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Quantitative Techniques for Management

MBA First Year

Paper No. 6

School of Distance Education

Bharathiar University, Coimbatore - 641 046

Author: P N Mishra & S Jaisankar

Copyright 2007, Bharathiar University
All Rights Reserved
Edited by: Dr. Subodh Kesharwani
Produced and Printed
by
EXCEL BOOKS PRIVATE LIMITED
A-45, Naraina, Phase-I,
New Delhi-110028
for
SCHOOL OF DISTANCE EDUCATION
Bharathiar University
Coimbatore-641046

CONTENTS

Page No.
Unit -I
Lesson 1
Lesson 2
Lesson 3
Lesson 4
Lesson 5

Quantitative Techniques Introduction

Measures of Central Tendency
Mathematical Model
Linear Programming: Graphical Method
Linear Programming: Simplex Method

7
24
110
119
143
Unit -II

Lesson 6
Lesson 7

Transportation Model
Assignment Model

167
209

Unit -III
Lesson 8
Lesson 9

Network Model
Waiting Model (Queuing Theory)

241
272
Unit -IV

Lesson 10
Lesson 11
Lesson 12

Probability
Theoretical Probability Distributions
Probability Distribution of a Random Variable

299
359
409
Unit-V

Lesson 13
Lesson 14
Lesson 15

Inventory Model
Game Theory
Simulation

449
472
495

QUANTITATIVE TECHNIQUES FOR MANAGEMENT

Number of Credit Hours : 3 (Three)

Subject Description: This course presents the various mathematical models, networking, probability,
inventory models and simulations for managerial decisions.
Goals: To enable the students to learn techniques of operations research and resources management
and their application in decision making in the management.
Objectives: On successful completion of the course the students should have:
1.

Understood the basic of the quantitative techniques.

Learnt the feasible solution and optimum solution for the resource management.

Learnt the time estimation and critical path for project.

Learnt about the application of probability techniques in the decision making.

Learnt the various inventory models and simulations in the resource planning and management.
UNIT I

QT Introduction Measures of Central Tendency Mean, Median, Mode.

Mathematical Models deterministic and probabilistic simple business examples OR and
optimization models Linear Programming formulation graphical solution simplex solution.
UNIT II
Transportation model Initial Basic Feasible solutions optimum solution for non degeneracy and
degeneracy model Trans-shipment Model Assignment Model Travelling Salesmen problem.
UNIT III
Network Model networking CPM critical path Time estimates critical path crashing,
Resource levelling, Resources planning. Waiting Line Model Structure of model M/M/1 for
infinite population.
UNIT IV
Probability definitions addition and multiplication Rules (only statements) simple business
application problems probability distribution expected value concept theoretical probability
distributions Binomial, Poison and Normal Simple problems applied to business.
UNIT V
Inventory Models Deterministic EOQ EOQ with Price Breaks Probabilistic Inventory Models
- Probabilistic EOQ model Game theory-zero sum games: Arithmetic and Graphical Method.
Simulation types of simulation Monte Carlo simulation simulation problems.
Decision Theory Pay off tables decision criteria decision trees.

Quantitative Techniques
Introduction

Unit-I

LESSON

1
QUANTITATIVE TECHNIQUES INTRODUCTION

CONTENTS
1.0 Aims and Objectives
1.1 Introduction
1.2 Historical Development
1.3 About Quantitative Technique
1.4 Methodology of Quantitative Techniques
1.4.1 Formulating the Problem
1.4.2 Defining the Decision Variables and Constraints
1.4.3 Developing a Suitable Model
1.4.4 Acquiring the Input Data
1.4.5 Solving the Model
1.4.6 Validating the Model
1.4.7 Implementing the Results
1.5 Advantages of Mathematical Modelling
1.6 Scope of Quantitative Technique
1.7 Statistics : An Introduction
1.7.1 Origin and Growth of Statistics
1.7.2 Meaning and Definition of Statistics
1.7.3 Statistics as Data
1.7.4 Statistics as a Science
1.7.5 Statistics as a Science different from Natural Sciences
1.7.6 Statistics as a Scientific Method
1.7.7 Statistics as a Science or an Art
1.8 Let us Sum Up
1.9 Lesson-end Activities
1.10 Keywords
1.11 Questions for Discussion
1.12 Terminal Questions
1.13 Model Answers to Questions for Discussion
1.14 Suggested Readings

Quantitative Techniques
for Management

1.0 AIMS AND OBJECTIVES

In this first lesson we discuss the distinguished approaches to quantitative techniques
and its various applications in management, statistical analysis and other industries. Here
we will discuss the approaches of quantitative techniques.

1.1 INTRODUCTION
Scientific methods have been mans outstanding asset to pursue an ample number of
activities. It is analysed that whenever some national crisis, emerges due to the impact
of political, social, economic or cultural factors the talents from all walks of life amalgamate
together to overcome the situation and rectify the problem. In this chapter we will see
how the quantitative techniques had facilitated the organization in solving complex
problems on time with greater accuracy. The historical development will facilitate in
managerial decision-making & resource allocation, The methodology helps us in studying
the scientific methods with respect to phenomenon connected with human behaviour
like formulating the problem, defining decision variable and constraints, developing a
suitable model, acquiring the input data, solving the model, validating the model,
implementing the results. The major advantage of mathematical model is that its facilitates
in taking decision faster and more accurately.
Managerial activities have become complex and it is necessary to make right decisions
to avoid heavy losses. Whether it is a manufacturing unit, or a service organization, the
resources have to be utilized to its maximum in an efficient manner. The future is clouded
with uncertainty and fast changing, and decision-making a crucial activity cannot be
made on a trial-and-error basis or by using a thumb rule approach. In such situations,
there is a greater need for applying scientific methods to decision-making to increase the
probability of coming up with good decisions. Quantitative Technique is a scientific approach
to managerial decision-making. The successful use of Quantitative Technique for
management would help the organization in solving complex problems on time, with
greater accuracy and in the most economical way. Today, several scientific management
techniques are available to solve managerial problems and use of these techniques helps
managers become explicit about their objectives and provides additional information to
select an optimal decision. This study material is presented with variety of these techniques
with real life problem areas.

1.2 HISTORICAL DEVELOPMENT

During the early nineteen hundreds, Fredrick W. Taylor developed the scientific
management principle which was the base towards the study of managerial problems.
Later, during World War II, many scientific and quantitative techniques were developed
to assist in military operations. As the new developments in these techniques were found
successful, they were later adopted by the industrial sector in managerial decision-making
and resource allocation. The usefulness of the Quantitative Technique was evidenced
by a steep growth in the application of scientific management in decision-making in
various fields of engineering and management. At present, in any organization, whether
a manufacturing concern or service industry, Quantitative Techniques and analysis are
used by managers in making decisions scientifically.
Check Your Progress 1.1

Explain with the help of example some of the important Quantitative Techniques
used in modern business and in industrial unit.
8

Contd....

Notes: (a)

Quantitative Techniques
Introduction

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.

_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________

1.3 ABOUT QUANTITATIVE TECHNIQUE

Quantitative Techniques adopt a scientific approach to decision-making. In this approach,
past data is used in determining decisions that would prove most valuable in the future.
The use of past data in a systematic manner and constructing it into a suitable model for
future use comprises a major part of scientific management. For example, consider a
person investing in fixed deposit in a bank, or in shares of a company, or mutual funds, or
in Life Insurance Corporation. The expected return on investments will vary depending
upon the interest and time period. We can use the scientific management analysis to find
out how much the investments made will be worth in the future. There are many scientific
method software packages that have been developed to determine and analyze the
problems.
In case of complete non-availability of past data, quantitative factors are considered in
decision-making. In cases where the scope of quantitative data is limited, qualitative
factors play a major role in making decisions. Qualitative factors are important situations
like sudden change in tax-structures, or the introduction of breakthrough technologies.
Application of scientific management and Analysis is more appropriate when there is
not much of variation in problems due to external factors, and where input values are
steady. In such cases, a model can be developed to suit the problem which helps us to
take decisions faster. In today's complex and competitive global marketplace, use of
Quantitative Techniques with support of qualitative factors is necessary.
Quantitative Technique is the scientific way to managerial decision-making, while emotion
and guess work are not part of the scientific management approach. This approach
starts with data. Like raw material for a factory, this data is manipulated or processed
into information that is valuable to people making decision. This processing and manipulating
of raw data into meaningful information is the heart of scientific management analysis.
Check Your Progress 1.2

Do you think the day will come when all decision in a business unit are made with
assistance of quantitative techniques? Give reasons for your answer.
Notes: (a)
(b)

Write your answer in the space given below.

Please go through the lesson sub-head thoroughly you will get your
answers in it.
Contd....

Quantitative Techniques
for Management

(c)

1.4 METHODOLOGY OF QUANTITATIVE TECHNIQUES

The methodology adopted in solving problems is as follows:

Formulating the problem

Defining decision variables and

constraints.

Developing a suitable model

Acquiring the Input Data

Solving the model

Validating the model

Implementing the results

Figure 1.1

1.4.1 Formulating the Problem

As a first step, it is necessary to clearly understand the problem situations. It is important

to know how it is characterized and what is required to be determined. Firstly, the key
decision and the objective of the problem must be identified from the problem. Then, the
number of decision variables and the relationship between variables must be determined.
The measurable guaranties that are represented through these variables are notified.
The practical limitations or constraints are also inferred from the problem.

1.4.2 Defining the Decision Variables and Constraints

Quantitative Techniques
Introduction

In a given problem situation, defining the key decision variables are important. Identifying
these variables helps us to develop the model. For example, consider a manufacturer
who is manufacturing three products A, B and C using two machines, I and II. Each unit
of product A takes 2 minutes on machine I and 5 minutes on machine II. Product B
takes 1 minute on machine I and 3 minutes on machine II. Similarly, product C takes 4
minutes and 6 minutes on machine I and machine II, respectively. The total available
time on machine I and machine II are 100 hours and 120 hours, respectively. Each unit
of A yields a profit of Rs. 3.00, B yields Rs. 4.00 and C yields Rs. 5.00. What should be
level of production of products A, B and C that should be manufactured by the company
so as to maximize the profit?
The decision variables, objective and constraints are identified from the problem.
The company is manufacturing three products A, B and C. Let A be x1, B be x2 and C
be x3. x1, x2 and x3 are the three decision variables in the problem. The objective is to
maximize the profits. Therefore, the problem is to maximize the profit, i.e., to know how
many units of x1, x2 and x3 are to be manufactured. There are two machines available,
machine I and machine II with total machine hours available as 100 hours and 120 hours.
The machine hours are the resource constraints, i.e., the machines cannot be used more
than the given number of hours.
To summarize,
l

Key decision

Decision variables :

x1, x2 and x3

Objective

To maximize profit

Constraint

Machine hours

How many units of x1, x2 and x3 are to be manufactured

1.4.3 Developing a Suitable Model

A model is a mathematical representation of a problem situation. The mathematical
model is in the form of expressions and equations that replicate the problem. For example,
the total profit from a given number of products sold can be determined by subtracting
selling price and cost price and multiplying the number of units sold. Assuming selling
price, sp as Rs. 40 and cost price, cp as Rs. 20, the following mathematical model
expresses the total profit, tp earned by selling number of unit x.
TP

= (SP CP) x
= (40 20) x

= 20 x

Now, this mathematical model enables us to identify the real situation by understanding
the model. The models can be used to maximize the profits or to minimize the costs. The
applications of models are wide, such as:
l

Linear Programming Model

Integer Programming

Sensitivity Analysis

Goal Programming

Dynamic Programming

Non Linear Programming

Queuing Theory

Inventory Management Techniques

Quantitative Techniques
for Management

PERT/CPM (Network Analysis)

Decision Theory

Games Theory

Transportation and Assignment Models.

1.4.4 Acquiring the Input Data

Accurate data for input values are essential. Even though the model is well constructed,
it is important that the input data is correct to get accurate results. Inaccurate data will
lead to wrong decisions.

1.4.5 Solving the Model

Solving is trying for the best result by manipulating the model to the problem. This is done
by checking every equation and its diverse courses of action. A trial and error method
can be used to solve the model that enables us to find good solutions to the problem.

1.4.6 Validating the Model

A validation is a complete test of the model to confirm that it provides an accurate
representation of the real problem. This helps us in determining how good and realistic
the solution is. During the model validation process, inaccuracies can be rectified by
taking corrective actions, until the model is found to be fit.

1.4.7 Implementing the Results

Once the model is tested and validated, it is ready for implementation. Implementation
involves translation/application of solution in the company. Close administration and
monitoring is required after the solution is implemented, in order to address any proposed
changes that call for modification, under actual working conditions.

1.5 ADVANTAGES OF MATHEMATICAL MODELLING

The advantages of mathematical modelling are many:
(a)

Models exactly represent the real problem situations.

(b)

Models help managers to take decisions faster and more accurately.

(c)

Models save valuable resources like money and time.

(d)

Large and complex problems can be solved with ease.

(e)

Models act as communicators to others by providing information and impact in

changing conditions.
Check Your Progress 1.3

Quantitative Technique is a very powerful tools and analytical process that offers
the presentation of an optimum solutions in spite of its limitations. Discuss.
Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

_____________________________________________________________________

Quantitative Techniques
Introduction

____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________

1.6 SCOPE OF QUANTITATIVE TECHNIQUE

The scope and areas of application of scientific management are very wide in engineering
and management studies. Today, there are a number at quantitative software packages
available to solve the problems using computers. This helps the analysts and researchers
to take accurate and timely decisions. This book is brought out with computer based
problem solving. A few specific areas are mentioned below.
l

Finance and Accounting: Cash flow analysis, Capital budgeting, Dividend and
Portfolio management, Financial planning.

Marketing Management: Selection of product mix, Sales resources allocation

and Assignments.

Production Management: Facilities planning, Manufacturing, Aggregate planning,

Inventory control, Quality control, Work scheduling, Job sequencing, Maintenance
and Project planning and scheduling.

Personnel Management: Manpower planning, Resource allocation, Staffing,

Scheduling of training programmes.

General Management: Decision Support System and Management of Information

Systems, MIS, Organizational design and control, Software Process Management
and Knowledge Management.

From the various definitions of Quantitative Technique it is clear that scientific management
hen got wide scope. In general, whenever there is any problem simple or complicated
the scientific management technique can be applied to find the best solutions. In this
head we shall try to find the scope of M.S. by seeing its application in various fields of
everyday lift this include define operation too.
Check Your Progress 1.4

Discuss the significance and scope of Quantitative Techniques in modern business

management.
Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

Quantitative Techniques
for Management

1.7 STATISTICS : AN INTRODUCTION

1.7.1 Origin and Growth of Statistics
Statistics, as a subject, has a very long history. The origin of STATISTICS is indicated by
the word itself which seems to have been derived either from the Latin word 'STATUS'
or from the Italian word 'STATISTA' or may be from the German word 'STATISTIK.'
The meaning of all these words is 'political state'. Every State administration in the past
collected and analysed data. The data regarding population gave an idea about the possible
military strength and the data regarding material wealth of a country gave an idea about
the possible source of finance to the State. Similarly, data were collected for other purposes
also. On examining the historical records of various ancient countries, one might find
that almost all the countries had a system of collection of data. In ancient Egypt, the data
on population and material wealth of the country were collected as early as 3050
B.C., for the construction of pyramids. Census was conducted in Jidda in 2030 B.C. and
the population was estimated to be 38,00,000. The first census of Rome was done as
early as 435 B.C. After the 15th century the work of publishing the statistical data was
also started but the first analysis of data on scientific basis was done by Captain John
Graunt in the 17th century. His first work on social statistics, Observation on London
Bills of Mortality' was published in 1662. During the same period the gamblers of western
countries had started using statistics, because they wanted to know the more precise
estimates of odds at the gambling table. This led to the development of the 'Theory of
Probability'.
Ancient India also had the tradition of collection of statistical data. In ancient works,
such as Manusmriti, Shukraniti, etc., we find evidences of collection of data for the
purpose of running the affairs of the State where population, military force and other
resources have been expressed in the form of figures. The fact and figures of the
Chandragupta Mauraya's regime are described in 'Kautilya's Arthashastra'. Statistics
were also in use during the Mughal period. The data were collected regarding population,
military strength, revenue, land revenue, measurements of land, etc. The system of data
collection was described in Tuzuk - i - Babri and Ain-i-Akabari. During Akbar's period,
his revenue minister, Raja Todarmal, made a well organised survey of land for the collection
of land revenue. During the British period too, statistics were used in various areas of
activities.
Although the tradition of collection of data and its use for various purposes is very old,
the development of modern statistics as a subject is of recent origin. The development of
the subject took place mainly after sixteenth century. The notable mathematicians who
contributed to the development of statistics are Galileo, Pascal, De-Mere, Farment and
Cardeno of the 17th century. Then in later years the subject was developed by Abraham
De Moivre (1667 - 1754), Marquis De Laplace (1749 - 1827), Karl Friedrich Gauss
(1777 - 1855), Adolphe Quetelet (1796 - 1874), Francis Galton (1822 - 1911), etc. Karl
Pearson (1857 - 1937), who is regarded as the father of modern statistics, was greatly
motivated by the researches of Galton and was the first person to be appointed as Galton
Professor in the University of London. William S. Gosset (1876 - 1937), a student of
Karl Pearson, propounded a number of statistical formulae under the pen-name of 'Student'.
R.A. Fisher is yet another notable contributor to the field of statistics. His book 'Statistical
Methods for Research Workers', published in 1925, marks the beginning of the theory of
modern statistics.
The science of statistics also received contributions from notable economists such as
Augustin Cournot (1801 - 1877), Leon Walras (1834 - 1910), Vilfredo Pareto
(1848 - 1923), Alfred Marshall (1842 - 1924), Edgeworth, A.L. Bowley, etc. They gave
an applied form to the subject.

