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Semester 1
Assessment
Assessment for this course is via examination (60% at end of Semester 2), assignments (10% each semester) and computer-based
assessments (10% each semester). Ordinarily, if you fail this module you cannot proceed to Stage 2 of your degree!
Exam: May/June 2017 A two hour, open-book, computer-based exam based on whole course: Answer all questions.
Assignments: Dec 2016, May 2017 About three big questions in each, some of which will use your own personal datasets and
some of which will require you to use the computer package Minitab.
CBAs: Throughout the year Three CBAs in each Semester. Available in practice mode for one week and then exam
mode the next week. Some multiple choice questions, but mainly data response/calculations.
Every student will get a different set of questions from a bank of hundreds!
Must be done in your own time.
Other Stuff
Email: Check your University email every day announcements about the course will be made regularly!
Calculator: There is no way around it, you must have a scientific calculator for this course, and it must be on the Universitys
approved list! I recommend the Casio fX-85GT PLUS (about 10). You can get advice on how to use the Statistics
mode of your calculator in tutorials, and some video presentations on use of the calculator will be available from the
module webpage. You should bring your calculator to every class. You will be stuck without one!
MAS1403 - Provisional Schedule for Semester 1
Week 1 (week commencing 3/10/16) Topic 1: Data collection, display and summaries
Christmas vacation!
1.1 Definitions
The quantities measured in a study are called random variables and a particular outcome is
called an observation. A collection of observations is the data. The collection of all possible
outcomes is the population.
We can rarely observe the whole population. Instead, we observe some subset of this called
the sample. The difficulty is in obtaining a representative sample.
Categorical
Outcomes take values from a set of categories, e.g. mode of transport to Uni:
{car, metro, bus, walk, other}.
Discrete
Things that are countable, e.g. number of people taking this module.
Ordinal, e.g. response to questionnaire; 1 (strongly disagree) to 5 (strongly
agree)
Continuous
Things that we measure rather than count, e.g. height, weight, time.
Example 1
Identify the type of data described in each of the following examples:
(b) An opinion poll was taken asking people what is their favourite chocolate bar.
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MAS1403 Quantitative Methods for Business Management
Each element in the population is equally likely to be drawn into the sample.
All elements are put in a hat and the sample is drawn from the hat at random.
Advantages easy to implement; each element has an equal chance of being se-
lected.
Disadvantages often dont have a complete list of the population; not all elements
might be equally accessible; it is possible, purely by chance, to pick an unrepresen-
tative sample.
We take a simple random sample from each strata, or group, within the population.
The sample sizes are usually proportional to the population sizes.
Advantages sampling within each stratum ensures that that stratum is properly
represented in the sample; simple random sampling within each stratum has the
advantages listed under simple random sampling above.
Disadvantages need information on the size and composition of each group; as
with simple random sampling, we need a list of all elements within each strata.
The first element from the population is selected at random, and then every kth item
is chosen after this. This type of sampling is often used in a production line setting.
Advantages its simplicity! and so its easy to implement.
Disadvantages not completely random; if there is a pattern in the production pro-
cess it is easy to obtain a biased sample; only really suited to structured populations.
The person interested in obtaining the data decides who should be surveyed; for
example, the head of a service department might suggest particular clients to survey
based on his judgement, and they might be people who he thinks will give him the
responses he wants!
Advantages very focussed and aimed at the target population.
Disadvantages relies on the judgement of the person conducting the question-
naire/survey, and so cannot be guaranteed to be representative; is prone to bias.
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Similar to stratified sampling, but uses judgemental sampling within each strata in-
stead of random sampling. We sample within each strata until our quotas have been
reached.
Advantages results can be very accurate as this technique is very targeted.
Disadvantages the identification of appropriate quotas can be problematic; this
sampling technique relies heavily on the judgement of the interviewer.
Example 2
(a) A toy company, Toys 4 U, is to be inspected for the quality and safety of the toys it produces.
The inspection team takes a sample of toys from the production line by choosing the first
toy at random, and then selecting every 100th toy thereafter. What form of sampling are the
team using?
(b) Another inspection team is to investigate the quality of the smartphone covers made by a
local factory. In a typical working day the factory produces 100 covers for the new i-Phone
and 200 covers for the latest Samsung phone. Suggest a suitable form of sampling to check
the quality of the smartphone covers produced.
Solution
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MAS1403 Quantitative Methods for Business Management
Presenting these data in a relative frequency table by number of days on which different numbers
of cars were sold, we get the following table:
Cars Sold Tally Frequency Relative Frequency %
Totals
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MAS1403 Quantitative Methods for Business Management
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MAS1403 Quantitative Methods for Business Management
1.4 Exercises
1. Identify the type of data described in each of the following examples:
(a) An opinion poll was taken asking people which party they would vote for in a general
election.
