Chapter 2 Probability

Chapter 2
Probability Concepts and

Applications
To accompany
Quantitative Analysis for Management, Eleventh
Edition, Global Edition by Render, Stair, and Hanna
Power Point slides created by Brian Peterson
Learning Objectives
After completing this chapter, students will be able to:
1.
2.
3.
4.
5.
6.
Understand the basic foundations of

probability analysis.
Describe statistically dependent and
independent events.
Use Bayes theorem to establish posterior
probabilities.
Describe and provide examples of both
discrete and continuous random variables.
Explain the difference between discrete and
continuous probability distributions.
Calculate expected values and variances
and use the normal table.
Copyright 2012 Pearson Education
2-2
Chapter Outline
2.1
2.2
2.3
2.4
2.5
2.6
2.7
Introduction
Fundamental Concepts
Mutually Exclusive and Collectively
Exhaustive Events
Statistically Independent Events
Statistically Dependent Events
Revising Probabilities with Bayes
Theorem
Further Probability Revisions
2-3
Chapter Outline
2.8
2.9
2.10
2.11
2.12
2.13
2.14
Random Variables
Probability Distributions
The Binomial Distribution
The Normal Distribution
The F Distribution
The Exponential Distribution
The Poisson Distribution
2-4
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.
2-5
Fundamental Concepts
1. 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
2. The sum of the simple probabilities

for all possible outcomes of an
activity must equal 1.
2-6
Chapters in This Book

That Use Probability
CHAPTER
3
4
5
6
12
13
14
15
16
Module 3
Module 4
TITLE
Decision Analysis
Regression Models
Forecasting
Inventory Control Models
Project Management
Waiting Lines and Queuing Theory Models
Simulation Modeling
Markov Analysis
Statistical Quality Control
Decision Theory and the Normal Distribution
Game Theory
Table 2.1
2-7
Diversey Paint Example

Demand for white latex paint at Diversey Paint
and Supply has always been either 0, 1, 2, 3, or 4

gallons per day.
Over the past 200 days, the owner has observed
the following frequencies of demand:
QUANTITY
DEMANDED
0
1
2
3
4
NUMBER OF DAYS
40
80
50
20
10
Total 200
PROBABILITY
0.20 (= 40/200)
0.40 (= 80/200)
0.25 (= 50/200)
0.10 (= 20/200)
0.05 (= 10/200)
Total 1.00 (= 200/200)
2-8
Diversey Paint Example

Demand for white latex paint at Diversey Paint
and Supply
has always
been either 0, 1, 2, 3, or 4
Notice
the individual
probabilities
per day
aregallons
all between
0 and 1
Over the
200 days,
0 past
P (event)
1 the owner has observed
the following frequencies of demand
And the total of all event
QUANTITY equals 1
probabilities
NUMBER OF DAYS
PROBABILITY
DEMANDED
0 P (event) = 1.00
40
1
80
2
50
3
20
4
10
Total 200
0.20 (= 40/200)
0.40 (= 80/200)
0.25 (= 50/200)
0.10 (= 20/200)
0.05 (= 10/200)
Total 1.00 (= 200/200)
2-9
Types of Probability
Determining objective probability :
Relative frequency
Typically based on historical data
Number of occurrences of the event
P (event) =
Total number of trials or outcomes
Classical or logical method

Logically determine probabilities without
trials
1
P (head) =
2
Number of ways of getting a head

Number of possible outcomes (head or tail)
2-10
Types of Probability
Subjective probability is based on
the experience and judgment of the
person making the estimate.
Opinion polls
Judgment of experts
Delphi method
2-11
Mutually Exclusive Events

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.
2-12
Collectively Exhaustive Events

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
1
2
3
4
5
6
PROBABILITY
1/
1/
1/
1/
1/
1/
Total 1
2-13
Drawing a Card
Draw one card from a deck of 52 playing cards
P (drawing a 7) = 4/52 = 1/13
P (drawing a heart) = 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
2-14
Table of Differences
DRAWS
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 nonclub
5. Draw a 5 and a diamond
6. Draw a red card and a
diamond
MUTUALLY
EXCLUSIVE
Yes
Yes
COLLECTIVELY
EXHAUSTIVE
No
Yes
Yes
Yes
No
Yes
No
No
No
No
2-15
Adding Mutually Exclusive Events

