Chapter Four

Probability and Probability

Distribution
Outline
 Basic concepts in probability theory
 Probability Distributions
 Probabilty concepts
Probability
a measure of the likelihood or chance that an uncertain event will occur.

numerical measure

It can assume a value between 0 and 1

Experiment
as any process that generates well defined outcomes

Eg., tossing a coin, football match

Outcome
a particular result of an experiment, e.g., getting a head or a tail

Event
A specific collection of an outcome, e.g., getting even numbers in rolling a die

Sample space
A complete roster or listing of all possible outcomes.
Events
1. Independent events – the occurance of one event does not
affect the occurance of the other.
2. Dependent events – the occurance of one event affects the
occurance of the other event.
3. Mutually exclusive events – also called disjoint events that
can NEVER occur together. Have no inersection.
4. Collectively exhaustive events – contains all possible
outcomes.
5. Complementary events – all events that are outside a
certain event. Denoted as A’.
 Methods of Assigning Probabilities
1. The classical method – based on the assumption
that each outcome is equally likely to occur.
2. Relative frequency of occurance method –
based on cumulated historical data.
3. Subjective method – based on feelings or
insights of a person determining the probability.
Types of Probabilities
1. Simple probability – no. of events/N
2. Marginal probability – P(X)
3. Joint probability – P(XnY)
4. Union probability – P(XuY)
5. Conditional Probability – P(X/Y)
 Example
If the auditor selects one invoice at random, what is the
probability:
a)The invoice selected is for the deluxe model.

b)The invoice selected is for the standard model.

c)The invoice selected is a wholesale invoice.

d)The invoice selected is a retail invoice.

* Joint probabilities ** Marginal probabilities

Wholesale (W) Retail (R) Total

Deluxe (D) 36 (0.18)* 112 (0.56)* 148 (0.74)**
Standard (S) 24 (0.12)* 28 (0.14)* 52 (0.26)**
Total 60 (0.30)** 140 (0.70)** 200
 Laws of Probability
1. Additive Law – P(XuY)
i. If joint events – P(XuY) = P(X) + P(Y) – P(XnY)
ii. If mutually exclusive events – P(XuY) = P(X) + P(Y)
2. Multiplicative Law – P(XnY)
i. If dependent events – P(XnY) = P(X).P(Y/X)
ii. If independent events – P(XnY) = P(X).P(Y)
3. Laws of conditional probability – P(X/Y)
i. If depenedent events – P(X/Y) = P(XnY)/P(Y)
ii. If independet events – P(X/Y) = P(X)
Example – 1
A 1999 survey of 20,000 sales professionals conducted by Ethiopian
Telecommunication Corporation (ETC) found that 15% of all sales
professionals use home fax machines and 35% use mobile
telephones. Suppose that 1% of all sales professionals have both fax
machines and use mobile telephones.
a)What is the probability that a randomly selected sales professional
has a home fax machine or uses a mobile telephone?
b)What is the probability that a randomly selected sales professional
neither has a home fax machine nor uses a mobile telephone?
c)Suppose that no sales professional has both a home fax machine
and uses a mobile telephone. What is the probability that a randomly
selected sales professional has a home fax machine or uses a mobile
telephone?
Example – 2
1. What is the probability that a student selected at random is a
senior given that the selected student is female?
2. What is the probability that a student selected at random is
female given that the selected student is senior?

Senior Non-senior Total

Female 450 1350 1800
Male 350 1850 2200
Total 800 3200 4000
 Example – 3
According to a recent study conducted by businessmen, 76% of all
shareholders have some college education. Suppose that 37% of all
adults have some college education and that 22% of all adults are
share holders. For a randomly selected adult:
a.What is the probability the person did not own shares of stock?
P(A’)
b.What is the probability that the person owns shares of stock or had
some college education? P(AuB)
c.What is the probability that the person has neither some college
education nor owns shares of stock? P(A’nB’)
d.What is the probability that the person does not own shares of stock
or has no college education? P(A’uB’)
e.What is the probability that the person owns only shares of stock or
had some college education but not both? P(AuB) – P(AnB)
The Bayes’ Rule
 An extension to the law of conditional
proabilities
 Allows revision of orignial probabilities when
new information is needed.
 Prior proability – the initial proability
 Posterior probability – the revised probability
based on new information.
Example – 1
A company has three machines A, B and C which all produce the
same two parts, X and Y. Of all the parts produced, machine A
produces 60%, machine B produces 30%, and machine C
produces the rest.