Among the noteworthy Indian scholars who contributed to statistics are P.C. Mahalnobis,
V.K.R.V. Rao, R.C. Desai, P.V. Sukhatme, etc.

Quantitative Techniques
Introduction

1.7.2 Meaning and Definition of Statistics

The meaning of the word 'Statistics' is implied by the pattern of development of the
subject. Since the subject originated with the collection of data and then, in later years,
the techniques of analysis and interpretation were developed, the word 'statistics' has
been used in both the plural and the singular sense. Statistics, in plural sense, means a
set of numerical figures or data. In the singular sense, it represents a method of study
and therefore, refers to statistical principles and methods developed for analysis and
interpretation of data.
Statistics has been defined in different ways by different authors. These definitions can
be broadly classified into two categories. In the first category are those definitions which
lay emphasis on statistics as data whereas the definitions in second category emphasise
statistics as a scientific method.

1.7.3 Statistics as Data

Statistics used in the plural sense implies a set of numerical figures collected with reference
to a certain problem under investigation. It may be noted here that any set of numerical
figures cannot be regarded as statistics. There are certain characteristics which must be
satisfied by a given set of numerical figures in order that they may be termed as statistics.
Before giving these characteristics it will be advantageous to go through the definitions
of statistics in the plural sense, given by noted scholars.
1.

"Statistics are numerical facts in any department of enquiry placed in relation to

each other.
- A.L. Bowley
The main features of the above definition are :
(i)

Statistics (or Data) implies numerical facts.

(ii)

Numerical facts or figures are related to some enquiry or investigation.

(iii) Numerical facts should be capable of being arranged in relation to each other.
On the basis of the above features we can say that data are those numerical facts
which have been expressed as a set of numerical figures related to each other and
to some area of enquiry or research. We may, however, note here that all the
characteristics of data are not covered by the above definition.
2.

"By statistics we mean quantitative data affected to a marked extent by multiplicity

of causes.
- Yule & Kendall
This definition covers two aspects, i.e., the data are quantitative and affected by a
large number of causes.

"Statistics are classified facts respecting the conditions of the people in a stateespecially those facts which can be stated in numbers or in tables of numbers or in
any other tabular or classified arrangement.
- Webster

"A collection of noteworthy facts concerning state, both historical and descriptive.
- Achenwall
Definitions 3 and 4, given above, are not comprehensive because these confine the
scope of statistics only to facts and figures related to the conditions of the people in
a state. However, as we know that data are now collected on almost all the aspects
of human and natural activities, it cannot be regarded as a state-craft only.

"Statistics are measurements, enumerations or estimates of natural or social

phenomena, systematically arranged, so as to exhibit their interrelations.
- L.R. Connor
This definition also covers only some but not all characteristics of data.
15

Quantitative Techniques
for Management

"By statistics we mean aggregate of facts affected to a marked extent by a

multiplicity of causes, numerically expressed, enumerated or estimated according
to a reasonable standard of accuracy, collected in a systematic manner for a
predetermined purpose and placed in relation to each other.
- H. Secrist
This definition can be taken as a comprehensive definition of statistics since most
of the characteristics of statistics are covered by it.

Characteristics of Statistics as Data

On the basis of the above definitions we can now state the following characteristics of
statistics as data :
1.

Statistics are numerical facts: In order that any set of facts can be called as
statistics or data, it must be capable of being represented numerically or
quantitatively. Ordinarily, the facts can be classified into two categories : (a) Facts
that are measurable and can be represented by numerical measurements.
Measurement of heights of students in a college, income of persons in a locality,
yield of wheat per acre in a certain district, etc., are examples of measurable facts.
(b) Facts that are not measurable but we can feel the presence or absence of the
characteristics. Honesty, colour of hair or eyes, beauty, intelligence, smoking habit
etc., are examples of immeasurable facts. Statistics or data can be obtained in
such cases also, by counting the number of individuals in different categories. For
example, the population of a country can be divided into three categories on the
basis of complexion of the people such as white, whitish or black.

Statistics are aggregate of facts: A single numerical figure cannot be regarded

as statistics. Similarly, a set of unconnected numerical figures cannot be termed as
statistics. Statistics means an aggregate or a set of numerical figures which are
related to one another. The number of cars sold in a particular year cannot be
regarded as statistics. On the other hand, the figures of the number of cars sold in
various years of the last decade is statistics because it is an aggregate of related
figures. These figures can be compared and we can know whether the sale of cars
has increased, decreased or remained constant during the last decade.
It should also be noted here that different figures are comparable only if they are
expressed in same units and represent the same characteristics under different
situations. In the above example, if we have the number of Ambassador cars sold
in 1981 and the number of Fiat cars sold in 1982, etc., then it cannot be regarded as
statistics. Similarly, the figures of, say, measurement of weight of students should
be expressed in the same units in order that these figures are comparable with one
another.

Statistics are affected to a marked extent by a multiplicity of factors: Statistical

data refer to measurement of facts in a complex situation, e.g., business or economic
phenomena are very complex in the sense that there are a large number of factors
operating simultaneously at a given point of time. Most of these factors are even
difficult to identify. We know that quantity demanded of a commodity, in a given
period, depends upon its price, income of the consumer, prices of other commodities,
taste and habits of the consumer. It may be mentioned here that these factors are
only the main factors but not the only factors affecting the demand of a commodity.
Similarly, the sale of a firm in a given period is affected by a large number of
factors. Data collected under such conditions are called statistics or statistical data.

Statistics are either enumerated or estimated with reasonable standard of

accuracy:This characteristic is related to the collection of data. Data are collected
either by counting or by measurement of units or individuals. For example, the
number of smokers in a village are counted while height of soldiers is measured.

We may note here that if the area of investigation is large or the cost of measurement
is high, the statistics may also be collected by examining only a fraction of the total
area of investigation.

Quantitative Techniques
Introduction

When statistics are being obtained by measurement of units, it is necessary to

maintain a reasonable degree or standard of accuracy in measurements. The degree
of accuracy needed in an investigation depends upon its nature and objectivity on
the one hand and upon time and resources on the other. For example, in weighing
of gold, even milligrams may be significant where as, for weighing wheat, a few
grams may not make much difference. Sometimes, a higher degree of accuracy is
needed in order that the problem, to be investigated, gets highlighted by the data.
Suppose the diameter of bolts produced by a machine are measured as 1.546 cms,
1.549 cms, 1.548 cms, etc. If, instead, we obtain measurements only up to two
places after decimal, all the measurements would be equal and as such nothing
could be inferred about the working of the machine. In addition to this, the degree
of accuracy also depends upon the availability of time and resources. For any
investigation, a greater degree of accuracy can be achieved by devoting more time
or resources or both. As will be discussed later, in statistics, generalisations about
a large group (known as population) are often made on the basis of small group
(known as sample). It is possible to achieve this by maintaining a reasonable degree
of accuracy of measurements. Therefore, it is not necessary to always have a high
degree of accuracy but whatever degree of accuracy is once decided must be
uniformly maintained throughout the investigation.
5.

Statistics are collected in a systematic manner and for a predetermined

purpose: In order that the results obtained from statistics are free from errors, it is
necessary that these should be collected in a systematic manner. Haphazardly
collected figures are not desirable as they may lead to wrong conclusions. Moreover,
statistics should be collected for a well defined and specific objective, otherwise it
might happen that the unnecessary statistics are collected while the necessary
statistics are left out. Hence, a given set of numerical figures cannot be termed as
statistics if it has been collected in a haphazard manner and without proper
specification of the objective.

Statistics should be capable of being placed in relation to each other: This

characteristic requires that the collected statistics should be comparable with
reference to time or place or any other condition. In order that statistics are
comparable it is essential that they are homogeneous and pertain to the same
investigation. This can be achieved by collecting data in identical manner for different
periods or for different places or for different conditions.
Hence, any set of numerical facts possessing the above mentioned characteristics
can be termed as statistics or data.

Example 1: Would you regard the following information as statistics? Explain by giving
reasons.
(i)

The height of a person is 160 cms.

(ii)

The height of Ram is 165 cms and of Shyam is 155 cms.

(iii) Ram is taller than Shyam.

(iv) Ram is taller than Shyam by 10 cms.
(v)

The height of Ram is 165 cms and weight of Shyam is 55 kgs.

Solution: Each of the above statement should be examined with reference to the following
conditions:
17

Quantitative Techniques
for Management

(a)

Whether information is presented as aggregate of numerical figures

(b)

Whether numerical figures are homogeneous or comparable

(c)

Whether numerical figures are affected by a multiplicity of factors

On examination of the given information in the light of these conditions we find that only
the information given by statement (ii) can be regarded as statistics.
It should be noted that condition (c) will be satisfied, almost invariably. In order to illustrate
the circumstances in which this condition is not satisfied, we assume that a relation
between quantity demanded and price of a commodity is given by the mathematical
equation q = 100 - 10p and the quantity demanded at various prices, using this equation,
is shown in the following table,
p
q

1
90

2
80

3
70

4
60

5
50

6
40

7
30

8
20

9
10

10
0

The above information cannot be regarded as statistics because here quantity demanded
is affected by only one factor, i.e., price and not by a multiplicity of factors. Contrary to
this, the figures of quantity demanded obtained from a market at these very prices are to
be regarded as statistics.

1.7.4 Statistics as a Science

The use of the word 'STATISTICS' in singular form refers to a science which provides
methods of collection, analysis and interpretation of statistical data. Thus, statistics as a
science is defined on the basis of its functions and different scholars have defined it in a
different way. In order to know about various aspects of statistics, we now state some
of these definitions.
1.

"Statistics is the science of counting.

- A.L. Bowley

"Statistics may rightly be called the science of averages.

- A.L. Bowley

"Statistics is the science of measurement of social organism regarded as a whole in

all its manifestations.
- A.L. Bowley

"Statistics is the science of estimates and probabilities.

- Boddington

All of the above definitions are incomplete in one sense or the other because each
consider only one aspect of statistics. According to the first definition, statistics is
the science of counting. However, we know that if the population or group under
investigation is large, we do not count but obtain estimates.
The second definition viz. statistics is the science of averages, covers only one
aspect, i.e., measures of average but, besides this, there are other measures used
to describe a given set of data.
The third definition limits the scope of statistics to social sciences only. Bowley
himself realised this limitation and admitted that scope of statistics is not confined
to this area only.
The fourth definition considers yet another aspect of statistics. Although, use of
estimates and probabilities have become very popular in modern statistics but there
are other techniques, as well, which are also very important.
The following definitions covers some more but not all aspects of statistics.

"The science of statistics is the method of judging collective, natural or social

phenomena from the results obtained by the analysis or enumeration or collection
of estimates.
- W.I. King

"Statistics or statistical method may be defined as collection, presentation, analysis

and interpretation of numerical data.
- Croxton and Cowden
This is a simple and comprehensive definition of statistics which implies that statistics
is a scientific method.

"Statistics is a science which deals with collection, classification and tabulation of

numerical facts as the basis for the explanation, description and comparison of
phenomena.
- Lovitt

"Statistics is the science which deals with the methods of collecting, classifying,
presenting, comparing and interpreting numerical data collected to throw some
light on any sphere of enquiry.
- Seligman

Quantitative Techniques
Introduction

The definitions given by Lovitt and Seligman are similar to the definition of Croxton
and Cowden except that they regard statistics as a science while Croxton and
Cowden has termed it as a scientific method.
With the development of the subject of statistics, the definitions of statistics given
above have also become outdated. In the last few decades the discipline of drawing
conclusions and making decisions under uncertainty has grown which is proving to
be very helpful to decision-makers, particularly in the field of business. Although,
various definitions have been given which include this aspect of statistics also, we
shall now give a definition of statistics, given by Spiegel, to reflect this new dimension
of statistics.
9.

"Statistics is concerned with scientific method for collecting, organising, summarising,

presenting and analysing data as well as drawing valid conclusions and making
reasonable decisions on the basis of such analysis.

On the basis of the above definitions we can say that statistics, in singular sense, is a
science which consists of various statistical methods that can be used for collection,
classification, presentation and analysis of data relating to social, political, natural,
economical, business or any other phenomena. The results of the analysis can be used
further to draw valid conclusions and to make reasonable decisions in the face of
uncertainty.

1.7.5 Statistics as a Science different from Natural Sciences

Science is a body of systematised knowledge developed by generalisations of relations
based on the study of cause and effect. These generalised relations are also called the
laws of science. For example, there are laws in physics, chemistry, statistics, mathematics,
etc. It is obvious from this that statistics is also a science like any other natural science.
The basic difference between statistics and other natural sciences lies in the difference
in conditions under which its experiments are conducted. Where as the experiments in
natural sciences are done in laboratory, under more or less controlled conditions, the
experiments in statistics are conducted under uncontrolled conditions. Consider, for
example, the collection of data regarding expenditure of households in a locality. There
may be a large number of factors affecting expenditure and some of these factors might
be different for different households.
Due to these reasons, statistics is often termed as a non-experimental science while
natural sciences are termed as experimental sciences. We may note here that social
sciences like economics, business, sociology, geography, political science, etc., belong to
the category of non-experimental science and thus, the laws and methods of statistics
can be used to understand and analyse the problems of these sciences also.

1.7.6 Statistics as a Scientific Method

We have seen above that, statistics as a non-experimental science can be used to study
and analyse various problems of social sciences. It may, however, be pointed out that
there may be situations even in natural sciences, where conducting of an experiment
under hundred per cent controlled conditions is rather impossible. Statistics, under such
conditions, finds its use in natural sciences, like physics, chemistry, etc.

Quantitative Techniques
for Management

In view of the uses of statistics in almost all the disciplines of natural as well as social
sciences, it will be more appropriate to regard it as a scientific method rather than a
science. Statistics as a scientific method can be divided into the following two categories:
(a) Theoretical Statistics and (b) Applied Statistics
(a)

Theoretical Statistics: Theoretical statistics can be further sub-divided into the

following three categories:
(i)

Descriptive Statistics: All those methods which are used for the collection,
classification, tabulation, diagrammatic presentation of data and the methods
of calculating average, dispersion, correlation and regression, index numbers,
etc., are included in descriptive statistics.

(ii)

Inductive Statistics: It includes all those methods which are used to make
generalisations about a population on the basis of a sample. The techniques
of forecasting are also included in inductive statistics.

(iii) Inferential Statistics: It includes all those methods which are used to test
certain hypotheses regarding characteristics of a population.
(b)

Applied Statistics: It consists of the application of statistical methods to practical

problems. Design of sample surveys, techniques of quality control, decision-making
in business, etc., are included in applied statistics.

1.7.7 Statistics as a Science or an Art

We have seen above that statistics is a science. Now we shall examine whether it is an
art or not. We know that science is a body of systematised knowledge. How this knowledge
is to be used for solving a problem is work of an art. In addition to this, art also helps in
achieving certain objectives and to identify merits and demerits of methods that could be
used. Since statistics possesses all these characteristics, it may be reasonable to say that
it is also an art.
Thus, we conclude that since statistical methods are systematic and have general
applications, therefore, statistics is a science. Further since the successful application of
these methods depends, to a considerable degree, on the skill and experience of a
statistician, therefore, statistics is an art also.