We often want to know whether one or a
second event will occur.
When two events are mutually
exclusive, the law of addition is:
P (event A or event B) = P (event A) + P (event B)
P (spade or club) = P (spade) + P (club)
= 13/52 + 13/52
= 26/52 = 1/2 = 0.50
2-16
Adding Not Mutually Exclusive Events

The equation must be modified to account
for double counting.
The probability is reduced by
subtracting the chance of both events
occurring together.
P (event A or event B) = P (event A) + P (event B)
P (event A and event B both occurring)
P (A or B) = P (A) + P (B) P (A and B)
P(five or diamond) = P(five) + P(diamond) P(five and diamond)
= 4/52 + 13/52 1/52
= 16/52 = 4/13
2-17
Venn Diagrams
P (A and B)
P (A)
P (B)
Events that are mutually

exclusive.
P (A or B) = P (A) + P (B)
Figure 2.1
P (A)
P (B)
Events that are not

mutually exclusive.
P (A or B) = P (A) + P (B)
P (A and B)
Figure 2.2
2-18
Statistically Independent Events

Events may be either independent or
dependent.
For independent events, the occurrence
of one event has no effect on the

probability of occurrence of the second
event.
2-19
Which Sets of Events Are Independent?
1. (a) Your education

(b) Your income level
Dependent 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) Chicago Cubs win the National League pennant
(b) Chicago Cubs win the World Series
4. (a) Snow in Santiago, Chile
(b) Rain in Tel Aviv, Israel
Independent
events
Dependent
events
Independent events
2-20
Three Types of Probabilities

Marginal (or simple) probability is just the
probability of a single event occurring.

P (A)
Joint probability is the probability of two or more
events occurring and is equal to the product of
their marginal probabilities for independent
events.
P (AB) = P (A) x P (B)
Conditional probability is the probability of event
B given that event A has occurred.

P (B | A) = P (B)
Or the probability of event A given that event B
has occurred
P (A | B) = P (A)
2-21
Joint Probability Example

The probability of tossing a 6 on the first
roll of the die and a 2 on the second roll:
P (6 on first and 2 on second)
= P (tossing a 6) x P (tossing a 2)
= 1/6 x 1/6 = 1/36 = 0.028
2-22
Independent Events
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 (a marginal probability)
2.
The probability of two green balls drawn is:

P (GG) = P (G) x P (G) = 0.7 x 0.7 = 0.49
(a joint probability for two independent events)
2-23
Independent Events
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
(a conditional probability but equal to the marginal
because the two draws are independent events)
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
(a conditional probability as in event 3)
2-24
Statistically Dependent Events

The marginal probability of an event occurring is
computed in the same way:
P (A)
Calculating conditional probabilities is slightly more
complicated. The probability of event A given that
event B has occurred is:
P (AB)
P (A | B) =
P (B)
The formula for the joint probability of two events is:
P (AB) = P (B | A) P (A)
2-25
When Events Are Dependent

Assume that we have an urn containing 10 balls of
the following descriptions:
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 (WN) = 2/10 = 0.2
P (W) = 6/10 = 0.6
P (Y) = 4/10 = 0.4
P (YL) = 3/10 = 0.3

P (YN) = 1/10 = 0.1
P (L) = 7/10 = 0.7
P (N) = 3/10 = 0.3
2-26
The urn
contains 10
balls:
Figure 2.3
4 balls
White (W)
and
Lettered (L)
Probability (WL) =
4
10
2 balls
White (W)
and
Numbered (N)
Probability (WN) =
2
10
3 balls
Yellow (Y)
and
Lettered (L)
Probability (YL) =
3
10
1 ball Yellow (Y)

and Numbered (N)
Probability (YN) =
1
10
2-27

The conditional probability that the ball drawn
is lettered, given that it is yellow, is:
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) x P (Y) = (0.75)(0.4) = 0.3
2-28
Joint Probabilities
for Dependent Events
If the stock market reaches 12,500 point by January,
there is a 70% probability that Tubeless Electronics
will go up.
You believe that there is only a 40% chance the
stock market will reach 12,500.
Let M represent the event of the stock market
reaching 12,500 and let T be the event that
Tubeless goes up in value.
P (MT) = P (T | M) x P (M) = (0.70)(0.40) = 0.28
2-29
Revising Probabilities with

