MTH213: Business Statistics

Chapter 5: Discrete Probability Distributions

Zayed University

College of Natural and Health Sciences

Department of Mathematics and Statistics

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 Outline

1 Random Variables

2 Discrete Random Variables

Discrete Probability Distributions
Expected Values for Discrete Random Variables

3 Binomial Distribution

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 Outline

Objectives

In this chapter, you learn:

The properties of a probability distribution.
To compute the expected value and variance of a probability dis-
tribution.
To compute probabilities from binomial distribution.
To use the binomial distribution to solve business problems.

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 Random Variables

Random Variables
We are often interested in some numerical function of the out-
comes of a random experiment.
Consider the probability experiment of tossing a coin three times.
In this case, the sample space is represented as follows:
S = {T T T, T T H, T HT, HT T, HHT, HT H, T HH, HHH}
Let X be the number of heads, then X is random variable assum-
ing the values 0, 1, 2 or 3.
Definition (Random Variable)
A random variable is a variable that assigns a numerical value to each
outcome of a random experiment or trial.
Random variables are denoted by uppercase letters, such as X, Y
and Z. The actual values that random variables can assume will
be denoted by lower-case letters, such as x, y and z.
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 Random Variables

Types of Random Variables

1 Discrete random variable:
I A random variable that can only assume a finite number of values
or an infinite sequence of values such as 0, 1, 2, . . .
I Examples:
Number of email messages received daily
Number of complaints per day
Status of a network; working or off-line
Number of TVs in a household
2 Continuous random variable:
I A random variable that can assume an uncountably infinite num-
ber of values in one or more intervals.
I Examples:
Waiting time for a credit card authorization
Interest rate charged on a business loan
Time needed to open a new bank account
Salary of an accountant
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 Random Variables

Exercises
Classify the following random variables as discrete or continuous:
a The number of girls in a family with three children.
b The number of defects found after inspecting your car.
c the proportion of passengers traveling without checked luggage in
Emirates Flight EK231.
d the number of incorrect lab procedures conducted at a hospital dur-
ing a particular week.
e the number of customers served during a given day at a drive-
through window.
f the time needed by a clerk to complete a task.
g
the temperature of a pizza oven at a particular time.
h the waiting time before a randomly chosen customer is handed the
order in Subway.
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 Discrete Random Variables Discrete Probability Distributions

Probability Distribution

The probability distribution of a discrete random variable is a

table, graph or formula that gives the probability associated with
each possible value that the variable can assume.
Notation: Denote the values of the random variable by x and the
associated probability by p(x) = P (X = x).
If X is the number of heads when tossing a coin three times. The
probability distribution of X is given by:
x 0 1 2 3
p(x) 1/8 3/8 3/8 1/8

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 Discrete Random Variables Discrete Probability Distributions

Probability Distribution

Properties of a Discrete Probability Distribution

A discrete probability distribution p(x) must satisfy two conditions:
1 For any value x of the random variable, p(x) ≥ 0.
2 The sum of the probabilities of all outcomes in the sample space
is 1, that is X
p(x) = 1
All x

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 Discrete Random Variables Discrete Probability Distributions

Example
Ali has applied for positions at Company A and Company B. The prob-
ability of getting an offer from Company A is 0.4, and the probability
of getting an offer from Company B is 0.3. Assuming that the two job
offers are independent of each other. Let X be the number of offers
that Ali will receive. Find the probability distribution of X.
X can take on only three possible values: 0, 1, or 2. Let A and B
denote the events that Ali will receive offers from companies A and B,
respectively. Then P (A) = 0.4 and P (B) = 0.3. Thus, we have

p(0) = P (Ā ∩ B̄) = P (Ā)P (B̄) = (0.6)(0.7) = 0.42

p(1) = P (A ∩ B̄) + P (Ā ∩ B) = P (A)P (B̄) + P (Ā)P (B)
= (0.4)(0.7) + (0.6)(0.3) = 0.46
p(2) = P (A ∩ B) = P (A)P (B) = (0.4)(0.3) = 0.12

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 Discrete Random Variables Discrete Probability Distributions

Example
So the probability distribution of X is given by

x 0 1 2
p(x) 0.42 0.46 0.12

The figures below show the pictorial presentation of the probability

distribution of X.
Probability distribution of the number of offers received, X Probability distribution of the number of offers received, X
0.5 0.5

0.4 0.4

0.3 0.3
p(x)
p(x)

0.2 0.2

0.1 0.1

0.0 0.0
0 1 2 0 1 2
x x

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 Discrete Random Variables Discrete Probability Distributions

Exercises
1 Determine whether each of the following is a valid probability
distribution.
x 0 1 2 3
p(x) 0.1 0.3 0.4 0.1
y -5 0 5 10
p(y) 0.01 0.95 0.01 0.03
z 14 12 -7 13
p(z) 0.25 0.46 0.04 0.24
2 Roll two dice and let X be the sum of the two numbers. Find
and graph the probability distribution of X. Comment on the
distribution.
3 At a raffle, 2000 tickets are sold at 25 Dhs each for five prizes of
10000, 5000, 2500, 1250, and 500. You buy one ticket. Find the
probability distribution of the possible gains.
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 Discrete Random Variables Discrete Probability Distributions

