International University IU

STATISTICS FOR BUSINESS [IUBA]

CHAPTER 03

RANDOM VARIABLES

PART 1
1. Random Variable X – Probability P(X) – Cumulative Distribution Function F(X)

Random Variable Probability Cumulative Distribution Function

X P(X) F(X)
0 0.1 0.1
1 0.2 0.3
2 0.3 0.6
3 0.2 0.8
4 0.1 0.9
5 0.1 1.0
1.0
P(x) ≥ 0 for all values x

Statistics for Business | Chapter 03: Random Variables

F(x) = P(X ≤ x) = P(x)
P(x) = 1

2. Expected Value, Variance, and Standard Deviation of Random Variable X

Expected Value (Mean) µ = E(X) = ∑ xP(x)

Variance σ = V(x) = E[(x − µ) ] = ∑ (x − µ) P(x)

Standard Deviation σ = SD(X) = V(X)

Powered by statisticsforbusinessiuba.blogspot.com 1
 International University IU

CALCULATOR INSTRUCTIONS FOR STATISTICS

Note: This page is only relevant for CASIO scientific calculator FX-570ES

Computing Mean and Standard Deviation of Random Variable X.

(Chapter 03 | Random Variables)

Step 01: Press MODE  3: STAT  1: 1 - VAR

SHIFT + MODE | [SET UP]

 REPLAY 

 4: STAT

 1: ON (Frequency ?)

Step 02: Input the data into two columns

Step 03: Compute the expected value of the random variable X

No.01: Put the cursor in the (n+1)th line and FREQ column

No.02: Press SHIFT + 1 | [STAT]

Statistics for Business | Chapter 03: Random Variables

 5: VAR

 2:

[=]

Step 04: Compute the standard deviation of the random variable X

No.01: Return the table of data and put the cursor in the (n+1)th line
and FREQ column.

No.02: Press [ DEL ] to delete the value of the expected value in step 03.

(This step is very important for you to remember. If you do not delete
the expected value you had already computed, you will get the wrong
result in this computation)

Powered by statisticsforbusinessiuba.blogspot.com 2
 International University IU
No.03: Press SHIFT + 1 | [STAT]

 5: VAR

 3:

[=]

Step 04: Compute the variance of the random variable X

We can get the value of the variance of the random variable X by using
the following formula:

( )=[ ( )]

Example | Part 1

PROBLEM: The number of defects in a machine-made product is a random variable X with the
following probability distribution:
x P(x)
0 0.1
1 0.2
2 0.3

Statistics for Business | Chapter 03: Random Variables

3 0.3
4 0.1
a. Show that P(x) is a probability distribution.
b. Find the probability (1 < ≤ 3).
c. Find the probability (1 < ≤ 4)
d. Find the cumulative distribution function F(x).
e. Find the expected value, variance, and standard deviation of the random
variable X.

SOLUTION: a.
P(x) = P(0) + P(1) + P(2) + P(3) + P(4)

= 0.1 + 0.2 + 0.3 + 0.3 + 0.1 = 1.0

Hence, P(X) is a probability distribution

b.
P(1 < ≤ 3) = P(2) + P(3) = 0.3 + 0.3 = 0.6

Powered by statisticsforbusinessiuba.blogspot.com 3
 International University IU
c.
P(1 < ≤ 4) = P(2) + P(3) + P(4) = 0.3 + 0.3 + 0.1 = 0.7

d.
x P(x) F(X)
0 0.1 0.1
1 0.2 0.3
2 0.3 0.6
3 0.3 0.9
4 0.1 1.0

e.
General Method

( ) ( ) ( − ) ( )
0 0.1 0.0 0.441
1 0.2 0.2 0.242
2 0.3 0.6 0.003
3 0.3 0.9 0.243
4 0.1 0.4 0.361
2.1 1.29

Expected Value (Mean):

E(X) = xP(x) = 2.1

Statistics for Business | Chapter 03: Random Variables

Variance:
V(X) = (x − µ) P(x) = 1.29

Standard Deviation:
SD(X) = V(X) = √1.29 ≈ 1.1358

Calculator Method
To compute the expected value, standard deviation, and variance by
using the calculator, we follow these steps:

Step 01: Press MODE  3: STAT  1: 1 - VAR

SHIFT + MODE | [SET UP]
 REPLAY 
 4: STAT
 1: ON (Frequency ?)

