Statistics for

Business and Economics

8th Global Edition

Chapter 4

Discrete Probability Distributions

Copyright © 2013 Pearson Education Ch. 4-1

4.1
Random Variables

 Random Variable
 Represents a possible numerical value from

a random experiment
Random
Variables

Ch. 4 Discrete Continuous Ch. 5

Random Variable Random Variable

Copyright © 2013 Pearson Education Ch. 4-2

 Discrete Random Variable
 Takes on no more than a countable number of
values
Examples:

 Roll a die twice

Let X be the number of times 4 comes up
(then X could be 0, 1, or 2 times)

 Toss a coin 5 times.

Let X be the number of heads
(then X = 0, 1, 2, 3, 4, or 5)
Copyright © 2013 Pearson Education Ch. 4-3
 Continuous Random Variable
 Can take on any value in an interval
 Possible values are measured on a continuum

Examples:

 Weight of packages filled by a mechanical filling

process
 Temperature of a cleaning solution
 Time between failures of an electrical component

Copyright © 2013 Pearson Education Ch. 4-4

4.2
Probability Distributions for
Discrete Random Variables
Let X be a discrete random variable and x be one
of its possible values
 The probability that random variable X takes
specific value x is denoted P(X = x)
 The probability distribution function of a
random variable is a representation of the
probabilities for all the possible outcomes.
 Can be shown algebraically, graphically, or
with a table

Copyright © 2013 Pearson Education Ch. 4-5

 Probability Distributions for
Discrete Random Variables
Experiment: Toss 2 Coins. Let X = # heads.
Show P(x) , i.e., P(X = x) , for all values of x:

4 possible outcomes
Probability Distribution
T T x Value Probability
0 1/4 = .25

T H 1 2/4 = .50
2 1/4 = .25

H T
Probability

.50

.25
H H
Copyright © 2013 Pearson Education
0 1 2 x Ch. 4-6
 Probability Distribution
Required Properties

 0 ≤ P(x) ≤ 1 for any value of x

 The individual probabilities sum to 1;

 P(x)  1
x

(The notation indicates summation over all possible x values)

Copyright © 2013 Pearson Education Ch. 4-7

 Cumulative Probability Function

 The cumulative probability function, denoted

F(x0), shows the probability that X does not
exceed the value x0

F(x 0 )  P(X  x 0 )

Where the function is evaluated at all values of x0

Copyright © 2013 Pearson Education Ch. 4-8

 Cumulative Probability Function
(continued)

Example: Toss 2 Coins. Let X = # heads.

x Value P(x) F(x)

0 0.25 0.25
1 0.50 0.75
2 0.25 1.00

Copyright © 2013 Pearson Education Ch. 4-9

4.3
Properties of
Discrete Random Variables
 Expected Value (or mean) of a discrete
random variable X:
E[X]  μ   xP(x)
x

 Example: Toss 2 coins, x P(x)

x = # of heads, 0 .25
compute expected value of x: 1 .50
2 .25
E(x) = (0 x .25) + (1 x .50) + (2 x .25)
= 1.0

Copyright © 2013 Pearson Education Ch. 4-10

 Variance and
Standard Deviation
 Variance of a discrete random variable X

σ 2  E[(X  μ)2 ]   (x  μ)2 P(x)

x
Can also be expressed as

σ 2  E[X2 ]  μ2   x 2 P(x)  μ2
x

 Standard Deviation of a discrete random variable X

σ σ  2
 (x  μ) P(x)
x
2

Copyright © 2013 Pearson Education Ch. 4-11

 Standard Deviation Example

 Example: Toss 2 coins, X = # heads,

compute standard deviation (recall E[X] = 1)

σ x
(x  μ) 2
P(x)

σ  (0  1)2 (.25)  (1  1)2 (.50)  (2  1)2 (.25)  .50  .707

Possible number of heads

= 0, 1, or 2

Copyright © 2013 Pearson Education Ch. 4-12

 Example: Investment Returns

Return per $1,000 for two types of investments

Investment
P(xiyi) Economic condition Passive Fund X Aggressive Fund Y
.2 Recession - $ 25 - $200
.5 Stable Economy + 50 + 60
.3 Expanding Economy + 100 + 350

