STATISTICS FOR ECONOMISTS

A TEACHING MATERIAL FOR DISTANCE

STUDENTS MAJORING IN ECONOMICS

Module I

Prepared By:
Bedru Babulo
Yesuf Mohammednur

Department of Economics
Faculty of Business and Economics
Mekelle University

2005
Mekelle
1.0 INTRODUCTION
Welcome to world of statistics!
Statistics is one of the most important and useful subjects taught
in business as well as economics school. The overall objective of
this chapter is to acquaint you with the introductory concepts in
statistics and introduce you with different aspects of statistics.

Learning Objectives
When you have completed this chapter, you will be able to:
To define statistics and its branches
To introduce you with the basic concepts in statistics
To give some illustrations in its application

Presently, there is no successful social as well as natural scientist

can function with out some knowledge of statistics. Now days,
statistics has developed to an extent that it has become
indispensable in all aspects of our activities. We frequently see
or hear the following kinds of statements:
 The unemployment rate has dropped to 11%
 The GNP of Sub-Saharan African countries is rising at
1.7% per annum
 The average coffee Price in Addis Ababa become 10
Birr/kg
 And so on

All the aforementioned statements are some of the statistics

(numerical facts) we encounter. Now let’s turn our discussion

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towards defining statistics and the different aspects (branches) of
statistics.

1.1 Meaning of Statistics and Its Branches

The word statistik comes from the Italian word statista (meaning
“statesmen”). The term first used by Gottfried Achenwall (1719 –
1772), a professor in Marlborough and Gottingen. Dr E.A.W
Zimmerman introduced the word statistics in to England. Sir. John
Sinclair in his work, Statistical account of Scotland 1791 –1799
popularized its use. Long before the 18th c, however, people had
been recording and using data.

Different individuals have defined the term ‘statistics’ differently.

However, the meaning of statistics can be divided in to two major
categories. These are:

 The plural sense (statistical data/numerical facts)

 The singular sense (statistical method /or as a field of
study)

The plural sense: Statistics in its plural sense refers to
numerical facts, figures or statistical data. Example: population
statistics, production statistics, etc.

But merely all-numerical data do not fulfill the quality of

statistics. Hence, numerical data must possess the following
characteristics in order to be called statistics.

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 i. Statistics are numerically expressed. But every numerical
data may not be statistics. It should be well defined.
ii. Statistics are aggregates of facts. It should be general and
does not concern about individuals at specific manner.
iii. Statistics are affected to a marked extent by multiplicity of
causes.
iv. Statistics are enumerated or estimated according to
reasonable standards of accuracy.
v. Statistics are collected in a systematic manner.
vi. Statistics are collected for predetermined purpose.
vii. Statistics should be placed in relation to each other in time
and space. E.g. the economy grows by 1.9% (Where and
when?)

The Singular Sense: Modern statistics qualify its scientific

nature in its singular sense. Statistics is a branch of mathematics
or applied research which is concerned with the development and
application of methods and techniques for collecting organizing,
analyzing and interpreting quantitative data to come up with
sound decisions. Or, Statistics as a field of study has been
defined as the art and science of collecting, organizing, analyzing
and interpreting data. According to this definition there are five
steps in numerical investigation.

i. Data collection – It is the process of obtaining

measurements, counts or any other things by
experimentation or observation. (It is the first stage in
statistics/statistical analysis)

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 ii. Data Organization and Presentation- It is the process of
editing, classifying, condensing and presenting data using
tables, graphs, charts, etc.
iii. Data Analysis – It is the process of extracting relevant
information from a summarized or organized data with out
giving conclusions about the facts.
iv. Data Interpretation – It is the process of generalizing and
drawing valid conclusions from data analysis.

Now days, there are various statistical software packages that

made data organization and analysis very much easier. (E.g.
SPSS, SAS, STATA, etc)

In general, statistics is a field of study concerned with data

collection, organization and presentation, analysis and
interpretation. Particularly, in business and economics, a major
reason for studying statistics is to give managers and decision
makers a better understanding of the business and economic
environment and thus enable them to make more informed and
better decisions.

1.2 Descriptive Statistics Versus Inferential Statistics

Basically, the field of statistics has two aspects (or broad sub-
divisions): Descriptive statistics and inferential (analytical)
statistics.

Descriptive statistics – is concerned with the collection,

processing, summarizing and describing important features of the

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data with out going beyond (i.e. with out any attempt to infer
from the data).

For example, in some interval time period, the Central Statistics

Authority (CSA) or Ethiopian Economic Association (EEA) gathers
basic data concerning the number, age distribution, occupational
and educational composition of the Ethiopian people. Since the
amount of raw data gathered from Ethiopian people by CSA is
immense, it is necessary to condense and interpret this
information to make it useful. So the data will be summarized
and may be presented using tables, graphs or charts.

Table 1.1:Total Population of Ethiopia by Sex, Region, Urban & Rural:

July 1/2001.
(In thousands)
Urban Rural Total
Region
Male Female Total Male Female Total Male Female Total
Tigray 321 330 651 1547 1599 3146 1868 1929 3797
Affar 58 45 103 638 502 1140 696 547 1243
Amara 884 875 1759 7496 7493 14989 8380 8368 16748
Oromiya 1391 1391 2782 10101 10140 20241 11492 11531 23023
Somali (1) 317 269 586 1735 1476 3211 2052 1745 3797
Benishangul - Gumuz 25 25 50 253 248 501 278 273 551
southern
Nations/Nationalities &
Peoples 501 507 1008 5911 5984 11895 6412 6491 12903

Gambella 19 18 37 91 88 179 110 106 216

Harari 51 50 101 33 32 65 84 82 166
Addis Ababa 1237 1333 2570 0 0 0 1237 1333 2570

Dire Dawa provisional

Administration 120 119 239 46 45 91 166 164 330
Total 4924 4962 9886 27851 27607 55458 32775 32569 65344
/1/ …. BACKWARD PROJECTED POPULATION.
Source: EEPRI Database

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Source: Chart based on table 1.1 by the course team.

Inferential (Analytical) statistics – is concerned with the

process of using data obtained from sample to make estimates or
test hypotheses about the characteristics of a population. It
consists of a host of techniques that help decision makers to
arrive at rational decisions under uncertainty.

Actually, data are sought for a large group of elements

(individuals, households, products, etc). But due to time, cost and
other considerations, data are collected from only a small portion
of the group. Thus, economists, managers and other decision
makers draw conclusions, make estimates and test hypotheses
about the characteristics of population from the data for a small
portion of the group. This process is referred to as statistical

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inference. For instance, EEA may want to know the annual
income of a household (or individual) in Ethiopia. In this case,
EEA should collect data regarding the income level of households
in Ethiopia. This is, however, too costly and time consuming.
Hence, EEA may collect representative sample data from
households and based on this estimates (or make inference) the
annual income of the households.

Whenever statisticians use a sample to make an inference about

a characteristic of a population they provide a statement of the
quality, or precision, associated with the inference. For the EEA’s
example, the statistician (economist) might state that the
estimate of the average income of an individual in Ethiopia for
the population is $100 per annual with + $11 precisions at 95%
confidence level (statement of quality).

1.3 Statistics and Economics

Statistical data and methods of statistical analysis render reliable
assistance in the proper understanding of economic problems,
economic policy formulation economic planning and economic
forecasts.

For instance an economist may be asked to forecast the inflation

rates for some future period of time. In such situation, an
economist uses statistical information on indicators like producer
price index (PPI), the unemployment rate, and the manufacturing
capacity utilization. Often these statistical indicators are entered
in to computerize forecasting models that predict inflation rates.

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Economic problems almost always involve tasks that are capable
of being expressed numerically. Example: wages, prices, outputs
(of manufacturing, mining, agriculture) etc. These numerical
magnitudes are the outcomes of the multiplicity of causes and
are subject to variations from time to time or between places or
among particular cases. Accordingly, the study of economic
problems is specially suited to statistical treatment. Statistical
approach to an economic problem not only leads to its correct
description but also indicates lines along which it is to be
directed. Generally, statistics is indispensable for economic
policy formulation, planning and forecasting.

Apart from this, the development of economic theory also been

facilitated by the use of statistics. The complexity of modern
economic organizations has rendered deductive reasoning
inadequate and difficult. Statistics is now being used increasingly
not only to develop new economic concepts but also to test the
old ones.

Extremely, the increasing importance of statistics in the study of

economic problems has resulted in a new branch of study called
Econometrics (A subject matter to be discussed next year- at
junior syllabus).

So far, we have discussed meaning of statistics in its plural as

well as singular sense (as numerical facts and as field of study),
the subdivisions of statistics (descriptive and inferential statistics)

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and the use (application) of statistics in economics. Next, we
introduce some basic concepts (or terminologies) that are
important in order to understand the theory and practices of
statistics. Lastly, we forward a caution in using statistics as it can
be misused.

1.4 Some Basic Concepts (Terminologies) in Statistics

In this section some of the key statistical concepts that under lay
the theory of statistics are discussed below:
Data- are the facts and figures that are collected, analyzed, and
summarized for presentation and interpretation.
Data set – all the data collected in a particular study.
Discrete Data – refers to data obtained by counting. It assumes
always whole numbers.
Continuous Data – refers to data gathered by measuring and
can include decimal numbers.
Qualitative Data – is data that provide labels or names for a
characteristic of an element. Qualitative data may be numeric or
non-numeric.
Quantitative Data- is data that indicate how much or how many
of something. Quantitative data are always numeric.
Elements – are the entities on which data are collected or an
individual member in the data (or population).
Variable – refers to a characteristic of interest for the elements.
Qualitative variable – is a variable with qualitative data.
Quantitative Variable – is a variable with quantitative data.
Cross-sectional Data – is data collected at the same or
approximately the same point in time.

