Quamet Set 1pro by Rev Fin

Chapter 2
Probability Concepts and Applications
To accompany Quantitative Analysis for Management, Eleventh Edition, Global Edition by Render, Stair, and Hanna Power Point slides created by Brian Peterson
Introduction
Life is uncertain; we are not sure
what the future will bring. Probability is a numerical statement about the likelihood that an event will occur.
Copyright 2012 Pearson Education
2-2
Fundamental Concepts
1. The probability, P, of any event or state of nature occurring is greater than or equal to 0 and less than or equal to 1. That is:
0 P (event) 1
2. The sum of the simple probabilities for all possible outcomes of an activity must equal 1.
2-3
Diversey Paint Example

Demand for white latex paint at Diversey Paint
and Supply has always been either 0, 1, 2, 3, or 4 gallons per day. Over the past 200 days, the owner has observed the following frequencies of demand:
QUANTITY DEMANDED 0 1 2 3 4 NUMBER OF DAYS 40 80 50 20 10 Total 200 PROBABILITY
0.20 (= 40/200) 0.40 (= 80/200) 0.25 (= 50/200) 0.10 (= 20/200) 0.05 (= 10/200) Total 1.00 (= 200/200)
2-4
Diversey Paint Example

Demand for white latex paint at Diversey Paint
and Supply has always been either 0, 1, 2, 3, or 4 Notice the individual probabilities gallons per day are all between 0 and 1 Over the 200 days, 0 past P (event) 1 the owner has observed the following frequencies of demand And the total of all event QUANTITY equals 1 probabilities NUMBER OF DAYS PROBABILITY
DEMANDED 0 P (event) = 1.00 40 1 80 2 50 3 20 4 10 Total 200 0.20 (= 40/200) 0.40 (= 80/200) 0.25 (= 50/200) 0.10 (= 20/200) 0.05 (= 10/200) Total 1.00 (= 200/200)
2-5
Types of Probability
Determining objective probability : Relative frequency
Typically based on historical data
Number of occurrences of the event P (event) = Total number of trials or outcomes
Classical or logical method Logically determine probabilities without trials

1 P (head) = 2
Number of ways of getting a head Number of possible outcomes (head or tail)

2-6
Types of Probability
Subjective probability is based on the experience and judgment of the person making the estimate. Opinion polls Judgment of experts Delphi method
2-7
Mutually Exclusive Events

Events are said to be mutually exclusive if only one of the events can occur on any one trial.
Tossing a coin will result
in either a head or a tail.

Rolling a die will result in
only one of six possible outcomes.

2-8
Collectively Exhaustive Events

Events are said to be collectively exhaustive if the list of outcomes includes every possible outcome.
Both heads and
tails as possible outcomes of coin flips. All six possible outcomes of the roll of a die.
OUTCOME OF ROLL 1 2 3 4 5 6
PROBABILITY
1/ 1/ 1/ 1/ 1/ 1/ 6 6 6 6 6 6
Total 1
2-9
Statistically Independent Events

Events may be either independent or dependent.
For independent events, the occurrence
of one event has no effect on the probability of occurrence of the second event.
2-10
Which Sets of Events Are Independent?
1. (a) Your education (b) Your income level
Dependent events Independent events Dependent events
2. (a) Draw a jack of hearts from a full 52-card deck (b) Draw a jack of clubs from a full 52-card deck 3. (a) Chicago Cubs win the National League pennant (b) Chicago Cubs win the World Series
4. (a) Snow in Santiago, Chile (b) Rain in Tel Aviv, Israel
Independent events
2-11
Three Types of Probabilities

Marginal (or simple) probability is just the
probability of a single event occurring. P (A) Joint probability is the probability of two or more events occurring and is equal to the product of their marginal probabilities for independent events. P (AB) = P (A) x P (B)
Conditional probability is the probability of event
B given that event A has occurred. P (B | A) = P (B) Or the probability of event A given that event B has occurred P (A | B) = P (A)
2-12
The Binomial Distribution