1.8 LET US SUM UP

The changes in the structure of human organisation, perfection in various fields and
introduction of decision had given birth to quantitative technique. The application of
Quantitative Techniques methods helps in making decisions in such complicated situation.
Evidently the primarily objective of Quantitative Techniques is to study the different
components of an organisation by employing the methods of mathematical statistics in
order to get the behaviour with greater degree of control on the system. In short, the
objective of Quantitative Technique is to make available scientific basis to the decisionmaker, for solving the problem involving the interaction of different components of the
organisation by employing a team of scientists from distinguish disciplines, all working in
concert for finding a solution which is in the best interest of organisation as a whole. The
best solution thus obtained is known as optimal decision.

1.9 LESSON-END ACTIVITIES

Visit a nearby Nokia priority center as I hope it will reach your city. Analyse the
functioning of the priority center and see which types of Quantitative Techniques
could be more useful and applicable. For your convenience and even giving you the
clue that if there are more customers in the priority center and service centers are
not able to fulfil the requirements waiting line will be the best approach.

Why there is a need of statistics. Indicate one incidence of statistics application in

your daily routine. How the statistics application had bring a paradigm shift.

Quantitative Techniques
Introduction

1.10 KEYWORDS
Management science
Model
Analysis
Decision-making
Mathematical model
Algorithm
Problem

1.11 QUESTIONS FOR DISCUSSION

Write True or False against each statement:

(a)

Accurate data for input values are essential.

(b)

A factor is developed to suit the problem.

(c)

Key decision and objective of the problem must be identified.

(d)

The methodology helps us in studying the scientific method.

(e)

Model does not facilitates managers to take decisions.

Briefly comment on the following statements:

(a)

Scientific management has got wide scope.

(b)

Implementation involves translation/application of solutions.

(c)

A model is a mathematical representation of a problem situation.

(d)

It is necessary to clearly understand the problem situation.

(e)

Scientific management techniques are available to solve managerial problem.

Fill in the blanks:

(a)

Once the _________ in tested and validated, it is ready for implementation.

(b)

Quantitative factors are considered in _________

(c)

Managerial science had _________ the organisation.

(d)

Managerial criticism had become _________

(e)

Fredrich W. Taylor developed the _________ management principle.

Distinguish between the following:

(a)

Quantitative Techniques and Management.

(b)

Solving the model and validating the model translation.

(c)

Translation & Application.

1.12 TERMINAL QUESTIONS

How useful are the Quantitative Techniques in decision-making?

Give the areas of application where Quantitative Techniques can be applied.

Quantitative Techniques
for Management

Explain the methodology adopted in solving problems with the help of a flow chart
diagram.

What is a model? Explain with a suitable example.

What is meant by validation of model?

Explain the advantages of modelling with the help of a short example.

Discuss the advantages and limitations of using results from a mathematical model
to make decision as out operations.

What are different type of models used in management science.

What are some of the opportunities in management science?

10. What is implementation and why it is important?

11.

What are some of sources of input data?

12. Briefly trace the history of management science.

13. What is the Quantitative Techniques process? Give several examples of this process.
14. Give a brief account of the origin and development of statistics.
15. Define statistics and discuss its relationship with natural and other sciences.
16. Distinguish between statistical methods and statistics. Discuss the scope and
significance of the study of statistics.
17. Who gave the following definitions of statistics?
(i)

Statistics is the science of counting.

(Bowley, Boddington, King, Saligman)

(ii)

Statistics is the science of estimates and probabilities.

(Webster, Secrist, Boddington, Yule & Kendall)

(iii) The science of statistics is the method of judging collective, natural or social
phenomena from the results obtained by the analysis or enumeration or
collection of estimates.
(Achenwall, Marshall, W.I. King, Croxton & Cowden)
18. Statistics are numerical statements of facts, but all facts stated numerically are
not statistics. Clarify this statement and point out briefly which numerical statements
of facts are statistics.
19. Discuss briefly the utility of statistics in economic analysis and business.
20. Which of the following statements are true?
(a)

Statistics is helpful in administration.

(b)

Statistics is helpful in business.

(c)

Statistics is helpful in economic analysis.

(d)

Statistics is helpful in all of the above.

21. Statistics are the straws out of which I like other economists have to make bricks.
Discuss.
22. Science without statistics bear no fruit, statistics without science have no roots.
Explain the above statement.
23. It is usually said that statistics is science and art both. Do you agree with this
statement? Discuss the scope of statistics.
24. Define Statistics and explain briefly the divisions of the science of statistics.
22

25. Statistics is not a science, it is a scientific method. Discuss it critically and explain
the scope of statistics.

26. Explain clearly the three meanings of the word 'Statistics' contained in the following
statement :

Quantitative Techniques
Introduction

You compute statistics from statistics by statistics.

[Hint : Mean, standard deviation, etc., computed from a sample are also known
as statistics.]
27. Economics and statistics are twin sisters. Discuss.
28. Discuss the nature and scope of statistics. What are the fields of investigation and
research where statistical methods and techniques can be usefully employed?
29. Explain the following statements :
(a)

Statistics is the science of counting.

(b)

Statistics is the science of estimates and probabilities.

(c)

Statistics is the science of averages.

30. Explain by giving reasons whether the following are data or not:
(i)

Arun is more intelligent than Avinash.

(ii)

Arun got 75% marks in B.Sc. and Avinash got 70% marks in B.Com.

(iii) Arun was born on August 25, 1974.

(iv) The consumption function of a community is C = 1,000 + 0.8Y, therefore, the
levels of consumption for different levels of income are :
Y
C

0
1000

1000
1800

2000
2600

4000
4200

6000
5800

8000
7400

31. Statistics are aggregates of facts, affected to a marked extent by a multiplicity of

causes.
Discuss the above statement and explain the main characteristics of statistics.
32. Statistics are not merely heap of numbers. Explain.
33. Elucidate the following statement :
Not a datum, but data are the subject-matter of statistics.

1.13 MODEL
DISCUSSION

ANSWERS

(a) True

(b) False

(a) model

(b) decision-making

QUESTIONS

(d) True

FOR

(e) False

(c) facilitate (d) complex (e) scientific

1.14 SUGGESTED READINGS

Bierman & Hausman, Quantitative Analysis for Business Decision.
Billy E Gillert, Introduction to OR
Franklyn A Lindsay, New Technique for Management Decision-making.
Herbert G. Hicks, New Management of Organisation.
Joseph L. Massie, Essentials of Management.
R. L. Acnoff & M. W. Sasieni, Fundamentals of OR.
Norbert Lloyd, Enrich, Management OR.
23

Quantitative Techniques for

Management

LESSON

2
MEASURES OF CENTRAL TENDENCY

CONTENTS
2.0 Aims and Objectives
2.1 Introduction
2.2 Definition of Average
2.3 Functions and Characterstics of an Average
2.4 Various Measures of Average
2.5 Arithmetic Mean
2.6 Median
2.7 Other Partition or Positional Measures
2.8 Mode
2.9 Relation between Mean, Median and Mode
2.10 Geometric Mean
2.11 Harmonic Mean
2.12 Let us Sum Up
2.13 Lesson-end Activity
2.14 Keywords
2.15 Questions for Discussion
2.16 Terminal Questions
2.17 Model Answers to Questions for Discussion
2.18 Suggested Readings

2.0 AIMS AND OBJECTIVES

In this lesson we would be able to measure the various measures of Central Tendency
like Average, Arithematic mean, Median, Mode and the relationship between various
measures of tendencies. We would also learn the Geometric and Harmonic Mean.

2.1 INTRODUCTION

Summarisation of the data is a necessary function of any statistical analysis. As a first

step in this direction, the huge mass of unwieldy data are summarised in the form of
tables and frequency distributions. In order to bring the characteristics of the data into
sharp focus, these tables and frequency distributions need to be summarised further. A
measure of central tendency or an average is very essential and an important summary
measure in any statistical analysis. An average is a single value which can be taken as
representative of the whole distribution.

2.2 DEFINITION OF AVERAGE

Measures of Central Tendency

The average of a distribution has been defined in various ways. Some of the important
definitions are :
(i) "An average is an attempt to find one single figure to describe the whole of
figures".
- Clark and Sekkade
(ii) "Average is a value which is typical or representative of a set of data".
- Murray R. Spiegal
(iii) "An average is a single value within the range of the data that is used to
represent all the values in the series. Since an average is somewhere within
the range of data it is sometimes called a measure of central value".
- Croxton and Cowden
(iv) "A measure of central tendency is a typical value around which other figures
congregate".
- Sipson and Kafka

2.3 FUNCTIONS AND CHARACTERSTICS OF AN

AVERAGE
1.

To present huge mass of data in a summarised form: It is very difficult for

human mind to grasp a large body of numerical figures. A measure of average is
used to summarise such data into a single figure which makes it easier to understand
and remember.
To facilitate comparison: Different sets of data can be compared by comparing
their averages. For example, the level of wages of workers in two factories can be
compared by mean (or average) wages of workers in each of them.
To help in decision-making: Most of the decisions to be taken in research,
planning, etc., are based on the average value of certain variables. For example, if
the average monthly sales of a company are falling, the sales manager may have to
take certain decisions to improve it.

Characteristics of a Good Average

A good measure of average must posses the following characteristics :
1. It should be rigidly defined, preferably by an algebraic formula, so that different
persons obtain the same value for a given set of data.
2. It should be easy to compute.
3. It should be easy to understand.
4. It should be based on all the observations.
5. It should be capable of further algebraic treatment.
6. It should not be unduly affected by extreme observations.
7. It should not be much affected by the fluctuations of sampling.

2.4 VARIOUS MEASURES OF AVERAGE

Various measures of average can be classified into the following three categories:
(a) Mathematical Averages :
(i) Arithmetic Mean or Mean
(ii) Geometric Mean
(iii) Harmonic Mean
(iv) Quadratic Mean
(b) Positional Averages:
(i) Median
(ii) Mode

Quantitative Techniques for

Management

(c)

Commercial Average
(i)

Moving Average

(ii)

Progressive Average

(iii) Composite Average

The above measures of central tendency will be discussed in the order of their popularity.
Out of these, the Arithmetic Mean, Median and Mode, being most popular, are discussed
in that order.

2.5 ARITHMETIC MEAN

Before the discussion of arithmetic mean, we shall introduce certain notations. It will be
assumed that there are n observations whose values are denoted by X1,X2, ..... Xn
respectively. The sum of these observations X1 + X2 + ..... + Xn will be denoted in
n

abbreviated form as

X
i =1

, where S (called sigma) denotes summation sign.

The subscript of X, i.e., 'i' is a positive integer, which indicates the serial number of the
observation. Since there are n observations, variation in i will be from 1 to n. This is
indicated by writing it below and above S, as written earlier. When there is no ambiguity
in range of summation, this indication can be skipped and we may simply write X1 + X2
+ ..... + Xn = SXi.
Arithmetic Mean is defined as the sum of observations divided by the number of
observations. It can be computed in two ways : (i) Simple arithmetic mean and
(ii) weighted arithmetic mean. In case of simple arithmetic mean, equal importance is
given to all the observations while in weighted arithmetic mean, the importance given to
various observations is not same.
Calculation of Simple Arithmetic Mean
(a) When Individual Observations are given.
Let there be n observations X1, X2 ..... Xn. Their arithmetic mean can be calculated
either by direct method or by short cut method. The arithmetic mean of these observations
will be denoted by X
Direct Method: Under this method, X is obtained by dividing sum of observations by
number of observations, i.e.,
n

X
i =1

n
Short-cut Method: This method is used when the magnitude of individual observations
is large. The use of short-cut method is helpful in the simplification of calculation work.
Let A be any assumed mean. We subtract A from every observation. The difference
between an observation and A, i.e., Xi - A is called the deviation of i th observation from
A and is denoted by di. Thus, we can write ; d1 = X1 - A, d2 = X2 - A, ..... dn = Xn - A. On
adding these deviations and dividing by n we get
di = ( Xi A) = Xi nA = Xi A
n
n
n
n
d
i)
(Where d =
d =XA
or
n

On rearranging, we get X = A + d = A +

This result can be used for the calculation of X .

Remarks: Theoretically we can select any value as assumed mean. However, for the
purpose of simplification of calculation work, the selected value should be as nearer to
the value of X as possible.

Example 1: The following figures relate to monthly output of cloth of a factory in a

given year:
Months
: Jan Feb Mar Apr May
Output
: 80 88
92
84
96
( in '000 metres )

Measures of Central Tendency

Jun Jul Aug Sep Oct Nov Dec

100

Calculate the average monthly output.

Solution:
(i)

Using Direct Method

X=
(ii)

80 + 88 + 92 + 84 + 96 + 92 + 96 + 100 + 92 + 94 + 98 + 86
= 91.5 ('000 mtrs)
12

Using Short Cut Method

Let A = 90.

Xi
80 88 92 84 96 92 96 100 92 94 98 86
d i = X i - A - 10 - 2 2 - 6 6 2 6 10 2 4 8 - 4
\ X = 90 +

Total
di = 18

18
= 90 + 1.5 = 91.5 thousand mtrs
12

(b) When data are in the form of an ungrouped frequency distribution

Let there be n values X1, X2, ..... Xn out of which X1 has occurred f1 times, X2 has
occurred f 2 times, ..... Xn has occurred f n times. Let N be the total frequency,
n

i.e., N =

f
i =1

. Alternatively, this can be written as follows :

V alu es
F requ en cy

X1
f1

X2
f2

Xn
fn

T otal F requ en cy
N

Direct Method : The arithmetic mean of these observations using direct method is given
by

X1 + X1 + ... + X1 + X 2 + ... + ... + X 2 + ... + ... + X n + ... + X n

1442443
144424443 1442443
x=

f1times

f 2times

f ntimes

f1 + f 2 + ... f n

Since X1 + X1 + ..... + X1 added f1 times can also be written f1X1. Similarly, by writing
other observation in same manner, we have
n
n
fi X i
fi X i
f X + f X + ... + fn Xn i = 1
i =1
=
=
X= 1 1 2 2
n
f1 + f2 + ... + fn
N
f
i
i =1

.... (3)

Short-Cut Method: As before, we take the deviations of observations from an arbitrary

value A. The deviation of i th observation from A is di = Xi A.
Multiplying both sides by fi we have fi di = fi (Xi A)
Taking sum over all the observations

S fi d i = S fi X i A = S fi X i AS fi = S fiXi - A.N

Quantitative Techniques for

Management

Dividing both sides by N we have

fi di
N

fi X i
N

A = X - A or

X=A+

fi di
= A+d .
N

Example 2: The following is the frequency distribution of age of 670 students of a

school. Compute the arithmetic mean of the data.
X
(in years)

Frequency 25

165

112

Solution:
Direct method: The computations are shown in the following table :
X
5
6
7
8
9
10 11 12 13 14
Total
f
25 45 90 165 112 96 81 26 18 12
f = 670
fX 125 270 630 1320 1008 960 891 312 234 168 fX = 5918
X=

fX 5918
=
= 8.83 years.
670
f

Short-Cut Method: The method of computations are shown in the following table :
X
5
6
7
8
9 10
11 12 13 14 Total
f
25
45
90 165 112 96
81 26 18 12
670
d = X 8 3 2
1
0
1
2
3
4 5 6
fd
75 90 90
0 112 192 243 104 90 72
558

X = A+

558
fd
=8+
= 8 + 0.83 = 8.83 years.
N
670

(c) When data are in the form of a grouped frequency distribution

In a grouped frequency distribution, there are classes along with their respective
frequencies. Let li be the lower limit and ui be the upper limit of i th class. Further, let the
number of classes be n, so that i = 1, 2,.....n. Also let fi be the frequency of i th class. This
distribution can written in tabular form, as shown.
Note: Here u1 may or may not be equal to l2, i.e., the upper limit of a class may or may
not be equal to the lower limit of its following class.
It may be recalled here that, in a grouped frequency distribution, we only know the
number of observations in a particular class interval and not their individual magnitudes.
Therefore, to calculate mean, we have to make a fundamental
Frequency
assumption that the observations in a class are uniformly distributed. Class
(f )
Intervals
Under this assumption, the mid-value of a class will be equal to the
mean of observations in that class and hence can be taken as their l1 -u1
f1
representative. Therefore, if Xi is the mid-value of i th class with l2 -u2
f2
frequency fi , the above assumption implies that there are fi
M
M
fn
observations each with magnitude Xi (i = 1 to n). Thus, the ln -un
arithmetic mean of a grouped frequency distribution can also be Total
= fi = N
calculated by the use of the formula, given in 9.5.1(b).
Frequency
Remarks: The accuracy of arithmetic mean calculated for a
grouped frequency distribution depends upon the validity of the fundamental assumption.
This assumption is rarely met in practice. Therefore, we can only get an approximate
value of the arithmetic mean of a grouped frequency distribution.
28

