Chapter Two

Random Variables and Probability Distribution

2.1 Random variables: a random variable is a variable that takes on numerical values
determined by the outcome of a random experiment. For example in rolling a die a random
variable X takes specific values x=1 x=2.... x=6 each with probability p(x=1) =p(x=2)
=...=p(x=6) =1/6.

Random variables can be:

i. Discrete random variables: a random variable is said to be discrete if it can take no

more than a countable number of values. For instance, the number of defective items
in a sample of 20 items from a large shipment is an example.
ii. Continuous random variables: a random variable is continuous, if it can take any
value in an interval. In this case one cannot assign probabilities for each specific
value. (example yearly income of a family)

2.2 Probability distributions for discrete random variables:

a. Probability distribution function: the probability distribution function p(x) for a discrete
random variable X, expresses the probability that X takes the value x, as a fun of x. That is
P ( x )=P ( X=x ) , for all values of x .

For example the probability distribution function for a roll of a single die is

p ( x )= p ( X=x )=1 /6

Properties of probability distribution function:

 0 ≤ p ( x ) ≤1 forany value of x
1
 the individual probabilities ∑ ¿
∑ p (x)=1
x

b. Cumulative Probability Function: The cumulative probability function, F (x o) for a random

variable x expresses the probability that x does not exceed the value xo, as a function of x o.
That is F ( xo )= p ( x ≤ x o )where the function is evaluated at all values of x o
F ( x o ) = ∑ p(x )
x ≤ xo

Here note that

 0 ≤ F ( x o ) ≤1 for every number of x o

 and if x o∧x 1 , are two numbers with x o ≤ x 1 , then F ¿

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C. Properties of discrete random variables

1. The expected value, E(X), of a discrete random variable X is defined as

E ( X )=μ=∑ xp ( x ) . It is also called the mean.
x

2. Given a discrete variable x, the expectation of the squared discrepancy about the mean,
( x−μ )2which is called the variance is given by
2 2
δ =E ( X −μ ) = ∑ 2
p ( x ) =E ( X )−μ =∑ x P ( x )−μ μx
2 2 2 2 2

x ( x−μ ) x

3. Given a discrete random variable X with probability function P ¿) and let g(x ) be some
function of X . Then the expected value, E(g ( x)) of the function is defined as
E [ g ( x ) ] =∑ g ( x ) . p(x)
x

4. Given a random variable with linear function y=a+bX

μ y =E ( a+bx )=a+bE ( X )=a+ b . μ x
2 2 2
δ y =var ( a+bx )=b . δ x
δ y =|b|δ x

2.3 Continuous random variables and probability density functions:

a. Cumulative distribution function: the cumulative distribution function, F(x), for a continuous
random variable X expresses the probability that X does not exceed the value of x as a function
of x.

F ( x )=P( X ≤ x )

Example: Consider a gasoline station which has a 1,000 gallon storage tank that field each
morning of a business day. The amount of gasoline sold on any particular day can be represented
by the following cumulative distribution function

{
0 , if x <0
F ( x )= 0.001 x , if 0 ≤ x ≤ 1,000
1 , if x >1,000

Here the probability of sales between 0 and 400 gallon is

F ( 400 )=P ( X ≤ 400 ) =0.001× 400=0.4

B. Probability of a range using cumulative distribution function:

let X be a continuous random variable with a cumulative distribution function F(x) and let a & b
be two possible values of X with a<b. The probability that X ;lies between a & b is

P ( a< x <b )=F ( b )−F (a)

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For example in the above example, the probability sales between 250 & 750 gallon is

P ( 250< x <750 )=F ( 750 )−F (250 )=0.001 ( 750−250 )=0.50

c. Probability density function:

let X be a continuous random variable and let x be any number lying in the range of values this
random variable can take. The probability density function, f(x) of the random variable is a
function with the following properties:

1. f(x)>0 for all values of x.