E(x) = μx = (-25)(.2) +(50)(.5) + (100)(.3) = 50

E(y) = μy = (-200)(.2) +(60)(.5) + (350)(.3) = 95

Copyright © 2013 Pearson Education Ch. 4-13
 Computing the Standard Deviation
for Investment Returns
Investment
P(xiyi) Economic condition Passive Fund X Aggressive Fund Y
0.2 Recession - $ 25 - $200
0.5 Stable Economy + 50 + 60
0.3 Expanding Economy + 100 + 350

σ X  (-25  50)2 (0.2)  (50  50)2 (0.5)  (100  50)2 (0.3)

 43.30

σ y  (-200  95)2 (0.2)  (60  95)2 (0.5)  (350  95)2 (0.3)

 193.71
Copyright © 2013 Pearson Education Ch. 4-14
 Functions of Random Variables

 If P(x) is the probability function of a discrete

random variable X , and g(X) is some function of
X , then the expected value of function g is

E[g(X)]   g(x)P(x)
x

Copyright © 2013 Pearson Education Ch. 4-15

 Linear Functions
of Random Variables
(continued)
 Let random variable X have mean µx and variance σ2x
 Let a and b be any constants.
 Let Y = a + bX
 Then the mean and variance of Y are
μY  E(a  bX)  a  bμX

σ 2
Y  Var(a  bX)  b σ
2 2
X

 so that the standard deviation of Y is

σY  b σX

Copyright © 2013 Pearson Education Ch. 4-16

 Properties of Linear Functions
of Random Variables

 Let a and b be any constants.

 a) E(a)  a and Var(a)  0

i.e., if a random variable always takes the value a,

it will have mean a and variance 0

 b) E(bX)  bμX and Var(bX)  b σ

2 2
X

i.e., the expected value of b·X is b·E(x)

Copyright © 2013 Pearson Education Ch. 4-17

 Properties of Linear Functions
of Random Variables
Ex: The finishing process on new furniture leaves slight blemishes.
The following table displays a manager’s probability assessment of
the number of blemishes in the finish of new furniture. For each
piece of furniture coming off the line it takes 15 minutes to pack for
shipping. In addition, fixing the blemishes take another 2 minutes
for each blemish.
Number of 0 1 2 3 4 5
blemishes
Probability 0.34 0.25 0.19 0.11 0.07 0.04

a) On average, how long should it take between the time a piece

of furniture comes off the line and is ready to ship?
b) What is the variance of the time it takes between the time a
piece of furniture comes off the line and is ready to ship?

Copyright © 2013 Pearson Education Ch. 4-18

 Probability Distributions
Probability
Distributions

Ch. 4 Discrete Continuous Ch. 5

Probability Probability
Distributions Distributions

Binomial Uniform

Poisson Normal

Exponential

Copyright © 2013 Pearson Education Ch. 4-19

4.4
The Binomial Distribution
Probability
Distributions

Discrete
Probability
Distributions

Binomial

Poisson

Copyright © 2013 Pearson Education Ch. 4-20

 Bernoulli Distribution

 Consider only two outcomes: “success” or “failure”

 Let P denote the probability of success
 Let 1 – P be the probability of failure
 Define random variable X:
x = 1 if success, x = 0 if failure
 Then the Bernoulli probability distribution is

P(0)  (1 P) and P(1)  P

Copyright © 2013 Pearson Education Ch. 4-21

 Mean and Variance of a
Bernoulli Random Variable

 The mean is µx = P

μx  E[X]   xP(x)  (0)(1 P)  (1)P  P

X

 The variance is σ2x = P(1 – P)

σ  E[(X  μx ) ]   (x  μx ) P(x)
2
x
2 2

 (0  P) (1 P)  (1 P) P  P(1 P)

2 2

Copyright © 2013 Pearson Education Ch. 4-22

 Developing the
Binomial Distribution

 The number of sequences with x successes in n

independent trials is:

n!
C 
n

x! (n  x)!
x

Where n! = n·(n – 1)·(n – 2)· . . . ·1 and 0! = 1

 These sequences are mutually exclusive, since no two

can occur at the same time

Copyright © 2013 Pearson Education Ch. 4-23

 Binomial Probability Distribution
 A fixed number of observations, n
 e.g., 15 tosses of a coin; ten light bulbs taken from a warehouse
 Two mutually exclusive and collectively exhaustive
categories
 e.g., head or tail in each toss of a coin; defective or not defective
light bulb
 Generally called “success” and “failure”
 Probability of success is P , probability of failure is 1 – P
 Constant probability for each observation
 e.g., Probability of getting a tail is the same each time we toss
the coin
 Observations are independent
 The outcome of one observation does not affect the outcome of
the other
Copyright © 2013 Pearson Education Ch. 4-24
 Possible Binomial Distribution
Settings