Example 3: Calculate arithmetic mean of the following distribution :

Measures of Central Tendency

Class
Intervals : 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80
Frequency : 3
8
12
15
18
16
11
5

Solution: Here only short-cut method will be used to calculate arithmetic mean but it
can also be calculated by the use of direct-method.
Frequency
Class
Mid
d = X - 35
(f )
Intervals Values (X )
0-10
10-20
20-30
30-40
40-50
50-60
60-70
70-80
Total

5
15
25
35
45
55
65
75

- 30
- 20
-10
0
10
20
30
40

3
8
12
15
18
16
11
5
88

fd
- 90
-160
-120
0
180
320
330
200
660

fd
660
\ X = A + = 35 +
= 42.5
N
88

Example 4: The following table gives the distribution of weekly wages of workers in a
factory. Calculate the arithmetic mean of the distribution.
Weekly
Wages : 240 - 269 270 - 299 300 - 329 330 - 359 360 - 389 390 - 419 420 - 449
No. of
7
19
27
15
12
12
8
Workers :

Solution: It may be noted here that the given class intervals are inclusive. However, for
the computation of mean, they need not be converted into exclusive class intervals.
Class
Mid
Frequency d = X - 344.5
Intervals Values (X )
240-269
270-299
300-329
330-359
360-389
390-419
420-449

254.5
284.5
314.5
344.5
374.5
404.5
434.5

7
19
27
15
12
12
8

Total

100

X = A+

- 90
- 60
- 30
0
30
60
90

fd
- 630
-1140
- 810
0
360
720
720
-780

fd = 344.5 780 = 336.7

100

Step deviation method or coding method

In a grouped frequency distribution, if all the classes are of equal width, say 'h', the
successive mid-values of various classes will differ from each other by this width. This
fact can be utilised for reducing the work of computations.
Let us define ui =

Xi - A
. Multiplying both sides by fi and taking sum over all the
h
n

observations we have,

fu
i =1

i i

1 n
fi ( Xi A)
h i =1

i =1

h fi ui = fi Xi A fi = fi Xi A.N

Quantitative Techniques for

Management

Dividing both sides by N, we have

fui i
i =1

f X
i =1

i i

A= X A
n

\ X = A + h i =1
N

i i

.... (5)

Using this relation we can simplify the computations of Example 4, as shown below.
u=

X - 344.5
30
f
fu

-3

-2

-1

3 Total

7
19
27 15 12 12 8
- 21 - 38 - 27 0 12 24 24

100
- 26

Using formula (5), we have

X = 344.5

30 26
= 336.7
100

Example 5: Following table gives the distribution of companies according to size of

capital. Find the mean size of the capital of a company.
Capital ( Lacs Rs ) < 5 < 10 < 15 < 20 < 25 < 30
29
38
48
53
No . of Companies 20 27

Solution: This is a 'less than' cumulative frequency distribution. This will first be converted
into class intervals.
Class

Frequency

Mid - values

Intervals
0-5

(f )
20

(X)
2.5

5 - 10

7.5

X 12.5
fu
5
2
40
1
7

10 - 15

12.5

15 - 20

17.5

20 - 25
25 - 30
Total

22.5

5
53

27.5

15
3

X = 12.5

5 3
= Rs 12.22 Lacs
53

Example 6: A charitable organisation decided to give old age pension to people over
sixty years of age. The scale of pension were fixed as follows :
Age Group
: 60 - 65 65-70 70 -75 75- 80 80- 85 85- 90 90- 95
Pension / Month ( Rs ) : 100
120
140
160
180
200
220

If the total pension paid per month in various age groups are :
: 60 - 65 65 - 70 70 - 75 75 - 80 80 - 85 85 - 90 90 - 95
Age Group
Total Pension/ Month : 700
600
840
800
720
600
440

Calculate the average amount of pension paid per month per head and the average age
of the group of old persons.

Solution: The computations of pension per head and the average age are shown in the
following table.

Age
Group
60 - 65
65 - 70
70 - 75
75 - 80
80 - 85
85 - 90
90 - 95
Total

Rate of
Pension per
month ( Y )
( in Rs )
100
120
140
160
180
200
220

Average age X = 77.5 +

Total
Pension paid
per month ( T )
( in Rs )
700
600
840
800
720
600
440
4700

5 ( 21)
32

No . of
Persons
f =T Y
7
5
6
5
4
3
2
32

Mid - values
X 77 . 5
of Class
u=
Intervals
5
(X)
62 . 5
3
67 . 5
2
72 . 5
1
77 . 5
0
82 . 5
1
87 . 5
2
92 . 5
3

Measures of Central Tendency

fu
21
10
6
0
4
6
6
21

= 77.5 - 3.28 = 74.22 Years

Total pension paid

4700
=
= Rs 146.88
32
No. of persons

The average pension per head =

Charlier's Check of Accuracy

When the arithmetic mean of a frequency distribution is calculated by short-cut or stepdeviation method, the accuracy of the calculations can be checked by using the following
formulae, given by Charlier.
For short-cut method

f (d
i

+ 1) = fi di + fi

f d = f (d
i

+ 1) fi = fi ( di + 1) N

Similarly, for step-deviation method

f (u
i

+ 1) = fi ui + fi

f u = f (u
i i

+ 1) fi = fi (ui + 1) N

Checking the accuracy of calculations of Example 5, we have

f (u + 1) = 20 ( - 1 ) + ( 7 0) + ( 2 1) + ( 9 2) + ( 10 3) + ( 5 4) = 50
Since

f (u + 1) N = 50 53 = 3 = fu , the calculations are correct.

Weighted Arithmetic Mean

In the computation of simple arithmetic mean, equal importance is given to all the items.
But this may not be so in all situations. If all the items are not of equal importance, then
simple arithmetic mean will not be a good representative of the given data. Hence,
weighing of different items becomes necessary. The weights are assigned to different
items depending upon their importance, i.e., more important items are assigned more
weight. For example, to calculate mean wage of the workers of a factory, it would be
wrong to compute simple arithmetic mean if there are a few workers (say managers)
with very high wages while majority of the workers are at low level of wages. The
simple arithmetic mean, in such a situation, will give a higher value that cannot be regarded
as representative wage for the group. In order that the mean wage gives a realistic
picture of the distribution, the wages of managers should be given less importance in its
computation. The mean calculated in this manner is called weighted arithmetic mean.
The computation of weighted arithmetic is useful in many situations where different
items are of unequal importance, e.g., the construction index numbers, computation of
standardised death and birth rates, etc.

Quantitative Techniques for

Management

Formulae for Weighted Arithmetic Mean

Let X1, X2 ....., Xn be n values with their respective weights w1, w2 ....., wn. Their
weighted arithmetic mean denoted as Xw is given by,
(i)

Xw =

w X
w
i

(Using direct method),

(ii)

Xw = A +

w d
w

i i

(where di = Xi - A)

(Using short-cut method),

(iii)

Xw = A +

w u
w

i i
i

h (where ui = X i - A ) (Using step-deviation method)

Example 7: Ram purchased equity shares of a company in 4 successive months, as

given below. Find the average price per share.
Month

No. of Shares

Dec - 91
Jan - 92
Feb - 92
Mar - 92

100
150
200
125

Price per share (in Rs.)

200
250
280
300

Solution: The average price is given by the weighted average of prices, taking the
number of shares purchased as weights.
Month
Dec - 91
Jan - 92
Feb - 92
Mar - 92
Total

Price of share ( X ) No . of shares

d = X 150
dw
( in Rs )
(w)
100
200
50
10000
150
250
0
0
200
280
50
14000
125
300
25
7500
1030
3500

Xw = 150

3,500
= Rs 146.60
1,030

Example 8: From the following results of two colleges A and B, find out which of the
two is better :
Examination
College A
College B
Appeared Passed Appeared Passed
60
40
200
160
M.Sc.
100
60
240
200
M. A.
200
150
200
140
B.Sc.
B. A.
120
75
160
100
Solution: Performance of the two colleges can be compared by taking weighted arithmetic
mean of the pass percentage in various classes. The calculation of weighted arithmetic
mean is shown in the following table.

X w for College A

w X
=
w
A

Measures of Central Tendency

X w for College B =

w X
w
B

32500.2
=
= 67.71%
480
=

59999.2
800 = 75%

Since the weighted average of pass percentage is higher for college B, hence college B
is better.
Remarks: If X denotes simple mean and Xw denotes the weighted mean of the same
data, then
(i)

X = Xw , when equal weights are assigned to all the items.

(ii)

X > Xw , when items of small magnitude are assigned greater weights and items of

large magnitude are assigned lesser weights.

(iii) X < Xw , when items of small magnitude are assigned lesser weights and items of
large magnitude are assigned greater weights.

Properties of Arithmetic Mean

Arithmetic mean of a given data possess the following properties :
1.

The sum of deviations of the observations from their arithmetic mean is always
zero.
According to this property, the arithmetic mean serves as a point of balance or a
centre of gravity of the distribution; since sum of positive deviations (i.e., deviations
of observations which are greater than X ) is equal to the sum of negative deviations
(i.e., deviations of observations which are less than X ).
Proof : Let X1, X2 ....., Xn be n observations with respective frequencies f1, f2 .....,
fn. Let Sfi = N, be the total frequency. Thus, X =

fX
i

Let di = X i - X , where i =1, 2 ..... n. Multiplying both sides by fi and taking sum
over all the observations, we have

f d = f (X X ) = f X X f
= f X X.N = 0 (Since f X = NX ) . Hence Proved.
i i

The sum of squares of deviations of observations is minimum when taken from

their arithmetic mean. Because of this, the mean is sometimes termed as 'least
square' measure of central tendency.
Proof: The sum of squares of deviations of observations from arithmetic mean
=

f (X
i

Similarly, we can define sum of squares of deviations of observations from any

arbitrary value A as S = fi ( Xi A )

.... (1)

We have to show that S will be minimum when A X .

To prove this, we try to find that value of A for which S is minimum. The necessary
and sufficient conditions for minimum of S are :

dS
= 0 and
dA

d2S
>0
dA2

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Management

Differentiating (1) w.r.t. A we have

dS
= 2 fi ( Xi A) = 0 , for minima.
dA

.... (2)

On dividing both sides by - 2, we have

f (X
i

A ) = 0 or

fX
i

Thus,

fX
i

NA = 0

A = 0 (on dividing both sides by N)

X - A = 0 or A = X .
2

Further, to show that S is minimum, it will be shown that

dS
2 > 0 at A = X .
dA

Differentiating (2) further w.r.t. A, we have

d2S
= 2 fi ( 0 1) = 2 fi = 2 N , which is always positive.
dA2
Hence S is minimum when A = X .
3.

Arithmetic mean is capable of being treated algebraically.

This property of arithmetic mean highlights the relationship between X ,

f X and
i

N. According to this property, if any two of the three values are known, the third
can be easily computed. This property is obvious and requires no proof.
4.

If X1 and N1 are the mean and number of observations of a series and X2 and N2
are the corresponding magnitudes of another series, then the mean X of the
combined series of N1 + N2 observations is given by X =

N1 X 1 + N 2 X 2

N1 + N 2

Proof : To find mean of the combined series, we have to find sum of its observations.
Now, the sum of observations of the first series, i.e.,
of observations of the second series, i.e.,

f X
2

fX
1

= N1 X1 and the sum

= N 2 X2 .

\ The sum of observations of the combined series, i.e., N1 X 1 + N 2 X 2 .

Thus, the combined mean X =

N1 X 1 + N 2 X 2

N1 + N 2

This result can be generalised: If there are k series each with mean Xi and number
of observations equal to Ni , where i = 1,2 ..... k, the mean of the combined series
of N1 + N2 + ..... + Nk observations is given by
k

X =

N1 X 1 + N 2 X 2 + ... + N k X k
=
N1 + N 2 + ... + N k

Ni X i
i =1
k

Ni
i =1

5.
34

If a constant B is added (subtracted) from every observation, the mean of these

observations also gets added (subtracted) by it.

Proof : Let X be the mean of the observations X1, X2.....Xn with respective
frequencies as f1, f2 ..... fn. When B is added to every observations, let ui = Xi + B.

Measures of Central Tendency

Multiply both sides by fi and take sum over all the observations, we get
Sfiui = Sfi(Xi + B) = SfiXi + NB
Dividing both sides by N we get

i i

fi Xi
+ B or u = X + B .
N

i.e., The mean of ui = Xi + B is obtained by adding B to the mean of Xi values.

Similarly, it can be shown that if vi = Xi - B, then v = X - B.
6.

If every observation is multiplied (divided) by a constant b, the mean of these

observations also gets multiplied (divided) by it.
Proof: Let us define wi = Xi . Multiplying both sides by fi and taking sum over all
the observations, we get Sfiwi = bSfiXi.
Dividing both sides by N, we get

Similarly, it can be shown that if Di =

fi X i
or w = b X
N

Xi
X
, then D =
b
b

Using properties 5 and 6, we can derive the following results :

If Yi = a + bXi , then SfiYi = Sfi(a + bXi) or SfiYi = aSfi + bSfiXi.
Dividing both sides by N( = Sfi ), we have

i i

= a +b

fi X i
or Y = a + bX
N

This shows that relationship between the means of two variables is same as the
relationship between the variables themselves.
7.

If some observations of a series are replaced by some other observations, then the
mean of original observations will change by the average change in magnitude of
the changed observations.
Proof: Let mean of n observations be X =

X + X + LL + X
1
2
n . Further, Let X ,
1
n

X2, X3 are replaced by the respective observations Y1, Y2, Y3. Therefore, the
change in magnitude of the changed observations = (Y1 + Y2 + Y3) - (X1 + X2 +
X3).
Hence average change in magnitude =

(Y1 + Y2 + Y3 ) (X1 + X 2 + X 3 )
.
n

Thus, new X = old X + average change in magnitude.

Example 9: There are 130 teachers and 100 non-teaching employees in a college. The
respective distributions of their monthly salaries are given in the following table :

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Management

From the above data find :

(i)

Average monthly salary of a teacher.

(ii)

Average monthly salary of a non-teaching employee.

(iii) Average monthly salary of a college employee (teaching and non-teaching).

Solution:
(i)

Average monthly salary of a teacher

\ X1 = 6500 + 469.23 = Rs 6969.23

(ii)

Average monthly salary of a non-teaching employee

\ X2 = 2500 + 190 = Rs 2690

(iii) Combined average monthly salary is
X=

N 1X1 + N 2 X 2
N1 + N 2

Here N1 = 130, X1 = 6969.23, N2 = 100 and X2 = 2690

X =

130 6969.23 + 100 2690

= Rs 5108.70
230

Example 10: The average rainfall for a week, excluding Sunday, was 10 cms. Due to
heavy rainfall on Sunday, the average for the week rose to 15 cms. How much rainfall
was on Sunday?
Solution: A week can be treated as composed of two groups: First group consisting of 6
days excluding Sunday for which N1 = 6 and X 1 = 10; the second group consisting of
only Sunday for which N2 = 1. Also, mean of this group will be equal to the observation
itself. Let this be X. We have to determine the value of X.
36

Measures of Central Tendency

We are also given N = 7 and X 1 = 15 (for the whole week).

\ 15 =

6 10 + 1 X
or 60 + X = 15 7
7

fi X = 105 - 60 = 45 cms. Thus, the rainfall on Sunday was 45 cms.

