Statistics for Business

TOPIC 04: DISCRETE & CONTINUOUS PROBABILITY

DISTRIBUTIONS
 TOPIC 4A
DISCRETE PROBABILITY
DISTRIBUTION
OUTLINE

▪ Random variable

▪ Discrete probability distribution

▪ Expected value and variance of discrete random

variable

▪ The Binomial probability distribution

▪ The Poisson probability distribution

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RANDOM VARIABLE

▪ Random Variable
• A random variable is a numerical description of outcome
of an experiment.

▪ Discrete Random Variable

• A Discrete Random Variable is able to take on a
countable number of values in an interval.

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RANDOM VARIABLE

▪ Continuous Random Variable

• A continuous random variable is assumed able to take
any value in an interval.

Any value is possible in this range

2 3 4 5 6 7 8 X

X: height, in feet

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 Introduction to
Probability Distributions

▪ Random Variable
Represents a possible numerical value from a
random experiment

Random
Variables

Discrete Continuous
Random Variable Random Variable

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Discrete Probability Distribution

▪ The Probability Distribution for a random variable

describes how probabilities are distributed over the
values of the random variable.

▪ A Probability distribution for discrete random

variable X is a list of possible variables of X and the
corresponding probabilities.

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Discrete Probability Distribution

▪ A Probability distribution can be presented as

• a table
• a graph (a histogram)
• a formula (a function)

probability
1/6
x 1 2 3 4 5 6
P (x) 1/6 1/6 1/6 1/6 1/6 1/6

1 2 3 4 5 6

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

x Value Probability
0 1/4 = .25
Probability

.50 1 2/4 = .50

2 1/4 = .25
.25

0 1 2 x

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Discrete Probability Distribution

▪ Discrete Probability Function f(x) is the function

that assigns a probability to each value of X.
f(x) = P(X=x) = P(x)

▪ Required Conditions for Discrete Probability

Function
• 0  P(x)  1
•  P(x) = 1

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Example

A shop offers sandwiches that have a price of $3.00 each

X: number of sales during a single hour of business from 3 to 5 p.m.

X = x (no. of sales/hour) P(x)

0 0.10
1 0.20
2 0.40
3 0.30

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Cumulative Probability Function

▪ Cumulative probability function F(x0), shows the

probability that X is less than or equal to x0
F(x0) = P(X ≤ x0)

▪ In other words,
F(x0) =  P(x) with x ≤ x0

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Example

A shop offers sandwiches that have a price of $3.00 each

X: number of sales during a single hour of business from 3 to 5 p.m.

X = x (no. of sales/hour) P(x) P(X ≤ x0)

0 0.10 0.10
1 0.20 0.30
2 0.40 0.70
3 0.30 1.00

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Discrete Probability Distribution

▪ Discrete Uniform Probability Function

f(x) = 1/n

n = the number of values the random variable may assume.

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EXPECTED VALUE and VARIANCE of
DISCRETE RANDOM VARIABLE
▪ Expected Value
E (x) =  =  x * P(x)
▪ Variance
Var (x) = 2 =  (x - )2 * P(x)
or
2 =  x2 * P(x) - 2
• Standard Deviation:

=  2

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Example

A shop offers sandwiches that have a price of $3.00 each

X: number of sales during a single hour of business from 3 to 5 p.m.

X = x (no. of sales/hour) P(x)

0 0.10
1 0.20
2 0.40
3 0.30

Compute the mean of X

Compute the standard deviation of X?

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Remember functions of random
variables
▪ If a, b are constants
• E(a) = a; Var (a) = 0

• E(bX) = b; Var(bX) = b2 2

• E(a+bX) = a+b; Var(a+bX) = b2  2

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 Example

A shop offers sandwiches that have a price of $3.00 each

X: number of sales during a single hour of business from 3 to 5 p.m.

X = x (no. of sales/hour) P(x)

0 0.10
1 0.20
2 0.40
3 0.30

Compute the mean of sales value during a single hour?

Compute the standard deviation of sales value during a single hour?