Step 02: Input the data into two columns

Powered by statisticsforbusinessiuba.blogspot.com 4
 International University IU
Step 03: Compute the expected value of the random variable X
No.01: Put the cursor in the 6th line and FREQ column
No.02: Press SHIFT + 1 | [STAT]
 5: VAR
 2:
[=]
(The available result you can get is 2.1)

Step 04: Compute the standard deviation of the random variable X

No.01: Return the table of data and put the cursor
in the 6th line and FREQ column.
No.02: Press [ DEL ] to delete the value of the
expected value in step 03.
(This step is very important for you to
remember. If you do not delete the expected
value you had already computed, you will get
the wrong result in this computation)
No.03: Press SHIFT + 1 | [STAT]
 5: VAR
 3:
[=]
(The available result you can get is 1.135781669)

Step 04: Compute the variance of the random variable X

Since ( )= ( ) or ( ) = [ ( )] , we can get the
result as following
( ) = [ ( )] = (1.135781669) = .

Statistics for Business | Chapter 03: Random Variables

Powered by statisticsforbusinessiuba.blogspot.com 5
 International University IU

PART 2
1. Binomial Distribution: ~ ( , )

Let be the number of trials

be the probability of success

 Conditions for a Binominal Random Variable

 The trials must be Bernoulli trials in that the outcomes can only be either success or failure.
 The outcomes of the trials must be independent.
 The probability of success in each trial must be constant.

( = )= ( − )( )
= , ,…,
( )=
( )= ( − )

Example | Part 2.1: (Case of Binomial Distribution)

Statistics for Business | Chapter 03: Random Variables

PROBLEM:

A salesperson goes door-to-door in a residential area to demonstrate the use of a new

household appliance to potential customers. At the end of a demonstration, the probability that
the potential customer would place an order for the product is a constant 0.2107. To perform
satisfactorily on the job, the salesperson needs at least four orders. Assume that each
demonstration is a Bernoulli trial.

a. If the salesperson makes 15 demonstrations, what is the probability that there would be
exactly 4 orders?

SOLUTION

With = 0.2107 and = 15, the probability that there would be EXACTLY 4 orders:

( = 4) = 15 × (0.2107) × (1 − 0.2107)
4

Powered by statisticsforbusinessiuba.blogspot.com 6
 International University IU
With the calculator, you type as following

( )×( . ) ×( − . )

After pressing [ = ], we can get the result .

b. If the salesperson makes 16 demonstrations, what is the probability that there would be at
most 4 orders?

SOLUTION

With = 0.2107 and = 16, the probability that there would be AT MOST 4 orders:

( ≤ 4) = (0) + (1) + (2) + (3) + (4)

16
= × (0.2107) × (1 − 0.2107)

With the calculator, you use the following method

Step 01: Press SHIFT + [ log ] | [  ]

Step 02: Type

Statistics for Business | Chapter 03: Random Variables

( )×( . ) ×( − . )

Note: Press ALPHA + [ ) ] | [ X ] to get sign X in the formula

Step 03: Press [ = ], we can get the result .

c. If the salesperson makes 17 demonstrations, what is the probability that there would be at
least 4 orders?

SOLUTION:

With = 0.2107 and = 17, the probability that there would be AT LEAST 4 orders:

( ≥ 4) = (4) + (5) + (6) + ⋯ + (17)

Powered by statisticsforbusinessiuba.blogspot.com 7
 International University IU

17
= × (0.2107) × (1 − 0.2107)

With the calculator, you use the following method

Step 01: Press SHIFT + [ log ] | [  ]

Step 02: Type

( )×( . ) ×( − . )

Note: Press ALPHA + [ ) ] | [ X ] to get sign X in the formula

Step 03: Press [ = ], we can get the result .

d. If the salesperson makes 18 demonstrations, what is the probability that there would be
anywhere from 4 to 8 (both inclusive) orders?