(b) In a steel production process the temperature of the molten steel is measured and recorded
every 60 seconds.
(c) A market researcher stops you in Northumberland Street and asks you to rate between 1
(disagree strongly) and 5 (agree strongly) your response to opinions presented to you.
(d) The hourly number of units produced by a beer bottling plant is recorded.
2. A credit card company wants to investigate the spending habits of its customers. From its
lists, the first customer is selected at random; thereafter, every 30th customer is selected.
(a) Is this an example of simple random sampling, stratified sampling, systematic sampling,
or judgemental sampling?
(b) Is this form of sampling random, quasi-random or non-random?
3 5 1 0 0 2 1 0 3 1 4 3 2 0 1 1 1 2 0 4
4. The following data are the recorded length (in seconds) of 25 mobile phone calls made by
one student.
Complete the following percentage relative frequency table for these data.
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54 56 50 67 55 38 49 45 39 50
45 51 47 53 29 42 44 61 51 50
30 39 65 54 44 54 72 65 58 62
Stem Leaf
n= stem unit = leaf unit =
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Mode Frequency
Car 10
Walk 7
Bike 4
Bus 4
Metro 4
Train 1
Total 30
10
8
Frequency
6
This bar chart clearly shows that the most popular mode of transport is the car and the least
popular is the train (in our small sample).
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2.3 Histograms
Histograms can be thought of as bar charts for continuous data. First construct a grouped
frequency table then draw a bar for each class interval. Important point: unlike bar charts, there
are no gaps between the bars in a histogram.
Example 3
The following frequency table summarises the service times (in seconds) at a telephone call
centre.
12 24
10 20
Frequency
8 Relative 16
frequency
(%)
6 12
4 8
2 4
175 180 185 190 195 200 205 210 215 220 225 175 180 185 190 195 200 205 210 215 220 225
Time (s) Time (s)
We can also plot relative frequency (%) on the vertical axis: this gives a percentage relative
frequency histogram. These are useful for comparing datasets of different sizes.
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MAS1403 Quantitative Methods for Business Management
The following plot shows percentage relative frequency polygons for the two groups.
Example comments: The distribution of incomes on West Road is skewed towards lower val-
ues, whilst those on Jesmond Road are more symmetric. The graph clearly shows that income
in the Jesmond Road area is higher than that in the West Road area. The spread of incomes is
roughly the same in the two areas. There are no obvious outliers.
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Plot the upper endpoint of each class interval against the cumulative value.
Example 5
The following plot contains the cumulative frequency polygons for the income data at both the
West Road and Jesmond Road sites.
It clearly shows the line for Jesmond Road is shifted to the right of that for West Road. This tells
us that the surveyed incomes are higher on Jesmond Road. We can compare the percentages of
people earning different income levels between the two sites quickly and easily.
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MAS1403 Quantitative Methods for Business Management
For scatter plots, we comment on whether there is a linear association between the two vari-
ables? If so, is this positive (uphill) or negative (downhill)? Is the association strong? Or
maybe moderate or weak?
The plot above shows a clear positive, roughly linear, relationship between the two variables:
the more units made, the more it costs in total.
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Q1 Q2 Q3 Q4
2000 86.7 94.9 94.2 106.5
2001 105.9 102.4 103.1 115.2
2002 113.7 108.0 113.5 132.9
2003 126.3 119.4 128.9 142.3
2004 136.4 124.6 127.9
For time series plots, look out for trend and seasonal cycles in the data. Also look out for any
outliers.
The above plot clearly shows us two things: firstly, that there is an upwards trend to the data
(sales increase over time), and secondly that there is some regular variation around this trend
(sales are usually higher in quarters 1 and 4 than quarters 2 and 3.
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2.8 Exercises
1. The following table shows the weight (in kilograms) of 50 sacks of potatoes leaving a farm
shop (the data have been ordered from smallest to largest).
Display these data in a stem and leaf plot. State clearly both the stem and the leaf units.
Comment on the distribution of the data.
2. Which is more suitable for representing the data from Question 1 (above), a bar chart or a
histogram? Justify your answer.
3. A small clothes shop have records of daily sales both before and after a local radio advertis-
ing campaign. Relative frequency polygons of the sales data are shown below.
30
Before
20 After
10
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Example 3
Suppose we also asked four Stage 2 Marketing and Management students how many units of
alcohol they drank last week, and got: 21,0,12,14. Calculate the median.
Solution
The median is often used if the dataset has an asymmetric profile, since it is not distorted by
extreme observations (outliers).
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3. The mode
The mode is simply the most frequently occurring observation. For example, consider the
following data: 2, 2, 2, 3, 3, 4, 5. The mode is 2 as it occurs most often. The modal class is
easily obtained from a grouped frequency table or a histogram; its the class with the highest
frequency.
