Text Book: Complete Business Statistics (Aczel, Sounderpandian, Saravanan, Joshi)-7e

Poisson distribution, Poisson Process, Joint Distribution:

(51)
(a)What is mean and variance of Poisson distribution? How do you arrive at these?
(b) What is the distribution of sum of n independent random variables? Each random variable is
Poisson distributed with mean i , i 1,2,....., n .
(52) In a book of 590 pages, 390 typo-graphical errors occur. Assuming Poisson law for the number of
errors per page, find the probability that a random sample of 5 pages will contain no error.
(53)Suppose that the number of telephone calls coming into a telephone exchange between 10am and
11 am is a random variable which is Poisson distributed with parameter 2. Similarly the number of calls
arriving between 11am to 12 noon is another Poisson distributed random variable with parameter 6. If
the two random variables are independent, what is the probability that more than 5 calls come in
between 10 am to 12 noon?
(54) If X is a Poisson random variable such that,

P( X 2) 9P( X 4) 90P( X 6)
Find the mean of X ?
(55)

Subbu has recently joined Swetha Unlimited Services India (Ltd) also known as SUSIL. SUSIL is a major
service provider to many software companies in Bangalore. SUSIL handles the salary payments as well
as the salary deductions to the employees of the software companies. They also have to handle the
complaints received from the employees. Subbu is one of the complaint handlers specially designated
to handle the complaints of the employees of Indosys Pvt Ltd. The number of complaints that he
handles in a day is random but on average, he handles 8 complaints per day.
SUSIL, based on their contract with Indosys, pays Subbu according to his performance. His performance
is rated as Low, if he handles 5 or less number of complaints in a day. His performance is rated as
Par if he handles 6 to 10 complaints in a day and Excellent if he handles more than 10 complaints in
a day. He is paid Rs. 200 per a Low day, Rs. 300 per a Par day and Rs. 600 per an Excellent day.
Subbu feels this is somewhat unfair, since the arrival of complaints is a random process (Poisson) over
which he has no control. However, he has little choice in the matter.
(55a)On a particular day selected at random, what is the probability that Subbu is paid Rs. 600?
(55b)In a 5-day week, what is the probability that Subbu has 3 Low days?
(55c)What is the average amount received by Subbu in a day?
(56)

For the following bivariate probability distribution of X and Y, find

(a) P( X 1, Y 2) (b) P( X 1) (c) P(Y 3) (d) P(Y 3) (e) P( X 3, Y 4)
X\Y
0
1
2

1
0
1/16
1/32

2
0
1/16
1/32

3
1/32
1/8
1/64

4
2/32
1/8
1/64

5
2/32
1/8
0

6
3/32
1/8
2/64

(57) Given the following bivariate probability distribution, obtain (a) marginal distributions of X and Y
(b) the conditional distribution of X given Y 2 .
Y\X
0
1
2

-1
1/15
3/15
2/15

0
2/15
2/15
1/15

1
1/15
1/15
2/15

(58) Two discrete random variables X and Y have the joint probability density function:

p( x, y)

x e p y (1 p) x y
y !( x y) !

; y 0,1,2,.....,x; x 0,1,2,.....

0, 0 p 1. , p are cons tan ts

(a) Find marginal pdf of X and Y .
(b) Find conditional distribution (pdf) of Y for a given X and of X for a given Y .
(59) The joint pdf of a two dimensional random variable (X, Y) is given by:

f ( x, y ) 2; 0 x 1; 0 y x
0; o.w.
(a) Find the marginal density functions of X and Y .
(b) Find the conditional density function of Y given X x and of X given Y y .
(c) Check for independence of X and Y ?
(60)Let X and Y be random variables with joint distribution as given below:
X\Y
1
3

-3
0.1
0.3

2
0.2
0.1

4
0.2
0.1

(a) Find Cov( X , Y ) (b) Find ( X , Y ) (c) Are X and Y independent random variables?