Exercises
3 The number of defects in a machine-made product is a random
variable X with the following probability distribution:
x 0 1 2 3 4
p(x) 0.1 0.2 0.3 0.3 0.1

a Find the probability P (1 < X ≤ 3).

b Find the probability P (1 ≤ X < 4).
4 After watching a number of children playing games at a video ar-
cade, a researcher estimated the following probability distribution
of X, the number of games per visit.
x 1 2 3 4 5 6 7
p(x) 0.05 0.15 0.15 0.25 0.20 0.10 0.10

a What is the probability that a child will play more than four games?
b What is the probability that a child will play at least two games?
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 Discrete Random Variables Expected Values for Discrete Random Variables

Expected Value, Variance and Standard

Deviation
Expected Value, Variance and Standard Deviation
If X is a discrete random variable with probability distribution p(x) =
P (X = x), then
The mean, or the expected value, of X denoted by µ is given by
X
E(X) = µ = xp(x)

The variance of X, denoted by σ 2 is given by

X
σ2 = (x − µ)2 p(x)
X
= x2 p(x) − µ2
√
The standard deviation of X is given by σ = σ2.
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 Discrete Random Variables Expected Values for Discrete Random Variables

Example
The probability distribution of the number of daily network blackouts
is given by
x 0 1 2
p(x) 0.7 0.2 0.1
Find the mean and variance of the number of network blackouts.
The expected value of X is
X
µ= xp(x) = (0)(0.7) + (1)(0.2) + (2)(0.1) = 0.4
P 2
To compute the variance we, first, need to compute x p(x)
X
x2 p(x) = (02 )(0.7) + (12 )(0.2) + (22 )(0.1) = 0.6
Hence, the variance of X is
X
σ2 = x2 p(x) − µ2 = 0.6 − 0.42 = 0.44
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 Discrete Random Variables Expected Values for Discrete Random Variables

Exercises
1 A shopping mall estimates the probability distribution of the num-
ber of stores mall customers actually enter, as shown in the table.
x 0 1 2 3 4 5 6
p(x) 0.04 0.19 0.22 0.28 0.12 0.09 0.06
a Find the expected number of stores entered.
b Find the standard deviation of the number of stores entered.
2 An insurance company will insure a 500,000 Dhs Panamera for
its full value against theft at a premium of 8,000 Dhs per year.
Suppose that the probability that the Panamera will be stolen is
0.0075, and let X denote the insurance company’s profit.
a Set up the probability distribution of the random variable X.
b Calculate the insurance company’s expected net profit.
c Find the premium that the insurance company should charge if it
wants its expected net profit to be 10,000 Dhs?
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 Discrete Random Variables Expected Values for Discrete Random Variables

Exercises
3 You are trying to develop a strategy for investing in two different
stocks. The anticipated annual return for a 1,000 Dhs investment
in each stock under four different economic conditions has the
following probability distribution:
Returns
Probability Economic Condition Stock X Stock Y
0.1 Recession -50 -120
0.3 Slow Growth 10 50
0.4 Moderate Growth 90 140
0.2 Fast Growth 150 190
a Compute the expected return for stock X and for stock Y .
b Compute the standard deviation for stock X and for stock Y .
c Would you invest in stock X or stock Y ? Explain
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 Binomial Distribution

Binomial Distribution
A Bernoulli experiment is a random experiment with only two possibles
outcomes than can be classified in one of two mutually exclusive and
exhaustive ways, say, “1=success” or “0=failure”.
Let Y be the number of successes in a Bernoulli trial, then Y is called
a Bernoulli random variable.
Binomial Experiment
The Binomial experiment is a probability experiment that satisfy the
following 4 conditions:
1 Experiment consists of n identical trials (Bernoulli trials)
2 Each trial results in a success (S) or a failure (F).
3 The trials are independent.
4 Probability of success, p, is constant from trial to trial (The prob-
ability of failure is 1 − p).
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 Binomial Distribution

Binomial Distribution

The variable representing the number of successes in n trials of a

binomial experiment is a binomial random variable. We write:

X ∼ B(n, p)

If X is the number of heads obtained when we toss a coin 10

times, then  
1
X ∼ B 10,
2
The probability of success p is denoted in the textbook by π.

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 Binomial Distribution

Binomial Distribution: Examples

1 A network engineer is reporting the status of the network during
randomly selected 15 time slots every day.
2 The marketing research unit at a communication company called
100 potential customers about a new plan for international calls
and recorded the number of customers who are interested in sub-
scribing to the new plan if offered.
3 A company looking for an accountant sent job offers to 10 appli-
cants and count the number of applicants accepting the offer.
4 Thirteen items from a manufacturing process are tested every
day. Items for testing are chosen randomly and independently
and classified as either defective or acceptable.
5 The number of employees who resign within the next year among
20 newly hired ones.
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 Binomial Distribution