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Time Series Data – refers to data collected at several
successive periods of time.
Observation (cases) – is the set of measurements obtained for
a single element.
Population – is the totality of elements of interest in a particular
study.
Sample – is a subset of the population.
 Sampling- is the process of selecting a small number
of items or parts of a larger population to make
conclusions about the population.
 Census/complete Enumeration– is an investigation of
all the individual elements making up the population.
Population Elements – refers to an individual number of the
population.
Target population – is the specific complete group relevant to
the study or research project.
Population Parameters – are variables in a population or
measured characteristics of the population.
E.g. Population mean (μ) population standard deviation (δ) etc.
They are represented /symbolized by Greek letters.

Sample Statistics – are variables in a sample or measures

computed from sample data. E.g. Sample mean (x) sample
standard deviation(s) etc. They are symbolized by small letter
English alphabets.
Sampling Frame – is the list of elements from which a sample
may be drawn, also called Working population.

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Proportion – is the percentage of population elements that
successfully meet some criteria.
Frequency Distribution – refers to organizing a set of data in
table by summarizing the data showing the frequency (or
number) of items in each of non-over lapping classes.
Percentage Distribution (percent frequency distribution)– is a
tabular summary of a set of data showing the percentage of the
total number of items in each of several non-over lopping classes.
Probability Distribution - is a description of how the
probability are distributed over the values the random variable
can assume.

1.5 Limitations of Statistics

Indeed, statistics has grater significance in every branches of
knowledge as for as it is properly applied; but not with out
limitations. Some of the limitations of statistics are:

 It cannot be applied to all kinds of phenomena since it deals

with only those subjects that can be measured
quantitatively and expressed numerically.
 It deals with only aggregates of facts and does not give any
importance to individual items.
 Statistical analysis often is based on sampling, which may
not be accurate.
 It can be used to establish wrong conclusions if misused.

It may be used to mislead or deceive. Most of the time people

probably feel that statistics-numerical information– is some how

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“correct” than non-numerical information. But is not the case all
times. Once Benjamin Disraeli made the statement “there are
three kinds of lies: lies, damned lies, and statistics.” So, we
should neither trust all statistics nor distrust all statistics. The
point is well stated in the book statistics, a new approach by W.A
Wallis and H.V. Roberts they put that “he who trusts statistics
indiscriminately will often be duped unnecessarily. But he who
distrusts statistics indiscriminately will often be ignorant
unnecessarily.” (Cited in Bowen and Starr, 1987)

With this we end up our discussion of the first chapter an

introduction to statistics. In the coming chapter we see the
introductory concepts of probability theory.

Review Exercises

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2.0 Probability Theory: An Introduction

Learning Objectives
When you have completed this chapter, you will be able to:
Define probability
Describe the classical, the empirical, and the subjective approaches to
probability.
Understand the terms employed in the concept of probability
Calculate probabilities applying the rules of addition and the rules of
multiplication under conditions of statistical dependence and independence
Calculate a probability using Bayes’ theorem
2.1 Introduction

Personally, in our daily lives we are faced with a lot of decision-

making situations that involve uncertainty. Perhaps you may ask
your self to analyze one of the following situations:
- What is the chance for me to score “A” in statistics?
- What is the likelihood that your (our/my) weekend picnic
be successful?
- Etc

In such situations we use the concept of probability in our daily

life with out detailed and actual knowledge of the concept in
other words we use it intuitively.

Professionally, much of statistical theory and practice rests on the

concept of probability, since conclusions concerning population
are drawn from samples and this is subject to certain amount of
uncertainty. Besides you may be asked one of the following:
As business economist:

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 - What is the chance that sales or quantity demand (Qdd)
will increase if the price of the product reduced?
- etc

As project analyst:

- What likely is the project will be completed on time?

The subject matter most useful in effectively dealing with such
uncertainties is enclosed under the heading probability.
Probability can be thought as a numerical measure of the chance
of likelihood that a particular event will occur. Here, before we
treat definition of probability in detail, let’s be familiar with some
of the basic concepts (terms) in probability.

2.2 Some Basic Concepts in Probability

Experiment – is process of observing or measuring something we

plan to do in which the outcome is uncertain .
Example: Taking ‘Statistics’ course the outcomes are pass, fail
and drop.
Flipping a coin the outcomes are head or tail.
Sample Space - is the set of all possible outcomes that may
occur as a result of a particular experiment.

E.g. S={pass, fail, drop}-Sample space for statistics experiment

S = {Head, Tail} – Sample space for flipping/tossing a
coin.

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Sample Point(s) [Event(s)]- is any one particular experimental
outcomes; it is the subset of sample space.
Events may be:
Simple Event – is a subset of sample space that has exactly one
sample point. It can also be called as element or fundamental
event.
Compound Event – is a subset of sample space that has two or
more sample points.
Complement Event – the complement of event A is denoted by A’.
A’ is the event that has all the points in a sample space that are
not in A.
E.g. rolling a die: S = {1,2,3,4,5,6}
Event A = {1,3,5,}
Complement event of A, A’ = {2,4,6}.
Impossible Event – is a subset of sample space that contains
none of the points.
E.g. Rolling a die: S = {1,2,3,4,5,6}
E = {7} or E = {0}
Independent Events -Two events are said to be independent
when the happening of one event doesn’t affect the happening of
the other.
E.g. rolling a die
Dependent Events- Two events are said to be dependent when
the happening (or occurrence) and non-occurrence of an event
affects the happening of another event. E.g.
Mutually Exclusive Event- Events are said to be mutually
exclusive if one and only of them can take place at a time.

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Collectively Exhaustive Events/Lists- When a set of events for an
experiment includes every possible outcome the set is said to be
collectively exhaustive event/list.
E.g. flipping a fair coin twice: S = {HH, HT, TH, TT}
Once looking the basic concepts, we pass to formally give
definitions for probability.

2.3 Conceptual Approach to Probability

In fact, experts disagree about the concept of probability, since

there are various conceptual approaches in defining probability.
The most common are discussed below:

1. Classical Approach 2. Relative Frequency Approach

3. Subjective Approach 4. Axiomatic Approach

i. Classical Approach (or A priori Definition of

Probability)
This approach is based on the assumption that each of the
possible outcomes must be mutually exclusive and equally likely.
Algebraically:
Probability of an Event = Number of
outcomes where the event occurs
Total number of possible
outcomes.

- Equally likely means that each outcome of an experiment

has the same chance of happening as only other.

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Shortcoming of the Classical Approach

The classical method was originally developed in the analysis of

gambling problems, where the assumption of equally likely and
naturally exclusive outcomes is often reasonable. In many
economic and business problems, however, this assumption is
not valid. Hence, we look for alternative methods of assigning
probability.

Example: Tossing and coin: S = {H, T}, P (H) = ½ = 0.5

Rolling dice: P (S) = 1/6

ii. Relative Frequency Approach

According to this approach, the probability of an event is the

proportion of times that this event occurs over the long run if the
experiment is repeated many times under uniform conditions.

In the 1800s, British statisticians, interested in a theoretical

foundation for calculating risk of loss in life insurance and
commercial insurance, began defining probabilities from
statistical data collected on births and deaths. To day, this
approach is called the relative frequency of occurrence.

It defines probability as either:

(1) The observed relative frequency of an event in a very
large number of trials, or

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 (2) The proportion of times that an event occurs in the
long run when conditions are stable.
Example: Suppose that an insurance company knows from past
actuarial data that of all males 40 years old, about 60 out of
every 100,000 will die with in a one-year period. Using this
method, the company estimates the probability of death for that

age group as:

Exercise: Suppose that 400 of the 50,000 fire insured houses

has a fire. A fire insurance company would like to know the
probability of fire for fire insured houses, calculate this
probability?

Solution:

Sometimes this approach referred as objective probability since

experiments should be conducted or recorded data must be there
in order to compute probability.

Shortcoming of the Relative Frequency Approach

o People often use it without evaluating a sufficient
number of outcomes.
o This approach seems to imply that probability can play
no part in situation that occurs only once.
Thus, another method is required to compute probabilities.

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iii. Subjective (Personal) Approach
Subjective probability can be defined as the probability assigned
to an event by an individual, based on whatever evidence is
available. This evidence may be in the form of relative frequency
of past occurrences, or it may be just educated guess.

o Subjective probability assignments are frequently

found when events occur only once or at most a very
few times.
o In fact, most high-level social and managerial
decisions are concerned with specific unique
situations, rather than with a long series of identical
situations, decisions makers at this level make
considerable use of subjective probabilities.

This approach is used when outcomes are not mutually exclusive

and there is no objective data.

Generally, though there are three approaches of probability, we

can use any of the aforementioned approach determined
depending up on the problem under consideration.

2.4 Basic Axioms and Theorems Of Probability

1. Given a sample space, S, of a random experiment, the
probability of the entire sample space is 1.
i.e. P (S) = 1

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 2. The probability of an event ranges from 0 to 1.
0 ≤ P (A) ≤ 1
Where: A is any event in a random experiment
P (A) is the probability of A

3. If two events A and B are mutually exclusive (disjoint

events), then the probability of either A or B or both
P (A or B) = P (AUB) = P (A) + P (B) … Addition
rule

Diagrammatically:
A B

4. If two events A and B are not mutually exclusive, then the

occurrence of either event A or B is given by the probability:
Algebraically: P (A or B) = P (AUB) = P (A) + P (B) – P (A n B)

A B

5. If A is an event from a sample space, S, and A’ it its

complement then:
Algebraically: P (A) + P (A’) = 1
P (AUA’) = P (S) = 1

6. If two events are independent, the probability of both

events A and B occurring simultaneously is a product of the

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 individual probabilities. Independent events are not
necessarily naturally exclusive.

Symbolically: P (A and B) = P (A n B) = P (A). P (B) …

Multiplication rule for
I
ndependent events

7. If two events are dependent on each other, the probability

of both occurring simultaneously is given by the probability
of one event multiplied by the probability of the other given
that the first event has occurred.

