Topic: Probability and Probability

distributions
EMBA-502: Business Mathematics and
Statistics
Dr. M. Amir Hossain
November 16, 2019
 Important Terms

• Random Experiment – a process leading to an

uncertain outcome
• Basic Outcome – a possible outcome of a
random experiment
• Sample Space – the collection of all possible
outcomes of a random experiment
• Event – any subset of basic outcomes from the
sample space
 Important Terms

• Intersection of Events – If A and B are two

events in a sample space S, then the intersection,
A ∩ B, is the set of all outcomes in S that belong
to both A and B

A AB B
 Important Terms

• A and B are Mutually Exclusive Events if they

have no basic outcomes in common
· i.e., the set A ∩ B is empty
S

A B
 Important Terms

• Union of Events – If A and B are two events

in a sample space S, then the union, A U B, is
the set of all outcomes in S that belong to
either
A or B
S The entire shaded
area represents
A B AUB
 Important Terms

• Events E1, E2, … Ek are Collectively Exhaustive

events if E1 U E2 U . . . U Ek = S
· i.e., the events completely cover the sample space

• The Complement of an event A is the set of all

basic outcomes in the sample space that do not
belong to A. The complement is denoted
A

S
A A
 Examples
Let the Sample Space be the collection of all
possible outcomes of rolling one die:

S = [1, 2, 3, 4, 5, 6]

Let A be the event “Number rolled is even”

Let B be the event “Number rolled is at least 4”
Then
A = [2, 4, 6] and B = [4, 5, 6]
 Examples

S = [1, 2, 3, 4, 5, 6] A = [2, 4, 6] B = [4, 5, 6]

Complements:
A  [1, 3, 5] B  [1, 2, 3]

Intersections:
A  B  [4, 6] A  B  [5]
Unions:
A  B  [2, 4, 5, 6]
A  A  [1, 2, 3, 4, 5, 6]  S
 Examples

S = [1, 2, 3, 4, 5, 6] A = [2, 4, 6] B = [4, 5, 6]

• Mutually exclusive:
· A and B are not mutually exclusive
– The outcomes 4 and 6 are common to both

• Collectively exhaustive:
· A and B are not collectively exhaustive
– A U B does not contain 1 or 3
 Probability

• Probability – the chance that 1 Certain

an uncertain event will occur
(always between 0 and 1)

0 ≤ P(A) ≤ 1 For any event A .5

0 Impossible
 Assessing Probability

There are three approaches to assessing the

probability of an uncertain event:

1. classical probability
NA number of outcomes that satisfy the event
probability of event A  
N total number of outcomes in the sample space

 It is based on the assumption that the outcomes of an experiment

are equally likely.
 Using this classical viewpoint,
 2. Relative Frequency Concept

• The probability of an event happening in the

long run is determined by observing what
fraction of the time like events happened in the
past:

Number of times event occured in the past

Probability of event =
Total number of observations
 3. Subjective Probability
The likelihood (probability) of a particular event
happening that is assigned by an individual
based on whatever information is available.
An individual opinion or belief about the
probability of occurrence

There will be a cold waive at the end of January.

 EXAMPLE 1

Consider the experiment of tossing two coins

once.
The sample space S = {HH, HT, TH, TT}
Consider the event of ‘getting one head’.
Event A = {HT, TH}
Probability of getting one head = 2/4 = 1/2.
Example: Mutually Exclusive and Exhaustive
Events
Consider an experiment of tossing a fair coin
The sample space is : S = { 1, 2, 3, 4, 5, 6}
Consider three events: A, B, and C such that A:
getting an ODD number, B: Getting an EVEN
number, and C: getting a number above 3
So events, A = {1, 3, 5}, B = {2, 4, 6}, and C = {4,
5, 6}.
Here events A and B are mutually exclusive but A,
C and B, C are not exclusive.
Here events A and B are mutually exhaustive but A,
C and B, C are not exhaustive.
 EXAMPLE 4

In a sample of 500 students, 420 said they had a stereo,

175 said they had a TV, and 100 said they had both. If
a student is selected at random, what is the probability
that the student has a stereo, a TV, only a stereo, only a
TV and both a stereo and TV?
Answer: Let us define events S= a student has stereo,
T=a student has TV, S1= a student has only stereo, and
T1= a student has only TV
P(S) = 420/500 = 0.84 P(T) = 175/500 = 0.35
P(S1) = 320/500 = 0.64 P(T1) = 75/500 = 0.15
P(S ∩ T) = 100/500 = 0.20
 EXAMPLE 4 continued

EX.: If a student is selected at random, what is

the probability that the student has either a
stereo or a TV in his or her room?
P(S U T) = P(S) + P(T) - P(S ∩ T)
= 0.84 +0.35 -0.20
= 0.99