Example 11: The mean age of the combined group of men and women is 30.5 years. If
the mean age of the sub-group of men is 35 years and that of the sub-group of women is
25 years, find out percentage of men and women in the group.
Solution: Let x be the percentage of men in the combined group. Therefore, percentage
of women = 100 - x.
We are given that X1 (men) = 35 years and X2 (women) = 25 years
Also X (combined) = 30.5
30.5 =

fi x =

35 x + 25 100 x
x + 100 x

g = 35x + 2500 25x

100

or 3050 = 10x + 2500

550
= 55%. Thus, there are 55% men and 45% women in the group.
10

To find missing frequency or a missing value

Example 12: The following is the distribution of weights (in lbs.) of 60 students of a
class:
Weights
No. of
Students
Weights
No. of
Students

93 - 97

98 - 102

103 - 107

108 - 112

113 - 117

118 - 122

123 - 127

128 - 132

Total

If the mean weight of the students is 110.917, find the missing frequencies.
Solution: Let f1 be the frequency of the class 108-112. Then, the frequency of the class
118-122 is given by 60 - (2 + 5 + 12 + 14 + 3 + 1 + f 1) = 23 - f1
Writing this information in tabular form we have :
No. of
Weights
Mid -Values
X - 110
u=
5
(in lbs.) Students (f )
(X )
-3
93-97
2
95

98-102
103-107
108-112

5
12
f1

100
105
110

-2
-1

-6
-10
-12

113-117
118-122
123-127
128-132

14
23 - f1
3
1

115
120
125
130

1
2
3
4

Total

14
46 - 2 f1
9
4
45 - 2 f1

Using the formula for A.M., we can write 110.917 = 110 +

(45 - 2 f1 )5
60

or 11.004 = 45 - 2f1 or 2f1 = 33.996 = 34 (approximately)

Thus, f1 = 17 is the frequency of the class 108 - 112 and 23 - 17= 6 is the frequency of
the class 118 - 122.
Example 13: Find out the missing item (x) of the following frequency distribution whose
arithmetic mean is 11.37.

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X :
f :

5
2

axf

7
4

11
54

13
11

16
8

20
4

fX (5 2) + (7 4) + 29 x + (11 54) + (13 11) + (16 8) + (20 4)

=
112
f

11.37 =

10 + 28 + 29 x + 594 + 143 + 128 + 80

or 11.37 112 = 983 + 29x
112

\ x=

290.44
= 10.015 = 10 (approximately)
29

Example 14: The arithmetic mean of 50 items of a series was calculated by a student
as 20. However, it was later discovered that an item 25 was misread as 35. Find the
correct value of mean.
Solution: N = 50 and X = 20 \ SXi = 50 20 = 1000
Thus SXi (corrected) = 1000 + 25 - 35 = 990 and X (corrected) =

990
= 19.8
50

Alternatively, using property 7 :

X new = X old + average change in magnitude = 20 -

10
= 20 - 0.2 = 19.8
50

Example 15: The sales of a balloon seller on seven days of a week are as given below:
Days
Mon Tue Wed Thu Fri Sat Sun
Sales ( in Rs ) 100 150 125 140 160 200 250

If the profit is 20% of sales, find his average profit per day.
Solution: Let P denote profit and S denote sales, \ P =

Using property 6, we can write P =

Now S =

20
S
100

1
S
5

100 + 150 + 125 + 140 + 160 + 200 + 250

= 160.71
7

160.71
= Rs 32.14
5

Hence, the average profit of the balloon seller is Rs 32.14 per day.
Alternatively, we can find profit of each day and take mean of these values.
Days
Mon Tue Wed Thu Fri Sat Sun
Profit ( in Rs ) 20
30
25
28 32 40 50

20 + 30 + 25 + 28 + 32 + 40 + 50
= Rs 32.14
7

Merits and Demerits of Arithmetic Mean

Merits
38

Out of all averages arithmetic mean is the most popular average in statistics because of
its merits given below:

Arithmetic mean is rigidly defined by an algebraic formula.

Calculation of arithmetic mean requires simple knowledge of addition, multiplication

and division of numbers and hence, is easy to calculate. It is also simple to understand
the meaning of arithmetic mean, e.g., the value per item or per unit, etc.

Calculation of arithmetic mean is based on all the observations and hence, it can be
regarded as representative of the given data.

It is capable of being treated mathematically and hence, is widely used in statistical

analysis.

Arithmetic mean can be computed even if the detailed distribution is not known but
sum of observations and number of observations are known.

It is least affected by the fluctuations of sampling.

It represents the centre of gravity of the distribution because it balances the

magnitudes of observations which are greater and less than it.

It provides a good basis for the comparison of two or more distributions.

Measures of Central Tendency

Demerits

Although, arithmetic mean satisfies most of the properties of an ideal average, it has
certain drawbacks and should be used with care. Some demerits of arithmetic mean are:
1.

It can neither be determined by inspection nor by graphical location.

Arithmetic mean cannot be computed for a qualitative data; like data on intelligence,
honesty, smoking habit, etc.

It is too much affected by extreme observations and hence, it does not

adequately represent data consisting of some extreme observations.

The value of mean obtained for a data may not be an observation of the data and
as such it is called a fictitious average.

Arithmetic mean cannot be computed when class intervals have open ends. To
compute mean, some assumption regarding the width of class intervals is to be
made.

In the absence of a complete distribution of observations the arithmetic mean may

lead to fallacious conclusions. For example, there may be two entirely different
distributions with same value of arithmetic mean.

Simple arithmetic mean gives greater importance to larger values and lesser
importance to smaller values.

Exercise with Hints

The frequency distribution of weights in grams of mangoes of a given variety is

given below. Calculate the arithmetic mean.
Weights
( in gms )

No . of
Mangoes

Weights
( in gms )

410 - 419
420 - 429
430 - 439
440 - 449

14
20
42
52

450 - 459
460 - 469
470 - 479

No . of
Mangoes
45
18
7

Hint : Take the mid-value of a class as the mean of its limits and find arithmetic
mean by the step-deviation method.
2.

The following table gives the monthly income (in rupees) of families in a certain
locality. By stating the necessary assumptions, calculate arithmetic mean of the
distribution.

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Income :
No. of
Families :

1000 1000 - 2000 2000 - 3000 3000 - 4000 4000 - 5000 5000
100

1200

1450

250

Hint : This distribution is with open end classes. To calculate mean, it is to be assumed
that the width of first class is same as the width of second class. On this
assumption the lower limit of the first class will be 0. Similarly, it is assumed that
the width of last class is equal to the width of last but one class. Therefore, the
upper limit of the last class can be taken as 6,000.
3.

Compute arithmetic mean of the following distribution of marks in Economics of 50

students.
Marks more than
0
10
20
30
40

No. of Students
50
46
40
33
25

Marks more than

50
60
70
80

No. of Students
15
8
3
0

Hint: First convert the distribution into class intervals and then calculate X .
4.

The monthly profits, in '000 rupees, of 100 shops are distributed as follows:
Profit per Shop : 0 - 100 0 - 200 0 - 300 0 - 400 0 - 500 0 - 600
No. of Shops :
12
30
57
77
94
100

Find average profit per shop.

Hint: This is a less than type cumulative frequency distribution.
5.

Typist A can type a letter in five minutes, typist B in ten minutes and typist C in
fifteen minutes. What is the average number of letters typed per hour per typist?

Hint: In one hour, A will type 12 letters, B will type 6 letters and C will type
4 letters.
6.

A taxi ride in Delhi costs Rs 5 for the first kilometre and Rs 3 for every additional
kilometre travelled. The cost of each kilometre is incurred at the beginning of the
kilometre so that the rider pays for the whole kilometre. What is the average cost
of travelling 2

3
kilometres?
4

Hint: Total cost of travelling 2

3
kilometres = Rs 5 + 3 + 3 = Rs 11.
4

A company gave bonus to its employees. The rates of bonus in various salary
groups are :
Monthly Salary
: 1000 - 2000 2000 - 3000 3000 - 4000 4000 - 5000
( in Rs )
Rate of Bonus
:
2000
2500
3000
3500
( in Rs )

The actual salaries of staff members are as given below :

1120, 1200, 1500, 4500, 4250, 3900, 3700, 3950, 3750, 2900, 2500, 1650, 1350,
4800, 3300, 3500, 1100, 1800, 2450, 2700, 3550, 2400, 2900, 2600, 2750, 2900,
2100, 2600, 2350, 2450, 2500, 2700, 3200, 3800, 3100.
Determine (i) Total amount of bonus paid and (ii) Average bonus paid per employee.
Hint: Find the frequencies of the classes from the given information.
8.
40

Calculate arithmetic mean from the following distribution of weights of 100 students
of a college. It is given that there is no student having weight below 90 lbs. and the
total weight of persons in the highest class interval is 350 lbs.

Weights : < 100 < 110 < 120 < 130 < 140 < 150 < 160 < 170 170
Frequency :
3
5
23
45
66
85
95
98
2

Measures of Central Tendency

Hint: Rearrange this in the form of frequency distribution by taking class intervals as 90 - 100, 100 - 110, etc.
9.

By arranging the following information in the form of a frequency distribution, find

arithmetic mean.
"In a group of companies 15%, 25%, 40% and 75% of them get profits less than Rs
6 lakhs, 10 lakhs, 14 lakhs and 20 lakhs respectively and 10% get Rs 30 lakhs or
more but less than 40 lakhs."

Hint: Take class intervals as 0 - 6, 6 - 10, 10 - 14, 14 - 20, etc.

10. Find class intervals if the arithmetic mean of the following distribution is 38.2 and
the assumed mean is equal to 40.
Step deviations
Frequency

Hint: Use the formula X = A +

11.

:
:

3
8

fu
N

2
14

1
18

0
28

1
17

2
10

3
5

h to find the class width h.

From the following data, calculate the mean rate of dividend obtainable to an investor
holding shares of various companies as shown :
Percentage Dividend
No. of Companies
Average no. of shares of each
company held by the investor

:
:

30 - 40
4

20 - 30
25

10 - 20
15

0 - 10
6

250

150

200

300

Hint: The no. of shares of each type = no. of companies average no. of shares.
12. The mean weight of 150 students in a certain class is 60 kgs. The mean weight of
boys in the class is 70 kgs and that of girls is 55 kgs. Find the number of girls and
boys in the class.
Hint: Take n1 as the no. of boys and 150 - n1 as the no. of girls.
13. The mean wage of 100 labourers working in a factory, running two shifts of 60 and
40 workers respectively, is Rs 38. The mean wage of 60 labourers working in the
morning shift is Rs 40. Find the mean wage of 40 laboures working in the evening
shift.
Hint: See example 10.
14. The mean of 25 items was calculated by a student as 20. If an item 13 is replaced
by 30, find the changed value of mean.
Hint: See example 14.
15. The average daily price of share of a company from Monday to Friday was
Rs 130. If the highest and lowest price during the week were Rs 200 and
Rs 100 respectively, find average daily price when the highest and lowest price are
not included.
Hint: See example 10.
16. The mean salary paid to 1000 employees of an establishment was found to be Rs
180.40. Later on, after disbursement of the salary, it was discovered that the salaries
of two employees were wrongly recorded as Rs 297 and Rs 165 instead of Rs 197
and Rs 185. Find the correct arithmetic mean.
Hint: See example 14.
17. Find the missing frequencies of the following frequency distribution :

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Class
Intervals : 60 - 65 65 - 70 70 - 75 75 - 80 80 - 85 85 - 90 90 - 95 95 - 100
5
10
26
35
?
20
15
?
Frequency :

Hint: See example 12.

18. Marks obtained by students who passed a given examination are given
below :
Marks obtained
: 40 - 50 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100
( in percent )
No . of
:
10
12
20
9
5
4
Students

If 100 students took the examination and their mean marks were 51, calculate the
mean marks of students who failed.
Hint: See example 9.
19. A appeared in three tests of the value of 20, 50 and 30 marks respectively. He
obtained 75% marks in the first and 60% marks in the second test. What should be
his percentage of marks in the third test in order that his aggregate is 60%?
Hint: Let x be the percentage of marks in third test. Then the weighted average of
75, 60 and x should be 60, where weights are 20, 50 and 30 respectively.
20. Price of a banana is 80 paise and the price of an orange is Rs 1.20. If a person
purchases two dozens of bananas and one dozen of oranges, show by stating reasons
that the average price per piece of fruit is 93 paise and not one rupee.
Hint: Correct average is weighted arithmetic average.
21. The average marks of 39 students of a class is 50. The marks obtained by 40th
student are 39 more than the average marks of all the 40 students. Find mean
marks of all the 40 students.
Hint: X + 39 + 39 50 = 40 X .
22. The means calculated for frequency distributions I and II were 36 and 32
respectively. Find the missing frequencies of the two distributions.
Frequency of
Frequency of
Class Intervals Distribution I Distribution II
5 - 15
4
10
15 - 25
10
14
25 - 35
14
3y
35 - 45
16
13
45 - 55
2x
10
55 - 65
y
x

Hint: 36 =

40 + 200 + 420 + 640 + 100 x + 60 y

and
44 + 2 x + y

100 + 280 + 90 y + 520 + 500 + 60 x

47 + 3 y + x
Solve these equations simultaneously for the values of x and y.
32 =

23. The following table gives the number of workers and total wages paid in three
departments of a manufacturing unit :
Department No . of Workers
A
B
C

105
304
424

Total wages
( in Rs )
1, 68 , 000
4 , 25 , 600
5 , 08 , 800

If a bonus of Rs 200 is given to each worker, what is the average percentage

increase in wages of the workers of each department and of the total
workers?

Hint:

(i)

1,68,000
Average wage in deptt. A =
= 1,600
105
\ Percentage increase in wages =

Measures of Central Tendency

200
100 = 12.5%
1,600

Similarly, find for deptt. B and C.

(ii)

1,68,000 + 4, 25,600 + 5,08,800

105 + 304 + 424
Then, find percentage increase as before.
Average wage for total workers =

24. The following table gives the distribution of the number of kilometres travelled per
salesman, of a pharmaceutical company, per day and their rates of conveyance
allowance:
No. of kilometre
travelled per
salesman
10 - 20
20 - 30
30 - 40
40 - 50

Rate of conveyance
No. of
per kilo salesman allowance
metre (in Rs)
3
2.50
8
2.60
15
2.70
4
2.80

Calculate the average rate of conveyance allowance given to each salesman per
kilometre by the company.
Hint: Obtain total number of kilometre travelled for each rate of conveyance allowance
by multiplying mid-values of column 1 with column 2. Treat this as frequency 'f'
and third column as 'X' and find X .
25. The details of monthly income and expenditure of a group of five families are given
in the following table:
Family
A
B
C
D
E

Find: (i)
(ii)
(iii)

Income Expenditure per

( in Rs ) member ( in Rs )
1100
220
1200
190
1300
230
1400
260
1500
250

No. of members
in the family
4
5
4
3
4

Average income per member for the entire group of families.

Average expenditure per family.
The difference between actual and average expenditure for each family.

Hint: (i) Average income per member =

Total income of the group of families

Total no. of members in the group

(ii) Average expenditure per family =

Total expenditure of the group

No. of families

26. The following table gives distribution of monthly incomes of 200 employees of a
firm:
Income ( in Rs '00 ) : 10-15 15- 20 20- 25 25- 30 30 - 35 35- 40
No. of employees
:
30
50
55
32
20
13

Estimate:
(i)

Mean income of an employee per month.

(ii)

Monthly contribution to welfare fund if every employee belonging to the top

80% of the earners is supposed to contribute 2% of his income to this fund.

Hint: The distribution of top 80% of the wage earners can be written as :

Income( in Rs '00 ) : 16- 20 20 - 25 25- 30 30- 35 35- 40

Frequency
:
40
55
32
20
13

Quantitative Techniques for

Management

By taking mid-values of class intervals find Sfx, i.e., total salary and take 2% of
this.
27. The number of patients visiting diabetic clinic and protein urea clinic in a hospital
during April 1991, are given below :
No. of days of attending
No. of
Patients Diabetic Clinic Protein Urea Clinic
2
4
0 - 10
8
6
10 - 20
7
5
20 - 30
7
8
30 - 40
4
3
40 - 50
2
4
50 - 60

Which of these two diseases has more incidence in April 1991? Justify your
conclusion.
Hint: The more incidence of disease is given by higher average number of patients.
28. A company has three categories of workers A, B and C. During 1994, the number
of workers in respective category were 40, 240 and 120 with monthly wages
Rs 1,000, Rs 1,300 and Rs 1,500. During the following year, the monthly wages of
all the workers were increased by 15% and their number, in each category, were
130, 150 and 20, respectively.
(a)

Compute the average monthly wages of workers for the two years.

(b)

Compute the percentage change of average wage in 1995 as compared with

1994. Is it equal to 15%? Explain.

Hint: Since the weight of the largest wage is less in 1995, the increase in average wage
will be less than 15%.
29. (a)

The average cost of producing 10 units is Rs 6 and the average cost of

producing 11 units is Rs 6.5. Find the marginal cost of the 11th unit.