Bayes Theorem
Bayes theorem is used to incorporate additional
information and help create posterior probabilities.
Prior
Probabilities
Bayes
Process
Posterior
Probabilities
New
Information
Figure 2.4
2-30
Posterior Probabilities
A cup contains two dice identical in appearance but
one is fair (unbiased), 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?
2-31
We know 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
We compute the probabilities of P (3 and fair)
and P (3 and loaded):
P (3 and fair) = P (3 | fair) x P (fair)

= (0.166)(0.50) = 0.083
P (3 and loaded) = P (3 | loaded) x P (loaded)
= (0.60)(0.50) = 0.300
2-32
We know the probability
of the
die being
fair or
The sum
of these
probabilities
loaded is
gives us the unconditional
probability
of tossing
P (fair) = 0.50
P (loaded)
= 0.50a 3:
And that
+ 0.300
= 0.383
P (3 | fair) = 0.166P (3)P=(30.083
| loaded)
= 0.60
We compute the probabilities of P (3 and fair)
and P (3 and loaded)
P (3 and fair) = P (3 | fair) x P (fair)

= (0.166)(0.50) = 0.083
P (3 and loaded) = P (3 | loaded) x P (loaded)
= (0.60)(0.50) = 0.300
2-33
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
These are the revised or posterior probabilities for the
next roll of the die.

We use these to revise our prior probability estimates.
2-34
Bayes Calculations
Given event B has occurred:
STATE OF
NATURE
P (B | STATE
OF NATURE)
PRIOR
PROBABILITY
JOINT
PROBABILITY
POSTERIOR
PROBABILITY
P(B | A)
x P(A)
= P(B and A)
P(B and A)/P(B) = P(A|B)
P(B | A)
x P(A)
= P(B and A) P(B and A)/P(B) = P(A|B)

P(B)
Table 2.2
Given a 3 was rolled:

STATE OF
NATURE
P (B | STATE
OF NATURE)
PRIOR
PROBABILITY
JOINT
PROBABILITY
POSTERIOR
PROBABILITY
Fair die
0.166
x 0.5
= 0.083
0.083 / 0.383 = 0.22
Loaded die
0.600
x 0.5
= 0.300
0.300 / 0.383 = 0.78
P(3) = 0.383
Table 2.3
2-35
General Form of Bayes Theorem

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.
2-36
General Form of Bayes Theorem

This is basically what we did in the previous example:
Replace A with fair die
Replace A with loaded die
Replace B with 3 rolled
We get
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
2-37

We can obtain additional information by performing
the experiment a second time
If you can afford it, perform experiments
several times.
We roll the die again and again 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
2-38

We can obtain
additional
performing
P (3,3 and
fair ) Pinformation
(3,3 | fair ) Pby
( fair
)
the experiment a second
(0time
.027 )(0.5) 0.013
P (3,3 and
loaded) P (3,3 | loaded) P (loaded)
several
times
(0.36)(0.5) 0.18
We roll the die again and again 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
2-39

We can obtain
additional
performing
P (3,3 and
fair ) Pinformation
(3,3 | fair ) Pby
( fair
)
the experiment a second
(0time
.027 )(0.5) 0.013
P (3,3 and
loaded) P (3,3 | loaded) P (loaded)
several
times
(0.36)(0.5) 0.18
We roll the die again and again get a 3
P(fair ) 0.50 and

P(loaded
) 0) .500.013
P (3,3
and fair
P((3fair
| 3,)3
) (0.166)(0.166) 0.
0.067
P
,3 | fair
027
P (3,3)
0.193
P(3,3 | loaded) (0.6)(0.6) 0.36

P (3,3 and loaded) 0.18
P (loaded | 3,3)
0.933
P (3,3)
0.193
2-40

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
2-41
Random Variables
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.
2-42
Random Variables Numbers