Symbolically: P (A n B) = P (A). P (B/A) Multiplication rule

for Dependent
P (A n B) = P (B). P (A/B) events
Examples:

2.4 Probabilities Under conditions of Statistical

Independence
When two events happen, the outcome of the first event may or
may not have an effect on the outcome of the second event.
That is, the events may be either dependent or independent. In
this section, we examine events that are statistically
independent.

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Definition: - statistically independence is the case when the
occurrence of an event has no effect on the probability of the
occurrence of any other event.

There are 3 types of probabilities under statistical independence:

1. Marginal Probability
2. Joint Probability
3. Conditional Probability

1) Marginal Probabilities Under Statistical

Independence.
A marginal or unconditional probability is the simple probability of
the occurrence of an event.

Example: In a fair coin toss, P (H) = 0.5, that is, the probability of
heads equal 0.5, and the probability of tails equal 0.5. This is
true for every toss, no matter how many tosses have been made
or what their outcomes have been. Every toss stands alone and
is in no way connected with any other toss. Thus, the outcome of
each toss of a fair coin is an event that is statistically
independent of the outcomes of every other toss of the coin.

2) Joint Probabilities Under Statistical Independence

The probability of two or more independent events occurring
together or in succession is the product of their marginal
probabilities. Mathematically, this is stated as:

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P (A and B) = P (A n B) = P (A). P (B)
Where: P (A n B) = probability of events A and B occurring
together or in succession, this is known as joint probability.
P (A) – Marginal probability of event A occurring
P (B) - Marginal probability of event B occurring

For more than two events: P (A n B n C) = P (A). P (B). P (C)

Example: In terms of the fair coin example, the probability of

heads on two successive tosses is the probability of heads on the
first toss (which we shall call H 1) times the probability of heads on
the second toss (H2). We have shown that the events are
statistically independent, because the probability of heads on any
toss is 0.5, and P (H1n H2) = 0.5 x 0.5 = 0.25. Thus the probability
of heads on two successive tosses is 0.25.

Exercises: [Link] is the probability of getting, tails, heads, and

tails in that order on three successive tosses of a fair coin?
Solution: P (T1 H2T3) = P (T1). P (H2). P (T3)
= 0.5 x 0.5 x 0.5 = 0.125
You can also check using tree diagram
2. What is the probability of at least one tail on three
tosses?
Solution: At least one tail = means minimum of one tail otherwise
2 or 3 tails. There is only one case in which no tails occur namely
H1H2H3. Therefore, we can simply subtract for the answer.
P (at least one tail in 3 tosses) = 1 – P (all heads)
= 1 - (H1H2H3)

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 = 1 – 0.125 = 0.875

3) Conditional Probabilities Under Statistical

Independence

Thus far, we have considered two types of probabilities, marginal

(or unconditional) probability and joint probability. Symbolically,
marginal probability is P (A) and joint probability is P (AB). Beside
these two, there is one another type of probability, known as
conditional probability.

Conditional probability is the probability that a second event

(let’s say B) will occur if a first event (let’s say A) has already
happened.
Symbolically: P (B/A) read as probability of B given that event A
has occurred.

- For statistically independent events, the conditional

probability of event B given that event A has occurred is
simply the probability of event B:
P (B/A) = P (B)
- Thus, statistical independence can be defined
symbolically as the condition in which P (B/A) = P (B).

Examples: What is the probability that the second toss of a fair

coin will result in heads, given that heads resulted on the first
toss?
Solution: In this case the two events are independent.

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Symbolically: the question is written as: P (H2/H1)
*Using conditional probability under statistically
independent situation, P (H2/H1) = P (H2)
P (H2/H1) = 0.5
Check Yourself
1. What is the probability that a couple’s second third will be
a) A boy, given that their first child was a girl?
b) A girl, given that their first child was a girl?
Solution:
a) P (b/g) = P (b) = 0.5, since the events are statistically
independent
b) P (g/g) = P (g) = 0.5, since the events are statistically
independent
2. The four floodgates of a small hydroelectric dam fail and
are repaired independently of each other. From
experience, it is known that each floodgate is out of order 4
percent of the time.
a) If floodgate 1 is out of order what is the probability
that floodgates 2 and 3 are out of order?
b) During a tour of the dam, you are told that the
chances of all four floodgates being out of order are
less than 1 in 5,000,000. Is this statement true?
Solution:
a) P (2 and3) = P (2 n 3) = P (2). P (3)
= 0.04 x 0.04 = 0.0016
b) P (1n2n3n4) = P (1n2n3n4) = P (1). P (2). P (3). P (4)
= 0.04 x 0.04 x 0.04 x 0.04
= 0.00000256

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Compare 0.00000256 with 0.0000002. Comparing the values the
statement is False

2.5 Probabilities Under Conditions of Statistical

Dependence
Definition: - Statistical dependence exists when the probability
of some event is dependent up on or affected by the occurrence
of some other event.

Like the statistically independent events, there are three

probability types for statistically dependent events.

1) Conditional Probabilities Under Statistical

Dependence
If the occurrence and non-occurrence of an event depends on the
occurrence and non-occurrence of other event, the conditional
probability of an event given other event occurred can be
computed as follows:

Conditional probability = Joint probability of

A and B
Probability of B

Symbolically:

Example:

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 2) Joint Probabilities Under Statistical Dependence
Given the formula for computing condition probability under
statistical dependence and by undertaking minor arithmetic
rearrangement we can obtain the formula for joint probabilities
under statistical dependence as given below:

Symbolically: P (A n B) = P (A). P (B/A)

= P (A/B)
Example:

3) Marginal Probabilities Under Statistical Dependence

Marginal probabilities under statistical dependence are computed

by summing up the probabilities of all the joint events in which
the simple event occurs.

Symbolically: P (A) = P (AB) + P (AC)

Where: P (A)- represents probability of event A

P (AB) – refers to the probability of joint occurrence of

event A & B
P (AC) - refers to the probability of joint occurrence of
event A & C.

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Example:

Check yourself

1. According to a survey, in Developed Countries the

probability that a family owns two cars if its annual income
is greater than $35,000 is 0.75. Of the households
surveyed, 60 percent had incomes over $35,000 and 52
percent had two cars. What is the probability a family has
two cars and an income over $35,000 a year?
Solution:
Given: P (2 Cars/ >$35,000I) = 0.75
P (>$35,000I) = 0.6 P (2 Cars) = 0.52
Required: P (2 cars and > $35,000I) =?
P (2C n $35,000 I) = P (2C). P (> $35,000I/2C)
= 0.6 x 0.75
= 0.45
2. Two events, A and B, are statistically dependent, If P (A) =
0.39, P (B) = 0.21, and P (A or B) = 0.47, find the probability
that
i. Neither A nor B will Occur?
ii. Both A and B will occur?
iii. B will occur given that A has occurred?
iv. A will occur, given that B has occurred?

Solution:
Given: P (A) = 0.39 P (A or B) =P (AUB)= 0.47
P (B = 0.21

29
 i. P (A or B)’ = 1 – P (A or B) = 1 – 0.47 = 0.53
ii. P (A n B) = P (A). P (B/A) = P (B). P (A/B) = [P (A) + P (B)] – P
(AUB) = [0.39 + 0.21] – 0.47 = 0.6 – 0.47
= 0.13

iii.

iv.

2.6 BAYES’ THEOREM (Revising prior probabilities and

Estimating posterior ones)
In our discussion of conditional probability, we indicated that
revising probabilities when new information is obtained is an
important phase of probability analysis. Often, we begin our
analysis with initial or prior probability estimates for specific
events of interest. Then, from sources such as a sample, a
special report, or some other means, we obtain some additional
information about the events. Given this new information, we up
date the prior probability values by calculating revised
probabilities, referred as posterior probabilities, Bayes’ theorem
provides a means for making these probability calculations. The
steps in this probability revision process are shown in figure
below.

Prior New Application Posterior

Probabilities Information of Bayes’ probabilitie
Theorem s

30
Figure 2.1: Revising prior probabilities and Estimating posterior
probabilities

Example: An application Of Bayes’ Theorem

Consider a manufacturing firm that receives shipments of parts

from two different suppliers. Let A1 denote the event that a part
is from supplier 1 and A2 denote the event that a part is from
supplier 2. Currently, 65% of the parts purchased by the
company are from supplier 1 and the remaining 35% are from
supplier 2. Hence, if a part is selected at random, we would
assign the prior probabilities P (A1) = .65 and P (A2) = .35.

The quality of the purchased parts varies with the source of

supply. Historical data suggest that the quality ratings of the two
suppliers are as shown in the table below.

Table: 2.1Historical Quality Levels of Two Suppliers

Percentage Good Percentage
parts Bad parts
Supplier 1 98 2
Supplier 2 95 5

If we let G denote the event that a part is good, and B denote the
event that a part is bad, the information in table 2.1 provides the
following conditional probability values.

P (G/A1) = 0.98 P (B/A1) = 0.02

P (G/A2) = 0.95 P (B/A2) = 0.05

31
Based on the above information we can compute the joint
probabilities of a part being good and comes from supplier 1,
good and A2, a part being bad and supplied by A 1; and bad and
supplied by A2.

P (A1G) = P (A1) P (G/A1) or = P (G) P (A1/G) = .637

P (A1B) = P (A1) P (B/A1) = .0130
P (A2G) = P (A2) P (G/A2) = .3325
P (A2B) = P (A2) P (G/A2) = 0175

Suppose now that the parts from the two suppliers are used in
the firm’s manufacturing process and that a machine breaks
down because it attempts to process a bad part. Given the
information that the part is a bad, what is the probability that it
came from supplier 1 and what is the probability that it came
from supplier 2?