40% of the parts made by machine A are part X, 50% of the parts
made by machine B are part X, and 70% of the parts made by
machine C are part X. A part produced by this company is
randomly sampled and is determined to be an X part. With the
knowledge that it is an X part, find the probabilities that the part
came from machine A, B or C.
 Solution: P(A/X)

 P A
PX P A  X 
PA  A 
X P X P A  P X P B  P X P C  P X 
A B C
( 0 .6 * 0 .4 ) 0.24
  0.52
0.6 * 0.4 0.3 * 0.5  0.1 * 0.7  0.46
 Bayesian Table

Event, Prior probability, Conditional Joint prob., Posterior/Revised

Ei P(Ei) Prob., P(X/Ei) P(EinX) prob., P(Ei/X)

A 0.60 0.40 0.24 0.24/0.46 = 0.52

B 0.30 0.50 0.15 0.15/0.46 = 0.33
C 0.10 0.70 0.07 0.07/0.46 = 0.15
P(X) = 0.46 1.00
Example – 2
Bruk, Alemayehu and yohannes fill orders in a fast food restaurant.
Bruk fills incorrectly 20% of the orders he takes. Alemayehu fills
incorrectly 12% of the orders he takes, and Yohannes fills
incorrectly 5% of the orders he takes. Bruk fills 30% of all orders,
Alemayehu fills 45% of all orders, and Yohannes fills 25% of all
orders. An order has just been filled.
a)What is the probability that Alemayehu filled the order?

b)If the order was filled by Yohannes, what is the probability that it
would was filled correctly?
c)Who filled the order is unknown, but the order was filled
correctly. What are the revised probabilities that Bruk, Alemayehu
or Yohannes filled the order?
d)Who filled the order is unknown, but the order was filled
incorrectly. What are the revised probabilities that Bruk,
Alemayehu or Yohannes filled the order?
Probability Distribution
Basic concepts:
A variable is a characteristic that can have different values or

outcomes.
A random variable is a variable whose numerical value is

determined by an outcome of a random experiment, or, a variable

whose outcomes occur by chance.
Discrete Random Variables: these are random variables which

can only assume non-negative whole numbers such as 0, 1, 2, 3,..,

n for example, the number of students in a class. (Countable)
Continuous Random Variables: these are random variables

which can take any value, that is, it can take any value over an
interval. For example, the height of an individual, the distance
traveled by a truck driver in a given hour. (Measurable)
 Probability Distribution: is a listing of the possible
values that a random variable can assume along with
their probabilities.
 Discrete Probability Distribution
 Binomial
 Hypergeometric
 Poisson

 Binomial Probability Distribution – deals with

population that can be divided into two categories
with reference to the presence or absence of a
particular attribute.
Assumptions of Binomial P.D.

1. The experiment involves n identical trials or sampling is done

with replacement.
2. Each trial has only two possible mutually exclusive
outcomes.[Bi = Two]
3. Each trial is independent of the previous trials.
4. The probability of success (P) and failure (q = 1-P) remain
constant for each trial.
5. In n trials, only X successes are possible where X is a whole
number between 0 and n [0≤ X≤ n]
6. It is applicable if the sample size n is less than 5% of the
population size N or if population is infinite.
 The Binomia Forumula
The probabilit y of exactly X success in n trials
n!
PX   p x q  Where : Px probabilit y of X success in n trial
n x