(n + 1)
Q1 = th smallest observation (lower quartile)
4
3(n + 1)
Q3 = th smallest observation (upper quartile).
4
Example 4
Calculate the inter-quartile range for the following data.
8.7, 9.0, 9.0, 9.2, 9.3, 9.3, 9.5, 9.6, 9.6, 9.6, 9.7, 9.7, 9.9, 10.3, 10.4, 10.5, 10.7, 10.8
Solution
n = 18, so the position of Q1 is (18 + 1)/4 = 4.75, therefore
And so
IQR = Q3 Q1 = 10.325 9.275 = 1.05.
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In practice most people simply use the Statistics mode on their calculator (mode SD or Stat).
The sample standard deviation is just the square root of the variance, and is often preferred as
it is in the original units of the data.
Example 5
Consider again the data on the number of units of alcohol consumed by a sample of 7 students
last week: 16, 52, 0, 6, 10, 0, 21. Calculate the sample variance and the sample standard
deviation.
Solution
We have already calculated the sample mean as x = 15. Now
X
x2 = 162 + 522 + 02 + 62 + 102 + 02 + 212 = 3537
1 1962
s2 = (3537 1575) = = 327
71 6
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Minimum Lower Quartile (Q1) Median (Q2) Upper Quartile (Q3) Maximum
10 40 43 45 50
Box plots are particularly useful for highlighting differences between groups.
Example 7
It clearly shows that although there is overlap between the three sets of data, the first and second
datasets contain roughly similar responses and that these are quite different from those in the
third set. Note that the asterisks (*) at the ends of the whiskers is the way Minitab highlights
outlying values.
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MAS1403 Quantitative Methods for Business Management
3.4 Exercises
1. Recall the following data from Exercise 1 in Chapter 2 on the weight (in kg) of 50 sacks of
potatoes leaving a farm shop.
2. Chloe collected the following data on the weight, in grams, of large chocolate chip cookies
produced by Millies Cookie Company.
27.1 22.4 26.5 23.4 25.6 26.3 51.3 24.9 26.0 25.4
To summarise, Chloe was going to calculate the mean and standard deviation for this sam-
ple. However, her friend Mark warned her that the mean and standard deviation might be
inappropriate measures of location and spread for these data.
3. An internet marketing firm was interested in the amount of time customers spend on their
website. They recorded the lengths of visits to the website for a sample of 100 customers
and whether the customer was male or female. The standard deviations of the lengths of
visits were 12.2 seconds for males and 18.5 seconds for females. Which group has the more
variable visit lengths, based on this sample, males or females?
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MAS1403 Quantitative Methods for Business Management
4 Introduction to Probability
4.1 Definitions
An experiment is an activity where we do not know for certain what will happen, but we will
observe what happens. An outcome is one of the possible things that can happen. The sample
space is the set of all possible outcomes. An event is a set of outcomes.
All probabilities are measured on a scale ranging from zero to one, and can be expressed as
fractions, decimal numbers or percentages.
is the
Notation: P (A) represents the probability of the event A, e.g. P (Rain tomorrow). P (A)
probability that A does not occur (not A).
The collection of all possible outcomes, that is the sample space, has a probability of 1. Two
events are said to be mutually exclusive if both cannot occur simultaneously. Two events are
said to be independent if the occurrence of one does not affect the probability of the other
occurring.
Example 1
Do you think the following pairs of events are independent?
2. Frequentist interpretation
When the outcomes of an experiment are not equally likely, we can perform the same exper-
iment a large number of times and observe the outcome. The probability of an event can be
estimated using the following formula:
Number of times an event occurs
P (Event) = .
Total number of times experiment performed
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3. Subjective interpretation
Probabilities are formulated subjectively using an individuals (sometimes expert) opinion.
(Useful when the experiment cant be repeated.) For example, when we board an aeroplane,
we judge the probability of it crashing to be sufficiently small that we are happy to undertake
the journey.
4.3 Examples
1. Chicken King is a fastfood chain with 700 outlets in the UK. The geographic location of its
restaurants is tabulated below:
Region
NE SE SW NW Total
Under 10,000 35 42 21 70 168
Population 10,000100,000 70 105 84 35 294
Over 100,000 175 28 35 0 238
Total 280 175 140 105 700
A health and safety organisation selects a restaurant at random for a hygiene inspection.
Assuming that each restaurant is equally likely to be selected, calculate the following prob-
abilities.
Solution
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MAS1403 Quantitative Methods for Business Management
Assuming each sector on the board is the same size, calculate the following probabilities.
(a) P (lands on a red shape) =
3. On the probability scale, how likely do you think it is that Newcastle United will be promoted
this season? Which approach to probability would you use to estimate this?