Ex: What is the probability that a student do not have neither

a stereo nor a TV
 The Complement Rule

Complementary Event: If A is an event, then

complement of A is denoted by Ac is the
event that contain all the remaining outcome
(Sample points) of the Sample space.
The complement rule of probability: If P(A) is
the probability of event A and P(Ac) is the
probability of complement of A, then
P(A) + P(Ac) = 1
Hence, P(Ac) = 1-P(A) OR P(A) = 1-P(Ac).
 Bivariate Probabilities

Outcomes for bivariate events:

B1 B2 ... Bk

A1 P(A1B1) P(A1B2) ... P(A1Bk)

A2 P(A2B1) P(A2B2) ... P(A2Bk)

. . . . .
. . . . .
. . . . .

Ah P(AhB1) P(AhB2) ... P(AhBk)

 Joint and Marginal Probabilities

• The probability of a joint event, A ∩ B:

number of outcomes satisfying A and B

P(A  B) 
total number of elementary outcomes

• Computing a marginal probability:

P(A)  P(A  B1 )  P(A  B 2 )    P(A  Bk )

– Where B1, B2, …, Bk are k mutually

exclusive and collectively exhaustive events
 Marginal Probability Example

P(Ace)
2 2 4
 P(Ace  Red)  P(Ace  Black)   
52 52 52

Color
Type Red Black Total
Ace 2 2 4
Non-Ace 24 24 48
Total 26 26 52
 Random Variables

• A random variable is a numerical value

determined by the outcome of an experiment.
• EXAMPLE: Consider a random experiment
in which a coin is tossed three times. Let X
be the number of heads. Let H represent the
outcome of a head and T the outcome of a
tail.
 EXAMPLE

• The sample space for such an experiment will

be: TTT, TTH, THT, THH, HTT, HTH, HHT,
HHH.
• Thus the possible values of X (number of
heads) are x = 0,1,2,3.
 EXAMPLE

• The outcome of zero heads occurred once.

• The outcome of one head occurred three times.
• The outcome of two heads occurred three times.
• The outcome of three heads occurred once.
• From the definition of a random variable, X as
defined in this experiment, is a random variable.
 Probability Distributions

• A probability distribution is a listing of all the

outcomes of an experiment and their associated
probabilities. From previous example

Number of Heads Probability of

Outcomes
0 1/8 = .125
1 3/8 = .375
2 3/8 = .375
3 1/8 = .125
Total 8/8 = 1
 Discrete Random Variable

• A discrete random variable is a variable that

can assume only certain clearly separated
values resulting from a count of some item of
interest.
• EXAMPLE : Let X be the number of heads
when a coin is tossed 3 times. Here the values
for X are x = 0,1,2,3.
 Continuous Random Variable

• A continuous random variable is a variable that

can assume one of an infinitely large number
of values.
• Examples: Height of a basketball player, the
length of a nap.
 Probability Distributions

Probability
Distributions

Discrete Continuous
Probability Probability
Distributions Distributions

Binomial Uniform

Hypergeometric Normal

Poisson Exponential
 Binomial Probability Distribution

• The binomial distribution has the following

characteristics:
 An outcome of an experiment is classified into one of two
mutually exclusive categories - success or failure.
 The data collected are the results of counts.
 The probability of success stays the same for each trial.
 The trials are independent.
 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 exhaustive categories
 e.g., head or tail in each toss of a coin; Bad or Good light bulb
 Generally called “success” and “failure”
 Probability of success is P , probability of failure is q=1 – P
 Constant probability for each observation
 e.g., Probability of getting tail is same each time we toss the coin
 Observations are independent
 The outcome of one observation does not affect the outcome of
the other
 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
Sequences of x Successes in n Trials

• The number of sequences with x successes in n independent

trials is:

n!
C n
x
x! (n  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
 Binomial Distribution Formula

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,
(x = 0, 1, 2, ..., n) n=4
P = 0.5
n = sample size (number of trials
or observations) 1 - P = (1 - 0.5) = 0.5
P = probability of “success” x = 0, 1, 2, 3, 4
 Example:
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
 Continuous Probability Distributions

• A continuous random variable is a variable that can

assume any value in an interval
· thickness of an item
· time required to complete a task
· temperature of a solution
· height, in inches
• These can potentially take on any value, depending
only on the ability to measure accurately.
 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

F(x)  P(X  x)
• Let a and b be two possible values of X, with a < b. The
probability that X lies between a and b is

P(a  X  b)  F(b)  F(a)

 Probability as an Area

Shaded area under the curve is the

probability that X is between a and b
f(x)
P (a ≤ x ≤ b)
= P (a < x < b)
(Note that the probability
of any individual value is
zero)

a b x
 The Normal Distribution

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

• The normal distribution closely approximates the probability

distributions of a wide range of random variables
• Distributions of sample means approach a normal distribution
given a “large” sample size
• Computations of probabilities are direct and elegant
• The normal probability distribution has led to good business
decisions for a number of applications
 The Normal Distribution Shape
f(x) Changing μ shifts the
distribution left or right.