SOLUTION

With = 0.2107 and = 18, the probability that there would be FROM 4 TO 8 orders:

Statistics for Business | Chapter 03: Random Variables

(4 ≤ ≤ 8) = (4) + (5) + (6) + (7) + (8)

18
= × (0.2107) × (1 − 0.2107)

With the calculator, you use the following method

Step 01: Press SHIFT + [ log ] | [  ]

Step 02: Type

( )×( . ) ×( − . )

Note: Press ALPHA + [ ) ] | [ X ] to get sign X in the formula

Step 03: Press [ = ], we can get the result .

Powered by statisticsforbusinessiuba.blogspot.com 8
 International University IU
e. If the salesperson wants to be at least 90% confident of getting at least 4 orders, at least how
many demonstrations should she make?

SOLUTION:

With = 0.2107, ( ≥ 4) ≥ 0.9, and unknown , the probability that there would be AT
LEAST 4 orders:

( ≥ 4) = (4) + (5) + ⋯ + ( ) ≥ 0.9

= × (0.2107) × (1 − 0.2107) ≥ 0.9

With the calculator, you use the following method

Note: The calculator cannot provide you the final value , so you have to try the different values
you can guess in the formula until you can find out the value which can satisfy the condition
( ≥ )≥ . .

With = 17 Step 01: Press SHIFT + [ log ] | [  ]

Step 02: Type

( )×( . ) ×( − . )

Step 03: Press [ = ], we can get the result .

Statistics for Business | Chapter 03: Random Variables

With = 20 Step 01: Press SHIFT + [ log ] | [  ]
Step 02: Type

( )×( . ) ×( − . )

Step 03: Press [ = ], we can get the result .

With = 25 Step 01: Press SHIFT + [ log ] | [  ]
Step 02: Type

( )×( . ) ×( − . )

Step 03: Press [ = ], we can get the result .

With = 30 Step 01: Press SHIFT + [ log ] | [  ]
Step 02: Type

( )×( . ) ×( − . )

Step 03: Press [ = ], we can get the result .

By using the calculator, we can find out that =

Powered by statisticsforbusinessiuba.blogspot.com 9
 International University IU
f. The salesperson has time to make only 22 demonstrations, and she still wants to be at least
90% confident of getting at least 4 orders. She intends to gain this confidence by improving the
quality of her demonstration and thereby improving the chances of getting an order at the end
of a demonstration. At least to what value should this probability be increased in order to gain
the desired confidence? Your answer should be accurate to four decimal places.

SOLUTION:

With = 22, ( ≥ 4) ≥ 0.9, and unknown , the probability that there would be AT LEAST 4
orders:

( ≥ 4) = (4) + (5) + ⋯ + ( ) ≥ 0.9

22
= × ( ) × (1 − ) ≥ 0.9

With the calculator, you use the following method

Note: The calculator cannot provide you the final value , so you have to try the different values you
can guess in the formula until you can find out the value which can satisfy the condition ( ≥ ) ≥
. .

With = 0.2107 Step 01: Press SHIFT + [ log ] | [  ]

Step 02: Type

Statistics for Business | Chapter 03: Random Variables

( )×( . ) ×( − . )

Step 03: Press [ = ], we can get the result .

With = 0.25 Step 01: Press SHIFT + [ log ] | [  ]
Step 02: Type

( )×( . ) ×( − . )

Step 03: Press [ = ], we can get the result .

With = 0.28 Step 01: Press SHIFT + [ log ] | [  ]
Step 02: Type

( )×( . ) ×( − . )

Step 03: Press [ = ], we can get the result .