RANDOM
VARIABLES
RANGE OF
RANDOM
VARIABLES
EXPERIMENT
OUTCOME
Stock 50
Christmas trees
Inspect 600
items
Number of Christmas
trees sold
Number of acceptable
items
0, 1, 2,, 50
0, 1, 2,, 600
Send out 5,000

sales letters
Number of people
responding to the
letters
Percent of building
completed after 4
months
Length of time the
bulb lasts up to 80,000
minutes
0, 1, 2,, 5,000
0 R 100
0 S 80,000
Build an
apartment
building
Test the lifetime
of a lightbulb
(minutes)
Table 2.4
2-43
Random Variables Not Numbers

EXPERIMENT
OUTCOME
Students
respond to a
questionnaire
Strongly agree (SA)

Agree (A)
Neutral (N)
Disagree (D)
Strongly disagree (SD)
One machine
is inspected
Defective
Not defective
Consumers
Good
respond to
Average
how they like a Poor
product
RANDOM VARIABLES
X=
Y=
RANGE OF
RANDOM
VARIABLES
5 if SA 1, 2, 3, 4, 5
4 if A..
3 if N..
2 if D..
1 if SD
0 if defective
0, 1
1 if not defective
Z=
3 if good. 1, 2, 3
2 if average
1 if poor..
Table 2.5
2-44
Probability Distribution of a
Discrete Random Variable
For discrete random variables a
probability is assigned to each event.
The students in Pat Shannons statistics
class have just completed a quiz of five
algebra problems. The distribution of
correct scores is given in the following
table:
2-45
Discrete Random Variable
RANDOM VARIABLE
(X Score)
5
NUMBER
RESPONDING
10
PROBABILITY
P (X)
0.1 = 10/100
20
0.2 = 20/100
30
0.3 = 30/100
30
0.3 = 30/100
10
0.1 = 10/100
100
1.0 = 100/100
Total
Table 2.6
The Probability Distribution follows all three rules:

1. Events are mutually exclusive and collectively exhaustive.
2. Individual probability values are between 0 and 1.
3. Total of all probability values equals 1.
2-46
Probability Distribution for

Dr. Shannons Class
0.4
P (X)
0.3
0.2
0.1
Figure 2.5
0
|
|
1
|
2
|
3
X
|
4
|
5
2-47
Probability Distribution for

Dr. Shannons Class
0.4
The central tendency of

the distribution is the
mean, or expected value.
The amount of variability
is the variance.
P (X)
0.3
0.2
0.1
Figure 2.5
0
|
|
1
|
2
|
3
X
|
4
|
5
2-48
Expected Value of a Discrete

Probability Distribution
The expected value is a measure of the central
tendency of the distribution and is a weighted
average of the values of the random variable.
n
E X X i PX i
i 1
X 1 P X 1 X 2 P ( X 2 ) ... X n P ( X n )
where
X i = random variables possible values
P ( X i ) = probability of each of the random variables
possible values
= summation sign indicating we are adding all n
possible values
i 1
E ( X ) = expected value or mean of the random sample
n
2-49
Expected Value of a Discrete

Probability Distribution
For Dr. Shannons class:
E X X i PX i
i 1
5(0.1) 4(0.2) 3(0.3) 2(0.3) 1(0.1)

.5 .8 .9 .6 .1
2.9
2-50
Variance of a
Discrete Probability Distribution
For a discrete probability distribution the
variance can be computed by
n
2 Variance [ X i E ( X )]2 P ( X i )
i 1
where
X i = random variables possible values

E ( X ) = expected value of the random variable
[ X i E ( X )]= difference between each value of the random
variable and the expected mean
P ( X i ) = probability of each possible value of the
random variable
2-51
Variance of a
For Dr. Shannons class:
5
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)
0.441 0.242 0.003 0.243 0.361

1.29
2-52
Variance of a
A related measure of dispersion is the
standard deviation.
Variance
where
= square root
= standard deviation
2-53
Variance of a
A related measure of dispersion is the
standard deviation.
Variance
where
= square
Forroot
Dr. Shannons class:
= standard deviation
Variance
1.29 1.14
2-54
Using Excel
Formulas in an Excel Spreadsheet for the Dr.
Shannon Example
Program 2.1A
2-55
Using Excel
Excel Output for the Dr. Shannon Example
Program 2.1B
2-56
Continuous Random Variable
Since random variables can take on an infinite
number of values, 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.
This is represented by f (X).
2-57
Probability
Continuous Random Variable
5.06
5.10
5.14
5.18
5.22
5.26
5.30
Weight (grams)
Figure 2.6
2-58