Many business experiments can be
characterized by the Bernoulli process. The Bernoulli process is described by the binomial probability distribution.
1. Each trial has only two possible outcomes. 2. The probability of each outcome stays the
same from one trial to the next. 3. The trials are statistically independent. 4. The number of trials is a positive integer.
2-13

The binomial distribution is used to find the probability of a specific number of successes in n trials. We need to know: n = number of trials p = the probability of success on any single trial We let r = number of successes q = 1 p = the probability of a failure
2-14

The binomial formula is:
n! Probability of r successes in n trials p r q n r r! ( n r )!

The symbol ! means factorial, and n! = n(n 1)(n 2)(1) For example 4! = (4)(3)(2)(1) = 24 By definition 1! = 1 and 0! = 1
2-15

Binomial Distribution for n = 5 and p = 0.50.
NUMBER OF HEADS (r)
0 1 2 3 4
Table 2.7
Probability =
0.03125 = 0.15625 = 0.31250 = 0.31250 = 0.15625 = 0.03125 =
5! (0.5)r(0.5)5 r r!(5 r)!

(0.5)0(0.5)5 0 (0.5)1(0.5)5 1 (0.5)2(0.5)5 2 (0.5)3(0.5)5 3 (0.5)4(0.5)5 4 (0.5)5(0.5)5 5
5! 0!(5 0)! 5! 1!(5 1)! 5! 2!(5 2)! 5! 3!(5 3)! 5! 4!(5 4)! 5! 5!(5 5)!
2-16
Solving Problems with the Binomial Formula

We want to find the probability of 4 heads in 5 tosses. n = 5, r = 4, p = 0.5, and q = 1 0.5 = 0.5
Thus
P (4 successesin 5 trials ) 5! 0.54 0.55 4 4!(5 4)!
5( 4 )(3)(2)(1) (0.0625 )(0.5 ) 0.15625 4(3)(2)(1)(1! )
2-17
Solving Problems with the Binomial Formula

Binomial Probability Distribution for n = 5 and p = 0.50.
0.4
Probability P (r)
0.3
0.2
0.1
0 |
Figure 2.7
| 1
| 6
2 3 4 5 Values of r (number of successes)
2-18
Solving Problems with Binomial Tables

MSA Electronics is experimenting with the manufacture of a new transistor. Every hour a random sample of 5 transistors is taken. The probability of one transistor being defective is 0.15. What is the probability of finding 3, 4, or 5 defective? n = 5, p = 0.15, and r = 3, 4, or 5 So We could use the formula to solve this problem, but using the table is easier.
2-19

n 5 r 0 1 2 3 4 5 0.05 0.7738 0.2036 0.0214 0.0011 0.0000 0.0000
P 0.10 0.5905 0.3281 0.0729 0.0081 0.0005 0.0000
0.15 0.4437 0.3915 0.1382 0.0244 0.0022 0.0001
Table 2.8 (partial)
We find the three probabilities in the table for n = 5, p = 0.15, and r = 3, 4, and 5 and add them together.
2-20

P P(3 or defects (4) P(5) n more r 0.05 ) P (3) P 0.10 0.15 5 0 0.7738 0.0244 0.5905 0.4437 0.0267 0.0022 0.0001 1 0.2036 0.3281 0.3915 2 0.0214 0.0729 0.1382 3 0.0011 0.0081 0.0244 4 0.0000 0.0005 0.0022 5 0.0000 0.0000 0.0001
Table 2.8 (partial)
We find the three probabilities in the table for n = 5, p = 0.15, and r = 3, 4, and 5 and add them together
2-21
The Normal Distribution

The normal distribution is the one of the most popular and useful continuous probability distributions.
The formula for the probability density
function is rather complex:
1 f (X ) e 2
( x )2 2 2
The normal distribution is specified
completely when we know the mean, , and the standard deviation, .