 With the prior probabilities and the join probabilities, Bayes’

theorem can be used to answer these questions.
- Letting B denote the event that the part is bad, we are
looking for the posterior probabilities P (A 1/B) and P
(A2/B). From the law of conditional probability and
marginal probability, we know that:

 P (A1 n B) = P (A1). P (B/A1) and P (A1 n B) = P (A1). P (B/A1)

 P (B) = P (A1nB) + P (A2 n B)
 P (B) = P (A1) P (B/A1) + P (A2) P (B/A2)

32
Substituting the above equations, we obtain Bayes’ theorem for
the case of two events.

Using the above formula:

Note that in this application we started with a probability of .65

that a part selected at random was from supplier 1. However,
given information that the part is bad, the probability that the
part is from supplier 1 drops to .4262. In fact, if the part is bad,
there is a better than 50-50 chance that the part came from
supplier 2; that is, P (A2/B) = .5738.

33
Bayes’ theorem is applicable when the events for which we want
to compute posterior probabilities are mutually exclusive and
their union is the entire sample space. Bayes’ theorem can be
extended to the case where there are n mutually exclusive
events A1, A2,…, An whose union is the entire sample space. In
such case, Bayes’ theorem for computing posterior probability P
(Ai/B) can be written symbolically as:

Bayes’ theorem calculated can be conducted using tabular

approach as well as tree diagram.

Check yourself
Once in the night, a speeding taxi struck a man as he crossed the
street. An eyewitness has testified that she thought the taxi
(which did not stop) was blue. The man sued the Blue cab
company for his medical expenses. The city where the accident
occurred has only two taxi companies: Blue cab and Green cab.
Green cab has 85 percent of the taxis’ in the city. At the trial, the
man’s lawyer shows that the eyewitness is 80 percent reliable in
identifying the color of taxis. That is, she was able to identify
correctly the color of taxis 80 percent of the time, under
conditions like those of the night accident. The lawyer concludes
that it is extremely likely that a Blue Cab was hit the man. Do
you agree? Why or Why not?

Solution:

34
Given: B = Blue E = eyewitness thought that the taxis was blue.
G = Green
P (E/B) = 0.8 P (E/G) = 0.2
P (B) = 0.15 P (G) = 0.85
Required: P (B/E)=?

Review Exercises

35
3.0 THEORETICAL PROBABILITY
DISTRIBUTION

Learning Objectives
When you have completed this chapter, you will be able to:
Define the terms probability distribution and random variable
Distinguish between a discrete and continuous probability distribution
Calculate the mean, variance, and standard deviation of a discrete
probability distribution
Describe the characteristics and compute probabilities using the binomial
probability distribution
Describe the characteristics and compute probabilities using the Poisson
probability distribution
Describe the characteristics and compute probabilities using the hyper
geometric probability distribution
Describe the characteristics and compute probabilities using the uniform,
normal and exponential probability distributions
Describe how to approximate different probability distributions and the
conditions necessary for approximating a probability distribution by other.

3.1 Random Variables and Probability Distribution

Random Variables: - is a numerical description of the outcome of

an experiment. The particular numerical value of the random
variable depends on the outcome of the experiment, i.e., the
value of the random variable is not known until the experiment
outcome is observed.
- Random variable can be classified as either Discrete or
Continuous depending on the numerical value it
assumes.

36
 i. Discrete Random Variables: - are random variables that
may assume either a finite whole number of values or an
infinite sequence of whole numbers such as 0,1,2…is
referred to as a discrete random variable.

Examples:
Experiment Random Variables Possible values for
the random variable
Take a 20 multiple Number of questions 0,1,2,3…20
choice question answered correctly
examination
Operate a Number of 0,1,2,3…
restaurant for one customers
day
Sell an automobile Gender of customer 0=if female
1=if male

Although many experiments have outcomes that are naturally

described by numerical values, others do not.

ii. Continuous Random Variables: - are variables that

assume any numerical value in an interval or collection of
intervals. Experimental outcomes that are based on
measurement scales such as time, weight, distance and
temperature can be described by continuous random
variables.

37
Examples:
Experiment Random Variables Possible values for
(X) the random variable
Operate a bank Time between X ≥ 0
customer arrivals in
minutes
Work on a project to Percentage of 0 %≤ X ≤ 100%
construct new project complete
library after six months

Note: One way to determine whether a random variable is

discrete or continuous is to think of the values of the random
variable as points on a line segment. Choose two points
representing values of the random variable. If the entire line
segment between the two points also represents possible values
for the random variable, the random variable is continuous.

Probability Distribution: - the probability distribution for a

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

i. Discrete probability Distribution:-If X is a discrete

random variable assuming values X 1, X2, …Xn with

38
 associated probabilities P (X1), P (X2), … P (Xn), the set of
points:

X1 P (X1)
X2 P (X2)
. .
. .
Xn P (Xn)

Conditions for discrete probability function: P (X) ≥ 0 and P (X)

=1

Examples:
Suppose that a fair die is thrown once. The outcomes are
number of dots. Let X be a random variable that represents the
number of dots of the die and P (X) the
Probability:

Random variable Probability Of X P

(Xi) (Xi)
Number of dots
1…………………….. 1/6
2…………………….. 1/6
3…………………….. 1/6
4…………………….. 1/6
5…………………….. 1/6
6…………………….. 1/6
P(Xi) = 1

39
Graphically:

P (Xi)

1/6

0 1 2 3 4 5 6Xi

The above example illustrates the uniform discrete

probability distribution, where each value of the random
variable has the same probability of being observed.

However it is not an only case that each value of the random

variable assumes equal chance of occurrence rather there exists
a case when each value of the random variable has different
probability of being observed, which is referred as non-uniform
discrete probability distribution. A good example of this is
tossing a coin, for instance, twice, three times, etc. Tossing a
coin three times what is the probability of observing head 0, 1, 2,
3 from the 8 possible outcomes.

40
Sample space (S) = {HHH, HHT, HTH, HTT, THH, THT, TTH, TTT}

Random variable Probability

Number of Heads P (Xi)
(Xi)
0…………………….. 1/8
1…………………….. 3/8
2…………………….. 3/8
3…………………….. 1/8

Cumulative Probability Distribution: - If X1, X2, X3, … Xn are

different values of X given in increasing order then the
cumulative probability of the first K values is given by:
P (Xk) = P (X1) + P (X2) +. …+P (Xk)

Example: Taking the last example, what is the cumulative

Random Probability probability distribution for heads
Variable P (Xk) to occur at least twice:
2 3/8
3 4/8

[Link].=
41
ii. Continuous Probability Distribution:(Probability
Density Function – PDF)
Assume that random variable X varies continuously from X 1 to Xk;
we define the PDF by the following integral:

Cumulative probability distribution- for a continuous random

variable, the PDF of f (X) probability that X will assume any value
less than or equal to Xk is given by:

Properties of Cumulative probability

1. 0 ≤ f (X) ≤ 1
2. If X1 < X2, then f (X1) < f (X2)
3. If X1 < X2, then P (X1 < X ≤ X2) = f (X2) – f (X1)

4. =0

5. =1

Example:
Consider a continuous random variable X that can assume values
between 2 and 6 with equal probability. The probability density

42
function f (X) = ¼. What is the probability that X will be smaller
than or equals to 5?
Solution

3. f (x)= KX2 for 0 ≤ X ≤ 2

0 elsewhere
Find the value of K for which f (x) is a valid PDF

Solution: P (0 ≤ X ≤ 2) =

= =1 K = 3/8

3.2 Mathematical Expectation

The expected value, or mean (or mathematical expectation); of a

random variable of the is the measure of the central location for
the random variable.

Expected Value of a Random Variable: The expected value of

discrete random variable x, denoted by E(x), is the weighted

43
nean of the possible values that the random variable can assume,
where the might attached to each value is the probability that the
random variable will assume this value. In other words,

Rules of Expected Values

1. If K is constant; then E (K) = K
2. If A and B are constants the E (aX + b) = a E (X) + b
(expected value of a linear function).
3. The mathematical expectation of the sum of two or more
random variables is equal to the sum of the expectations of
individual random variables.
I.e., E (X + Y + Z) = E = (X) + E (Y) + E (Z)
4. If X and Y are independent random variables, then E (XY) =
E (X). E (Y)
E (XY) ≠E (X). E (Y) for dependent random variables.
5. The expected value of the ratio of two random variables is
not equal to the ratio of the expected value of their random

variables. I.e.,

Examples:
1. A real-estate agent sells 0,1, or 2 houses each working
week with respective probabilities 0.5, 0.3, and 0.2.
Compute the expected value of the number of houses
sold per week?

Solution: E (X) = =

0.7

44
 2. Suppose you role a true die a million times. Calculate
the expected value of the population?

E (X) =

= (1 x 1/6) + (2 x 1/6) + (3 x 1/6) + 4 x 1/6) +

(5 x 1/6) + (6 x 1/6)
= 3 ½ = 3.5

3.3Variance and Standard Deviation of a Random

Variable

The variance measures that how individual values are speeded,

dispersed or distributed around its mean or expected value.

The variance of a random variable X, denoted by δ 2 (x), is the

expected value of the squared deviations of the random variable
from its expected value.

Where: is random variable

is the probability of its equaling xi.

Or

Standard Deviation = = =

45
 =

Or =

Properties of Variance
1. The variance of a constant is zero
2. If X an Y are two independent random variables, then Var.
(X + Y) = Var. (X) + Var. (Y)
3. If b is constant, then Var. (x + b) = Var. (x)
4. If a is constant, then Var. (ax) = a2. Var. (x)
5. If x an Y are random variables and a and b are constants,
the
Var. (ax + by) = a2 var. (x) + b2 var. (y)
Example:
1. Mr. Tujar buys a stock whose return (including both
dividends and change in price of stock) depends on whether
the nation’s GNP is rising, constant, or falling. If the GNP is
rising, the return is 20 percent (i.e., 20 cents per Birr); if it is
constant, the return is 5 percent; and if it is falling, the
return is -10 percent. If he believes that it is equally likely
that the GNP will rise, remain constant, or fall. What is the
expected value of the return from this stock? And what are
the variance and standard deviation of this stock’s return.
Solution: If it is equally likely that the GNP will rise, remain
constant or fall, the probability of each of these outcomes must
equal 1/3. Thus, the expected value is:

E (X) = 20(1/3) + 5(1/3) + -10(1/3)= 5

percent

46
 The variance is calculated as follows:

= (20.5) 2 1/3 + (5 – 5) 2 1/3 + (-10 – 5)2 1/3

= 225/3 + 0/3 + 225/3 = 450/ = 150

S.D. = = 12.25 percent.