 A manufacturing plant labels items as

either defective or acceptable
 A firm bidding for contracts will either get a
contract or not
 A marketing research firm receives survey
responses of “yes I will buy” or “no I will
not”
 New job applicants either accept the offer
or reject it
Copyright © 2013 Pearson Education Ch. 4-25
 The Binomial Distribution

n! X nX
P(x)  P (1- P)
x ! (n  x )!
P(x) = probability of x successes in n trials,
with probability of success P on each trial
Example: Flip a coin four
times, let x = # heads:
x = number of ‘successes’ in sample,
n=4
(x = 0, 1, 2, ..., n)
n = sample size (number of independent P = 0.5
trials or observations) 1 - P = (1 - 0.5) = 0.5
P = probability of “success” x = 0, 1, 2, 3, 4

Copyright © 2013 Pearson Education Ch. 4-26

 Example 1:
Calculating a Binomial Probability

What is the probability of one success in five

observations if the probability of success is 0.1?
x = 1, n = 5, and P = 0.1

n!
P(x  1)  P X (1 P)n X
x! (n  x)!
5!
 (0.1)1(1 0.1)51
1! (5  1)!
 (5)(0.1)(0.9)4
 .32805
Copyright © 2013 Pearson Education Ch. 4-27
 Example 2:
Calculating a Binomial Probability

Suppose that a Real Estate Agent has five contacts, and she
believes that for each contact the probability of making a sale is
0.40.

a) Find the probability that she makes at most one sale.

b) Find the probability that she makes at least three sales.
c) Find the probability that she makes between two and four
sales.

Copyright © 2013 Pearson Education Ch. 4-28

 Shape of Binomial Distribution
 The shape of the binomial distribution depends on the
values of P and n
Mean P(x) n = 5 P = 0.1
.6
 Here, n = 5 and P = 0.1 .4
.2
0 x
0 1 2 3 4 5

P(x) n = 5 P = 0.5
 Here, n = 5 and P = 0.5 .6
.4
.2
0 x
0 1 2 3 4 5
Copyright © 2013 Pearson Education Ch. 4-29
 Mean and Variance of a
Binomial Distribution

Mean

μ  E(x)  nP
 Variance and Standard Deviation
σ 2  nP(1- P)
σ  nP(1- P)
Where n = sample size
P = probability of success
(1 – P) = probability of failure

Copyright © 2013 Pearson Education Ch. 4-30

 Binomial Characteristics
Examples
μ  nP  (5)(0.1)  0.5
Mean P(x) n = 5 P = 0.1
.6
.4
σ  nP(1- P)  (5)(0.1)(1 0.1) .2
 0.6708 0 x
0 1 2 3 4 5

μ  nP  (5)(0.5)  2.5 P(x) n = 5 P = 0.5

.6
.4
σ  nP(1- P)  (5)(0.5)(1 0.5) .2
 1.118 0 x
0 1 2 3 4 5

Copyright © 2013 Pearson Education Ch. 4-31

 Using Binomial Tables

N x … p=.20 p=.25 p=.30 p=.35 p=.40 p=.45 p=.50

10 0 … 0.1074 0.0563 0.0282 0.0135 0.0060 0.0025 0.0010
1 … 0.2684 0.1877 0.1211 0.0725 0.0403 0.0207 0.0098
2 … 0.3020 0.2816 0.2335 0.1757 0.1209 0.0763 0.0439
3 … 0.2013 0.2503 0.2668 0.2522 0.2150 0.1665 0.1172
4 … 0.0881 0.1460 0.2001 0.2377 0.2508 0.2384 0.2051
5 … 0.0264 0.0584 0.1029 0.1536 0.2007 0.2340 0.2461
6 … 0.0055 0.0162 0.0368 0.0689 0.1115 0.1596 0.2051
7 … 0.0008 0.0031 0.0090 0.0212 0.0425 0.0746 0.1172
8 … 0.0001 0.0004 0.0014 0.0043 0.0106 0.0229 0.0439
9 … 0.0000 0.0000 0.0001 0.0005 0.0016 0.0042 0.0098
10 … 0.0000 0.0000 0.0000 0.0000 0.0001 0.0003 0.0010