2-22

The normal distribution is symmetrical,
with the midpoint representing the mean. Shifting the mean does not change the shape of the distribution. Values on the X axis are measured in the number of standard deviations away from the mean. As the standard deviation becomes larger, the curve flattens. As the standard deviation becomes smaller, the curve becomes steeper.
2-23
40
= 50 Smaller , same
60
= 40
50 Larger , same
60
Figure 2.8
40
50
= 60
2-24
Same , smaller
Same , larger
Figure 2.9
2-25
Haynes Construction Company

Haynes builds three- and four-unit apartment buildings (called triplexes and quadraplexes, respectively). Total construction time follows a normal distribution. For triplexes, = 100 days and = 20 days. Contract calls for completion in 125 days, and late completion will incur a severe penalty fee. What is the probability of completing in 125 days?
2-26

Z X
125 100 20
25 1.25 20
From Appendix A, for Z = 1.25 the area is 0.89435. The probability is about 0.89 that Haynes will not violate the contract.
= 100 days = 20 days Figure 2.11

X = 125 days
2-27

Suppose that completion of a triplex in 75 days or less will earn a bonus of $5,000.
What is the probability that Haynes will get the bonus?
2-28

Z X
75 100 20
25 1.25 20
But Appendix A has only positive Z values, and the probability we are looking for is in the negative tail.
P(X < 75 days) Area of Interest
X = 75 days
Figure 2.12
= 100 days
2-29

Z X
75 100 20
25 1.25 20
Because the curve is symmetrical, we can look at the probability in the positive tail for the same distance away from the mean.
P(X > 125 days) Area of Interest
= 100 days
X = 125 days
2-30

We know the probability
completing in 125 days is 0.89435. So the probability completing in more than 125 days is 1 0.89435 = 0.10565.
= 100 days X = 125 days
2-31

The probability completing in more than 125 days is 1 0.89435 = 0.10565. Going back to the left tail of the distribution:
X = 75 days = 100 days
The probability of completing in less than 75 days is 0.10565.

2-32

What is the probability of completing a triplex within 110 and 125 days? We know the probability of completing in 125 days, P(X < 125) = 0.89435. We have to complete the probability of completing in 110 days and find the area between those two events.
2-33

Z X
110 100 20
10 0 .5 20
From Appendix A, for Z = 0.5 the area is 0.69146. P(110 < X < 125) = 0.89435 0.69146 = 0.20289.
= 20 days
Figure 2.13
= 100 days
110 days
125 days
2-34
The Empirical Rule

For a normally distributed random variable with mean and standard deviation , then 1. About 68% of values will be within 1 of the mean.
2. About 95.4% of values will be within 2 of the mean.

3. About 99.7% of values will be within 3 of the mean.
2-35
The Empirical Rule

16% 68% 16%
1 a
+1 b 2.3% 95.4% 2.3%
2 a
+2 b
0.15%
99.7%
0.15%
Figure 2.14
3 a
+3 b
2-36
The Exponential Distribution

The exponential distribution (also called
the negative exponential distribution) is a continuous distribution often used in queuing models to describe the time required to service a customer. Its probability function is given by:
f ( X ) e x
where
X = random variable (service times) = average number of units the service facility can handle in a specific period of time e = 2.718 (the base of natural logarithms)
2-37
The Exponential Distribution

Expected value Variance 1 1
Average service time

f(X)
X
Figure 2.17
2-38
Arnolds Muffler Shop

Arnolds Muffler Shop installs new
mufflers on automobiles and small trucks. The mechanic can install 3 new mufflers per hour. Service time is exponentially distributed.
What is the probability that the time to install a new muffler would be hour or less?
2-39

Here:
X = Exponentially distributed service time = average number of units the served per time period = 3 per hour t = hour = 0.5hour
P(X0.5) = 1 e-3(0.5) = 1 e -1.5 = 1 = 0.2231 = 0.7769
2-40