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Solution
We are told P (pass 1st test) = 0.35, P (pass 2nd test) = 0.25 and P (pass 1st and 2nd test) =
0.15. Therefore using the addition law
Note: if events A and B are mutually exclusive then P (A and B) = 0 since A and B cant
occur together. Therefore,
P (A or B) = P (A) + P (B).
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MAS1403 Quantitative Methods for Business Management
4.5 Exercises
1. Do you think the following pairs of events are independent or dependent? Explain.
2. The following data refer to a class of 18 students. Suppose that we will choose one student
at random from this class.
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5 Conditional probability
where P (B|A) is the conditional probability of B given that A has already happened.
Example 1
A small company has 10 employees: 4 male and 6 female. You, as the manager, select two
employees at random to attend a training session. What is the probability that you select two
female employees?
Solution
Re-arranging the above expression for the multiplication rule gives a formula for calculating a
conditional probability:
P (A and B)
P (B|A) = .
P (A)
Example 2
Recall that prospective interns at internet startup BlueFox face two aptitude tests. If 35 percent
of applicants pass the first test, 25 percent pass the second test, and 15 percent pass both tests,
what percentage of applicants pass the second test given that they passed the first test?
Solution
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Independent events: two events A and B are independent if P (B|A) = P (B), in which case
Example 3
Are the outcomes of the two aptitude tests at internet startup BlueFox independent? Justify your
answer.
Solution
Example 4
Employees at a Marketing firm are classified by age and sex as follows:
So, for example, 27.5% of employees are Male and under 30 years of age.
From this table, calculate
(a) P (Male) (d) P (30 to 50|Male)
(b) P (30 to 50) (e) Are the events Male and 30 to 50 independent?
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MAS1403 Quantitative Methods for Business Management
H 0.25
T
0.75 0.75 0.25 = 0.1875
0.25
T
0.25 0.25 = 0.0625
Important: multiply probabilities along branches (multiplication rule); the probabilities at the
ends of the branches should add up to 1.
Example 6
A small company has 10 employees: 4 male and 6 female. You, as the manager, select two
employees at random to attend a training session. What is the probability that you select one
male and one female employee?
Solution
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MAS1403 Quantitative Methods for Business Management
Example 7
Joe has a Business Management exam on Thursday morning. On Wednesday night he is free to
choose one (and only one) of the following activities: (a) go to the cinema, (b) go to the pub,
(c) stay home and watch TV, (d) stay home and study. The probabilities that he elects these
alternatives are 0.14, 0.45, 0.25 and 0.16, respectively. His conditional probabilities of passing
the exam given (a), (b), (c) and (d) are 0.4, 0.05, 0.5 and 0.8 respectively. Find
(i) the probability that Joe goes to the pub and passes his exam;
(ii) the probability that Joe passes his exam;
(iii) the probability that Joe went to the pub, given that he passed his exam.
Solution
Use the space provided below to construct a tree diagram for this example.
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MAS1403 Quantitative Methods for Business Management
5.3 Exercises
1. An on-line retailer conducts a survey of 200 customers and obtains the following results.
Age
Under 30 30 to 45 Over 45
Male 60 20 40
Female 40 30 10
(a) What is the probability that the customer is male and aged 30 to 45?
(b) Given that this customer is aged 30 to 45, what is the probability that they are male?
(c) Given that this customer is female, what is the probability that they are 45 or under?
(d) Now suppose that two customers are selected at random. What is the probability that
both are Male?
2. If Vinny goes to the cinema, there is a 60% chance he will then also go to the bar afterwards.
However, if he doesnt go to the cinema, this reduces to just 30%. On Friday night, Vinny
decides to go to the cinema only if his friend Julia also goes. Vinny has no idea about Julias
intentions this Friday and so is just as likely to go to the cinema as he is to not go. Let C
be the event that Vinny goes to the cinema, and B the event that Vinny goes to the bar, this
Friday. Using a probability tree diagram, or otherwise, find
(a) P (C)
(b) P (C)
(c) P (B|C)
C)
(d) P (B|
(e) P (C and B)
(f) P (B)
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a direct approach, launching onto the domestic market through traditional channels,
it could launch only on the internet,
or it could license the product to a larger company through the payment of a licence fee
irrespective of the success of the product.
Initial market research suggests that demand for the product can be classed into three categories:
high, medium or low, and these categories will occur with probabilities 0.2, 0.35 and 0.45.
Likely profits (in K) to be earned under each option are
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100
H 0.2
M
55
0.35
L
0.45 -25
Direct
+28
0.2 40
H
Internet M 0.35
25
+24.7 0.45
L
15
Licence +20
0.2 20
H
M 0.35
20
L 0.45
20
Key points:
There are no probabilities at a decision node but we evaluate the expected monetary values
of the options.