3.4CHEBYSHEV’S INEQUALITY

Once we know the standard deviation of a random variable, we

can make some interesting statements about the extent of the
dispersion or variability among the values that the random
variable can assume. In particular, we can apply the following
theorem developed by the 19th century Russian mathematician P.
Chebyshev.

Chebyeshev’s inequality: for any random variable, the

probability that the random variable will assume a value with in K
standard deviations of the random variable’s expected value is at
least 1 – 1/[Link] other words, this theorem tells us that the
probability that a random variable will assume a value more then
K standard deviation from the random variable’s expected value
is less than 1/K2.

Example: You are given the expected value and standard

deviation of he profits to be made from a particular business

47
venture. The expected value is 400,000 Birr and the standard
deviation is 100,000 Birr. What is the probability that the profits
from this venture will be below zero or above 800,000 Birr? And
what is the probability that the profit will be between 400,000
Birr and 600,000 Birr?
Solution:
In this case, if you know the probability distribution of profits you
can figure out this probability exactly but you are not given, so
use Chebyshev’s inequality to determine the maximum and
minimum amount the probability can possibly be:

o The probability of the profits below 0 and above 800,000

Birr is the same as the probability that the profits will
assume a value more than 4 standard deviation from the
profits expected value. Thus, the maximum amount of this
probability can be 1/K2, which is equal to 1/42 = 1/16.
o The probability that the profit will be between 400,000 and
600,000 Birr is the same as the probability that the profit
will assume a value within 2 standard deviations from the
profit’s expected value. Thus, the probability is at least 1 –
1/22 = 1 – ¼ = ¾.

Covariance (Cov.)

The expected value and variance are commonly used to

summarize measures of a univariate PDF. But once we go
beyond the univariate PDF, in addition to the mean and variance

48
of each variable. Some additional characteristics of multivariate
PDFs such as covariance and correlation need to be considered.

Let X and Y are two random variables with means E (X) and E (Y).
The covariance between the two variables is defined as:
Cov. (X, Y) = E

For frequency distribution

Cov. (X, Y) =

Cov. (X, Y) = E Can assume negative

= E (X Y) – μx μy Values

3.5Discrete Probability Distributions

Discrete Probability Distribution has the following basic

distributions:
1. The Binomial probability distribution
2. The Poisson probability distribution
3. The Hyper geometric probability distribution

3.5.1The Binomial Probability Distribution

This distribution is one of the widely used probability distribution

of a discrete random variable. It describes discrete, not
continuous, data resulting from an experiment known as Bernoulli
process (or experiment). This distribution was first developed by
17th century Swiss mathematician, Jacob Bernoulli.

49
Properties of Binomial Experiment
1. The experiment consists of a series of n-identical trials.
2. In each trial there are only two possible outcomes. We
refer to one outcome as ‘success’ and the other as
‘failure’.
3. The probability of a success on one trial is denoted by P
and does not change from one trial to another. And the
probability a failure, denoted by q, which is equal to 1-P,
does not change from trial to trial. (Stationarity
assumption)
4. Statistically, the trials are independent.

If properties 2,3 and 4 are present we say that a Bernoulli

process generates trials.
If property 1 is present in addition to the three, we say that
we have a binomial experiment.

To illustrate, we can use the outcomes of a fixed number of

tosses of a fair coin as an example of a Bernoulli process.

1. We can toss a coin many times.

2. Each toss has only two possible outcomes: head or tail
3. The probability of the outcome of any toss remains
unchanged overtime. With P (H) remains 0.5 for each
toss regardless of the number of times the coin is tossed.
4. The outcome of one toss does not affect the outcome of
any other toss.

50
In a binomial experiment our interest is in the number of
successes occurring in the n trials. If we let X denote the number
of successes in n trials, we see that X can assume the values of
0,1,2,3…n. Since the number of values is finite, X is a discrete
random variable. The probability distribution associated with this
random variable is binomial probability distribution.

Let r denotes the number of successes in n trials, the r is random

variable that can assume values, 1,2,3…n. If the probability of
the happening of an event is P, the probability that it will happen
in exactly r out of n occasions is given by:

Or

Where: P = probability of success

q = 1-p = probability of failure
n = number of trials undertaken
r = number of successes desired.

Examples:
Suppose a company produces toothpaste. Historically, eight-
tenths of the toothpaste tubes were correctly filled (successes).
What is the probability of getting exactly three of six tubes (half a
carton) correctly filled?
Solution:

51
 Given: P = 0.8 r=3
Q = 0.2 n = 6, then using binomial formula

Probability of r success in n trials =

Probability of 3 correctly filled =

Tubes out of six or P (3) = 6 x 5 x4 x3! (0.512) (0.008)

3 x 2 x 1(3!)

= 120 (0.512) 0(0.0008)

6

= 20 (0.512) (0.008)

= 0.08192

Interpretation- the probability of getting exactly 3 tubes out of six

that are correctly filled is 0.08192.

Binomial tables are available: of course, we could have solved the

above problem by using binomial probability tables. In order to
use the table, take n, p and r values and look for the probability
value that corresponds to n, p and r.

Graphic Illustration of the Binomial Distribution

To this point, we have dealt with the binomial distribution in

terms of the binomial formula and table, but the binomial, like
any other distribution, can be expressed graphically as well. You
should understand that there is not just one binomial distribution.

52
Rather, there is a different distribution for each different pair of n,
p values.

Figure 1: Family of binomial probability distribution with constant

n = 5 and various p and q.

Probability
Probability

P = 0.1
P = 0.3
Q = 0.9
q = 0.7

0 1 2 3 4 5 0 1 2 3 4 5
r
r Probability
Probability

P = 0.7
P = 0.5 Q = 0.3
Q = 0.5

0 1 2 3 4 5
0 1 2 r
r3 4 5

P = 0.9
q = 0.1

53

0 1 2 3 4 5
 Probability

Figure 2: Family of binomial distribution with constant P =

0.4 and various ^ (^ = 5, ^ = 10 and ^ = 30)
Probability

^ =5
P = 0.4

0 1 2 3 4 5
r
Probability

^ =10
P = 0.4

0 1 2 3 4 5 6 7 8 9 10

54
 Probability 0 5 10 15 20 25 30
r
General Appearance of Binomial Distribution
In the figure above, with n constant and various p and q, we can
make the following generalizations:

 When P is small, the binomial distribution is skewed to the

right
 When P = 0.5, the binomial distribution is symmetrical
 When P is larger than 0.5, the binomial distribution is
skewed to the left
From figure above, with P constant and various n, we can make
the following generalizations: as n increases, the vertical lines not
only become more numerous but also tend to bunch up together
to form a bell shape.

55
Applications of Binomial Distribution

The binomial distribution is applied extensively on sampling

problems. In these applications it is customary to refer the size
of the sample rather than number of trials.1
Example: A tyre wholesaler has 500 super band tires in a stock.
And those 50 tires with slightly damaged steel belting are
randomly mixed in the stock. A retailer buys 10 tires. What is the
probability that the retailer receives 8 undamaged types?
Solution:
n = 10 P = 450/500 = 0.9
r=8 q = 50/500 = 0.1

P (8) =

= 10 x 9 x 8! . (0.9) 8
(0.1) 2
8! (2 x 1)
= 45 (0.9) 8 (0.1) 2
= 0.194

The binomial formula gives the probability of exactly r successes.

In many real world problems, however, we are interested in
cumulative probabilities, such as the probability of at most three
successes or more than 5 successes out of a specified n –
suppose n = 10 and P = 01.4, then the probability of at most
three successes would be: P (0) + P (1) + P (2) + P (3)
- Similarly, the probability of more than 5 successes would be:
P (6) + P (7) + P (8) + P (9) + P (10)
- Therefore: the cumulative (cum.) probability of r.
1
To calculate P for population, use the following formula P=R/N. where R be the number of successes in
the population and N be size of the population. The binomial requirements may be relaxed when n is small
compared with N (if n < 0.05 N).

56
 Cum. P(r) = [P (0) + P (1) + P (2) + …. + P(r)]

= …………………………… 1

P (at most r) = cum P(r) ……………………….…….. 2

P (less than r) = cum P(r-1) ………………………..…. 3
P (more than r) = 1 - cum P(r) …………….…………. 4
P (r) = cum P (r) – cum P (r-1) ………………………..
5

Illustration: Consider the following cumulative binomial probabilities for n = 10

and p = 0.4.

No of Cum. Prob.
Successes
(r)
0. 0.00605
……………
1………… 0.04636
….
2………… 0.16729
….
3………… 0.38228
….
4………… 0.63310
….
5………… 0.83376
….
6………… 0.94524
….
7………… 0.98771

57
 ….
8………… 0.99833
….
9………… 0.99990
….
10………… 1.00000
….

1. What is the probability of fewer than five successes?

Ans.063310
2. What is the probability of more than five successes? Ans.
0.16624
3. What is the probability of last four successes? Ans. 0.11772
4. What is the probability of most three successes? Ans. 0.38228
5. What is the probability of exactly six successes? Ans. 0.11148

Mean (Expected Value) and Variance of a Binomial

Distribution
Mean (Expected value) of a binomial distribution = =µ
The variance of a binomial = distribution
The standard deviation is =
Where: n = number of trials µ= mean P = probability of
success
= Variance q = probability of failure = 1 – P =S.D.
Example:
Take the case of a packaging machine that produces 20 percent
defective packages. If we take a random sample of 10 packages,

58
compute the mean (expected value) and the standard deviation
of the binomial distribution of that process like this?