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THE BINOMIAL PROBABILITY
DISTRIBUTION
▪ A Binomial Experiment
A Binomial Experiment has 4 properties:
• The experimental consists of a sequence of n identical
trial.
• Two outcomes are possible of each trial: success and
failure.
• The probability of a success, p, does not change from
trial to trial. Consequently, the probability of a failure,
1-p, does not change from trial to trial.
• The trials are independent.

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THE BINOMIAL PROBABILITY
DISTRIBUTION
▪ Example of a Binomial Experiment
- 15 tosses of a coin (head or tail)
=> What is the probability of having 5 heads? More than 6
tails?...

- Ten light bulbs taken from a warehouse (defective or not

defective)
=> What is the probability of having 7 defective bulbs?
Less than 5 defective bulbs?...

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THE BINOMIAL PROBABILITY
DISTRIBUTION

▪ Binomial Probability Function

n x
f ( x ) =  p (1 − p )
(n − x )
x
▪ Expected Value and Variance for Binomial
Probability Distribution
• Expected Value: E(X) =  = np
• Variance: 2 = np (1-p)

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Example

▪ 15 tosses of a coin, what is the probability of

getting 5 heads? What is the expected value,
standard deviation of the number of heads in 15
tosses?
▪ 10% of an electric bulbs production run is
defective. Ten light bulbs taken from the run. Find
the probability of having 7 defective bulbs. Find the
expected value and the standard deviation of the
number of defective bulbs.

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THE BINOMIAL PROBABILITY
DISTRIBUTION

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POISSON DISTRIBUTION

▪ Refer to page 167 of the text book – extra reading

▪ It will not be included in the exam/quiz.

for any distribution, remember to understand:

- Characteristics of the distribution
- Formulas to calculate probability, mean, std.dev

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 TOPIC 4B
CONTINUOUS
PROBABILITY
DISTRIBUTION
Probability Distributions

Probability
Distributions

Discrete Continuous
Probability
Distributions
Probability
Distributions

Binomial Uniform

Poisson Normal

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OUTLINE

▪ Introduction

▪ The uniform probability distribution

▪ The normal probability distribution

▪ Normal approximation of Binomial probability

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INTRODUCTION

▪ A Continuous Random Variable is a random

that can assume any value in an interval or
collection of intervals.

▪ A Probability Distribution for a continuous

random variable is specified by a Probability
Density Function.

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INTRODUCTION
The probability density function, f(x), of random variable X has 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 1.0
3. The probability that X lies between two values is the area under the
density function graph between the two values
4. The cumulative density function F(x0) is the area under the probability
density function f(x) from the minimum x value up to x0

x0

F(x 0 ) =  f(x)dx
xm

where xm is the minimum value of the random variable x

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 INTRODUCTION

▪ Areas under the probability density curve are

probabilities.
Density f(x)

S
x
a b
b
P(a  X  b) = F (b) − F (a) = S =  f ( x)dx
a 30
INTRODUCTION

▪ Some popular probability distributions for a

continuous variable:
• Uniform Distribution
• Normal Distribution

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THE UNIFORM PROBABILITY
DISTRIBUTION
▪ Uniform Probability Density Function
 1
 for a  x  b
f (x) =  b − a
f(x) 
 0 elsewhere

h
Density

x
a b
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THE UNIFORM PROBABILITY
DISTRIBUTION
▪ Expected Value and Variance for Uniform
Distribution

a+b
b
E( x ) =  =  x.f ( x )dx =
a
2

Var ( x ) =  2
b
=  (x −  ) f ( x )dx =
2 (b − a)
2

a
12

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Example

▪ Uniform probability distribution is given over the

range 2 ≤ x ≤ 6:
• Find f(x)
• Find µ, 
• Find P(X≤ 3)

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The Normal Probability Distribution

▪ Normal Probability Density Function

− ( x − )2
1
f (x) = e 22
Where 2
 = Mean
 = Standard Deviation
 = 3.14159 Given the mean μ and
e = 2.71828 variance σ we define the
normal distribution using
X  N (, 2)
the notation:

X ~ N(μ,σ 2 )
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The Normal Distribution