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.
2-59

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
2-60

The binomial formula is:
n!
Probability of r successes in n trials
p r q n r
r! ( n r )!
The symbol ! means factorial, and
n! = n(n 1)(n 2)(1)
For example
4! = (4)(3)(2)(1) = 24
By definition
1! = 1 and 0! = 1
2-61

Binomial Distribution for n = 5 and p = 0.50.
NUMBER OF
HEADS (r)
Table 2.7
Probability =
0.03125 =
0.15625 =
0.31250 =
0.31250 =
0.15625 =
0.03125 =
5!
(0.5)r(0.5)5 r
r!(5 r)!
5!
0!(5 0)!
5!
1!(5 1)!
5!
2!(5 2)!
5!
3!(5 3)!
5!
4!(5 4)!
5!
5!(5 5)!
(0.5)0(0.5)5 0
(0.5)1(0.5)5 1
(0.5)2(0.5)5 2
(0.5)3(0.5)5 3
(0.5)4(0.5)5 4
(0.5)5(0.5)5 5
2-62
Solving Problems with the

Binomial Formula
We want to find the probability of 4 heads in 5 tosses.
n = 5, r = 4, p = 0.5, and q = 1 0.5 = 0.5
Thus
P (4 successes in 5 trials)
5!
0.540.554
4!(5 4)!
5( 4 )(3)(2)(1)
(0.0625 )(0.5 ) 0.15625

4(3)(2)(1)(1! )
2-63
Solving Problems with the

Binomial Formula
Binomial Probability Distribution for n = 5 and p = 0.50.
Probability P (r)
0.4
0.3
0.2
0.1
0 |
Figure 2.7
|
1
2
3
4
5
Values of r (number of successes)
|
6
2-64
Solving Problems with

Binomial Tables
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
So
We could use the formula to solve this problem,
but using the table is easier.
2-65

Binomial Tables
n
5
r
0
1
2
3
4
5
0.05
0.7738
0.2036
0.0214
0.0011
0.0000
0.0000
P
0.10
0.5905
0.3281
0.0729
0.0081
0.0005
0.0000
0.15
0.4437
0.3915
0.1382
0.0244
0.0022
0.0001
Table 2.8 (partial)
We find the three probabilities in the table

for n = 5, p = 0.15, and r = 3, 4, and 5 and
add them together.
2-66

Binomial Tables
P
P (3 or
defects
( 4 ) P (5 )
n more
r
0.05 ) P (3) P
0.10
0.15
5
0
0.7738 0.0244
0.5905
0.4437 0.0267
0.0022 0.0001
1
0.2036
0.3281
0.3915
2
0.0214
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
Table 2.8 (partial)
We find the three probabilities in the table

for n = 5, p = 0.15, and r = 3, 4, and 5 and
add them together
2-67

Binomial Tables
It is easy to find the expected value (or mean) and
variance of a binomial distribution.
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
2-68
Using Excel
Function in an Excel 2010 Spreadsheet for Binomial
Probabilities
Program 2.2A
2-69
Using Excel
Excel Output for the Binomial Example
Program 2.2B
2-70

The normal distribution is the one of the
most popular and useful continuous
probability distributions.
The formula for the probability density
function is rather complex:
1
f (X )
e
2
( x )2
2 2
The normal distribution is specified
completely when we know the mean, ,

and the standard deviation, .
2-71

The normal distribution is symmetrical,
with the midpoint representing the mean.