Solution: 10 x 0.2 = 2 q =
= = 1.265

3.5.2 The Poisson Probability Distribution

The Poisson distribution named for its originator Simeon Denis

Poisson (1781 – 1840), a French man who developed the
distribution from studies during the latter part of his lifetime.
It is useful when dealing with the number of occurrences of an
event over a specified interval of time or space.

Properties of Poisson Distribution/ Conditions Leading to Poisson

Distribution/
1. The probability of an occurrence of the event is the same
for any two intervals of equal length.
2. The occurrence or non-occurrence of the event in any
interval is independent of the occurrence
or nonoccurrence in any other interval.
The Poisson probability function is given by probability of:
2

Where: = Probability of x occurrence in an interval

The expected value or the average number of
occurrences in an interval

2
In some texts where the average number of occurrences in an interval

59
 e = constant equals to 2.71828 …

Examples of Poisson distribution include the distribution of

telephone calls going through a switch board system, the
demand of patients for service at a health institution, the arrivals
of trucks and cars at a tollbooth, and the a number of accidents
at an intersection, etc.
Example:
1) A certain restaurant has a reputation for good food. The
restaurant management boasts that on a Saturday night, groups
of customers arrive at a rate of 15 groups every half an hour, on
average.
a) What is the probability that 5 minutes will pass with no
groups of customers arriving?
b) What is the probability that 8 groups of customers will
arrive in 10 minutes?
Solutions:
a) Given = 15 groups in 3 minutes.
15 = 30 min.
? = 5 min.
On average 2.5 groups in 5 minutes.

= = 

b) 15 = 30 min
? = 10 min

fortunately, the answers obtained using hand calculations can be obtained by looking up to the Poisson
probabilities table with out tedious work

60
On average 5 groups arrive in 10 minutes = ( )

= =0.0653

Just as with the binomial distribution, the Poisson

distribution also involves cumulative probabilities.

Example: Calls at a telephone switchboard follow a Poisson

process and occur at an average rate of six per 10 minutes. The
operator leaves for a 5-minute coffee break.
a) What is the value of ? Answer. 3
b) What is the probability that exactly two calls come in (and
so go unanswered) while the operator is a way? Answer
0.2240
c) What is the probability that more than three calls go
unanswered? Answer 0.3528

Poisson Distribution as an Approximation of the Binomial

Distribution

Some times, if we wish to avoid the tedious job of calculating

binomial distributions, we can use the Poisson instead. The
Poisson distribution can be a reasonable approximation of the
binomial, but only under certain conditions. There conditions
occur when n is large and P is small, that is when the number of
trials is large and the binomial probability of success is small.

61
 The rule most often used by statisticians is that the Poisson
is a good approximation of the binomial when n is greater than
or equal to 20, and P is less than or equal to 0.05. In cases
that meet these conditions, we can substitute the mean of the
binomial distribution (nP) in place of the mean of the Poisson
distribution ( ) so that the formula becomes:

……… Poisson formula for approximating binomial

formula

In approximating the binomial distribution using Poisson

distribution, always there exists a trade off between a bit of
accuracy and making easier calculation.
Example:

3.5.3 Hyper geometric Probability Distribution.

This distribution is closely related to binomial probability

distribution. But in hyper geometric probability distribution, the
trials are not independent. Thus, the probability of success
changes from trial to trial, the objective is to choose random
sample of n-items out of a population of N under condition that
once an item has been selected, it is not returned to the
population (with out replacement).

Earlier we noted that the binomial formula could be applied in

two-outcome sampling situations where the sample size n was

62
not more than 5 percent of the population size N. When n greater
than 5percent of N, the hyper geometric formula should be used.

Properties of Hyper geometric Probability Distribution (Conditions

for Hyper geometric Probability Distribution)

1. The result of each draw can be classified in to two

categories.
2. The probability of success in each draw changes

The hyper geometric probability formula P(r) =

Where: N = Population size

R = Number of successes in apopulation
n = Sample size
r = Number of successes in a sample.
Examples:
1. A population consists of 10 items, four of which are
classified as defective. What is the probability that a
random sample of size 3 will contain two defective items?
Solution: N = 10 R= 4
N=3 r= 2

P (2) = = =

2. Suppose that there are 15 identical tires in stock and 5 are

slightly damaged. What is the probability that a customer
who buys 4 tires will obtain 2 damaged tires?

63
Solution: N = 15 R=5
n=4 r=2

P (2) = = =

Note: Hyper geometric probability distribution is more tedious to

compute by hand. When n is not too large, use binomial formula
to approximate hyper geometric results. Still, it is better to use
Poisson formula to approximate hyper geometric results given
the following conditions:
- n 0.05 N
- n 20 and p 0.05

3.6CONTIONOUS PROBABILITY DISTRIBUTION

So far in this chapter we have been concerned with discrete

probability distributions. In this section, we shall turn to case in
which the random variable can take any value with in a given
range and in which the probability distribution is continuous.

In the discussion of discrete probability distributions, we

introduced the concept of a probability function ƒ (x). Recall that
this function provides the probability that the random variable x
assumes some specific value. In the continuous case, the
counterpart of the probability function is the probability density
function, also denoted by ƒ (x). For a continuous random
variable, the probability density function provides the value of
the function at any particular value of x; it does not directly
provide the probability of the random variable assuming some

64
specific value. However, the area under the graph of ƒ (x)
corresponding to a given interval will assume a value in that
interval.

There are several continuous probability distributions used in

statistical work. In this course we treat the following, which are
the most common.
1. The Uniform probability distribution
2. The Normal probability distribution
3. The Exponential probability distribution

3.6.1 The Uniform probability Distribution

A continuous probability distribution where the probability that

the random variable will assume a value in any interval is the
same for each interval of equal length is called a uniform
probability distribution.

Example: Suppose that a random variable x represents the total

flight time of an airplane traveling from Mekelle to Addis. Further,
assume that flight time can be any value in the interval 60 to 80
minutes. Let’s suppose that sufficient actual data are available to
conclude that the probability of the flight time between 60 and 61
minutes is the same as the probability of the flight time with in
any other 1 minute interval time up to and including 80 minutes,
with very one minute interval being equally likely, the random
variable x is said to have a uniform probability distribution:

Algebraically: ƒ (x) =

65
 ƒ (x) ƒ (x) = (1/20) (20)= 1 = Area
1/20

x (Flight time in minute)

0 60 80

Figure 3. :
In general, the uniform probability density functions for a random
variable x which can take a value from a to b can be represented
as follows:

ƒ (x) = for a x b elsewhere

The graph of the PDF provides the height or value of the function
at any particular value of x. Unlike the discrete probability
function the PDF for a continuous random variable does not
represent probability rather it provides the height of the function
at any particular value of x.

Area as a measure of probability

Consider the area under the graph in the interval from 60 to 70
from the above example.

66
 1/20

0
70 80 X
60

Figure 3. :

The probability that the arrival of the plane is between 60 and 70

minutes is equal to the shaded area [a (rectangle)] 3

Area = (10) = 0.5 probability

Once the PDF has been identified, the probability that x takes on
a value between some lower values (x 1) and some high value (X2)
can be obtained by computing the area under the graph of ƒ (x)
over the interval x1 and x2:

Symbolically: P (x1 x x2) = x2 – x1

Range

Example: P (68 x 76) =? Given that ƒ (x) =

60 x 8

Solution: P (68 x 76) = = = 0.4

3
Area of a rectangle = Base x Height.

67
Expected Value (Mean) and Variance of the Uniform Probability
Distribution.

 Mean = E (x) = a + b Where: a = Minimum value of x

2 b = Minimum value
of x

 Variance = Var. (x) = (b - a) 2

12
 Range = b – a
 Height = 1
b-a
 Area = 1

Examples:
1. The random variable X is supposed to be uniformly
distributed between 10 and 20.
a) Find P (x  15)?
b) Find P (12  x  18)?
c) Compute E (x) and Var. (x)?

2. The mean of a uniformly distributed random variable is 10

and the range is 1.8?
a) What are the smallest and the largest values of the
distribution?
b) What is the probability that the random variable can
take values between 9 and 10.5?
Solutions:

68
 1. (a) f (X) = f(x) =

P (10  x  15) = 15 – 10 = 5 = 0.5

10 10

(b) P (12  x  18) = 18 – 12 = 6 = 0.6

10 10

(c) E (x) = a + b Var. (x) = (b – a) 2

2 12

E (x) = 10 + 20 = 30 = 15 Var. (x) = (20 – 10) 2 = (10)

2

2 2 12 12
= 100 = 25
12 3
2. Given: E (x) = 10= a + b
2
Range = 1.8 = b – a

a) a + b = 10  a + b = 20 ……………………..1
2
1.8 = b – a  -a + b = 1.8……………….2
Solving equations 1and 2 simultaneously, we can find the result:

a + b = 20 a + b = 20

69
 -a + b = 1.8 a = 20 – b
2b = 21.8 a – 20 – 10.9
b = 21.8 a = 9.1
b = 10.9

b) f(x) =

P (9  x  10.5) =

3.6.2 The Normal Probability Distribution

The most useful theoretical distribution for continuous random

variable distribution is the Normal Distribution. Several
mathematicians were instrumental in its development, among
them the 18th century mathematician-astronomer Karl Gauss. In
honor of his work, the normal probability distribution is of the
called Gaussian distribution.

Importance of the Normal Distribution

There are two basic reasons why the normal distribution occupies
such a prominent place in statistics.

First, it has some properties that make it widely applicable in

various situations in which it is necessary to make inferences by
taking samples.