x!n  x !
n number of trials sample size 
x number of successes desired
P probabilti y of success
q 1  p probabilti y of failure
Examples
1. If we toss a coin three times, what is the probability of getting
exactly two heads?
2. The quality control department of a manufacturer tested the
most recent batch of 1000 catalytic converters produced and
found 50 of them defective. Subsequently, an employee
unintentionally mixed the defective converters with the non-
defective ones. If a sample of three converters is randomly
selected from the mixed batch, what is the probability that the
employee may get
a. One defective item?
b. Two defective items?
c. One non-defective item?
d. No defective item?
e. All defective items?
Examples
3. A town has three ambulances for emergency transportation to a
hospital. The probability that any one of these will be available at
a given time is 0.75. If a person calls for an ambulance, what is
the probability that
a.No ambulance will be available?

b.At least one ambulance will be available?

c.At least two ambulances will be available?

d.At most two ambulances will be available?

e.On average, how many ambulances will be available?

 Mean(µ) and Standard Deviation(δ) of a
Discrete Randome Variable
 µ = E(X) = ∑[X*P(X)]
 Where: E(X) = Expected value of X, long run average
 X = an outcome
 P(X) = the probability of that outcome

 δ = √∑[(X-µ) 2*P(X)]
 Mean(µ) and Standard Deviation(δ) of a
Binomial Probability Distribution
 µ = np
 Where µ is an average number of success
 n is the sample size
 p is the probability of success
 δ = √npq
 Where q is the probability of failure
Hypergeometric Probability Distribution
Assumptions:
It is a discrete distribution.
Each outcome consists of either a success or a failure.

Sampling is done without replacement.

The population size is finite and known.

It is described by three parameters: N, r and n.

 N = population size, n = sample size, r = number of success in the
population
The number of successes in the population, r, is known.
The sample size is ≥ 5% of the population.
The Hypergeometric Formula
nNxr * rx
P( X ) 
nN
 Where N is the total population, n is the sample size.
 r = number of successes in the population
 x = number of successes in the sample for which a probability is desired
 N-r = the number of items in the population that are labeled as failure
 N
Cn = the number of ways a sample of size n can be selected from a
population of size N.
 r
Cx = the number of ways x successes can be selected from a total of r
successes in the population.
 N-r
Cn-x = the number of ways n-x failures can be selected from a total of N-r
failures in the population.
Examples

1.24people, of whom eight are women, have applied for

a job. If five of the applicants are randomly selected,
what is the probability:
a.Three of those sampled are women?
b.All of those sampled are women?

c.All of those sampled are men?

d.At least one woman is in the sample?

Examples
2. A company produces and ships 16 personal computers
knowing that 4 of them have defective wiring. The company that
has purchased the computers is going to test thoroughly 3 of the
computers. The purchasing company can detect the defective
wiring when it is there. What is the probability that the
purchasing company will find:
a.No defective computer?
b.Exactly one non-defective computer?

c.Two or more defective computers?

d.At most one defective computer?

The Poisson Probability Distribution
 used to describe a number of processes or arrivals at a given
time interval.
Characterstics:
 The probability of an occurrence is the same throughout the
time interval or space per unit.
 The number of occurrences in one interval is independent of
the number of occurrences in another interval.
 It must be possible to divide the time interval of interest in to
many sub intervals.
 The expected number of occurrences in an interval is
proportional to the size of the interval.
 The Poisson Formula
 xe  t  e t 
x
PX   , Where :  mean number of arrivals per unit of time or space
X! X!
X number of arrivals for which the probabilit y is desired
e the base of natural log arithm
 exp ected number of occurrences in a specified int erval
t the proportion of this specifird int erval for the question of int erest
(number of units of time)
Examples:
1. Assume that a bank knows from past experience that between
10 and 11 a.m. of each day, the mean arrival rate is 60
customers per hour. Suppose that the bank wants to determine
the probability that exactly two customers will arrive in a one
minute time interval between 10 and 11 a.m. Arrivals are
assumed to be constant over a given time interval. Calculate
the probability.
2. If a real estate office sells 1.6 houses on average weekday and
sales of houses on weekdays are Poisson distributed, what is
the probability of selling:
a) Four houses in a day?
b) No house in a day?
c) More than five houses in a day?
d) Ten or more houses in a day?
e) Four houses in two days?
Examples
3. The number of paint blisters produced by an automated
painting process at Associated Industries is Poisson distributed
with a rate of 0.06 blisters per square feet. The process is about
to be used to paint an item that measures 9 by 15 feet.
a)What is the probability that the finished surface will have no
blister in it?
b)What is the probability that the finished surface will have
between 5 and 8, inclusive?
c)What is the probability that the finished surface will have
more than 2 blisters?
Continous Probability Distribution