Changing σ increases or
decreases the spread.
σ

μ x

Given the mean μ and variance σ we define the normal

distribution using the notation
X ~ N(μ,σ 2 )
 The Normal Probability Density Function

• The formula for the normal probability density

function is
1  (x μ) 2 /2σ 2
f(x)  e
 2π
Where e = the mathematical constant approximated by 2.71828
π = the mathematical constant approximated by 3.14159
μ = the population mean
σ = the population standard deviation
x = any value of the continuous variable,  < x < 
 Cumulative Normal Distribution

• For a normal random variable X with mean μ and

variance σ2 , i.e., X~N(μ, σ2), the cumulative distribution
function is
F(x 0 )  P(X  x 0 )

f(x)

P(X  x 0 )

0 x0 x
 Finding Normal Probabilities

The probability for a range of values is

measured by the area under the curve

P(a  X  b)  F(b)  F(a)

a μ b x
 Finding Normal Probabilities

F(b)  P(X  b)

a μ b x

F(a)  P(X  a)

a μ b x

P(a  X  b)  F(b)  F(a)

a μ b x
 The Standardized Normal
• Any normal distribution (with any mean and variance
combination) can be transformed into the standardized
normal distribution (Z), with mean 0 and variance 1
f(Z)

Z ~ N(0,1) 1
0 Z
• Need to transform X units into Z units by subtracting the mean of
X and dividing by its standard deviation

X μ
Z
σ
 Example

• If X is distributed normally with mean of 100

and standard deviation of 50, the Z value for
X = 200 is
X  μ 200  100
Z   2.0
σ 50
• This says that X = 200 is two standard
deviations (2 increments of 50 units) above the
mean of 100.
 Comparing X and Z units

100 200 X (μ = 100, σ = 50)

0 2.0 Z (μ = 0, σ = 1)

Note that the distribution is the same, only the scale has
changed. We can express the problem in original units (X)
or in standardized units (Z)
 Finding Normal Probabilities
 a μ b μ
P(a  X  b)  P Z 
 σ σ 
f(x)  b μ  a μ
 F   F 
 σ   σ 

a µ b x
a μ b μ
0 Z
σ σ
 Probability as
Area Under the Curve

The total area under the curve is 1.0, and the curve is
symmetric, so half is above the mean, half is below

f(X) P (   X  μ)  0.5
P (μ  X   )  0.5

0.5 0.5

μ X
P (   X   )  1.0
 General Procedure for Finding Probabilities

To find P(a < X < b) when X is distributed

normally:

• Draw the normal curve for the problem in

terms of X

• Translate X-values to Z-values

• Use the Cumulative Normal Table

 Finding Normal Probabilities

• Suppose X is normal with mean 8.0 and

standard deviation 5.0
• Find P(X < 8.6)

X
8.0
8.6
 Finding Normal Probabilities
• Suppose X is normal with mean 8.0 and standard
deviation 5.0. Find P(X < 8.6)
X  μ 8.6  8.0
Z   0.12
σ 5.0

μ=8 μ=0
σ = 10 σ=1

8 8.6 X 0 0.12 Z

P(X < 8.6) P(Z < 0.12)

 Solution: Finding P(Z < 0.12)

Standardized Normal Probability

Table (Portion) P(X < 8.6)
= P(Z < 0.12)
z F(z) F(0.12) = 0.5478
.10 .5398

.11 .5438

.12 .5478
Z
0.00
.13 .5517
0.12
 Upper Tail Probabilities

• Suppose X is normal with mean 8.0 and

standard deviation 5.0.
• Now Find P(X > 8.6)

X
8.0
8.6
 Upper Tail Probabilities

• Now Find P(X > 8.6)…

P(X > 8.6) = P(Z > 0.12) = 1.0 - P(Z ≤ 0.12)
= 1.0 - 0.5478 = 0.4522

0.5478
1.000 1.0 - 0.5478
= 0.4522

Z Z
0 0
0.12 0.12
 Finding the X value for a Known Probability

• Steps to find the X value for a known

probability:
1. Find the Z value for the known probability
2. Convert to X units using the formula:

