Business Statistics –

Probability Distributions
Dr. Nisha Prakash
Class of 2023-25 (Session 8-12)
 Assessment - 2

1. During a study of auto accidents, the Highway Safety Council found that 60 percent of all
accidents occur at night, 52 percent are alcohol-related, and 37 percent occur at night and are
alcohol-related. What is the probability that an accident occurred at night, given that it was
alcohol-related?
2. At a soup kitchen, of those visiting the kitchen, 59 percent are men, 32 percent are
alcoholics, and 21 percent are male alcoholics. What is the probability that a random male
visitor to the kitchen is an alcoholic?
3. A company is considering upgrading its computer system, and a major portion of the
upgrade is a new operating system. The company has asked an engineer for an evaluation of
the operating system. Suppose the probability of a favorable evaluation is 0.65. If the
probability the company will upgrade its system given a favorable evaluation is 0.85, what is
the probability that the company will upgrade and receive a favorable evaluation?
 What are they?

• Probability distribution is a theoretical/expected frequency distribution

• Frequency distribution is for deterministic variables (actual observations) while

probability distribution is for a random variable

• Frequency distribution gives the exact the number of times a data point occurs, a
probability distribution gives the probability of occurrence of the given data point

• When you consider sufficient number of trials, both will take the same shape
 Random Variable

• Random variable is a variable whose value is random and depends on the outcome of a random
experiment

• This random variable can be discrete or continuous

e.g. tossing a coin – discrete
time taken to run a marathon – continuous

Draw the probability distribution of the number of tails that could possibly result when we toss the coin twice
 Problem
Southport Autos offers a variety of luxury options on its cars. Because of the 6- to 8-week waiting period for
customer orders, Padmanabha Pillai, the dealer, stocks his cars with a variety of options. Currently, he, who
prides himself on being able to meet his customer’s needs immediately, is worried because of an industrywide
shortage of cars with V-8 engines. Padmanabha offers the following luxury combinations:

1. V-8 engine electric sun roof halogen headlights

2. Leather interior power door locks stereo cassette deck
3. Halogen headlights V-8 engine leather interior
4. Stereo cassette deck V-8 engine power door locks

He thinks that combinations 2, 3, and 4 have an equal chance of being ordered, but that combination 1 is twice
as likely to be ordered as any of these.
(a) What is the probability that any one customer ordering a luxury car will order one with a V-8 engine?
(b) Assume that two customers order luxury cars. Construct a table showing the probability distribution of the
number of V-8 engines ordered.
 Conditions for PD

If X is a random variable then p(X) is said to have a probability distribution if:

[X,p(X)]
p(x) > 0
Σp(x) = 1

Random variables can be discrete or continuous

Values and probabilities taken by a random variables can be expressed in a table, graph or
as a function.
 Expected value of a Random Variable

Weighted average of all the outcomes Possible values of RV Probability

considering probabilities as weights 100 0.01
101 0.03
102 0.05
Calculate the expected value of daily 103 0.07
patients cleared in a clinic. 104 0.11
105 0.15
106 0.25
107 0.13
108 0.12
109 0.06
110 0.03
 Problem

Dharmendra Saini, who frequently invests in the stock market, carefully studies any potential
investment. He is currently examining the possibility of investing in the Trinity Power Company.
Through studying past performance, Dharmendra has broken the potential results of the
investment into five possible outcomes with accompanying probabilities. The outcomes are
annual rates of return on a single share of stock that currently costs Rs.150. Find the expected
value of the return for investing in a single share of Trinity Power.

RoI (Rs.) 0.00 10.00 15.00 25.00 50.00

Prob. 0.20 0.25 0.30 0.15 0.10
If Dharmendra purchases stock whenever the expected rate of return exceeds 10 percent, will he
purchase the stock, according to these data?
 Problem

The management of National Sports Stadium is trying to decide how many tickets to print for an
upcoming hockey match. Each ticket costs Rs.5 to print and sells for Rs.25. Any ticket unsold at
the end of the game must be discarded. Based on the past records of such hockey matches
occurring on this ground, the management of the National Sports Stadium has estimated the
following probability distribution for the ticket sales:

Tickets sold 25,000 40,000 55,000 70,000

Probability 0.10 0.30 0.45 0.15

So, based on the above information related to four categories of ticket-sales, what suggestions
would you give to the management with respect to the number of tickets to be printed for the
next match?
Binomial Distribution
 Bernoulli process

• Binomial distribution describes discrete data

• From an experiment known as a Bernoulli process

- Tossing a coin
- Winning or losing a football match

• Requirements for a Bernoulli process

- Has only two outcomes (can be represented using binary) Bernoulli, Swiss
Mathematician, 1700
- Probability of outcome remains fixed over trials
- Trials are independent events
 Functions in discrete distribution

Probability Mass Function (PMF) of a random variable X gives the probability of X

taking a specific value, x

f (x) = P (X=x)

Write down the PMF for Bernoulli process

Cumulative Distribution Function (CDF) of a random variable X gives the probability

that X takes a value less than or equal to a specific value, x

F(x) = P(X<=x)
 Binomial distribution

• p represents the probability of success

• q represents the probability of failure
q=1–p

• If we define random variable X as getting x success in n trials, PMF for binomial distribution is
 Problem

What is the probability that 8 of the 15 registered Democrats on Prince Street will fail to vote in
the coming primary if the probability of any individual’s not voting is 0.30 and if people decide
independently of each other whether or not to vote?

Probability that at least 8 fail to vote?