 It is any representation of the values of continuous random

variable and the associated probabilities.
The Normal Distribution
 is a continuous distribution that has a bell shape and is

determined by its mean and standard deviation. Its variable is

denoted by x.
Characteristics of Normal Distribution
1. It is a continuous distribution.
2. It has a bell shape and is symmetrical about its mean.
3. It is asymptotic to the X- axis.
4. It extends infinitely in either direction from the mean.
5. It is defined by two parameters: µ and δ. Each combination of these two
parameters specifies a unique normal distribution. The value of µ indicates
where the center of the bell lies, while δ represents how spread out (or
wide) the distribution is.
6. It is measured on a continuous scale and the probability of obtaining a
precise value is zero.
7. The total area under the curve is equal to 1.0 or 100%; 50% of the area is
above the mean and 50% is below the mean.
8. The probability that a random variable will have a value between any two
points is equal the area under the curve between those two points.
Standard Normal Distribution
 is a normal distribution in which the mean is
0 and the standard deviation is 1. It variable is
denoted by z.
 Any normal distribution can be converted to
the standard normal distribution by
standardizing each of its observations in terms
of Z- values.
If a random variable X has mean µ and standard deviation δ, the
standardized variable Z is defined as:

X
Z , Where : Z  number of s tan dard deviations from the mean.

X  value of int erest
  mean of the distribution
  s tan dard deviation of distribution
Find the area under the curve:
1. P(0 < Z < 1)
2. P(0 < Z < 2.34)
3. P(-1 < Z < 0)
4. P(-1 < Z < 2)
5. P(Z < 1)
6. P(Z > -1.5)
7. P(Z > 1.5)
Examples
1. The Graduate Management Admission Test (GMAT) is
widely used by graduate school of business as an entrance
requirement. In one particular year, the mean score for the
GMAT was 485, with a standard deviation of 105. assuming
that GMAT scores are normally distributed, what is the
probability that a randomly selected score from this
administration of the GMAT:
a) Falls between 600 and the mean, inclusive?
b) Is greater than 650?
c) Is less than 300?
d) Falls between 350 and 550, inclusive?
e) Is less than 700?
f) Is exactly 500?
g) If 500 applicants take the test, how many would you expect to score
590 or below?
2. The result of an exam score for a given class is normally distributed. If the
mean score is 85 points and the standard deviation is equal to 20 points, find
the cutoff passing grade such that 83.4% of those taking the test will pass.
3. Data accumulated by the National Climatic Data Center shows that the
average wind speed in miles per hour for Addis is 9.7mph. Suppose that wind
speed measurements are normally distributed for a given geographical
location. If 22.45% of the time the wind speed measurements are more than
11.6mph, what is the standard deviation of wind speed in Addis?
4. The cylinder making machine has δ = 0.5mm and µ = 25mm. within what
interval of values centered at the mean will, the diameters of 80% of the
cylinder lie?
5. On a civil service exam, the grades are normally distributed with µ = 70
points and δ = 10 points. The police department hires the applicants whose
grades are among the top 10% of the population. What is the minimum grade
required to be hired?
6. The lives of light bulbs follow a normal distribution. If 90% of the bulbs have
lives exceeding 2000 hrs and 3% have lives exceeding 6000 hrs. What are the
mean and standard deviation of the lives of light bulbs?