Shifting the mean does not change the
shape of the distribution.
Values on the X axis are measured in the
number of standard deviations away from
the mean.
As the standard deviation becomes larger,
the curve flattens.
As the standard deviation becomes
smaller, the curve becomes steeper.
2-72
40
= 50
60
Smaller , same
|
= 40
50
60
Larger , same
Figure 2.8
40
50
= 60
2-73
Same , smaller
Same , larger
Figure 2.9
2-74
Using the Standard Normal Table

Step 1
Convert the normal distribution into a standard
normal distribution.
A standard normal distribution has a mean
of 0 and a standard deviation of 1
The new standard random variable is Z
Z
where
X = value of the random variable we want to measure

= mean of the distribution
= standard deviation of the distribution
Z = number of standard deviations from X to the mean,
2-75

For example, = 100, = 15, and we want to find
the probability that X is less than 130.
Z
130 100
15
30
2 std dev
15
= 100
= 15
P(X < 130)
|
55
|
70
|
85
|
100
|
115
|
130
|
145
|
3
|
2
|
1
|
0
|
1
|
2
|
3
Figure 2.10
X = IQ
2-76

Step 2
Look up the probability from a table of normal
curve areas.
Use Appendix A or Table 2.9 (portion below).
The column on the left has Z values.
The row at the top has second decimal
places for the Z values.
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
P(X < 130)

= P(Z < 2.00)
= 0.97725
Table 2.9 (partial)

2-77
Haynes Construction Company

Haynes builds three- and four-unit apartment
buildings (called triplexes and quadraplexes,
respectively).
Total construction time follows a normal
distribution.
For triplexes, = 100 days and = 20 days.
Contract calls for completion in 125 days,
and late completion will incur a severe
penalty fee.
What is the probability of completing in 125
days?
2-78

Z
125 100
20
25
1.25
20
= 100 days
= 20 days
Figure 2.11
From Appendix A, for Z = 1.25

the area is 0.89435.
The probability is about
0.89 that Haynes will not
violate the contract.
X = 125 days
2-79

Suppose that completion of a triplex in 75
days or less will earn a bonus of $5,000.
What is the probability that Haynes will get

the bonus?
2-80

Z
75 100
20
25
1.25
20
But Appendix A has only

positive Z values, and the
probability we are looking for
is in the negative tail.
P(X < 75 days)

Area of
Interest
X = 75 days
= 100 days
Figure 2.12
2-81

Z
75 100
20
25
1.25
20
Because the curve is

symmetrical, we can look at
the probability in the positive
tail for the same distance
away from the mean.
P(X > 125 days)

Area of
Interest
= 100 days
X = 125 days
2-82

We know the probability
completing in
125 days is 0.89435.
So the probability
completing in more
than 125 days is
1 0.89435 = 0.10565.
= 100 days
X = 125 days
2-83

The probability
completing in more than
125 days is
1 0.89435 = 0.10565.
Going back to the
left tail of the
distribution:
X = 75 days
= 100 days
The probability of completing in less than 75

days is 0.10565.
2-84

What is the probability of completing a triplex
within 110 and 125 days?
We know the probability of completing in 125
days, P(X < 125) = 0.89435.
We have to complete the probability of
completing in 110 days and find the area
between those two events.
2-85

Z
110 100
20
10
0.5
20
From Appendix A, for Z = 0.5 the

area is 0.69146.
P(110 < X < 125) = 0.89435
0.69146 = 0.20289.
= 20 days
Figure 2.13
= 100
days
110
days
125
days
2-86
Using Excel
Function in an Excel 2010 Spreadsheet for the
Normal Distribution Example
Program 2.3A
2-87
Using Excel
Excel Output for the Normal Distribution Example
Program 2.3B
2-88
The Empirical Rule

For a normally distributed random variable with
mean and standard deviation , then
1. About 68% of values will be within 1 of the
mean.
2. About 95.4% of values will be within 2 of the
mean.
3. About 99.7% of values will be within 3 of the
mean.
2-89
The Empirical Rule

68%
16%
1
a
16%
+1
b
95.4%
2.3%
2
a
2.3%
+2
b
99.7%
0.15%
Figure 2.14
0.15%
+3
b
2-90
The F Distribution
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
of the ratio.
df1 = degrees of freedom for the numerator
df2 = degrees of freedom for the denominator
The probabilities of large values of F are very
small.
2-91
The F Distribution
F
Figure 2.15
2-92
The F Distribution
Consider the example:
df1 = 5
df2 = 6
= 0.05
From Appendix D, we get

F, df
1, 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.
2-93
The F Distribution
F value for 0.05 probability
with 5 and 6 degrees of
freedom
0.05
F = 4.39
Figure 2.16
2-94
Using Excel
Program 2.4A
2-95
Using Excel
Excel Output for the F Distribution
Program 2.4B
2-96

The exponential distribution (also called
the negative exponential distribution) is a

continuous distribution often used in
queuing models to describe the time
required to service a customer. Its
probability function is given by:
f ( X ) e x
where
X = random variable (service times)
= average number of units the service facility can
handle in a specific period of time
e = 2.718 (the base of natural logarithms)
2-97

Expected value
Variance
Average service time

f(X)
X
Figure 2.17
2-98
Arnolds Muffler Shop

Arnolds Muffler Shop installs new
mufflers on automobiles and small trucks.