By using the calculator, we can find out that ≈ 0.28

Powered by statisticsforbusinessiuba.blogspot.com 10
 International University IU

2. Hypergeometric Distribution: ~ ( , , )

Let us derive the formula for ( = ) when is hypergeometrically distributed. The

number of successes have to come from the successes in the pool, which can happen in
ways. Th( − ) failures have to come from the ( − ) failures in the pool, which
−
can happen in ways. Together the successes and ( − ) failures can happen
−
−
in ways. Finally, there are ways of selecting a sample of size .
−

( = )= ( , − + )≤ ≤ ( , )

( )= = ( / )
( )= ( − )

Example | Part 2.2: (Case of Hypergeometric Distribution)

Statistics for Business | Chapter 03: Random Variables

PROBLEM

A committee of 7 members is to be formed by selecting members at random from a pool of 14

candidates consisting of 5 women and 9 men.

a. What is the probability that there will be at least three women in the committee?

SOLUTION:

With = 14, = 5 (women), and = 7, the probability that there will be at least three
women in the committee:

(3 ≤ ≤ 5) = (3) + (4) + (5)

5 14 − 5
= 7−
14
7

Powered by statisticsforbusinessiuba.blogspot.com 11
 International University IU
With the calculator, you use the following method

Step 01: Press SHIFT + [ log ] | [  ]

Step 02: Type

( ) ( − ) ( − )

Note: Press ALPHA + [ ) ] | [ X ] to get sign X in the formula

Step 03: Press [ = ], we can get the result .

b. It is desired to increase the chance that there are at least three women in the committee to
80% by doing one of the following:

i. Adding more women to the pool.

SOLUTION

=7

= + 9 (the pool of candidates consisting of women and 9 men)

Statistics for Business | Chapter 03: Random Variables

The probability that there are AT LEAST 3 women in the committee:

(3 ≤ ≤ 7) = (3) + (4) + (5) + (6) + (7) ≈ 0.8

( + 9) − 9
= 7− = 7− ≈ 0.8
+9 +9
7 7

With the calculator, you use the following method

Note: The calculator cannot provide you the final value , so you have to try the different values you
can guess in the formula until you can find out the value which can satisfy the condition ( ≤ ≤
)≈ . .

Powered by statisticsforbusinessiuba.blogspot.com 12
 International University IU
With =7 Step 01: Press SHIFT + [ log ] | [  ]
Step 02: Type
( ) ( − )
( + )
Step 03: Press [ = ], we can get the result .
With =8 Step 01: Press SHIFT + [ log ] | [  ]
Step 02: Type
( ) ( − )
( + )
Step 03: Press [ = ], we can get the result .
With =9 Step 01: Press SHIFT + [ log ] | [  ]
Step 02: Type
( ) ( − )
( + )
Step 03: Press [ = ], we can get the result .

By using the calculator, we can find out = 9. It means that it is desired to increase the chance
that there are at least three women in the committee to 80% by adding 4 more women to the
pool with a pool of 18 candidates consisting of 9 women and 9 men.

Statistics for Business | Chapter 03: Random Variables

ii. Removing some men from the pool.

SOLUTION:

=7

=5+ (the pool of candidates consisting of 5 women and men)

The probability that there are AT LEAST 3 women in the committee:

(3 ≤ ≤ 5) = (3) + (4) + (5) ≈ 0.8

5 (5 + ) − 5 5
= 7− = 7− ≈ 0.8
5+ 5+
7 7

Powered by statisticsforbusinessiuba.blogspot.com 13
 International University IU
With the calculator, you use the following method

Note: The calculator cannot provide you the final value , so you have to try the different values
you can guess in the formula until you can find out the value which can satisfy the condition
( ≤ ≤ )≈ . .

With =9 Step 01: Press SHIFT + [ log ] | [  ]

Step 02: Type
( ) ( − )
( + )
Step 03: Press [ = ], we can get the result .
With =7 Step 01: Press SHIFT + [ log ] | [  ]
Step 02: Type
( ) ( − )
( + )
Step 03: Press [ = ], we can get the result .
With =6 Step 01: Press SHIFT + [ log ] | [  ]
Step 02: Type
( ) ( − )
( + )

Statistics for Business | Chapter 03: Random Variables

Step 03: Press [ = ], we can get the result .

By using the calculator, we can find out = 6. It means that it is desired to increase the
chance that there are at least three women in the committee to 80% by removing 3 men from
the pool with a pool of 11 candidates consisting of 5 women and 6 men.

Powered by statisticsforbusinessiuba.blogspot.com 14