometric distribution:
• the trials are not independent, and
• the probability of success changes from trial to trial
• Hypergeometric Probability Function:
where: x = number of successes (in the sample), x = 0, 1,…,n

n = number of trials (sample)
f(x) = probability of x successes in n trials
N = number of elements in the population
r = number of elements in the population labeled success
Metric Version)
Hypergeometric Probability Distribution (2

of 7)
Hypergeometric Probability Function
Metric Version)
Hypergeometric Probability Distribution (3 of 7)
• The probability function f(x) is usually applicable for values of x = 0,

1, 2, … n.
• If these two conditions do not hold for a value of x, the

corresponding f(x) equals 0.
Example: Neveready’s Batteries
Bob Neveready has removed two dead batteries from a flashlight
and inadvertently mingled them with the two good batteries he
intended as replacements. The four batteries look identical.
Bob now randomly selects two of the four batteries. What is the
probability he selects the two good batteries?
Metric Version)

(4 of 7)

Using the probability function:
where: x = 2 = number of good batteries selected

n = 2 = number of batteries selected
N = 4 = number of batteries in total
r = 2 = number of good batteries in total
Metric Version)
(5 of 7)
• Mean:
• Variance:
Metric Version)
(6 of 7)

• Mean:
• Variance:
Metric Version)
Hypergeometric Distribution
x f(x) xf(x)
0 0.1667 0
1 0.6667 0.6667
2 0.1667 0.3333
total 1.0000 1
57
Metric Version)

(7 of 7)
• Consider a hypergeometric distribution with n trials and let

p = (r/N) denote the probability of a success on the first trial.
• If the population size is large, the term (N – n)/(N – 1)
approaches 1.
• The expected value and variance can be written E(x) = np and
Var(x) = np(1 – p).
• Note that these are the expressions for the expected value
and variance of a binomial distribution.
• When the population size is large, a hypergeometric
distribution can be approximated by a binomial distribution
with n trials and a probability of success p = (r/N).
58
Metric Version)
Practice Question
• Company A has two factories: one in Hsinchu with 20
employees and another in Tainan with 10 employees.
5 employees are chosen to fill out questionnaires
about employee work hours.
1. What is the probability that none of the employees
from Tainan are chosen?
2. What is the probability that at least two of the

employees in the sample work at the plant in Tainan?
59

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Statistics for Business and Economics (14e,

Chapter 5: Discrete Probability

• A random variable (隨機變數) is a numerical description of

• A discrete (間斷、不連續) random variable may assume

• A continuous (連續) random variable may assume any

Illustration Random Variable x Type

Distance from home to x = Distance in kilometers from Continuous

Own dog or cat x = 1 if own no pet; Discrete

Discrete Random Variable with a

We can count the customers arriving, but there is no finite

• The probability distribution (機率分配) for a random variable

Discrete Probability Distributions (2

• The probability distribution is defined by a probability

Discrete Probability Distributions (3 of 7)

• There are three methods for assigning probabilities

• The use of the relative frequency method to develop

Discrete Probability Distributions (4 of 7)

Example: JSL Appliances

Discrete Probability Distributions (5

Example: JSL Appliances

Discrete Probability Distributions (6 of 7)

• In addition to tables and graphs, a formula that

Expected Value (期望值) (1 of 2)

• The expected value, or mean, of a random variable is

• The expected value is a weighted average of the

• The variance is a weighted average of the

• E(ax+by) = aE(x) + bE(y) = aμx+bμy

• Var(ax+by) = a2Var(x)+b2Var(y) + 2abcov(x,y)

Example: JSL Appliances

A bivariate (雙變量) probability distribution is a probability

Let us define x = number of cars sold at the Geneva dealership

s f(s) sf(s) s – E(s) (s – E(s))2 (s – E(s))2 f(s)

= (2.3895 – 0.8696 – 1.25)/2

A covariance of .1350 indicates that daily sales at DiCarlo’s

The correlation coefficient of .1295 indicates there is a weak

Discrete Probability Distributions (7 of 7)

• The discrete uniform probability distribution is the

where: n = the number of values the

Expected Value and Variance

Example: uniform distribution

Binomial (二項) Probability Distribution (1 of 11)

Four Properties of a Binomial Experiment

• Our interest is in the number of successes occurring in

Binomial Probability Distribution (3

Binomial Probability Function

Example: flipping a coin ( 擲銅板)

Binomial Probability Distribution (4 of 11)

Example: Evans Electronics

Binomial Probability Distribution (5

Example: Evans Electronics

Binomial Probability Distribution (6 of 11)

Example: Evans Electronics

(S, F, F) p(1 – p)(1 – p) = (.1)(.9)(.9) = .081

Binomial Probability Distribution (7 of 11)

Example: Evans Electronics

Binomial Probability Distribution (8

Example: Evans Electronics

Binomial Probability Distribution (9 of 11)

Using Tables of Binomial Probabilities

• The expected value is:

• The variance is:

• The standard deviation is:

Binomial Probability Distribution (11

Example: Evans Electronics