X  μ  Zσ
 Finding the X value for a Known Probability

Example:
• Suppose X is normal with mean 8.0 and standard
deviation 5.0.
• Now find the X value so that only 20% of all
values are below this X

.2000

? 8.0 X
? 0 Z
 Find the Z value for 20% in the Lower Tail

1. Find the Z value for the known probability

Standardized Normal Probability • 20% area in the lower
Table (Portion) tail is consistent with a
z F(z) Z value of -0.84
.82 .7939 .80
.20
.83 .7967

.84 .7995
? 8.0 X
.85 .8023 -0.84 0 Z
 Finding the X value

2. Convert to X units using the formula:

X  μ  Zσ

 8.0  ( 0.84)5.0

 3.80

So 20% of the values from a distribution with mean

8.0 and standard deviation 5.0 are less than 3.80
 The Standard Normal Probability Distribution

• A normal distribution with a mean of 0 and a

standard deviation of 1 is called the standard
normal distribution.
• Z value: The distance between a selected
value, designated X, and the population mean

, divided by the population standard
deviation, 
X 
Z 

 EXAMPLE

• The monthly incomes of recent MBA

graduates in a large corporation are normally
distributed with a mean of $2000 and a
standard deviation of $200. What is the Z
value for an income of $2200? An income of
$1700?
• For X=$2200, Z=(2200-2000)/200=1.
 EXAMPLE

• For X=$1700, Z =(1700-2000)/200= -1.5

• A Z value of 1 indicates that the value of
$2200 is 1 standard deviation above the mean
of $2000, while a Z value of $1700 is 1.5
standard deviation below the mean of $2000.
 Areas Under the Normal Curve

 About 68 percent of the area under the normal

curve is within one standard deviation of the
mean.   1
 About 95 percent is within two standard
deviations of the mean.   2
 99.74 percent is within three standard
deviations of the mean.   3
 l i t r :
Between:
,

Areas Under the Normal Curve 1  . 68.26%

2  . 95.44%
3  . 99.74%
0 . 4

0 . 3

0 . 2
f ( x

0 . 1

. 0


- 5

  2 x
  2
  3   1   1   3
 EXAMPLE

• The daily water usage per person in New

Providence, New Jersey is normally
distributed with a mean of 20 gallons and a
standard deviation of 5 gallons.
• About 68% of the daily water usage per
person in New Providence lies between what
two values?
•  1  20  1(5). That is, about 68% of the daily
water usage will lie between 15 and 25
gallons.
 EXAMPLE
• What is the probability that a person from New
Providence selected at random will use less than 20
gallons per day?
• The associated Z value is Z=(20-20)/5=0. Thus,
P(X<20)=P(Z<0)=.5
• What percent uses between 20 and 24 gallons?
• The Z value associated with X=20 is Z=0 and with
X=24, Z=(24-20)/5=.8. Thus,
P(20<X<24)=P(0<Z<.8)=28.81%
 r a l i t r
EXAMPLE
b u i o n :  = 0 ,

0 . 4

0 . 3
P(0<Z<.8)
=.2881
0 . 2

0<X<.8
f ( x

0 . 1

. 0

- 5

-4 -3 -2 -1 0 x
1 2 3 4
 EXAMPLE

• What percent of the population uses between 18

and 26 gallons?
• The Z value associated with
• X=18 is Z=(18-20)/5= -.4, and for
• X=26 is Z=(26-20)/5=1.2.
• Thus P(18<X<26) = P(-0.4<Z<1.2)
= 0.1554+0.3849=0.5403
 EXAMPLE

• Professor Mann has determined that the final

averages in his statistics course is normally
distributed with a mean of 72 and a standard
deviation of 5. He decides to assign his grades for
his current course such that the top 15% of the
students receive an A. What is the lowest average a
student can receive to earn an A?
• Let X be the lowest average. Find X such that P(X
>X)=.15. The corresponding Z value is 1.04. Thus
we have (X-72)/5=1.04, or X=77.2
 EXAMPLE
• The amount of tip the servers in an exclusive
restaurant receive per shift is normally distributed
with a mean of $80 and a standard deviation of $10.
Shelli feels she has provided poor service if her total
tip for the shift is less than $65. What is the
probability she has provided poor service?
• Let X be the amount of tip. The Z value
associated with X=65 is
Z= (65-80)/10= -1.5.
Thus P(X<65)=P(Z<-1.5)=0.5-0.4332=0.0668.
  

EXAMPLE
r a l i t r b u i o n : = 0 , = 1

0 . 4

P(Z≤1.88) =0.5+.4699 =0.9699

0 . 3

0 . 2
f ( x

0 . 1
Z=1.88

. 0

- 5

0 1 2 3 4