Note also that if: P(X0.5) = 1 e-3(0.5) = 1 e -1.5 = 1 = 0.2231 = 0.7769
Then it must be the case that:
P(X>0.5) = 1 - 0.7769 = 0.2231
2-41
The Poisson Distribution

The Poisson distribution is a discrete
distribution that is often used in queuing models to describe arrival rates over time. Its probability function is given by:
P( X )
where
x e
X!
P(X) = probability of exactly X arrivals or occurrences = average number of arrivals per unit of time (the mean arrival rate) e = 2.718, the base of natural logarithms X = specific value (0, 1, 2, 3, ) of the random variable
2-42
The Poisson Distribution

The mean and variance of the distribution are both . Expected value = Variance =
2-43
Poisson Distribution
We can use Appendix C to find Poisson probabilities. Suppose that = 2. Some probability calculations are:
P( X )
x e
X! 20 e 2 1(0.1353) P(0) 0.1353 0! 1 21 e 2 2(0.1353) P(1) 0.2706 1! 1 2 2 e 2 4(0.1353) P(2) 0.2706 2! 2

2-44
Poisson Distribution
Sample Poisson Distributions with = 2 and = 4
Figure 2.19
2-45
Exponential and Poisson Together

If the number of occurrences per time
period follows a Poisson distribution, then the time between occurrences follows an exponential distribution:
Suppose the number of phone calls at a
service center followed a Poisson distribution with a mean of 10 calls per hour. Then the time between each phone call would be exponentially distributed with a mean time between calls of 6 minutes (1/10 hour).
2-46
Copyright
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
2-47

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Chapter 2

Probability Concepts and Applications

Copyright 2012 Pearson Education

Diversey Paint Example

Copyright 2012 Pearson Education

Diversey Paint Example

Copyright 2012 Pearson Education

Classical or logical method Logically determine probabilities without trials

Number of ways of getting a head Number of possible outcomes (head or tail)

Copyright 2012 Pearson Education

Mutually Exclusive Events

in either a head or a tail.

only one of six possible outcomes.

Collectively Exhaustive Events

Statistically Independent Events

Copyright 2012 Pearson Education

Which Sets of Events Are Independent?

1. (a) Your education (b) Your income level

Dependent events Independent events Dependent events

4. (a) Snow in Santiago, Chile (b) Rain in Tel Aviv, Israel

Copyright 2012 Pearson Education

Three Types of Probabilities

Copyright 2012 Pearson Education

The Binomial Distribution

Copyright 2012 Pearson Education

The Binomial Distribution

The Binomial Distribution

n! Probability of r successes in n trials p r q n r r! ( n r )!

The Binomial Distribution

5! (0.5)r(0.5)5 r r!(5 r)!

Copyright 2012 Pearson Education

Solving Problems with the Binomial Formula

5( 4 )(3)(2)(1) (0.0625 )(0.5 ) 0.15625 4(3)(2)(1)(1! )

Copyright 2012 Pearson Education

Solving Problems with the Binomial Formula

2 3 4 5 Values of r (number of successes)

Solving Problems with Binomial Tables

Solving Problems with Binomial Tables

0.15 0.4437 0.3915 0.1382 0.0244 0.0022 0.0001

Table 2.8 (partial)

Solving Problems with Binomial Tables

The Normal Distribution

function is rather complex:

The normal distribution is specified

completely when we know the mean, , and the standard deviation, .

The Normal Distribution

Copyright 2012 Pearson Education

The Normal Distribution

The Normal Distribution

Haynes Construction Company

Copyright 2012 Pearson Education

Haynes Construction Company

= 100 days = 20 days Figure 2.11

Haynes Construction Company

What is the probability that Haynes will get the bonus?

Copyright 2012 Pearson Education

Haynes Construction Company

P(X < 75 days) Area of Interest

Haynes Construction Company

P(X > 125 days) Area of Interest

Haynes Construction Company

Copyright 2012 Pearson Education

Haynes Construction Company