The mechanic 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 hour or less?
2-99

Here:
X = Exponentially distributed service time
= average number of units the served per time period =
3 per hour
t = hour = 0.5hour
P(X0.5) = 1 e-3(0.5) = 1 e -1.5 = 1 = 0.2231 = 0.7769
2-100

Note also that if:
P(X0.5) = 1 e-3(0.5) = 1 e -1.5 = 1 = 0.2231 = 0.7769
Then it must be the case that:
P(X>0.5) = 1 - 0.7769 = 0.2231
2-101

Probability That the Mechanic Will Install a Muffler in
0.5 Hour
Figure 2.18
2-102
Using Excel
Function in an Excel Spreadsheet for the
Exponential Distribution
Program 2.5A
2-103
Using Excel
Excel Output for the Exponential Distribution
Program 2.5B
2-104

The Poisson distribution is a discrete
distribution that is often used in queuing

models to describe arrival rates over time.
Its probability function is given by:
P( X )
where
x e
X!
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 = specific value (0, 1, 2, 3, ) of the random variable
2-105

The mean and variance of the distribution are both
.
Expected value =
Variance =
2-106
Poisson Distribution
We can use Appendix C to find Poisson probabilities.
Suppose that = 2. Some probability calculations are:
P( X )
x e
X!
20 e 2 1(0.1353)
P(0)
0.1353
0!
1
21 e 2 2(0.1353)
P(1)
0.2706
1!
1
2 2 e 2 4(0.1353)
P ( 2)
0.2706
2!
2
2-107
Sample Poisson Distributions with = 2 and = 4
Figure 2.19
2-108
Using Excel
Functions in an Excel 2010 Spreadsheet for the
Program 2.6A
2-109
Using Excel
Excel Output for the Poisson Distribution
Program 2.6B
2-110
Exponential and Poisson

Together
If the number of occurrences per time
period follows a Poisson distribution, then

the time between occurrences follows an
exponential distribution:
Suppose the number of phone calls at a
service center followed a Poisson distribution

with a mean of 10 calls per hour.
Then the time between each phone call would
be exponentially distributed with a mean time
between calls of 6 minutes (1/10 hour).
2-111
Copyright
All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, or transmitted, in
any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior
written permission of the publisher. Printed in the United
States of America.
2-112

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Chapter 2 Probability

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Chapter 2

Probability Concepts and

Understand the basic foundations of

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what the future will bring.

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2. The sum of the simple probabilities

Chapters in This Book

Diversey Paint Example

and Supply has always been either 0, 1, 2, 3, or 4

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Diversey Paint Example

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Classical or logical method

Number of ways of getting a head

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Mutually Exclusive Events

in either a head or a tail.

only one of six possible

Collectively Exhaustive Events

since a 7 of hearts can be drawn

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Adding Mutually Exclusive Events

Adding Not Mutually Exclusive Events

Events that are mutually

Events that are not

Statistically Independent Events

of one event has no effect on the

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Which Sets of Events Are Independent?

1. (a) Your education

2. (a) Draw a jack of hearts from a full 52-card deck

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Three Types of Probabilities

probability of a single event occurring.

B given that event A has occurred.

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Joint Probability Example

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The probability of a black ball drawn on first

The probability of two green balls drawn is:

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The probability of a black ball drawn on the

The probability of a green ball drawn on the

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Statistically Dependent Events

When Events Are Dependent

P (YL) = 3/10 = 0.3

When Events Are Dependent

1 ball Yellow (Y)

When Events Are Dependent

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

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P (MT) = P (T | M) x P (M) = (0.70)(0.40) = 0.28

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Revising Probabilities with

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P (3 and fair) = P (3 | fair) x P (fair)