▪ ‘Bell Shaped’
▪ Symmetrical f(x)
▪ Mean, Median and Mode
are Equal
σ
Location is determined by the mean, μ
x
Spread is determined by the standard μ
deviation, σ
The random variable has an infinite Mean
theoretical range:
= Median
x from −  to +  = Mode

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The Normal Probability Distribution

1  2  3

1 2 3

Same , different µ

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The Normal Probability Distribution

1

1 < 2

2

X
µ

Same µ, different 
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The Normal Probability Distribution
f(x)

S
a b
x

P( a < X < b) = area S

P ( -  < X <  + ) = 68.26%
P ( - 2 < X <  + 2) = 95.44%
P ( - 3 < X <  + 3) = 99.72% 39
The Standard Normal Distribution

▪ The Standard Normal Distribution

• The Standard Normal Distribution is the Normal
Distribution that has mean 0 and variance 1.

• A standard normal random variable Z is a variable

follows Standard Normal Distribution.

Z  N (0,12)

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The Standard Normal Distribution

▪ A Standardized Random Variable

• If X  N (, 2) then the standardized variables Z has
Mean 0 and Variance 1 and Z  N (0, 12)

X −
Z= f(x)


S
a b
x
 - 3  - 2 -  + +2 +3

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The Normal Distribution
Find the probability
X −
Z=
▪ X  N(, 2)  Z  N (0, 12)

▪ P (a < X < b) = P (ZA < Z < Zb) = S

a − b−
Za = Zb =
 

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The Normal Distribution
Find the probability
▪ Using the Table of Areas for Normal Curve to find
the value of S (p.738 of textbook).
f(x)

S
z
-3 -2 -1 0 1 2 3

Using Z table Using Z table

z S or S z
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p.738 of textbook

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Example

▪ X  N (100, 502), find:

P(X≤ 200)
P(X≤ 70)
P(X≥ 180)

▪ X  N (8, 52), find X that 20% of all values are below

X:

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Excel formula

▪ Know x0, find P(X≤ x0):

=NORM.DIST(x0 ,mean,standard_dev,1)
▪ Know prob, find x so that P(X≤x) = prob
=NORM.INV(prob, mean, standard_dev)
▪ Know z, find P(Z ≤ z) :
=NORM.S.DIST(z,1)
▪ Know prob, find z so that P(Z≤z) = probability:
=NORM.S.INV(prob)

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NORMAL APPROXIMATION of
BINOMIAL PROBABILITY
▪ When we encounter a binomial probability
distribution problem with a large number of trial,
we may want to approximate the binomial
probability. (or when np(1-p) ˃ 9)

▪ For a given n, the normal approximation will be

best when p= 0.5.

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NORMAL APPROXIMATION of
BINOMIAL PROBABILITY
▪ When using the normal approximation to binomial,
we set
 = np

 = np(1 − p)

in the definition of the normal curve.

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Example

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Differences Between Two
Random Variables
For two random variables, X and Y
▪ The mean of their difference is the difference of their
means; that is
E(X − Y) = μX − μY
▪ If the covariance between X and Y is 0, then the variance
of their difference is
Var(X − Y) = σ 2X + σ 2Y
▪ If the covariance between X and Y is not 0, then the
variance of their difference is

Var(X − Y) = σ 2X + σ 2Y − 2Cov(X, Y)
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Linear Combinations of
Random Variables
▪ A linear combination of two random variables, X
and Y, (where a and b are constants) is
W = aX + bY

▪ The mean of W is

μW = E[W] = E[aX + bY] = aμX + bμY

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Linear Combinations of
Random Variables
▪ The variance of W is

σ 2W = a2σ 2X + b2σ 2Y + 2abCov(X, Y)

▪ If both X and Y are joint normally distributed

random variables then the linear combination, W, is
also normally distributed

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Example

▪ Two tasks must be performed by the same

worker.
• X = minutes to complete task 1; μx = 20, σx = 5
• Y = minutes to complete task 2; μy = 30, σy = 8
• X and Y are normally distributed and
independent

What is the mean and standard deviation of

the time to complete both tasks?
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