In a decision tree the first node (on the left) is always a decision node.
If there is another decision node then we evaluate the options there and choose the best one
(based on EMV), and the expected monetary value of this option becomes the expected
monetary value of the branch leading to the decision node.
We work backwards through the tree (from right to left), evaluating EMVs and making
decisions at each decision node.
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Example 4
Charlotte Watson, the manager of a small sales company, has the opportunity to buy a fixed
quantity of a new type of Android tablet which she can then offer for sale to clients.
The decision to buy the product and offer it for sale would involve a fixed cost of 200,000. The
number of tablets that will be sold is uncertain, but Charlotte judges that:
Sales will be poor with probability 0.2; this will result in an income of 100,000.
Sales will be moderate with probability 0.5; this will result in an income of 220,000.
Sales will be good with probability 0.3; this will result in an income of 350,000.
For an additional fixed cost of 30,000, market research can be conducted to aid the decision
making process. The outcome of the market research can be either positive or negative, with
probabilities 0.58 and 0.42, respectively. Knowing the outcome of the market research changes
the probabilities for the main sales project as follows:
Do nothing.
If she pays for the market research then, depending on the outcome, she can:
Do nothing.
(b) Use expected monetary value to determine the optimal course of action for Charlotte.
The following page is left blank for your solution to this question
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6.3 Exercises
1. Picoplex Technologies have developed a new manufacturing process which they believe will
revolutionise the smartphone industry. They are, however, uncertain how they should go
about exploiting this advance.
Initial indications of the likely success of marketing the process are 55%, 30%, 15% for
high success, medium success and probable failure, respectively. The company has
three options; they can go ahead and develop the technology themselves, licence it or sell
the rights to it. The financial outcomes (in millions) for each option are given in the table
below.
2. The manager of a small business has the opportunity to buy a fixed quantity of a new product
and offer it for sale for a limited time.
The decision to buy the product and offer it for sale would involve a fixed cost of 150,000.
The amount that would be sold is uncertain but the manager judges that:
There is a probability of 0.3 that sales will be poor with an income of 80,000.
There is a probability of 0.5 that sales will be medium with an income of 160,000.
There is a probability of 0.2 that sales will be good with an income of 240,000.
For an additional fixed cost of 20,000, the product can be sold for a trial period before a
final decision is made. No income is made from this trial. The result of the trial will be
poor with probability 0.33, medium with probability 0.40 or good with probability
0.27. Knowing the outcome of the trial changes the probabilities for the main sales project:
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r 1 2 3 4 5 6 Sum
P (X = r) 1/6 1/6 1/6 1/6 1/6 1/6 1
Key point: For a discrete random variable the probabilities of each possible value sum up to 1.
Example 2
Here, n Cr is the number of ways of getting r successes out of n trials, and is given by
n n!
Cr = ,
r!(n r)!
where r! = 1 2 3 (r 1) r is known as r factorial. Important: most scientific
calculators have an n Cr button!
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MAS1403 Quantitative Methods for Business Management
Example 3
What is the probability of getting 2 sixes from three rolls of a fair six-sided die?
Solution
Example 4
If X Bin(10, 0.2) calculate:
(a) P (X = 2) (c) P (X < 3)
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MAS1403 Quantitative Methods for Business Management
If X Bin(n, p), then its mean (or expected value) and variance are
E[X] = n p and
Var(X) = n p (1 p).
Example 5
(a) E[X]
(b) Var(X)
(c) SD(X)
Solution
Example 6
A salesperson has a 50% chance of making a sale on a customer visit and she arranges 6 visits
in a day.
(a) Assuming sales at each visit are independent, suggest an appropriate distribution for the
number of sales she makes in a day.
Solution
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MAS1403 Quantitative Methods for Business Management
7.3 Exercises
1. Consider the following probability distribution for the discrete random variable X. One of
the values is missing.
r -2 -1 0 1 2
P (X = r) 0.1 0.2 ? 0.3 0.2
2. Let X be the number of sixes rolled on four rolls of a fair six-sided die.
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MAS1403 Quantitative Methods for Business Management
Then the number of events, X, occurring in a given interval, has a Poisson distribution with
parameter .
Example 1
Which of the following random variables could be modelled by a Poisson distribution? Sug-
gest an alternative if the Poisson distribution is not appropriate, and state the values of any
parameters.
(a) Calls are received at a call centre at a constant rate of 3 per minute on average. Let X be
the number of calls received in a 1 minute period.
(b) An operator at a tele-sales marketing firm has 20 calls to make in an hour. History suggests
that calls will be answered 55% of the time. Let Y be the number of answered calls in an
hour.