Second, it comes close to fitting the actual observed frequency

distributions of many phenomena. For instance, human

70
characteristics (weights, heights and IQs), outputs from
physical/process (like dimensions and yields) and other measures
of interest to economists and business professional in both the
public and private sectors.
E.g. Per capita income in developing countries, air pollution in a
community, etc

The Normal Curve

The form or shape of the normal probability distribution is
illustrated by the bell-shaped curve.

f (x)

x
 = Mean
=Mode
=Median

The probability density function for a normally distributed

probability distribution is as follows:

71
Where: x = the variable  = Mean = Standard
deviation
e = 2.718281 … = 3.14 …

Parameters of the Normal Probability Distribution

The parameters or characteristics of normal distributions are the
means () and the standard deviation ( ). There is no single
normal curve, but rather a family of normal curves. A particular
normal distribution is specified by its mean and standard
deviation.

Characteristics (Properties) of the Normal Probability

Distribution

1. The normal curve is bell-shaped and symmetrical about its

mean (). If the curves were folded along its vertical axis,
the two halves would coincide. The tails of the curve
extend to infinity in both direction and theoretically never
touch the horizontal axis.

2. The highest point on the normal curve occurs at the mean,

which are also the median and the mode of the distribution.
The height of the curve declines as we go on either
direction.

3. The standard deviation determines the width of the curve.

Therefore, larger values of standard deviation result in
wider and flatter curves that show more dispersion in the
data.

72
 4. The area under the curve is equal to 1.
5. Areas under the curve give probabilities for the normally
distributed variables. The area under the normal curve is
distributed as follows:
i)   = 68.27%, one-tail each = 34.14%
i))   1.96 = 95%, one-tail each = 47.5%
iii)   2 = 95.45%
iv)   3 = 99.73%

Standard Normal Probability Distribution

The equation of the normal curve depends on mean () and
standard deviation ( ) and for different values of  and we will
obtain different curves. This would necessitate separate tables
for a normal curve areas for each pair of  and . However, we
will be able to determine normal curve areas regardless of  and
by tabulating only the area under the normal curve having  =
0 and = 1. Such a normal curve is known as the Standard
Normal Curve.
X ~ N (, ). ………………… X-scale
Z ~ N (0, 1) ………………… Z scale
In order to transform the X - scale in to Z – scale, we use the
following formula:

Graphically: X-scale
Z-scale

73
The Z – value tells us how far away and in what direction X is
from its mean in terms of standard deviation.

The PDF for standard normal probability distribution is:

In any problem in which we are interested to determine area

under the normal curve whose  and are given, we change the
Xs in to Zs and then use the standard normal table. The table
provides areas for interval starting from Z = 0 and ending at a
positive values of Z. Since normal distribution is symmetrical, it
is not necessary to tabulate probabilities for negative values of Z.

Examples:
1. Find the area under the normal curve for Z =  1.54
Solution: P (0 + 1.54) = 0.4382 (from the table)
P (0 + -1.54) = 0.4382
P (-1.54  x  1.54) 0.4382 + 0.4382 = 0.8764

-1.54 0 1.54

2. The area to the right of Z = 0.25

Solution:

74
 0 0.25

P (x  0.25) = 0.5 – 0.0987 = 0.4013

3. The area to the left of Z = 1.96

Solution: 0.5 + 0.475 = 0.975

0 1.96

4. The area between Z = 0.6 and Z = 1.8

Solution:
P (0 + 1.8) = 0.4641
P (0 + 0.06) = 0.2257
P (0.6  x  1.8) 0.4641 - + 0.2257 = 0.2384

0 0.6 1.8

5. The area between Z = -0.4 and Z = 0.6, please try yourself.

General rule: If both Zs are on the same side of the mean, then
the area between them can be obtained by subtracting. And if

75
both Zs are on the opposite side of the mean, then the area
between them can be obtained by summing the two values.

Application Example:

1. The income of a group of 1000 persons found to be

normally distributed with mean 750 Birr per month
and a standard deviation of 50 Birr. Show that of this
group about 95% had income exceeding 668 Birr an
only 5% had income exceeding 832 Birr?
Solution:
Given:  = 750 Birr X1 = 668 Birr
= 50 Birr X2 = 832 Birr

Z1 = X1 -  = 668 – 750 = -82 = -1.64

50 50
 Income exceeding 668 Birr = 0.5 + 0.4495 = 0.9495=
95%

0.4495

0.5

-1.64
0

Z2 = X2 -  = 832 – 750 = 82 = 1.64

50 50

76
 Income exceeding 832 Birr = 0.5 - 0.4495 = 0.0505
= 5%

0.5

0 1.64

Check yourself

1. 15,000 students appeared for an examination. The mean

marks were 49 and a standard deviation of marks was 6.
Assuming that the marks are normally distributed.

a) What proportion of students scored more

than 55 marks? Answer: 15.87%
b) If grade ‘A’ is given to students scoring
more than 70 marks, what proportion of
students will receive grade ‘A’? Answer
0.0002%

2. The aptitude test score of job applicant are normally

distributed with mean of 140 and standard deviation
of 20.
a) What is the probability that a score will be in
the interval 100 and 180? Answer 0.9544.

77
 b) If 500 applicants take the test, how many would
you expect to score 145 or below? Answer
0.5987 x 500 = 299

c) What proportions of scores are from 110 to

120? Answer 15.98%
d) What percent of the scores exceed 183?
Answer 1.58%

Inverse Use of the Standard Normal probability Table

This means to find the value of Z, which corresponds to a given
probability in the table.
Example
1. (Z/p = 0.4864) = 2.21
2. (Z/p = 0.4922) = 2.42

Given probability we can find the value of Z, then change Z to X –

value using the formula

i.e., Z = x - 

X=z +

Example: Given: =100, = 10, what is the value of x for

which the left tail area is 0.05?

Solution: X=Z + (z/p = 0.45) = -1.64

= -1.64 (10) + 100
= -16.4 + 100
= 83.6

78
Conditions for the application of Z-statistic
The Z – transformation is applicable only in the following
conditions:
1. If the population variance is known.
2. If the population variance is unknown, but the sample size is
large (when n  30). If none of these conditions is satisfied
we cannot use the z-statistic.
(Others…)
Normal Approximation of Binomial Probabilities
Earlier in this chapter we presented the binomial probability
distribution. Binomial probability distribution is discrete
probability distributions for the number of successes in a sample
of size n, and probability questions pertain to the probability of x
success in n trials.

When the number of trials becomes large (say

15,20,500,1000,etc.) hand or calculator computation of the
binomial formula becomes tiresome and time consuming, though
not impossible. Besides, the binomial table in most statistics
books (at the appendix) do not include values of n greater than
20. Hence, when we encounter a binomial probability distribution
problem with a large number of trials, we may want to
approximate the binomial probability distribution. In this section
you will learn how to make the approximation and how large n
should be for close approximations.

79
Conditions where the Normal Approximation can be used:
In cases where the number of trials is greater than 20, np  5,
and nq  5, the normal probability distribution provides a simpler
way to approximate binomial probabilities.

Computing the Approximation:

When a normal approximation is used to binomial, we set

in the definition of the normal curve.

In order to approximate a binomial probability with the normal,

the following steps are used.
1. Find the x values by adding 0.5 or subtracting 0.5 to the
binomial values.
2. Transform the x values in to Z values
3. As for the case of normal distribution, compute the
probability from a standard normal table.

Example: Suppose that a particular company has a history of

making errors in 10% of its invoices. A sample of 100 invoices
has been taken, and we want to compute the probability that 12
invoices contain errors. That is, we want to find the binomial
probability of 12 successes in 100 trials.

Solution:In this case it is difficult, albeit not impossible, to use the

binomial formula. Hence, we should approximate it by another
distribution. Since the conditions for approximating binomial

80
probability by normal probability (np  5 and nq  5) is satisfied,
we compute the probability of 12 successes in 100 trials by using
normal approximation. To compute, the following steps are
followed:

1. Finding the values of x by adding 0.5 and subtracting 0.5.

The 0.5 we add and subtract is called a continuity correction
factor. It is introduced since continuous distribution is being
used to approximate a discrete distribution.

x1 = 12 + 0.5 = 12.5 and x2 = 12 – 0.5 = 11.5

Thus, P (x = 12) for the binomial distribution is approximated by

P (11.5 for the continuous distribution.

2. Transform the x values in to Z values.

For x1 = 11.5

Find the probabilities from the standard normal table for Z

values, and finally compute the P (11.5 )

P (0 to Z1) = 0.1915 P (0 to Z2) = 0.2967

81
 There fore, P (11.5 = 0.2967 – 0.1915
= 0.1052

- The normal approximation to the probability of 12

successes in 100 trials is 0.1052.
- Given the parameters, the normal distribution is shown in
the figure below.

Area = 0.1052

11.5 12.5

Figure:3. Normal approximation to a binomial probability

distribution with n = 100 and p = 0.1 showing probability of 12
errors.

3.6.3 Exponential Probability Distribution

It is a continuous probability distribution useful in dealing with the
time it takes to complete a certain task is the exponential
probability distribution. This distribution enables us to measure
the length of time between certain events. For this reason, the
exponential distribution some times referred as waiting-time
distribution.

The PDF is given by:

82
 Let

Example:

Assume that the time it takes to get a taxi follows an exponential

probability distribution. If the mean time to get a taxi is 5
minutes, then the appropriate PDF is:

The exponential probability distribution can be represented by

the ff curve

f (x)

To calculate probabilities for exponential random variable we

need to be able to find areas under the exponential distribution.
Suppose we want to find the area A to the right of some number
a as shown in the following figure.

83
 f(x)

A
X
a

Area (A) =

Let eu = , u = - x, = -

Area(A)=

=0
Area (A) = = Probability (x  a)

Area (A) + Area (B) =1

Area (B) = 1 – Area (A)
= 1- = Probability (x < a)
Example:

Given the following PDF f (x) =

(a) What is the probability that it takes 6 minutes or less

to get a taxi.

Solution: p (x< 6)= 1- =

b) What is the probability it takes more than 6minutes?