Exercise
Which of the following is a binomial experiment?
a A store finds that 32% of people who enter the store will make
a purchase. During a day, 50 people enter the store. The random
variable represents the number of people who don’t make a purchase.
b A jar contains 5 blue marbles, 6 green marbles, and 3 red marbles.
You randomly select 2 marbles from the jar without replacement.
You repeat that step. The random variable represents the number
of red marbles that you select.
c A surgical procedure has a 76% chance of success. A doctor per-
forms the procedure on 12 patients. The random variable represents
the number of successful surgeries.
d Thirteen items from a manufacturing process are tested every day.
Items for testing are chosen randomly and independently and clas-
sified as either defective or acceptable.
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 Binomial Distribution

Binomial Distribution
Binomial Distribution
For a binomial random variable X, the probability of x successes in n
trials is given by the binomial distribution:

P (X = x) = px (1 − p)n−x
n Cx
 
n x
= p (1 − p)n−x
x

where

x = 0, 1, . . . , n
p = Probability of success
n!
n Cx =
x!(n − x)!
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 Binomial Distribution

Binomial Distribution Chapter 6 Discrete Probability Distributions 223

FIGURE 6.7
Several Binomial Distributions
Binomial Distributions

Skewed Right Symmetric Skewed Left

p 5 .10
π πp 5 .20 p 5 .50
π p 5 .80
π p 5 .90
π

0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8

Expected xValue, Variance

PDF P(X 5 x)
and Standard
CDF P(X ≤ x)
Deviation TABLE 6.8
Binomial Distribution
If X is a binomial
0 random
.4096 variable with parameters n and p,
.4096 for nthen:
5 4, π 5 .20
1 .4096 .8192
2 .1536
3 µ = np .9728
.0256 .9984
4 2 .0016 1.0000
σ = np(1 − p)
p
σ = np(1 − p)
or 1 (if you want a CDF). We can also use a calculator to work it out from the mathematical
formula with n 5 4 and π 5 .20. For example, the PDF is:
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 Binomial Distribution

Computing Binomial Probabilities

To compute the probabilities related to the binomial distribution, we

will be using in the course the following online calculator: Binomial
Distribution Calculator

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 Binomial Distribution

Example

Records show that 30% of the customers in a shoe store pay using a
credit card. This morning 10 customers purchased shoes.
a Find the probability that 7 customers used a credit card.
This is a binomial experiment with n = 10 and p = 0.30.

P (X = 7) = 0.009
b Find the probability that at most 2 customers used a credit card.

P (X ≤ 2) = 0.38278

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 Binomial Distribution

Example
c Find the probability that at least 9 customers used a credit card.

P (X ≥ 9) = 0.00014

d Find the expected number of customers who used a credit card.

µ = np = (10)(0.3) = 3 customers

e Find the standard deviation of the number of customers who used

a credit card.
p p
σ = np(1 − p) = (10)(0.3)(1 − 0.3) = 1.449

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 Binomial Distribution

Exercises

1 The speed with which utility companies can resolve problems is

very important. ADDC reports it can resolve customer problems
the same day they are reported in 70% of the cases. Suppose the
20 cases reported today are representative of all complaints.
a What is the probability that 15 of the problems can be resolved
today?
b What is the probability more than 17 of the problems can be resolved
today?
c How many of the problems would you expect to be resolved today?
What is the standard deviation?

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 Binomial Distribution

Exercises

2 The First Bank reports that 8% of its credit card holders will
default at some time in their life. The bank just mailed out 15
new cards today.
a What is the probability that none of the cardholders will default?
b What is the probability that at most two will default?
c How many of these new cardholders would you expect to default?
What is the standard deviation?

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 Binomial Distribution

Exercises

3 Software filters rely heavily on “blacklists” (known “phishing”

URLs) to detect fraudulent e-mails. But such filters typically catch
only 20% of phishing URLs. Ali receives 16 phishing e-mails.
a Find the probability that the filter would detect none of them.
b Find the probability that the filter would detect at least 2 of them.
c Find the expected number that would be caught by such a filter.

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 Binomial Distribution

Exercises

4 A manufacturing company regularly conducts quality control checks

at specified periods on the products it manufactures. Historically,
the failure rate for LED light bulbs that the company manufac-
tures is 5%. Suppose a random sample of 10 LED light bulbs is
selected. What is the probability that
a none of the LED light bulbs are defective?
b two or fewer of the LED light bulbs are defective?
c three or more of the LED light bulbs are defective?
d between one and four inclusive LED light bulbs are defective?

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 Binomial Distribution

Exercises

5 A small feeder airline knows that 10% of reservation holders will

not show up for its daily 7:15 a.m. flight into a hub airport. The
flight carries 10 passengers.
a If the flight is fully booked, what is the probability that all those
with reservations will show up?
b If the airline overbooks by selling 11 seats, what is the probability
that no one will have to be bumped?
c The airline wants to overbook the flight by enough seats to ensure
a 95% chance that the flight will be full, even if some passengers
may be bumped. How many seats would it sell?

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 Binomial Distribution

Exercises

6 A computer store sells DELL and hp laptops where 75% of its

customers purchase a DELL model. If the store currently has in
stock 10 DELL models and 8 hp models, what is the probability
that the requests of the next 15 customers can all be met from
existing stock?

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