(c) Newcastle United score goals at a constant rate of 2.4 in 90 minutes, on average. Let Z be
the number of goals scored in 45 minutes.
Solution
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MAS1403 Quantitative Methods for Business Management
r e
P (X = r) = , r = 0, 1, . . .
r!
If X Po(), then its mean and variance are
E[X] = and
Var(X) = .
[Approximation to binomial: If X Bin(n, p) with n large, p small and both np and n(1
p) > 5 then X is approximately P o(np).]
Example 2
If X P o(5) calculate:
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MAS1403 Quantitative Methods for Business Management
Example 3
A new MercedesBenz car franchise forecasts that it will sell around three of its most expensive
models each day.
(a) What probability distribution might be reasonable to use to model the number of cars sold
each day?
(b) What is the expected number and standard deviation of the number of cars sold each day?
(c) What is the probability that 3 cars are sold on a particular day?
(d) What is the probability that no cars are sold on a particular day?
(e) What is the probability that at least one car is sold on a particular day?
(f) Sales will be monitored over the next seven days and the sales team at the franchise will
receive a warning if they make no sales on at least 1 of the 7 days. What is the probability
that they receive a warning?
Solution
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MAS1403 Quantitative Methods for Business Management
(a) A salesperson has a 30% chance of making a sale on a customer visit. She arranges 10
visits in a day. Let X be the number of sales she makes in a day.
(b) Calls to the British Passport Office in Durham occur at a rate of 7 per hour on average.
Let Y be the number of calls at the passport office in a 1 hour period.
(c) History suggests that 10% of eggs from a family-run farm are bad. Let Z be the number
of bad eggs in a box of a dozen (i.e. 12) eggs.
2. An operator at a call centre has 8 calls to make in an hour. History suggests that they will be
answered 40% of the time. Let X be the number of answered calls in an hour.
3. Calls are received at a telephone exchange at an average rate of 4 per minute. Let Y be the
number of calls received in one minute.
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MAS1403 Quantitative Methods for Business Management
f (x)
4 2 + 2 + 4
We can think of the pdf as a smoothed percentage relative frequency histogram: the area under
the curve is 1.
The Normal distribution has two parameters: the mean, , and the standard deviation, .
Normal pdf with mean 30 and sd 10 Normal pdfs with means 10, 30, 50 and sd 10 Normal pdfs with mean 30 and sds 5, 10, 15
0.04
0.04
0.08
Density
Density
Density
0.02
0.02
0.04
0.00
0.00
0.00
0 10 20 30 40 50 60 -20 0 20 40 60 80 -20 0 20 40 60 80
x x x
If a random variable X has a Normal distribution with mean and variance 2 , then we write
X N , 2 .
Z N(0, 1),
has a mean of zero and a variance of 1, and we have tables of probabilities for this particular
Normal distribution; see page 51.
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MAS1403 Quantitative Methods for Business Management
Example 1
Solution
44
MAS1403 Quantitative Methods for Business Management
Any Normally distributed random variable X N(, 2 ) can be transformed into the standard
Normal distribution using the formula:
X
Z = ,
therefore
x
P (X x) = P Z ,
which can be looked up in tables.
Example 2
Solution
Example 3
Suppose X is the IQ of a randomly selected 1819 year old and that X follows a normal
distribution with mean = 100 and standard deviation = 15. Thus, we have:
X N 100, 152 .
(a) The probability that an 1819 year old has an IQ less than 110.
(b) The probability that an 1819 year old has an IQ greater than 110.
(c) The probability that an 1819 year old has an IQ greater than 125.
(d) The probability that an 1819 year old has an IQ between 95 and 115.
Solutions
45
MAS1403 Quantitative Methods for Business Management
This page has been left blank for your solutions to the last example
46
MAS1403 Quantitative Methods for Business Management
9.2 Exercises
1. A company promises delivery within 20 working days of receipt of order. However, in
reality, they deliver according to a normal distribution with a mean of 16 days and a standard
deviation of 2.5 days.
(a) What percentage of cups contain below the minimum permissible volume of 170ml?
(b) What percentage of cups contain over 225ml?
(c) What percentage of cups contain between 175ml and 225ml?
(d) How many cups would you expect to overflow if 240ml cups are used for the next 10000
drinks?
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MAS1403 Quantitative Methods for Business Management
Therefore, z = 1.645.
Now suppose that X N(100, 152), as in the IQ example from Chapter 9. Below what IQ are
95% of the population?
We know that P (Z 1.645) = 0.95 and z = (x )/ so
x x 100
1.645 = = ,
15
therefore
x = 1.645 15 + 100 124.7.
In other words, 95% of IQs are less than about 125.
X U(a, b).
a+b (b a)2
E[X] = , Var(X) = .