(b)

A salesman is entitled to bonus in a year if his average quarterly sales are at

least Rs 40,000. If his average sales of the first three quarters is Rs 35,000,
find his minimum level of sales in the fourth quarter so that he becomes
eligible for bonus.

Hint: See example 10.

30. (a)

The monthly salaries of five persons were Rs 5,000, Rs 5,500, Rs 6,000, Rs

7,000 and Rs 20,000. Compute their mean salary. Would you regard this mean
as typical of the salaries? Explain.

(b)

There are 100 workers in a company out of which 70 are males and 30
females. If a male worker earns Rs 100 per day and a female worker earns
Rs. 70 per day, find average wage. Would you regard this as a typical wage?
Explain

Hint: An average that is representative of most of the observations is said to be a

typical average.

2.6 MEDIAN

Median of distribution is that value of the variate which divides it into two equal parts. In
terms of frequency curve, the ordinate drawn at median divides the area under the curve
into two equal parts. Median is a positional average because its value depends upon the

position of an item and not on its magnitude.

Measures of Central Tendency

Determination of Median
(a) When individual observations are given

The following steps are involved in the determination of median :

(i) The given observations are arranged in either ascending or descending order of
magnitude.
(ii) Given that there are n observations, the median is given by:
1.

n + 1
The size of
th observations, when n is odd.
2

The mean of the sizes of

n + 1
n
th and
th observations, when n is even.
2
2

Example 16: Find median of the following observations :

20, 15, 25, 28, 18, 16, 30.
Solution: Writing the observations in ascending order, we get 15, 16, 18, 20, 25, 28, 30.

7 + 1
Since n = 7, i.e., odd, the median is the size of
th, i.e., 4th observation.
2
Hence, median, denoted by Md = 20.
Note: The same value of Md will be obtained by arranging the observations in descending
order of magnitude.
Example 17: Find median of the data : 245, 230, 265, 236, 220, 250.
Solution: Arranging these observations in ascending order of magnitude, we get
220, 230, 236, 245, 250, 265. Here n = 6, i.e., even.
6
6
\ Median will be arithmetic mean of the size of 2 th, i.e., 3rd and + 1 th,
2

i.e., 4th observations. Hence Md =

236 + 245
= 240.5 .
2

Remarks: Consider the observations: 13, 16, 16, 17, 17, 18, 19, 21, 23. On the basis of
the method given above, their median is 17.
According to the above definition of median, "half (i.e., 50%) of the observations should
be below 17 and half of the observations should be above 17". Here we may note that
only 3 observations are below 17 and 4 observations are above it and hence, the definition
of median given above is some what ambiguous. In order to avoid this ambiguity, the
median of a distribution may also be defined in the following way :
Median of a distribution is that value of the variate such that at least half of the observations
are less than or equal to it and at least half of the observations are greater than or equal
to it.
Based on this definition, we find that there are 5 observations which are less than or
equal to 17 and there are 6 observations which are greater than or equal to 17. Since
n = 9, the numbers 5 and 6 are both more than half, i.e., 4.5. Thus, median of the
distribtion is 17.
Further, if the number of observations is even and the two middle most observations are
not equal, e.g., if the observations are 2, 2, 5, 6, 7, 8, then there are 3 observations
45

Quantitative Techniques for

Management

n
= 3 which are less than or equal to 5 and there are 4 (i.e., more than half) observations
2
which are greater than or equal to 5. Further, there are 4 observations which are less
than or equal to 6 and there are 3 observations which are greater than or equal to 6.
Hence, both 5 and 6 satisfy the conditions of the new definition of median. In such a
case, any value lying in the closed interval [5, 6] can be taken as median. By convention
we take the middle value of the interval as median. Thus, median is

5+6
= 5.5
2

(b) When ungrouped frequency distribution is given

In this case, the data are already arranged in the order of magnitude. Here, cumulative
frequency is computed and the median is determined in a manner similar to that of
individual observations.
Example 18: Locate median of the following frequency distribution :
Variable (X) : 10 11 12 13 14 15 16
Frequency ( f ) : 8 15 25 20 12 10 5

Solution:
X : 10 11 12 13 14 15 16
f
: 8 15 25 20 12 10 5
c. f . : 8 23 48 68 80 90 95

Here N = 95, which is odd. Thus, median is size of

i.e., 48th observation. From the table 48th observation is 12, \ Md = 12.

LM 95 + 1OP
N 2 Q

N
95
=
= 47.5 Looking at the frequency distribution we note that
2
2
there are 48 observations which are less than or equal to 12 and there are 72
(i.e., 95 - 23) observations which are greater than or equal to 12. Hence, median is 12.
Alternative Method:

Example 19: Locate median of the following frequency distribution :

X
f

:
:

X
f
c. f .

0
7
7

0
7

1
14

2
18

3
36

4
51

5
54

6
52

7
20

Solution:
1
14
21

2
18
39

3
36
75

4
51
126

5
54
180

6
52
232

7
20
252

Here N = 252, i.e., even.

Now

N 252
N
=
= 126 and
+ 1 = 127.
2
2
2

\ Median is the mean of the size of 126th and 127th observation. From the table we
note that 126th observation is 4 and 127th observation is 5.

4+5
= 4.5
2
Alternative Method: Looking at the frequency distribution we note that there are 126
observations which are less than or equal to 4 and there are 252 - 75 = 177 observations
which are greater than or equal to 4. Similarly, observation 5 also satisfies this criterion.

\ Md =

Therefore, median =

4+5
= 4.5.
2

Measures of Central Tendency

(c) When grouped frequency distribution is given (Interpolation formula)

The determination of median, in this case, will be explained with the help of the following
example.
Example 20: Suppose we wish to find the median of the following frequency distribution.
Classes
Frequency

:
:

0 - 10
5

10 - 20
12

20 - 30
14

30 - 40
18

40 - 50
13

50 - 60
8

Solution: The median of a distribution is that value of the variate which divides
the distribution into two equal parts. In case of a grouped frequency distribution, this
implies that the ordinate drawn at the median divides the area under
the histogram into two equal parts. Writing the given data in a tabular form, we have :
Classes
(1)
0 - 10
10 - 20
20 - 30
30 - 40
40 - 50
50 - 60

Frequency ( f )
(2)
5
12
14
18
13
8

' Less than'

type c. f . ( 3)
5
17
31
49
62
70

Frequency
Density ( 4)
0. 5
1. 2
1. 4
1. 8
1. 3
0. 8

frequency of the class f

Note : frequency density in a class = Width of the class = h

For the location of median, we make a histogram with heights of different rectangles
equal to frequency density of the corresponding class. Such a histogram is shown below:
Histogram

Figure : 2.1

Since the ordinate at median divides the total area under the histogram into two equal
parts, therefore we have to find a point (like Md as shown in the figure) on X - axis such
that an ordinate (AMd) drawn at it divides the total area under the histogram into two
equal parts.
We may note here that area under each rectangle is equal to the frequency of the
corresponding class.
Since area = length breadth = frequency density width of class =

f
h = f.
h

Thus, the total area under the histogram is equal to total frequency N. In the given
example N = 70, therefore N = 35. We note that area of first three rectangles is
2

5 + 12 + 14 = 31 and the area of first four rectangles is 5 + 12 + 14 + 18 = 49. Thus,

median lies in the fourth class interval which is also termed as median class. Let the
point, in median class, at which median lies be denoted by Md. The position of this point
47

Quantitative Techniques for

Management

should be such that the ordinate AMd (in the above histogram) divides the area of median
rectangle so that there are only 35 - 31 = 4 observations to its left. From the histogram,
we can also say that the position of Md should be such that

M d - 30 4
=
40 - 30 18
Thus, M d =

.... (1)

40
+ 30 = 32.2
18

Writing the above equation in general notations, we have

N
M d - Lm 2 - C
=
or Md = Lm +
h
fm

N -C
2

h
f m

...(2)

Where, Lm is lower limit, h is the width and fm is frequency of the median class and C is
the cumulative frequency of classes preceding median class. Equation (2) gives the
required formula for the computation of median.
Remarks:
1.

Since the variable, in a grouped frequency distribution, is assumed to be continuous

we always take exact value of

N
, including figures after decimals, when N is odd.
2

The above formula is also applicable when classes are of unequal width.

Median can be computed even if there are open end classes because here we
need to know only the frequencies of classes preceding or following the median
class.

Determination of Median When 'greater than' type cumulative frequencies are given

By looking at the histogram, we note that one has to find a point denoted by Md such that
area to the right of the ordinate at Md is 35. The area of the last two rectangles is
13 + 8 = 21. Therefore, we have to get 35 - 21 = 14 units of area from the median
rectangle towards right of the ordinate. Let U m be the upper limit of
the median class. Then the formula for median in this case can be written as

N
-C
Um M d
= 2
or
h
fm

N
-C
h
M d = Um - 2
fm

.... (3)

Note that C denotes the 'greater than type' cumulative frequency of classes following
the median class. Applying this formula to the above example, we get
Md = 40

(35 - 21) 10
18

= 32.2

Example 21: Calculate median of the following data :

Height in inches : 3 - 4 4 - 5 5 - 6 6 - 7 7 - 8 8 - 9 9 - 10 10 - 11
No . of saplings : 3
7
12 16 22 20
13
7
48

Solution:

Measures of Central Tendency

Calculation of Median

Class Intervals
3-4
4-5
5-6
6-7
7-8
8-9
9 - 10
10 - 11

Since

Frequency ( f ) ' Less than' type c. f .

3
3
7
10
12
22
16
38
22
60
20
80
13
93
7
100

N 100
=
= 50, the median class is 7- 8. Further, Lm = 7, h = 1, fm = 22 and C = 38.
2
2

Thus, Md = 7 +

50 - 38
1 = 7.55 inches.
22

Example 22: The following table gives the distribution of marks by 500 students in an
examination. Obtain median of the given data.
: 0 - 9 10 - 19 20 - 29 30 - 39 40 - 49 50 - 59 60 - 69 70 - 79
Marks
40
50
48
24
162
132
14
No. of Students : 30

Solution: Since the class intervals are inclusive, therefore, it is necessary to convert
them into class boundaries.
Class Intervals
0-9
10 - 19
20 - 29
30 - 39
40 - 49
50 - 59
60 - 69
70 - 79

Since

Class Boundaries Frequency ' Less than' type c . f .

0 . 5 - 9. 5
30
30
9 . 5 - 19 . 5
40
70
19. 5 - 29 . 5
50
120
29. 5 - 39. 5
48
168
39 . 5 - 49 . 5
24
192
49 . 5 - 59 . 5
162
354
59 . 5 - 69 . 5
132
486
69 . 5 - 79 . 5
14
500

N
= 250, the median class is 49.5 - 59.5 and, therefore, Lm = 49.5, h = 10,
2

fm = 162, C = 192.
Thus, Md = 49.5 +

250 - 192
10 = 53.08 marks.
162

Example 23: The weekly wages of 1,000 workers of a factory are shown in the following
table. Calculate median.
Weekly Wages (less than) : 425 475 525 575 625 675 725 775 825 875
No. of Workers
: 2 10 43 123 293 506 719 864 955 1000

Solution: The above is a 'less than' type frequency distribution. This will first be converted
into class intervals.
Class Intervals
less than 425
425 - 475
475 - 525
525 - 575
575 - 625
625 - 675
675 - 725
725 - 775
775 - 825
825 - 875

Frequency
2
8
33
80
170
213
213
145
91
45

Less than c. f .
2
10
43
123
293
506
719
864
955
1000

Quantitative Techniques for

Management

Since

N
= 500, the median class is 625 - 675. On substituting various
2

values in the formula for median, we get

Md = 625 +

500 293
50 = Rs 673.59
213

Example 24: Find the median of the following data :

Age greater than ( in yrs ) : 0
10 20 30 40 50 60 70
No . of Persons
: 230 218 200 165 123 73 28 8

Solution: Note that it is 'greater than' type frequency distribution.

Class Intervals
0 - 10
10 - 12
20 - 30
30 - 40
40 - 50
50 - 60
60 - 70
70 and above

Since

Greater than c. f .
230
218
200
165
123
73
28
8

Frequency
12
18
35
42
50
45
20
8

N 230
=
= 115, the median class is 40 - 50.
2
2

N
-C
h
Using the formula, Md = Um - 2
fm
= 50 -

115 - 73
10 = 41.6 years
50

Example 25: The following table gives the daily profits (in Rs) of 195 shops of a town.
Calculate mean and median.
Profits : 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100 100 - 110 110 - 120 120 - 130 130 - 140
No.of shops : 15
20
32
35
33
22
20
10
8

Solution: The calculations of X and Md are shown below:

X =A+

50-60

Less than
X - 95
fu
c. f .
10
15
-4
- 60

60-70

-3

- 60

(X )

70-80

-2

- 64

80-90

-1

- 35

102

90-100

135

100-110

105

157

110-120

115

177

120-130
130-140

10
8

125
135

3
4

30
32

187
195

Total

195

- 95

fu
95
h = 95
10 = Rs 90.13
N
195

Mid -value

Class Intervals

195

Since 2 = 2 = 97.5, the median class is 80 - 90.

Measures of Central Tendency

97.5 - 67
\ Md = 80 +
10 = Rs 88.71
35
Example 26: Find median of the following distribution :
Mid - Values
Frequency

:
:

1500
27

2500
32

3500
65

4500
78

5500
58

6500
32

7500
8

Solution: Since the mid-values are equally spaced, the difference between their two
successive values will be the width of each class interval. This width is 1,000. On
subtracting and adding half of this, i.e., 500 to each of the mid-values, we get the lower
and the upper limits of the respective class intervals. After this, the calculation of median
can be done in the usual way.
Mid - Values
Class Intervals Frequency c. f .(less than)
1500
1000 - 2000
27
27
2500
2000 - 3000
32
59
3500
3000 - 4000
65
124
4500
4000 - 5000
78
202
5500
5000 - 6000
58
260
6500
6000 - 7000
32
292
7500
7000 - 8000
8
300
N
Since
= 150, the median class is 4,000 - 5,000.
2

Hence Md = 4,000 +

150 - 124
1,000 = 4,333.33.
78

Determination of Missing Frequencies

If the frequencies of some classes are missing, however, the median of the distribution is
known, then these frequencies can be determined by the use of median formula.
Example 27: The following table gives the distribution of daily wages of 900 workers.
However, the frequencies of the classes 40 - 50 and 60 - 70 are missing. If the median
of the distribution is Rs 59.25, find the missing frequencies.
Wages ( Rs )
: 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80
No . of Workers : 120
?
200
?
185

Solution: Let f1 and f2 be the frequencies of the classes 40 - 50 and 60 - 70 respectively.

Class
Intervals
30-40
40-50
50-60
60-70
70-80

Frequency

c. f .
(less than)

120
f1

120
120 + f1

200
f2
185

320 + f1
320 + f1 + f 2
900

Since median is given as 59.25, the median class is 50 - 60.

Therefore, we can write
59.25 = 50 +

450 - (120 + f1 )
200

10 = 50 +

330 f1
20

or 9.25 20 = 330 - f1 or f1 = 330 - 185 = 145

Further, f2 = 900 - (120 + 145 + 200 + 185) = 250.

Quantitative Techniques for

Management

Graphical location of Median

So far we have calculated median by the use of a formula. Alternatively, it can be

determined graphically, as illustrated in the following example.
Example 28: The following table shows the daily sales of 230 footpath sellers of Chandni
Chowk :
Sales ( in Rs )
No . of Sellers
Sales ( in Rs )
No . of Sellers

0 - 500
500 - 1000 1000 - 1500 1500 - 2000
:
12
18
35
42
:
: 2000 - 2500 2500 - 3000 3000 - 3500 3500 - 4000
50
45
20
8
:

Locate the median of the above data using

(i)

only the less than type ogive, and

(ii)

both, the less than and the greater than type ogives.

Solution: To draw ogives, we need to have a cumulative frequency distribution.

Class Intervals Frequency
0 - 500
12
500 - 1000
18
1000 - 1500
35
1500 - 2000
42
2000 - 2500
50
2500 - 3000
45
3000 - 3500
20
8
3500 - 4000
(i) Using the less than type ogive

Less than c. f .
12
30
65
107
157
202
222
230

More than c. f .
230
218
200
165
123
73
28
8

Figure 2.2
The value N = 115 is marked on the vertical axis and a horizontal line is drawn from this
2

point to meet the ogive at point S. Drop a perpendicular from S. The point at which this
meets X- axis is the median.
(ii) Using both types of ogives

Figure 2.3

A perpendicular is dropped from the point of intersection of the two ogives. The point at
which it intersects the X-axis gives median. It is obvious from Fig. 2.2 and 2.3 that
median = 2080.

