Business Statistics I

Chapter 5

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Calendar
Today 10/18 10/23 Chapter 5 Homework Chapter 4 Finish Chapter 5 Start Chapter 6 Finish Chapter 6 Homework Chapter 5 - DELAYED Review Chapter 4-6 Mid-Term 2 on Chapters 4-6
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10/25 10/30

Random Variables
Must be numeric Discrete: a finite set of numbers, or an infinite sequence Ex: Table 5.1, p 195 Continuous: any number in an interval or collection of intervals Ex: Table 5.2, p 196

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Discrete Probability Distributions

Probability Distribution describes how probabilities are distributed over values of the random variable Probability Function, f(x), calculates the probability of the random variable, x Requirements: 0 and = 1
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Discrete Probability Distributions

Ex: DiCarlo Motors (pp 197-199)
f(0) is the probability that 0 cars are sold f(1) is the probability that 1 car is sold . f(5) is the probability that 5 cars are sold Frequency is given on p 197, Relative Frequency is given on p 198 see Fig 5.1, p 199 Both requirements are true 1-5

Discrete Uniform Probability Distribution

=
1

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Expected Value
Expected value, or mean, of a random variable: = = ()

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Variance
Variance now summarizes the variability in the values of a random variable = 2 = 2 ()

So its still a measure of the variability from the mean Ex: DiCarlo Motors Tables 5.4 & 5.5 pp 203-204
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Standard Deviation
This is still the square root of the variance

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Binomial Probability Distribution

Binomial experiments have four properties:
1. 2. 3. 4. A sequence of n identical trials Two outcomes are possible each trial The probability of a success is constant The trials are independent

A binomial probability distribution is the probability distribution of such a random variable Examples: Coin toss; insurance sales
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Binomial Probability Distribution

Connection with Combinations (x successes in n trials)

! ! !

Probability of independent events: (p 175) P(A B) = P(A) * P(B)

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Binomial Probability Distribution

= (1 )()

Where:

x = number of successes p = probability of any single success n = number of trials

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Martin Clothing Store Problem

3 purchase decisions with 2 purchases
3 2 3! 2! 32 ! (3)(2)(1) (2)(1)(1) 6 2

=3

In other words, there are three possible sequences these purchases could have happened (bottom of p 211)

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Martin Clothing Store Problem

Table 5.6 (p 212) x 0 1 2 3
3! (.30)0 (.70)3 = .343 0! 3!
3! (.30)1 (.70)2 = 1!2! 3! (.30)2 (.70)1 = 2!1! 3! (.30)3 (.70)0 = 3!0!

.441 .189 .027

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Binomial Probability Tables

For 0.01 p < 0.10
For 0.10 p 0.50 For 0.55 p 0.95

pp 989-991
pp 992-994 pp 995-997

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Binomial Probability Tables

Using the tables: 1. 2. 3. 4. Find the right set of tables based on p Find the set of rows for n Find the individual row for x Find the column for p

Ex: p 214
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Binomial Probability: Expected Value and Variance

Simplified from general formulas:

= = = 2 = (1 )

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Poisson Probability Distribution

Describes random arrivals over an interval, such as waiting lines

= !
Where for any interval: f(x) = probability of x occurrences = expected value of occurrences e = 2.71828
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Poisson Probability Distribution

The Poisson distribution function has a very unique characteristic for its variance; it happens that its variance exactly equals its mean:

= 2 =

This is buried in the second paragraph on p 219, but is on your formula sheets
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Poisson Probability Tables

For 0.1 < 20 pp 999-1004

1. Find the right range for 2. Find the row for x 3. Find the column for Ex. With length: p 220
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Hypergeometric Probability Distribution

Similar to Binomial Distribution BUT the trials are not independent and the probability changes from trial to trial Or: As you do one trial, the probability of the remaining trials has changed, such as when selecting items from a group
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Hypergeometric Probability Distribution

=

Where:

x = number of successes n = number of trials N = number of elements in population r = number of elements in population labeled success
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Hypergeometric Probability Distribution

Ex: Ontario Electric (p 222) 12 fuses per box Randomly select 3 fuses to test Its known that 5 fuses are bad
5 1 7 2

1 =

12 3

5! 7! 1! 4! 2! 5! = (5)(21) = .47727 = 12! 220 3! 9!

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Hypergeometric Probability Distribution

Expected Value:

= =
Variance:

= =

1
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Hypergeometric Probability Distribution

Ex: Ontario Electric (p 222-223) What is the probability of picking at least 1 defective fuse? Use Complement of an event f(x) = 1 - f(x) Calculate f(0), then f(x) = 1 f(0)
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Questions?

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