2 12
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MAS1403 Quantitative Methods for Business Management
X Exp().
The exponential distribution and the Poisson distribution are related through the notion of events
occurring randomly in time (at a constant average rate, ). This is known as a Poisson process.
Consider a series of randomly occurring events such as calls at a call centre. The times of calls
might look like
0
1 2
3
4 5
There are two ways of viewing these data. One is as the number of calls in each minute (here 2,
0, 2, 1 and 1) and the other is as the times between successive calls. For the Poisson process,
the number of calls in each one minute interval has a Poisson distribution with parame-
ter , and
the time between successive calls has an exponential distribution with parameter .
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MAS1403 Quantitative Methods for Business Management
10.4 Exercises
1. An express coach is due to arrive in Newcastle from London at 11pm. However, in practice,
it is equally likely to arrive anywhere between 15 minutes early to 45 minutes late, depending
on traffic conditions. Let the random variable X denote the amount of time (in minutes) that
the coach is delayed.
2. The time (in minutes) between requests to a network server can be modelled by an exponen-
tial distribution with rate parameter = 2.5.
50
MAS1403 Quantitative Methods for Business Management
z -0.09 -0.08 -0.07 -0.06 -0.05 -0.04 -0.03 -0.02 -0.01 0.00
-2.9 0.0014 0.0014 0.0015 0.0015 0.0016 0.0016 0.0017 0.0018 0.0018 0.0019
-2.8 0.0019 0.0020 0.0021 0.0021 0.0022 0.0023 0.0023 0.0024 0.0025 0.0026
-2.7 0.0026 0.0027 0.0028 0.0029 0.0030 0.0031 0.0032 0.0033 0.0034 0.0035
-2.6 0.0036 0.0037 0.0038 0.0039 0.0040 0.0041 0.0043 0.0044 0.0045 0.0047
-2.5 0.0048 0.0049 0.0051 0.0052 0.0054 0.0055 0.0057 0.0059 0.0060 0.0062
-2.4 0.0064 0.0066 0.0068 0.0069 0.0071 0.0073 0.0075 0.0078 0.0080 0.0082
-2.3 0.0084 0.0087 0.0089 0.0091 0.0094 0.0096 0.0099 0.0102 0.0104 0.0107
-2.2 0.0110 0.0113 0.0116 0.0119 0.0122 0.0125 0.0129 0.0132 0.0136 0.0139
-2.1 0.0143 0.0146 0.0150 0.0154 0.0158 0.0162 0.0166 0.0170 0.0174 0.0179
-2.0 0.0183 0.0188 0.0192 0.0197 0.0202 0.0207 0.0212 0.0217 0.0222 0.0228
-1.9 0.0233 0.0239 0.0244 0.0250 0.0256 0.0262 0.0268 0.0274 0.0281 0.0287
-1.8 0.0294 0.0301 0.0307 0.0314 0.0322 0.0329 0.0336 0.0344 0.0351 0.0359
-1.7 0.0367 0.0375 0.0384 0.0392 0.0401 0.0409 0.0418 0.0427 0.0436 0.0446
-1.6 0.0455 0.0465 0.0475 0.0485 0.0495 0.0505 0.0516 0.0526 0.0537 0.0548
-1.5 0.0559 0.0571 0.0582 0.0594 0.0606 0.0618 0.0630 0.0643 0.0655 0.0668
-1.4 0.0681 0.0694 0.0708 0.0721 0.0735 0.0749 0.0764 0.0778 0.0793 0.0808
-1.3 0.0823 0.0838 0.0853 0.0869 0.0885 0.0901 0.0918 0.0934 0.0951 0.0968
-1.2 0.0985 0.1003 0.1020 0.1038 0.1056 0.1075 0.1093 0.1112 0.1131 0.1151
-1.1 0.1170 0.1190 0.1210 0.1230 0.1251 0.1271 0.1292 0.1314 0.1335 0.1357
-1.0 0.1379 0.1401 0.1423 0.1446 0.1469 0.1492 0.1515 0.1539 0.1562 0.1587