Measures of Central Tendency

Properties of Median
1.

It is a positional average.

It can be shown that the sum of absolute deviations is minimum when taken from
median. This property implies that median is centrally located.

Merits and Demerits of Median

(a) Merits
1.

It is easy to understand and easy to calculate, especially in series of individual

observations and ungrouped frequency distributions. In such cases it can even be
located by inspection.

Median can be determined even when class intervals have open ends or not of
equal width.

It is not much affected by extreme observations. It is also independent of range or

dispersion of the data.

Median can also be located graphically.

It is centrally located measure of average since the sum of absolute deviation is

minimum when taken from median.

It is the only suitable average when data are qualitative and it is possible to rank
various items according to qualitative characteristics.

Median conveys the idea of a typical observation.

(b) Demerits
1.

In case of individual observations, the process of location of median requires their

arrangement in the order of magnitude which may be a cumbersome task,
particularly when the number of observations is very large.

It, being a positional average, is not capable of being treated algebraically.

In case of individual observations, when the number of observations is even, the

median is estimated by taking mean of the two middle-most observations, which is
not an actual observation of the given data.

It is not based on the magnitudes of all the observations. There may be a situation
where different sets of observations give same value of median. For example, the
following two different sets of observations, have median equal to 30.
Set I : 10, 20, 30, 40, 50 and Set II : 15, 25, 30, 60, 90.

In comparison to arithmetic mean, it is much affected by the fluctuations of sampling.

The formula for the computation of median, in case of grouped frequency distribution,
is based on the assumption that the observations in the median class are uniformly
distributed. This assumption is rarely met in practice.

Since it is not possible to define weighted median like weighted arithmetic mean,
this average is not suitable when different items are of unequal importance.

Uses
1.

It is an appropriate measure of central tendency when the characteristics are not

measurable but different items are capable of being ranked.

Median is used to convey the idea of a typical observation of the given data.

Median is the most suitable measure of central tendency when the frequency
distribution is skewed. For example, income distribution of the people is generally
positively skewed and median is the most suitable measure of average in this case.

Median is often computed when quick estimates of average are desired.

When the given data has class intervals with open ends, median is preferred as a
measure of central tendency since it is not possible to calculate mean in this case.

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Check Your Progress 2.1

What are the merits and demerits of Mean and Median?

Find Arithmetic mean of first ten prime numbers.

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

2.7 OTHER PARTITION OR POSITIONAL MEASURES

Median of a distribution divides it into two equal parts. It is also possible to divide it into
more than two equal parts. The values that divide a distribution into more than two equal
parts are commonly known as partition values or fractiles. Some important partition
values are discussed in the following sections.
Quartiles
The values of a variable that divide a distribution into four equal parts are called quartiles.
Since three values are needed to divide a distribution into four parts, there are three
quartiles, viz. Q1, Q2 and Q3, known as the first, second and the third quartile respectively.
For a discrete distribution, the first quartile (Q1) is defined as that value of the variate
such that at least 25% of the observations are less than or equal to it and at least 75% of
the observations are greater than or equal to it.
For a continuous or grouped frequency distribution, Q1 is that value of the variate such
that the area under the histogram to the left of the ordinate at Q1 is 25% and the area to
its right is 75%. The formula for the computation of Q1 can be written by making suitable
changes in the formula of median.
After locating the first quartile class, the formula for Q1 can be written as follows:

Q1 = LQ1

FG N CIJ
H 4 K h
+
fQ

Here, LQ1 is lower limit of the first quartile class, h is its width, fQ1 is its frequency and C
is cumulative frequency of classes preceding the first quartile class.
By definition, the second quartile is median of the distribution. The third quartile (Q3) of
a distribution can also be defined in a similar manner.
For a discrete distribution, Q3 is that value of the variate such that at least 75% of the
observations are less than or equal to it and at least 25% of the observations are greater
than or equal to it.
For a grouped frequency distribution, Q3 is that value of the variate such that area under
the histogram to the left of the ordinate at Q3 is 75% and the area to its right is 25%. The
formula for computation of Q3 can be written as
54

Q3 = LQ3

FG 3N CIJ
H 4 K h, where the symbols have their usual meaning.
+
f Q3

Deciles

Measures of Central Tendency

Deciles divide a distribution into 10 equal parts and there are, in all, 9 deciles denoted as
D1, D2, ...... D9 respectively.
For a discrete distribution, the i th decile Di is that value of the variate such that at least
(10i)% of the observation are less than or equal to it and at least (100 - 10i)% of the
observations are greater than or equal to it (i = 1, 2, ...... 9).
For a continuous or grouped frequency distribution, D i is that value of the variate such
that the area under the histogram to the left of the ordinate at Di is (10i)% and the area
to its right is (100 - 10i)%. The formula for the i th decile can be written as
Di = LDi

FG iN CIJ
H 10 K h
+

(i = 1, 2, ...... 9)

f Di

Percentiles
Percentiles divide a distribution into 100 equal parts and there are, in all, 99 percentiles
denoted as P1, P2, ...... P25, ...... P40, ...... P60, ...... P99 respectively.
For a discrete distribution, the kth percentile Pk is that value of the variate such that at
least k% of the observations are less than or equal to it and at least (100 - k)% of the
observations are greater than or equal to it.
For a grouped frequency distribution, Pk is that value of the variate such that the area
under the histogram to the left of the ordinate at Pk is k% and the area to its right is
(100 - k)% . The formula for the kth percentile can be written as
Pk = L Pk

FG kN CIJ
H 100 K h, (k = 1, 2, ...... 99)
+
f Pk

Remarks :
(i)

We may note here that P25 = Q1, P50 = D5 = Q2 = Md, P75 = Q3, P10 = D1, P20 = D2,
etc.

(ii) In continuation of the above, the partition values are known as Quintiles (Octiles) if
a distribution is divided in to 5 (8) equal parts.
(iii) The formulae for various partition values of a grouped frequency distribution, given
so far, are based on 'less than' type cumulative frequencies. The corresponding
formulae based on 'greater than' type cumulative frequencies can be written in a
similar manner, as given below:
3N

- C

4
4
h , Q3 = U Q3 h
Q1 = U Q1 f Q1
f Q3

Di = U Di -

iN
N - 10 - C

f Di

Pk = U PK

kN
N - 100 - C

-
h
f Pk

Here UQ1 ,UQ3 ,UDi ,U PK are the upper limits of the corresponding classes and C
denotes the greater than type cumulative frequencies.
Example 29: Locate Median, Q1, Q3, D4, D7, P15, P60 and P90 from the following data :
Daily Profit ( in Rs ) : 75 76 77 78 79 80 81 82 83 84 85
No . of Shops
: 15 20 32 35 33 22 20 10 8 3 2

Solution: First we calculate the cumulative frequencies, as in the following table :

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Daily Profit ( in Rs )
No . of Shops ( f )
Less than c . f .

75
15
15

76
20
35

77 78 79 80 81 82 83 84 85
32 35 33 22 20 10
8
3
2
67 102 135 157 177 187 195 198 200

Determination of Median: Here

N
= 100. From the cumulative frequency column,
2

we note that there are 102 (greater than 50% of the total) observations that are
less than or equal to 78 and there are 133 observations that are greater than or
equal to 78. Therefore, Md = Rs 78.
2.

Determination of Q1 and Q3: First we determine

N
which is equal to 50. From
4

the cumulative frequency column, we note that there are 67 (which is greater than
25% of the total) observations that are less than or equal to 77 and there are 165
(which is greater than 75% of the total) observations that are greater than or equal
to 77. Therefore, Q1 = Rs 77. Similarly, Q3 = Rs 80.
3.

Determination of D4 and D7: From the cumulative frequency column, we note

that there are 102 (greater than 40% of the total) observations that are less than or
equal to 78 and there are 133 (greater than 60% of the total) observations that are
greater than or equal to 78. Therefore, D4 = Rs 78. Similarly, D7 = Rs 80.

Determination of P15, P60 and P90: From the cumulative frequency column, we
note that there are 35 (greater than 15% of the total) observations that are less
than or equal to 76 and there are 185 (greater than 85% of the total) observations
that are greater than or equal to 76. Therefore, P15 = Rs 76. Similarly, P60 = Rs 79
and P90 = Rs 82.

Example 30: Calculate median, quartiles, 3rd and 6th deciles and 40th and 70th
percentiles, from the following data:
Wages per Week ( in Rs )
No . of Workers
Wages per Week ( in Rs )
No . of Workers

: 50 - 100 100 - 150 150 - 200 200 - 250 250 - 300

15
40
35
60
125
:
: 300 - 350 350 - 400 400 - 450 450 - 500
100
70
40
15
:

Also determine (i) The percentage of workers getting weekly wages between Rs 125
and Rs 260 and (ii) percentage of worker getting wages greater than Rs 340.
Solution: First we make a cumulative frequency distribution table :

Class Intervals
50 - 100
100 - 150
150 - 200
200 - 250
250 - 300
300 - 350
350 - 400
400 - 450
450 - 500
(i)

Frequency
15
40
35
60
125
100
70
40
15

Calculation of median: Here N = 500 so that

c. f . (less than)
15
55
90
150
275
375
445
485
500
N
= 250. Thus, median class is
2

250 - 300 and hence Lm = 250, fm = 125, h = 50 and C = 150.

Substituting these values in the formula for median, we get
Md = 250 +
56

250 - 150
50 = Rs 290
125

(ii)

Calculation of Quartiles:
(a)

N
which is equal to 125. The first quartile class is
4
200 - 250 and hence LQ1 = 200, fQ1 = 60, h = 50 and C = 90.

For Q1, we first find

\
(b)

Measures of Central Tendency

Q1 = 200 +

125 - 90
50 = Rs 229.17
60

3N
which is equal to 375. The third quartile class is
4
300 - 350 and hence LQ3 = 300, fQ3 = 100, h = 50 and C =275.

For Q3 we first find

Q3 = 300 +

375 - 275
50 = Rs 350
100

(iii) Calculation of Deciles:

(a)

3N
which is equal to 150. The third decile class is
10
200 - 250 and hence LD3 = 200, fD3 = 60, h = 50, C = 90.

For D3 we first find

\
(b)

D3 = 200 +

150 - 90
50 = Rs 250
60

6N
which is equal to 300. The sixth decile class is
10
300 - 350 and hence LD6 = 300, fD6 = 100, h = 50 and C = 275.

For D6 we first find

D6 = 300 +

300 - 275
50 = Rs 312.50
100

(iv) Calculation of percentiles:

(a)

40 N
which is equal to 200. The 40th percentile class is
100
250 - 300 and hence LP40 = 250, fP40 = 125, h = 50 and C = 150.

For P40 we first find

\
(b)

200 - 150
50 = Rs 270
125

70N
which is equal to 350. The 70th percentile class is
100
300 - 350 and hence LP70 = 300, fP70 = 100, h = 50 and C = 275.

For P70 we first find

\
(v)

P40 = 250 +

P70 = 300 +

350 - 275
50 = Rs 337.5
100

Determination of percentage of workers getting wages between Rs 125

and Rs 260:
Let x be the percentage of workers getting wage less than 125. Since 125 lies in
the class 100 - 150, this is xth percentiles class. Using the formula for xth percentile
we have

x.500
- 15
125 = 100 + 100
50 or 5x 15 = 20 fi x = 7
40
Further, let y be the percentage of workers getting wages less then 260. Since 260
lies in the class 250 - 300, this is yth percentile class. Using the relevant formula,
we have

Quantitative Techniques for

Management

260 = 250 +

5 y - 150
50 or 5y 150 = 25 or y = 35
125

Hence percentage of workers getting wages between Rs 125 and Rs 260 is given
by 35 7 = 28%.
Alternative Method

The number of workers getting wages between 125 and 260 can be written directly
as
=

150 - 125
260 - 250
40 + 35 + 60 +
125 = 20 + 35 + 60 + 25 = 140.
50
50

\ Percentage of workers =

140
100 = 28%.
500

(vi) Determination of percentage of workers getting wages greater than Rs 340:

Since we have already computed 'less than' type cumulative frequencies, in the
above table, we shall first find percentage of workers getting wages less than 340.
Let x be this percentage. Also xth percentiles class is 300 - 350.
\ 340 = 300 +

5 x - 275
50 or 5x - 275 = 80 or x = 71
100

Hence, percentage of workers getting wages greater than Rs 340 is (100 - 71)
= 29%.
Alternative Method

This percentage can also be obtained directly as shown below.

The percentage of workers getting wages greater than Rs 340
=

350 - 340
100 + 70 + 40 + 15 = 145
50

\ Percentage =

145
100 = 29%
500

Example 31: From the following table, showing the wage distribution of workers, find
(i)

the range of incomes earned by middle 50% of the workers,

(ii)

the range of incomes earned by middle 80% of the workers,

(iii) the percentage of workers earning between Rs 550 and Rs 880.

Monthly Income ( Rs ) No .
0 - 200
0 - 400
0 - 600
0 - 800
0 - 1000

of Workers
150
250
330
380
400

Solution: The above table gives a 'less than' type cumulative frequency distribution.
Therefore, we can rewrite the above table as :

Monthly Income ( Rs )
0 - 200
200 - 400
400 - 600
600 - 800
800 - 1000

c . f . ( less than ) Frequency ( f )

150
150
250
100
330
80
380
50
400
20

(i)

(ii)

The range of incomes earned by middle 50% of the workers is given by Q3 - Q1.

Measures of Central Tendency

100 0
200 = Rs 133.33
150

Now

Q1 = 0 +

and

Q3 = 400 +

Thus,

Q3 - Q1 = 525 - 133.33 = Rs. 391.67.

300 - 250
200 = Rs 525.
80

The range of incomes of middle 80% of the workers is given by P90 - P10.

Now

and
Thus,

10 400
-0
100
200 = Rs 53.33
P10 = 0 +
150
90 400
- 330
100
200 = Rs 720.
P90 = 600 +
50
P90 - P10 = 720 - 53.33 = Rs 666.67.

(iii) The No. of workers earning between Rs 550 and Rs 880 is given by
600 - 550
880 - 800
80 + 50 +
20 = 78.
200
200
\ Percentage of workers =

78
100 = 19.5%
400

Example 32: The following incomplete table gives the number of students in different
age groups of a town. If the median of the distribution is 11 years, find out the missing
frequencies.
: 0-5
Age Group
No. of Students : 15

5 - 10 10 - 15 15 - 20 20 - 25 25 - 30 Total
125
?
66
?
4
300

Solution: Let x be the frequency of age group 10 - 15. Then the frequency of the age
group 20 - 25 will be 300 - (15 + 125 + x + 66 + 4) = 90 - x.
Making a cumulative frequency table we have
Age Groups
0-5
5 - 10
10 - 15
15 - 20
20 - 25
25 - 30

No . of Students
15
125
x
66
90 x
4

c . f . ( less than )
15
140
140 + x
206 + x
296
300

N 300
=
= 150. Since median is given as 11, the median class is 10 - 15.
2
2
150 - 140
5 or x = 50.
Hence, 11 = 10 +
x

Here

Also, frequency of the age group 20 - 25 is 90 - 50 = 40.

Exercise with Hints

The following table gives weekly income of 24 families in a certain locality :

S. No. of family
Weekly Income
S. No. of family
Weekly Income

:
:
:
:

1 2
3 4 5
6
7
60 400 86 95 100 150 110
13 14 15 16 17 18 19
96 98 104 75 80 94 100

Calculate Md, Q1, Q3, D4, D7, P20, P45, and P95.

8 9 10 11
74 90 92 280
20 21 22 23
75 600 82 200

12
180
24
84
59

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Management

Hint: Arrange the data in ascending or descending order of magnitude and then calculate
various values. For calculation of Q1 there are two values satisfying the definition.
These two values are 82 and 84. Thus, Q1 can be any value in the closed interval
[82, 84]. By convention, the mid-value of the interval is taken as Q1.
2.

Calculate the value of Md, Q1, Q3, D2, D8, P35, P48, and P68, from the following
data:
Classes
: below 10 10 -15 15- 20 20 - 25 25- 30 30 - 35 35- 40 40 - 45 45- 50
Frequency :
1
2
5
7
10
7
5
2
1

Hint: See example 30.

