BUSINESS STATISTICS

PROBABILITY DISTRIBUTIONS
UNIT 3B
 PROBABILITY
DISTRIBUTIONS
Theoretical frequency distributions.
Distributions that describe how the
outcomes are expected to vary.
 EXAMPLE
First toss Second toss Number of probability
tails
T T 2 0.25
T H 1 0.25
H T 1 0.25
H H 0 0.25

0.50
Probability

0.25

0 1 2 No of tails
 RANDOM VARIABLE
A variable is random if it takes on different
values as a result of different outcomes of
an experiment.
If it can only take on discrete values, it is a
discrete random variable. Otherwise it is a
continuous random variable.
Expected value of a random variable is the
weighted average of all possible outcomes.
E(X) = xP(x)
 BINOMIAL DISTRIBUTION
Discrete probability distribution.
Describes data resulting from a Bernoulli
process :
Any experiment that has exactly two mutually
exclusive and collectively exhaustive outcomes.
Probability of the outcome remains fixed
over time.
The trials are statistically independent.
Probability of x successes in n trials.
 BINOMIAL DISTRIBUTION
Probability of r successes in n trials :

Mean = E(X) = np
2 = E(X- )2 = npq

Excel exercise
 EXAMPLE
An insurance broker has 5 contacts.
She believes for each contact, the
probability of making a sale is 0.40.
Find the probability that she makes at
most one sale.
Find the probability that she makes
between two and four sales (inclusive).
 EXAMPLE
During college admissions, it is
known that 40% of the students
admitted will actually enroll.
What is the probability that at most 6
students will enroll out of 10 students
offered admission?
What is the probability that more than
12 will enroll if 20 students are offered?
 POISSON DISTRIBUTION
Discrete probability distribution.
No of failures in a computer system during a
given day.
No of replacement orders for a part received
by a firm in a given month.
No of delivery trucks to arrive at a central
warehouse in an hour.
No of customers to arrive for flights during
each 15 min time interval from 10 am to 12
noon on week days.
No of customers to arrive at a checkout
counter in the local grocery store. (Video)
 POISSON DISTRIBUTION

P(x) is the probability of x successes

over a given time or space.
is the expected number of successes
per unit of time or space.
The mean and variance are :
= E(X) =
2 = E(X- )2 =
 ASSUMPTIONS
Probability of the occurrence of an
event is constant for all subintervals.
Probability that exactly one event will
occur per unit time is very small.
The occurrence or nonoccurrence of
an event in an interval is
independent of the occurrence or
nonoccurrence in any other interval.
 EXAMPLE
Mean number of accidents per month
at a dangerous intersection is 5.
Safety division wants us to find out
what is the probability that there are
exactly 4 accidents in a month.
Also find the probability that there are
more than 4 accidents in a month.
 EXAMPLE
A system encountered 3 component
failures in the last 100 days.
(a)What is the probability that there
will be no failures tomorrow?
(b)What is the probability that there
will be one or more component
failures tomorrow?
(c)What is the probability of atleast
two failures in the next three days?
 BINOMIAL VS POISSON
Prefer Poisson whenever probability of an
event (success) happening is less than
0.05 (or more than 0.95)
Poisson is a good approximation of the
binomial when n >= 20 and p <= 0.05.
In such a case = np.
We want to compute the probability of a 2
defectives in a set of 60 parts. On an
average the plant produced 3 defective parts
in 100.