-0.9 0.1611 0.1635 0.1660 0.1685 0.1711 0.1736 0.1762 0.1788 0.1814 0.1841
-0.8 0.1867 0.1894 0.1922 0.1949 0.1977 0.2005 0.2033 0.2061 0.2090 0.2119
-0.7 0.2148 0.2177 0.2206 0.2236 0.2266 0.2296 0.2327 0.2358 0.2389 0.2420
-0.6 0.2451 0.2483 0.2514 0.2546 0.2578 0.2611 0.2643 0.2676 0.2709 0.2743
-0.5 0.2776 0.2810 0.2843 0.2877 0.2912 0.2946 0.2981 0.3015 0.3050 0.3085
-0.4 0.3121 0.3156 0.3192 0.3228 0.3264 0.3300 0.3336 0.3372 0.3409 0.3446
-0.3 0.3483 0.3520 0.3557 0.3594 0.3632 0.3669 0.3707 0.3745 0.3783 0.3821
-0.2 0.3859 0.3897 0.3936 0.3974 0.4013 0.4052 0.4090 0.4129 0.4168 0.4207
-0.1 0.4247 0.4286 0.4325 0.4364 0.4404 0.4443 0.4483 0.4522 0.4562 0.4602
0.0 0.4641 0.4681 0.4721 0.4761 0.4801 0.4840 0.4880 0.4920 0.4960 0.5000
z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
0.0 0.5000 0.5040 0.5080 0.5120 0.5160 0.5199 0.5239 0.5279 0.5319 0.5359
0.1 0.5398 0.5438 0.5478 0.5517 0.5557 0.5596 0.5636 0.5675 0.5714 0.5753
0.2 0.5793 0.5832 0.5871 0.5910 0.5948 0.5987 0.6026 0.6064 0.6103 0.6141
0.3 0.6179 0.6217 0.6255 0.6293 0.6331 0.6368 0.6406 0.6443 0.6480 0.6517
0.4 0.6554 0.6591 0.6628 0.6664 0.6700 0.6736 0.6772 0.6808 0.6844 0.6879
0.5 0.6915 0.6950 0.6985 0.7019 0.7054 0.7088 0.7123 0.7157 0.7190 0.7224
0.6 0.7257 0.7291 0.7324 0.7357 0.7389 0.7422 0.7454 0.7486 0.7517 0.7549
0.7 0.7580 0.7611 0.7642 0.7673 0.7704 0.7734 0.7764 0.7794 0.7823 0.7852
0.8 0.7881 0.7910 0.7939 0.7967 0.7995 0.8023 0.8051 0.8078 0.8106 0.8133
0.9 0.8159 0.8186 0.8212 0.8238 0.8264 0.8289 0.8315 0.8340 0.8365 0.8389
1.0 0.8413 0.8438 0.8461 0.8485 0.8508 0.8531 0.8554 0.8577 0.8599 0.8621
1.1 0.8643 0.8665 0.8686 0.8708 0.8729 0.8749 0.8770 0.8790 0.8810 0.8830
1.2 0.8849 0.8869 0.8888 0.8907 0.8925 0.8944 0.8962 0.8980 0.8997 0.9015
1.3 0.9032 0.9049 0.9066 0.9082 0.9099 0.9115 0.9131 0.9147 0.9162 0.9177
1.4 0.9192 0.9207 0.9222 0.9236 0.9251 0.9265 0.9279 0.9292 0.9306 0.9319
1.5 0.9332 0.9345 0.9357 0.9370 0.9382 0.9394 0.9406 0.9418 0.9429 0.9441
1.6 0.9452 0.9463 0.9474 0.9484 0.9495 0.9505 0.9515 0.9525 0.9535 0.9545
1.7 0.9554 0.9564 0.9573 0.9582 0.9591 0.9599 0.9608 0.9616 0.9625 0.9633
1.8 0.9641 0.9649 0.9656 0.9664 0.9671 0.9678 0.9686 0.9693 0.9699 0.9706
1.9 0.9713 0.9719 0.9726 0.9732 0.9738 0.9744 0.9750 0.9756 0.9761 0.9767
2.0 0.9772 0.9778 0.9783 0.9788 0.9793 0.9798 0.9803 0.9808 0.9812 0.9817
2.1 0.9821 0.9826 0.9830 0.9834 0.9838 0.9842 0.9846 0.9850 0.9854 0.9857
2.2 0.9861 0.9864 0.9868 0.9871 0.9875 0.9878 0.9881 0.9884 0.9887 0.9890
2.3 0.9893 0.9896 0.9898 0.9901 0.9904 0.9906 0.9909 0.9911 0.9913 0.9916
2.4 0.9918 0.9920 0.9922 0.9925 0.9927 0.9929 0.9931 0.9932 0.9934 0.9936
2.5 0.9938 0.9940 0.9941 0.9943 0.9945 0.9946 0.9948 0.9949 0.9951 0.9952
2.6 0.9953 0.9955 0.9956 0.9957 0.9959 0.9960 0.9961 0.9962 0.9963 0.9964
2.7 0.9965 0.9966 0.9967 0.9968 0.9969 0.9970 0.9971 0.9972 0.9973 0.9974
2.8 0.9974 0.9975 0.9976 0.9977 0.9977 0.9978 0.9979 0.9979 0.9980 0.9981
2.9 0.9981 0.9982 0.9982 0.9983 0.9984 0.9984 0.9985 0.9985 0.9986 0.9986
51