Probability that 2 or more vote?

Binomial Probability Table
Binomial Probability Table
 Central tendency and dispersion

On an average, how many success in n trials, Mean μ = n * p

Standard deviation of a binomial distribution

Link for proof – if interested

 Problem

The latest nationwide political poll indicates that for Indians who are randomly selected,
the probability that they are with alliance ABC is 0.55, the probability that they are with
alliance PQR is 0.30, and the probability that they are with alliance XYZ is 0.15.
Assuming that these probabilities are accurate, answer the following questions pertaining
to a randomly chosen group of 10 Indians.
(a) What is the probability that four are with alliance PQR?
(b) What is the probability that none are with alliance ABC?
(c) What is the probability that two are with alliance XYZ?
(d) What is the probability that at least eight are with alliance PQR?
Problem
 Problem

Harley Davidson, director of quality control for the Kyoto Motor company, is conducting
his monthly spot check of automatic transmissions. In this procedure, 10 transmissions
are removed from the pool of components and are checked for manufacturing defects.
Historically, only 2% of the transmissions have such flaws. (Assume that flaws occur
independently in different transmissions).

(a) What is the probability that Harley’s sample contains more than two transmissions
with manufacturing flaws?
(b) What is the probability that none of the selected transmissions has any manufacturing
flaws?
 Problem

A recent study of how IT professionals spend their leisure time surveyed workers employed more
than 5 years. They determined the probability an employee has 2 weeks of vacation time to be
0.45, 1 week of vacation time to be 0.10, and 3 or more weeks to be 0.20. Suppose 20 workers are
selected at random.

(a) What is the probability that 8 have 2 weeks of vacation time?

(b) What is the probability that only one worker has 1 week of vacation time?
(c) What is the probability that at most 2 of the workers have 3 or more weeks of vacation time?
(d) What is the probability that at least 2 workers have 1 week of vacation time?
Poisson Distribution
 Conditions

1. Events are independent of each other

2. The average rate (events per time period) remains constant
3. Two events cannot occur at the same time
4. Possible outcomes are whole integers

There is no success or failure in this case – we are concerned

only with the count of the events.
Examples: Siméon Denis Poisson,
French Mathematician,
- Number of cars passing through a toll in an hour 1781 - 1840

- Number of patients in a clinic on a given day

 PMF

PMF for Poisson Distribution with an average occurrence per interval of time, λ, is
given as:
 Problem

Suppose that you are

investigating the safety of
a dangerous intersection.
Past police records
indicate a mean of five
accidents per month at
this intersection. If the
number of accidents is
distributed according to
Poisson distribution,
calculate the probability
of having exactly 0,1,2,3,
or 4 accidents in any
month.
 Poisson and Binomial

Poisson is usually considered a good approximation of Binomial when n is large and p is

small (n >= 20 and p <= 0.05)

Problem: We have a hospital with 20 kidney dialysis machines and that the chance of any one
of them malfunctioning during any day is 0.02. What is the probability that exactly three
machines will be out of service on the same day?
 Assessment

In the past 20 years, on average, only 3 percent of all checks written to the Life Insurance Limited (LIL) have
bounced. This month, the LIL received 200 checks. What is the probability that
(a) Exactly 10 of these checks bounced?
(b) Exactly 5 of these checks bounced?

The City Bank of Durham has recently begun a new credit program. Customers meeting certain credit requirements
can obtain a credit card accepted by participating area merchants that carries a discount. Past numbers show that 25
percent of all applicants for this card are rejected. Given that credit acceptance or rejection is a Bernoulli process,
out of 15 applicants, what is the probability that
(a) Exactly four will be rejected?
(b) Exactly eight?
(c) Fewer than three?
(d) More than five?
Normal Distribution
 Introduction

• Most popular probability distribution of a continuous

random variable
• Closest representation of probabilities of natural events
• Some properties make it a good sampling distribution

Also called Gaussian distribution or a Bell curve

Carl Friedrich Gauss,

German Mathematician,
1777 - 1855
Probability Density Function (PDF)

A normal distribution is defined by

mean (μ)and standard deviation (σ)
 Introduction

A normal distribution is defined by mean (μ)and standard deviation (σ)

Conditions

A probability distribution is normal if:

• ~68 percent of all the values lie within
±1 standard deviation from the mean.
• ~95.5 percent of all the values lie within
±2 standard deviations from the mean.
• ~99.7 percent of all the values lie within
±3 standard deviations from the mean.
Conditions for Normal Distribution

In summary, a random variable is said to follow a normal distribution if the PDF is:
• Symmetrical
• Mean, mode and median are all equal
• Constant proportion of data lying under the curve between the mean and specific
number of standard deviations from the mean
• No skewness or kurtosis
 Standard normal distribution

• It is not possible or necessary to

have a different table for every
possible normal curve.
• Standard normal probability
distribution (μ=0 and σ=1)
 Problem
1. What is the probability that a participant selected at random will require more than 500 hours
to complete the program if the mean is 500 and std deviation is 100?

2. What is the probability that a candidate selected at random will take between 500 and 650
hours to complete the training program?

3. What is the probability that a candidate selected at random will take more than 700 hours to
complete the program?

4. Suppose the training-program director wants to know the probability that a participant chosen
at random would require between 550 and 650 hours to complete the required work.

5. What is the probability that a candidate selected at random will require fewer than 580 hours
to complete the program?

6. What is the probability that a candidate chosen at random will take between 420 and 570
hours to complete the program?
Normal distribution tables
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