Solution: p (x> 6)= =

Review Exercises:

84
Behavioral Objectives

A. You should be able to define the following key concepts in this

chapter:

experiment *combination
outcome *permutation
event conditional probability
frequency definition of probability multiplication rule
subjective definition of probability independent events
sample space Bayes' theorem
mutually exclusive events prior probability
exhaustive events state of nature
addition rule

B. Make sure that you can do each of the following:

1. Present the frequency and subjective concepts of probability.

2. State, prove, and apply the addition rule for probabilities.
3. State and apply the concepts of conditional probability and
independence.
4. State, prove, and apply the multiplication rule for
robabilities.
5. Use Bayes' theorem to calculate the probabilities that
various
hypotheses are true, given that a particular event occurs.
6. Discuss the assumptions underlying Bayes' theorem and the

85
 controversies concerning its usefulness.
*7. Calculate the number of ways we can choose one of each of
m kinds
of items.
*8. Compute the number of permutations of x items that one
can select
from n items.
*9. Calculate the number of combinations of x items that one
can select
from n items.

Breakfast Food: A Case Study

Experts in marketing have devoted considerable study during the

past20 years to the way in which the probability that a consumer
will purchase a given brand of a product depends on what brands
he or she has purchased in the past. I As a very simple
illustration, suppose that it has been determined that a
consumer, if he or she purchases breakfast food, has a 20
percent chance of purchasing a particular brand of breakfast food
if he or she has purchased this brand once before, and a 10
percent chance of purchasing it if he or she has never purchased
it before.

(a) Suppose that this consumer had not tried this brand at the
beginning' of April, and that he or she purchased breakfast
food once in April and once in May. What is the probability
that he or she did not purchase, this brand either time?

86
Multiple-Choice Questions

1. Suppose thatP(A) = O.5,P(B) = 0.2, and P(A and B) = 0.2.

Which of the following is true?

(a) A and B are mutually exclusive and statistically

independent events.
(b) A and B are mutually exclusive but not statistically
independent
events.
(c) A and B are statistically independent but not mutually
exclusive
events. ,
(d) A and B are neither statistically independent nor mutually
exclusive
events.
(e) None of the above.

5. The probability that the Jones Company will go bankrupt in

1984 is 0.1. The probability that it will lose money in 1984 is
0.2. The probability that it will both go bankrupt and lose
money in 1984 is 0.1. The probability that it will either go
bankrupt or lose money (or both) in 1984 equals

(a) less than 0.1.

(b) 0.1
(c) 0.2
(d) more than 0.2.
(e) none of the above.

87
6. In the preceding question, whether the Jones Company will go
A. You should be able to define the following
Bernoulli
key concepts in this chapter:
random variable ./ process /
probability distribution / Bernoulli trials
binomial
variance of a random variable /
distribution
expected value of a random variable/ ./
acceptance number acceptance
acceptable quality level sampling
Chebyshev's
continuous random variable /
inequality /
rejection number
discrete random
variable
bank
rupt in 1984

(a) is not statistically independent of whether it loses money

in 1984. (b) is statistically independent of whether it loses
money in 1984. (c) cannot be represented by a probability.
(d) cannot be represented by a subjective probability.
(e) cannot be analyzed by statistical methods.

8. If peA) = 0.3 and PCB) = 0.6, what is P (not A and not B) if A

and B
are statistically independent?

A. You should be able to define the following key concepts in this

88
 random variable .
probability distribution
variance of a random variable
expected value of a random variable
continuous random variable
Bernoulli process
binomial distribution
Chebyshev's inequality

1. The random variable X has the following probability

distribution

Value of X Probability

0 .10

1 .20

2 .40

3 .20

4 .10

A. You should be able to define the following key concepts in this

chapter:

Z value
Poisson distribution
Normal distribution

89
Standard normal distribution

1. The scores on a particular psychological test are normally

distributed with mean equal to 100 and standard deviation
equal to 20. The probability that a score will exceed 130 equals:

(a) .4332.
(b) .0668.
(c) .3413.
(d) .1587.
(e) none of the above.

2. A manufacturer of pipe knows that the pipe lengths it produces

vary in diameter and that the diameters are normally
distributed. The mean diameter is 1 inch, and the probability
that a length of pipe will have a diameter exceeding 1. inches
is .1587. The standard deviation of the diameters must
therefore be

(a) 1 inches.
(b) .1 inches.
(c) 2 inches.
(d) .2 inches.
(e) none of the above.

3. The pipe manufacturer in the previous question wants to know

what the probability is that a diameter will exceed 1.2 inches.
You are hired as a consultant. Your answer should be

90
 (a) .05.
(b) .10.
(c) .0228
(d) .0793.
(e) none of the above.
4. The probability that the value of a standard normal variable is
less than 1.0 equals

(a) .0228.
(b) .0287.
(c) .6915.
(d) .8413.
(e) .0919.

5. The probability that the value of a standard normal variable

exceeds 1.9 equals

(a) .0228.

(b) .0287.

(c) .6915.

(d) .8413.

(e) .0919.

9. An insurance company finds that .003 percent of the

population dies of a certain disease each year. The company
has insured 100,000 people against death from this disease.

a) What is the probability that the firm must payoff in three or

more cases

91
 next year? (Use the Poisson distribution.)

b) What is the expected number of persons insured by this

company who will die of the disease next year? What is the
most likely number of persons who will die of the diseases
next year?

14. An experiment with three outcomes has been repeated 50

times and it was learned that EI occurred 20 times, E2
occurred 13 times, and E3 occurred 17 times. Assign
probabilities to the outcomes. What method did you use?

38. The survey of subscribers to Forbes showed that 45.8%

rented a car during the past 12 months for business reasons,
54% rented a car during the past 12 months for personal
reasons, and 30% rented a car during the past 12 months for
both business and personal reasons
(Forbes 1993 Subscriber Study).

a) What is the probability that a subscriber rented a car during

the past 12 months for business or personal reasons?
b) What is the probability that a subscriber did not rent a car
during the past 12 months for either business or personal
reasons?

43. Assume that we have two events, A and B, that are mutually
exclusive. Assume further that we know peA) = .30 and PCB) =
.40.

92
 a. What is peA n B)?
b. What is peA I B)?
c. A student in statistics argues that the concepts of mutually
exclusive events and independent events are really the
same, and that if events are mutually exclusive they must
be independent. Do you agree with this statement? Use the
probability information in this problem to justify your
answer.
d. What general conclusion would you make about mutually
exclusive and independent events given the results of this
problem?

3. Three students have interviews scheduled for summer

employment at the Brook wood Institute. In each case the
result of the interview will be that a position is either
offered or not offered. Experimental outcomes are defined
in terms of the results of the three interviews.
a. List the experimental outcomes.
b. Define a random variable that represents the
number of offers made. Is this a discrete or
continuous random variable?
c. Show the value of the random variable for each of
the experimental outcomes.
39. Suppose a salesperson makes a sale on 20% of customer
contacts. A normal work week will enable the salesperson to
contact 25 customers. What is the expected number of sales
for the week? What is the variance for the number of sales for
the week? What is the standard deviation for the number of

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 sales for the week?

44. Phone calls arrive at the rate of 48 per hour at the

reservation desk for Regional Airways.

a. Find the probability of receiving three calls in a five-minute

interval of time.
b. Find the probability of receiving exactly 10 calls in 15
minutes.
c. Suppose no calls are currently on hold. If the agent takes
five minutes to com current call, how many callers do you
expect to be waiting by that time? What probability that
none will be waiting?
d. If no calls are currently being processed, what is the
probability that the agent three minutes for personal time
without being interrupted?
56. Axline Computers manufactures personal computers at two
plants, one in Texas and the other in Hawaii. Ther areAO
employees at the Texas plant and 20 in Haaii. A random
sample of 10 employees is to be asked to fill out a benefits
questionnaire.

a. What is the probability that none are at the plant in Hawaii?

b. What is the probability that one is at the plant in Hawaii?
c. What is the probability that two or more are at the plant in
Hawaii?
d. What is the probability that nine are at the plant in Texas?

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 17. The demand for a new produt is assumed to be normally
distributed with = 20 = 40. Letting x be the number
of units demanded, find the following probabilities.
a) P(180  x  220)
b) P ( x  250)
c) P(x  100)
d) P(225  x  250)

25. Team Marketing Report, a sports-business newsletter,

estimates that the average total cost for a family of four to
attend a 1994 major league baseball game was $95.80 (The
Wall Street. Journal, April 5, 1994). Assume that a normal
distribution applies and that the standard deviation is $10.00.
a. What is the probability that the cost will exceed $[Link]?
b. What is the probability that a family of four will spend
$75.00 or less?
c. What is the probability that the cost will be between $85.00
and $1O0.00?

28. A Consumer Reports survey listed Saturn, Infiniti, and Lexus

automobile dealers as the top three in customer service
(Consumer Reports, April 1994). Saturn ranked number one,
with only 4% of the Saturn customers citing some form of
dissatisfaction with the dealer. Answer the following questions
about a group of 250 Saturn customers.

a. What is the probability that 12 or fewer customers will have

some
form of dissatisfaction with the dealer?
b. What is the probability that five or more customers will have

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 some
form of dissatisfaction with the dealer?
c. What is the probability that eight customers will have some
form of
dissatisfaction with the dealer?

29. The true unemployment rate is 7% (Business Week,

November 7, 1994). Assume that 100 employable people are
selected randomly.
a. What is the expected number who are unemployed?
b. What is the variance and standard deviation of the number
who are
unemployed?
c. What is the probability that exactly nine are unemployed?
d. What is the probability that at least five are unemployed?

35. The average life of a television set is 12 years (Money, April

1994). Productlifl follow an exponential probability distribution.
Assume that this is the case fortli a television set.
a. What is the probability that the lifetime will be six years or
less?
b. What is the probability that the lifetime will be 15 years or
more?
c. What is the probability that the lifetime will be between five
and 10
years?

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