2. The area under the probability density function, f(x) over all values of the random
variable, X is equal to one.
3. Suppose this density function is graphed. Let a & b be two possible values of random
variable x with a<b. Then the probability that x lies between a& b is the area under the
density function between these two points
4. The cumulative distribution function, F(xo), is the area under the probability density
function up to xo.
xo
F ( xo )=∫ f ( x)dx
xm

Where, xm , is the minimum value of the random variable.

f(x)
b

p(a<x<b)=F(b)-F(a)=∫ f (x )
a

0 a b x
Areas under continuous probability density functions: let x be a continuous random
variable with probability density functions f(x) and cumulative distribution function F(x).
Then the following properties hold:
1. The total area under the curve f(x) is one
2. The area under the curve f(x) to the left of xo is F(xo), where xo is any value that the
random variable can take.
f(x)
1

x
Xo 1

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The uniform probability density function defined over the range from a to b for a uniform
random variable is given by

{
1
if a ≤ x ≤ b
f ( x )= b−a
0 elswhere

Example: at the beginning of winter a whom owner estimates the probability is 0.4 that her total
heating bill for the three winter months will be less than $380. She also estimates that the
probability is 0.6 that the total bill will be less than $460.

a. What is the probability that the total bill will be between $380 and $460?
P ( 380< x <460 )=F ( 460 )−F ( 380 )
But F ( 460 )=P ( X <460 )=0.6∧¿
F ( 380 )=P ( X <380 ) =0.4
∴ P (380 < x< 460 ) =0.6−0.4=0.2

b. Given no further information what can be said about the probability that the total
bill will be less than $400
0.4<P(X<400) <0.6

2.4 Mathematical Expectations and Moments

Expectations for continuous random variable:

For a continuous random variable X, the expectation is denoted by E(X). If g(X) is any function
of the random variable X, the average value of this function is

E [ g ( X ) ] =∫ g ( x ) . f ( x )dx
Mean of X , μ x =E ( X )and the variance of X , σ 2X =E (X−μ X )2

For uniform distribution over the range a to b

1
f ( x )= where a< x <b
b−a
a+ b
μ x =E ( X )=
2
2
(b−a)
σ 2x =E (X−μ X )2=
2

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Example: The profit for a production process is equal to $6000 minus three times the number of
units produced. The mean and variance of the number of units produced are 1,000 and 900
respectively. Find the mean and variance of the profit.

π=$ 6,000−3 x
μ π=E ( $ 6,000−3 x )=6000−3 E ( x )=6000−3 ( 1000 )=3000
2
σ π =var ( 6000−3 x )

¿ 0+ 9× var ( x )

¿ 9 × 900=8100

Summary exercises:

1. Given the probability distribution function

x 0 1 2
probability 0.25 0.50 0.25
a. Draw the probability distribution function
b. Calculate and draw the cumulative probability function
c. Find the mean of the random variable x
d. Find the variance of x
2. An automobile dealer calculates the proportion of new cars sold that have been returned
various numbers of times for the correction of defects during the warranty period. The
results are shown in the table.

No_ of returns
proportion
a. Draw the probability distribution function
b. Calculate and draw the cumulative probability function
c. Find the mean of the number of returns of an automobile for corrections for defects
during the warranty period
d. Find the variance of the number of returns of an automobile for corrections for
defects during the warranty period
3. A corporation produces packages of paper clips. The number of clips per package varies,
as indicated in the following table

No. Of clips 47 48 49 50 51 52 53
Proportion of packages 0.04 0.13 0.21 0.29 0.20 0.10 0.03
a. Draw the probability function.
b. Calculate and draw the cumulative probability function
c. What is the probability that a randomly chosen package will contain between 49 & 51
clips (inclusive)?

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 d. Two packages are chosen at random. What is the probability that at least one of them
contains at least 50 clips?
4. Students in large accounting class were asked to rate the course by assigning scores of
1,2,3,4, or 5 to the course. a higher score indicates that the students recived greater value
from the course. The table below shows proportion of students rating the course in each
category

rating 1 2 3 4 5
proportion 0.07 0.19 0.28 0.30 0.16
Find the mean and standard deviation of the ratings
5. A factory manager is considering whether to replace a temperamental machine. A review
of past records indicates the following probability distribution for the number of
breakdowns of this machine in a week.

No of breakdowns 0 1 2 3 4
probability 0.10 0.26 0.42 0.16 0.06
a. Find the mean and standard deviation of the number of weakly breakdowns.
b. It is estimated that each breakdown costs the company $1,500 in lost output. Find the
mean and standard deviation of the weekly cost of the company from breakdowns of
this machine.

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