(61)A manufacturer of cotter pins knows that 5% of his product is defective. If he sells cotter pins in
boxes of 100 and guarantees that not more than 10 pins will be defective, what is the approximate
probability that a box will fail to meet the guaranteed quality? (Use: Poisson as limiting case of
binomial).
(62) What is expected value and variance of exponential distribution?
(63)Question 3-66 of text book:
Light bulbs manufactured by a particular company have an exponentially distributed life with mean 100
hours.
(a) What is the probability that the light bulb I am now putting in will last at least 65 hours?
(b) What is the standard deviation of the lifetime of a light bulb?
(64) Question 3-93 of text book.
(65)
A large organization adopted ERP software for some time. The software is supposed to be operational
round the clock, everyday. But (as we know) it fails from time to time. The risk assessment
and mitigation of the organization is interested in analyzing frequency of (this) software failure and the
consequent losses to the company; towards this, an analyst, Hari is appointed.
He believes in his ability to model the reality on the basis of his domain knowledge. The following are
some of key dimensions of the model that he formulated regarding the failure of the software and
consequent expense (loss) for the company.
The software seems to have memory-less property: there appears to be no connection
between the number of software failures in disjoint time spans.
The possibility of two or more failures in a small time window can be ruled out.
The chance of one failure in a small time window (t, t + t) is t.
Having no failure in any 1 day is 1.822 times as likely as having no failure in 1 week.
Loss to organization from a failure of the software follows lognormal distribution, i.e.
Ln (Loss), natural logarithm of loss, follows normal distribution.
The median Loss to organization from a failure of the software is Rs 8100 and the 90th
percentile is Rs. 25,650.
[You may take ln (1.822) = 0.6; ln (8100) = 9.0; ln (25650) = 10.152; ln (50000) = 10.82]
(a) What is the average/expected number of ERP software failures per week? [Hint: the
intensity of the failures can be calculated from the 4th part of Haris model]
(b) What is the chance of having more than three ERP software failures in April but (and) only 1 such
failure between April 1 to April 10 (both days including)?
(c) Given that there are four ERP software failures in April, what is the chance for each of
them taking place between April 21 to April 30 (both days including)? Under the same

condition (i.e. given 4 failures in April), what is the expected number of failures between April 21 and
April 30? What about its variance (of the same, under identical condition)?
(d) What can be said about the percentage of ERP software failures that lead to a loss of no
more than Rs 50,000 to the organization?
(66)
Mavuru Islands (popularly known as Mavi) attained independence 3 years ago. At the time of
independence, the islands were divided into two separate countries namely Northern Mavi and
Southern Mavi, divided by the 37th parallel. As a result of the division, the oil refineries are in the
Southern Mavi where as the oil wells are in the Northern Mavi. There is an irrevocable treaty signed
between the two countries with regard to the crude and the refined products. Southern Mavi has to
buy the required crude only from Northern Mavi and Northern Mavi has to buy the refined oil products
only from Southern Mavi.
Southern Mavi has three refineries namely Amity Oil, Fortune Oil and Peoples Oil. The first two
refineries, which account for 25% each of the refining capacity, are in the private sector where as
Peoples Oil, accounting for 50% of the refining capacity is a public sector company. Recently, the
Government of Southern Mavi decided to privatize the People Oil and accordingly invited bids from the
two private companies. The company with the higher bid will acquire Peoples Oil at the bid amount.
Amity Oil is considering two possible bids, one at $2 billion and the other at $3 billion. They came to
know that Fortune Oil is also considering bids of similar amounts; but, of course, the chance that the
two bids will be exactly identical is zero. If Fortune Oils bid happens to be higher (even very marginally)
than that of Amitys bid, Amity will fail in the acquisition race. On the other hand, if Amitys bid is higher
(even very marginally) than Fortunes, then Amity will succeed in the acquisition race. Helen Reddy, the
Managing Director of Amity estimated that there is a 70% chance that Fortunes bid will be higher than
that of Amity, irrespective of Amitys bid. Amity has to borrow heavily at a high interest rate, from the
banks abroad to finance the acquisition, if they decide to bid $ 3 billion.
Acquiring such a large additional capacity has its own problems. The crude prices in the Northern Mavi
have been fluctuating widely in the recent months. The treaty between the two countries requires that
the higher cost of the crude, if the price goes up, has to be borne by the refining company. On the other
hand, Southern Mavi has an administered pricing mechanism for the refined products. As a result, the
refineries have to sell their products pre-determined prices. If Amity successfully bids $ 3 billion and
acquires Peoples oil, their interest commitment will be very high and be a drain on their resources.
Consequently, if the crude prices go up, they will not be able to operate at full capacity and end up
making heavy losses. On the other hand, if they bid only $2 billion and are successful in the acquisition,
there are no interest costs and they will make decent profits, irrespective of the crude prices. Helen
Reddy estimated the profits under each possible scenario. This data is given in the table below:

Profits under each scenario

Crude Prices
Bid

Acquisition Increase Decrease

Success

-70

80

Fail

40

-40

Success

30

40

Fail

-20

-50

$3 Billion

$2 Billion

She has also estimated that the probability of the crude prices going up in the next year is 0.60.
(66a)Draw the decision tree and advise Helen Reddy on the appropriate action.
(66b) What is the maximum possible value that Helen would be willing to pay for any kind of
information? [Hint: EVPI]
John Denver, a freelance consultant approached Helen Reddy with very valuable information. He told
Ms. Reddy that he has a mole inside Fortune Oil, who can get the exact bid value of Fortune, well in
advance. He also collected data on the crude prices and the terrorist activity in Northern Mavi in the
past 50 weeks. He presented that following frequency table to Helen Reddy.

Crude Prices
Terrorist
Activity

Increased Decreased

Total

Intensified

20

25

Weakened

10

15

25

Total

30

20

50

He has also informed Helen that he will be able to predict the terrorist activity with absolute certainty
because he has direct contacts with the terrorist leaders. Helen considered Mr. Denvers offer and
decided that she will put in a bid such a way that it will be successful if and only if it is predicted that the
terrorist activity will be weakened.
(66c)Should Helen Reddy take the information from Mr. Denver? What is the maximum amount that
she can afford to pay Mr. Denver?

(66d) What is the efficiency of the information provided by Mr. Denver?

(67)
Ajanta Construction Company wants to get into the boom of apartment construction in Bangalore. The
company must decide whether to purchase enough land to build a 50, 100 or 150 unit apartment
building. Many other Companies are in the same business and Ajanta Construction is unsure how strong
the demand for its apartments will be. If the company is conservative and builds only a few apartments
then it loses the potential profits if the demand is high. On the other hand, many unsold apartments
would also be costly to Ajanta. The following table gives the payoffs (in lakhs of rupees) based on three
levels of demand:
Demand
------------------------------------------------------------------------------------------------------------------Decision
D1: Low
D2: Medium
D3: High
--------------------------------------------------------------------------------------------------------------------Build 50
40
40
40
Build 100
10
80
80
Build 150
- 20
50
120
-------------------------------------------------------------------------------------------------------------------a) If P (Low) = 0.3, P (Medium) = 0.5 and P (High) = 0.2, which decision will maximize the expected net
profit?
b) What is the value of perfect information (EVPI)?
c) Ajanta wants to reduce the uncertainty about the number of apartments it should build. It has
decided to conduct a survey which will result in one of the three measures of demand: M1, weak: M2,
moderate; M3, strong.
The conditional probabilities are given below:
P (Mi / Dj)
-------------------------------------------------------------------------------------M1
M2
M3
-------------------------------------------------------------------------------------D1
0.7
0.2
0.1
D2
0.3
0.4
0.3
D3
0
0.3
0.7
--------------------------------------------------------------------------------------(i)Draw the decision tree for the problem.
(ii)What is Ajanta's optimal strategy?
(iii)What is the EVSI? Compare it to the EVPI obtained in (b)?
(68)
Citizens for Democracy, a civil society organization wants to find out the extent of errors in voter rolls.
Earlier experience shows that there are significant differences between urban and rural populations.

Based on past experience they estimate that there are 40% errors in Bangalore and 20% in Bangalore
Rural. Bangalore and Bangalore Rural have a population of 40 lakh each.
(68a)What sample size should they choose in Bangalore to ensure that the standard error in Bangalore is
1%?
(68b)What sample size should they choose in Bangalore Rural to ensure that the standard error in
Bangalore Rural is 1%?
(69) Four coins A, B, C, and D are tossed 100 times each. The standard deviations of the number of
heads are 5, 10, 15 and 20 respectively. Which of the coins is unbiased?
(70) Ex 5-28 of text book.
(71) Ex 5-29 of text book.
(72) Ex 5-31 of text book.
(73) Ex 5-34 of text book.
(74) Consider a population of size N with 20% of people having athletic abilities. Consider a sample size
of 10 drawn without replacement.
(a)What is the probability of getting 3 people with athletic abilities in the sample? (Assume that N is
very, very large).
(b) What is the probability of getting 3 people with athletic abilities in the sample? (Assume that N
equals 20).