Examples:
n = 10, x = 3, P = 0.35: P(x = 3|n =10, p = 0.35) = .2522
n = 10, x = 8, P = 0.45: P(x = 8|n =10, p = 0.45) = .0229

Copyright © 2013 Pearson Education Ch. 4-32

4.5
The Poisson Distribution
Probability
Distributions

Discrete
Probability
Distributions

Binomial

Poisson

Copyright © 2013 Pearson Education Ch. 4-33

 The Poisson Distribution

 The Poisson distribution is used to determine the

probability of a random variable which characterizes
the number of occurrences or successes of a certain
event in a given continuous interval (such as time,
surface area, or length).

Copyright © 2013 Pearson Education Ch. 4-34

 The Poisson Distribution
(continued)

 Assume an interval is divided into a very large number of

equal subintervals where the probability of the occurrence
of an event in any subinterval is very small.
Poisson distribution assumptions
1. The probability of the occurrence of an event is constant
for all subintervals.
2. There can be no more than one occurrence in each
subinterval.
3. Occurrences are independent; that is, an occurrence in
one interval does not influence the probability of an
occurrence in another interval.

Copyright © 2013 Pearson Education Ch. 4-35

 Poisson Distribution Function
The expected number of events per unit is the
parameter  (lambda), which is a constant that
specifies the average number of occurrences
(successes) for a particular time and/or space
λ
e λ x
P(x) 
x!
where:
P(x) = the probability of x successes over a given time or
space, given 
 = the expected number of successes per time or space unit,  > 0
e = base of the natural logarithm system (2.71828...)

Copyright © 2013 Pearson Education Ch. 4-36

 Poisson Distribution
Characteristics
Mean and variance of the Poisson distribution

 Mean μx  E[X]  λ
 Variance and Standard Deviation
σ  E[(X  μx ) ]  λ
2
x
2

σ λ
where  = expected number of successes per time or space unit

Copyright © 2013 Pearson Education Ch. 4-37

 Using Poisson Tables


X 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90

0 0.9048 0.8187 0.7408 0.6703 0.6065 0.5488 0.4966 0.4493 0.4066

1 0.0905 0.1637 0.2222 0.2681 0.3033 0.3293 0.3476 0.3595 0.3659
2 0.0045 0.0164 0.0333 0.0536 0.0758 0.0988 0.1217 0.1438 0.1647
3 0.0002 0.0011 0.0033 0.0072 0.0126 0.0198 0.0284 0.0383 0.0494
4 0.0000 0.0001 0.0003 0.0007 0.0016 0.0030 0.0050 0.0077 0.0111
5 0.0000 0.0000 0.0000 0.0001 0.0002 0.0004 0.0007 0.0012 0.0020
6 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0001 0.0002 0.0003
7 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000

Example: Find P(X = 2) if  = .50

e   X e 0.50 (0.50)2
P( X  2)    .0758
X! 2!

Copyright © 2013 Pearson Education Ch. 4-38

 Graph of Poisson Probabilities
0.70

Graphically: 0.60

 = .50 0.50

= P(x) 0.40

X 0.50
0.30
0 0.6065
0.20
1 0.3033
2 0.0758 0.10

3 0.0126 0.00
0 1 2 3 4 5 6 7
4 0.0016
5 0.0002 x
6 0.0000
P(X = 2) = .0758
7 0.0000

Copyright © 2013 Pearson Education Ch. 4-39

 Poisson Distribution Shape

 The shape of the Poisson Distribution

depends on the parameter  :

0.70
 = 0.50 0.25
 = 3.00
0.60
0.20
0.50

0.15
0.40

P(x)
P(x)

0.30 0.10

0.20
0.05
0.10

0.00 0.00
0 1 2 3 4 5 6 7 1 2 3 4 5 6 7 8 9 10 11 12

x x

Copyright © 2013 Pearson Education Ch. 4-40

 Examples

1) The ATM installed outside Mansfield Savings and Loan

is used on average by five customers per hour. The
bank closed this ATM for one hour for repair. What is
the probability that during that hour eight customers
came to use this ATM?

2) A washing machine in a laundromat breaks down an

average of three times per month. Using the Poisson
probability distribution formula, find the probability that
during the next month this machine will have
a) exactly two breakdowns
b) at most one breakdown
Copyright © 2013 Pearson Education Ch. 4-41