Find median from the following data:

Wages/Week ( Rs ) : 50 - 59 60 - 69 70 - 79 80 - 89 90 - 99 100 - 109 110 - 119
No . of Workers :
15
40
50
60
45
40
15

Hint: This is a distribution with inclusive class intervals. To compute median, these are
to be converted into exclusive intervals like 49.5 - 59.5, 59.5 - 69.5, etc.
4.

The following table gives the distribution of wages of 65 employees in a

factory :

Wages ( )
: 50 60 70 80 90 100 110 120
No. of employees : 65 57 47 31 17 7
2
0
Draw a 'less than type' ogive from the above data and estimate the number of
employees earning at least Rs 63 but less than Rs 75.
Hint: To draw a 'less than' type ogive, the distribution is to be converted into 'less than'
type cumulative frequencies.
5.

The following table shows the age distribution of persons in a particular region:
Age ( years)
Below 10
Below 20
Below 30
Below 40
Below 50
Below 60
Below 70
70 and above

(i)

No. of Persons (' 000)

2
5
9
12
14
15
15. 5
15. 6

Find median age.

(ii) Why is the median a more suitable measure of central tendency than mean in
this case?
Hint: Median is suitable here because the upper limit of the last class is not known and
therefore, mean cannot be satisfactorily calculated.
6.

A number of particular articles have been classified according to their weights.

After drying for two weeks the same articles have again been weighed and similarly
classified. It is known that median weight in the first weighing was 20.83 oz. while
in second weighing it was 17.35 oz. Some frequencies a and b in the first weighing
and x and y in the second weighing, are missing. It is known that a =
1
2

b = y. Find the missing frequencies.

Classes
0 - 5 5 - 10 10 - 15 15 - 20 20 - 25 25 - 30
a
b
11
52
75
22
1st weighing
Frequency 2nd
y
40
50
30
28
2nd weighing x
60

1
x and
3

Hint:

20.83 = 20 +

160 + a + b

- (63 + a + b )

and 17.35 = 15 +

Measures of Central Tendency

148 + x + 4

- ( 40 + x + y )

.... (1)

.... (2)

Put x = 3a and y = 2b in equation (2) and solve (1) and (2) simultaneously.
7.

The percentage distribution of regularly employed workers who commute between

home and work place by foot and those who use cycles, according to the distance
is given below. How will you find the mean distance and the median distance of the
walkers and cyclists? State your assumptions carefully.
Distance in kms Walkers Cyclists
45.3
11
less than 1 4
.
.
1 4 -1 2
211
6.0
1 2 -1
15.2
9.6
1- 2
9.8
17.9
2-3
5.3
20.5
3- 4
2.2
19.2
19.2
4 -5
0.6
15.2
0.5
10.5
above 5

Hint: The given percentage of walkers and cyclists can be taken as frequencies. For
calculation of mean, the necessary assumption is that the width of the first class is
equal to the width of the following class, i.e.,

1
. On this assumption, the lower limit
4

of the first class can be taken as 0. Similarly, on the assumption that width of the
last class is equal to the width of last but one class, the upper limit of last class can
be taken as 6. No assumption is needed for the calculation of median.
8.

In a factory employing 3,000 persons, 5 percent earn less than Rs 3 per hour, 580
earn Rs 3.01 to 4.50 per hour, 30 percent earn from Rs 4.51 to Rs 6.00 per hour,
500 earn from 6.01 to Rs 7.5 per hour, 20 percent earn from Rs 7.51 to Rs 9.00 per
hour and the rest earn Rs 9.01 or more per hour. What is the median wage?

Hint: Write down the above information in the form of a frequency distribution. The
class intervals given above are inclusive type. These should be converted into
exclusive type for the calculation of median.
9.

The distribution of 2,000 houses of a new locality according to their distance from
a milk booth is given in the following table :
Distance
Distance
No . of
No . of
( in metres ) Houses ( in metres ) Houses
0 - 50
20
350 - 400
275
50 - 100
30
400 - 450
400
100 - 150
35
450 - 500
325
150 - 200
46
500 - 550
205
200 - 250
50
550 - 600
184
250 - 300
105
600 - 650
75
300 - 350
200
650 - 700
50

(i)

Calculate the median distance of a house from milk booth.

(ii) In second phase of the construction of the locality, 500 additional houses were
constructed out of which the distances of 200, 150 and 150 houses from the
milk booth were in the intervals 450 - 500, 550 - 600 and 650 - 700 meters
respectively. Calculate the median distance, taking all the 2500 houses into
account.

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Hint:

Add 200, 150 and 150 to the respective frequencies of the class intervals
450 - 500, 550 - 600 and 650 - 700.

10. The monthly salary distribution of 250 families in a certain locality of Agra is given
below.
Monthly Salary
more than 0
more than 500
more than 1000
more than 1500

No. of Families
250
200
120
80

Monthly Salary
more than 2000
more than 2500
more than 3000
more than 3500

No. of Families
55
30
15
5

Draw a less than ogive for the data given above and hence find out :
(i) The limits of the income of the middle 50% of the families. (ii) If income tax is
to be levied on families whose income exceeds Rs 1800 p.m., calculate the
percentage of families which will be paying income tax.
Hint:
11.

See example 23.

The following table gives the frequency distribution of marks of 800 candidates in
an examination :
Marks
No. of candidates
Marks
No. of candidates

:
:
:
:

0 - 10
10
50 - 60
130

10 - 20
40
60 - 70
100

20 - 30
80
70 - 80
70

30 - 40
140
80 - 90
40

40 - 50
170
90 - 100
20

Draw 'less than' and 'more than' type ogives for the above data and answer the
following from the graph :
(i)

If the minimum marks required for passing are 35, what percentage of
candidates pass the examination?

(ii)

It is decided to allow 80% of the candidate to pass, what should be the minimum
marks for passing?

(iii) Find the median of the distribution.

Hint: See example 28.
12. Following are the marks obtained by a batch of 10 students in a certain class test in
statistics (X) and accountancy (Y).
Roll No.
X
Y

:
:
:

1
63
68

2
64
66

3
62
35

4
32
42

5
30
26

6
60
85

7
47
44

8
46
80

9
35
33

10
28
72

In which subject the level of knowledge of student is higher?

Hint: Compare median of the two series.
13. The mean and median marks of the students of a class are 50% and 60%
respectively. Is it correct to say that majority of the students have secured more
than 50% marks? Explain.
Hint: It is given that at least 50% of the students have got 60% or more marks.
14. The monthly wages of 7 workers of a factory are : Rs 1,000, Rs 1,500, Rs 1,700,
Rs 1,800, Rs 1,900, Rs 2,000 and Rs 3,000. Compute mean and median. Which
measure is more appropriate? Which measure would you use to describe the situation
if you were (i) a trade union leader, (ii) an employer?
Hint: (i) median, (ii) mean.
15. A boy saves Re. 1 on the first day, Rs 2 on the second day, ...... Rs 31 on the 31st
day of a particular month. Compute the mean and median of his savings per day.
If his father contributes Rs 10 and Rs 100 on the 32nd and 33rd day respectively,
compute mean and median of his savings per day. Comment upon the results.
62

Hint: Mean is too much affected by extreme observations.

Measures of Central Tendency

2.8 MODE
Mode is that value of the variate which occurs maximum number of times in a distribution
and around which other items are densely distributed. In the words of Croxton and
Cowden, The mode of a distribution is the value at the point around which the items
tend to be most heavily concentrated. It may be regarded the most typical of a series of
values. Further, according to A.M. Tuttle, Mode is the value which has the greatest
frequency density in its immediate neighbourhood.
If the frequency distribution is regular, then mode is determined by the value corresponding
to maximum frequency. There may be a situation where concentration of observations
around a value having maximum frequency is less than the concentration of observations
around some other value. In such a situation, mode cannot be determined by the use of
maximum frequency criterion. Further, there may be concentration of observations around
more than one value of the variable and, accordingly, the distribution is said to be bimodal or multi-modal depending upon whether it is around two or more than two values.
The concept of mode, as a measure of central tendency, is preferable to mean and
median when it is desired to know the most typical value, e.g., the most common size of
shoes, the most common size of a ready-made garment, the most common size of income,
the most common size of pocket expenditure of a college student, the most common size
of a family in a locality, the most common duration of cure of viral-fever, the most
popular candidate in an election, etc.

Determination of Mode
(a) When data are either in the form of individual observations or in the form of ungrouped
frequency distribution

Given individual observations, these are first transformed into an ungrouped frequency
distribution. The mode of an ungrouped frequency distribution can be determined in two
ways, as given below :
(i)

By inspection or

(ii) By method of Grouping

(i)

By inspection: When a frequency distribution is fairly regular, then mode is often

determined by inspection. It is that value of the variate for which frequency is
maximum. By a fairly regular frequency distribution we mean that as the values of
the variable increase the corresponding frequencies of these values first increase
in a gradual manner and reach a peak at certain value and, finally, start declining
gradually in, approximately, the same manner as in case of increase.

Example 33: Compute mode of the following data :

3, 4, 5, 10, 15, 3, 6, 7, 9, 12, 10, 16, 18,
20, 10, 9, 8, 19, 11, 14, 10, 13, 17, 9, 11
Solution: Writing this in the form of a frequency distribution, we get
Values : 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Frequency : 2 1 1 1 1 1 3 4 2 1 1 1 1 1 1 1 1 1

\ Mode = 10
Remarks :
(i)

If the frequency of each possible value of the variable is same, there is no mode.

(ii) If there are two values having maximum frequency, the distribution is said to be bimodal.

Quantitative Techniques for

Management

Example 34: Compute mode of the following distribution:

X:
f:

5
2

10
4

15
6

20
10

25
15

30
9

35
5

40
4

Solution: The given distribution is fairly regular. Therefore, the mode can be determined just by inspection. Since for X = 25 the frequency is maximum, mode = 25.
(ii)

By method of Grouping: This method is used when the frequency distribution is

not regular. Let us consider the following example to illustrate this method.

Example 35: Determine the mode of the following distribution

X
f

:
:

10
8

11
15

12
20

13
100

14
98

15
95

16
90

17
75

18
50

19
30

Solution: This distribution is not regular because there is sudden increase in frequency
from 20 to 100. Therefore, mode cannot be located by inspection and hence the method
of grouping is used. Various steps involved in this method are as follows :
(i)

Prepare a table consisting of 6 columns in addition to a column for various values

of X.

(ii) In the first column, write the frequencies against various values of X as given in the
question.
(iii) In second column, the sum of frequencies, starting from the top and grouped in
twos, are written.
(iv) In third column, the sum of frequencies, starting from the second and grouped in
twos, are written.
(v)

In fourth column, the sum of frequencies, starting from the top and grouped in
threes are written.

(vi) In fifth column, the sum of frequencies, starting from the second and grouped in
threes are written.
(vii) In the sixth column, the sum of frequencies, starting from the third and grouped in
threes are written.
The highest frequency total in each of the six columns is identified and analysed to
determine mode. We apply this method for determining mode of the above example.

Columns

1
2
3
4
5
6
Total

V
11

Analysis Table
A
R
I
A
12 13 14 15
1
1
1
1
1
1
1
1
1
1
1
0
3
4
4

B
16

L
17

E
18

1
1
2

1
1

Since the value 14 and 15 are both repeated maximum number of times in the analysis
table, therefore, mode is ill defined. Mode in this case can be approximately located by
the use of the following formula, which will be discussed later, in this chapter.

Measures of Central Tendency

Mode = 3 Median - 2 mean

X
f
c. f .
fX

10
8
8
80

11
15
23
165

Calculation of Median and Mean

12
13
14
15
16
17
20
100
98
95
90
75
43 143 241 336 426 501
240 1300 1372 1425 1440 1275

19 Total
581
30
581
570 8767

18
50
551
900

8767
581 + 1
Median = Size of
= 15.09
th, i.e., 291st observation = 15. Mean =
2
581
\

Mode = 3 15 - 2 15.09 = 45 - 30.18 = 14.82

Remarks: If the most repeated values, in the above analysis table, were not adjacent,
the distribution would have been bi-modal, i.e., having two modes
Example 36: From the following data regarding weights of 60 students of a class, find
modal weight :
Weight
No. of Students

:
:

50
2

51
4

52
5

53
6

54
8

55
5

56
4

57
7

58
11

59
5

60
3

Solution: Since the distribution is not regular, method of grouping will be used for
determination of mode.
Grouping Table

Analysis Table

Columns
1
2
3
4
5
6
Total

W
51 52

1
1

E
53

1
1

I
54

1
1

G
55

H
56

T
57

1
1
1

S
58
1
1
1
1
1
1
6

1
1
3

1
1

Since the value 58 has occurred maximum number of times, therefore, mode of the
distribution is 58 kgs.
(b) When data are in the form of a grouped frequency distribution

The following steps are involved in the computation of mode from a grouped frequency
distribution.
(i)

Determination of modal class: It is the class in which mode of the distribution

lies. If the distribution is regular, the modal class can be determined by inspection,
otherwise, by method of grouping.

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(ii)

Exact location of mode in a modal class (interpolation formula): The exact

location of mode, in a modal class, will depend upon the frequencies of the classes
immediately preceding and following it. If these frequencies are equal, the mode
would lie at the middle of the modal class interval. However, the position of mode
would be to the left or to the right of the middle point depending upon whether the
frequency of preceding class is greater or less
than the frequency of the class following it. The
exact location of mode can be done by the use of
interpolation formula, developed below :
Let the modal class be denoted by Lm - Um, where
Lm and Um denote its lower and the upper limits
respectively. Further, let fm be its frequency and h
its width. Also let f1 and f2 be the respective
frequencies of the immediately preceding and
following classes.

Figure 2.4

We assume that the width of all the class intervals of the distribution are equal. If
these are not equal, make them so by regrouping under the assumption that
frequencies in a class are uniformly distributed.
Make a histogram of the frequency distribution with height of each rectangle equal
to the frequency of the corresponding class. Only three rectangles, out of the
complete histogram, that are necessary for the purpose are shown in the above
figure.
Let 1 = fm - f1 and 2 = fm - f2. Then the mode, denoted by Mo, will divide the

D1
modal class interval in the ratio D . The graphical location of mode is shown
2
in Fig. 2.4.
To derive a formula for mode, the point Mo in the figure, should be such that

M o - Lm D1
=
U m - M o D 2 or MoD2 - LmD2 = UmD1 - MoD1
fi ( D1 + D2)Mo = LmD2 + UmD1 = LmD2 + (Lm + h)D1 (where Um = Lm + h)
= ( D1 + D2) Lm + D1h
Dividing both sides by D1 + D2, we have
M o = Lm +

1
h
1 + 2

.... (1)

By slight adjustment, the above formula can also be written in terms of the upper
limit (Um) of the modal class.

LM
N

OP
Q

1
1
Mo = Um - h + + h = Um - 1 + h
1
2
1
2

h
= Um -
D1 + D 2

.... (2)

Replacing D1 by fm - f1 and D2 by fm - f2, the above equations can be written as

f m - f1
Mo = Lm + 2 f - f - f h
m
1
2

.... (3)

and

Measures of Central Tendency

fm - f2
Mo = Um - 2 f - f - f h
m
1
2

.... (4)

Note: The above formulae are applicable only to a unimodal frequency distribution.
Example 37: The monthly profits (in Rs) of 100 shops are distributed as follows :
Profit per Shop : 0 - 100 100 - 200 200 - 300 300 - 400 400 - 500 500 - 600
No. of Shops : 12
18
27
20
17
6

Determine the 'modal value' of the distribution graphically and verify the result by
calculation.
Solution: Since the distribution is regular, the modal class would be a class having the
highest frequency. The modal class, of the given distribution, is 200 - 300.
Graphical Location of Mode

To locate mode we draw a histogram of the

given frequency distribution. The mode is
located as shown in Fig. 9.5. From the figure,
mode = Rs 256.
Determination of Mode by interpolation
formula

Figure 2.5

Since the modal class is 200 - 300, Lm = 200, D1 = 27 - 18 = 9, D2 = 27 - 20 = 7 and

h = 100.
\

Mo = 200 +

9
100 = Rs 256.25
9+7

Example 38: The frequency distribution of marks obtained by 60 students of a class in

a college is given below :
: 30 - 34 35 - 39 40 - 44 45 - 49 50 - 54 55 - 59 60 - 64
Marks
Frequency :
3
5
12
18
14
6
2

Find mode of the distribution.

Solution: The given class intervals are first converted into class boundaries, as given in
the following table :
Marks
Frequency
Marks
Frequency

: 29. 5 - 34. 5 34. 5 - 39. 5 39. 5 - 44. 5 44. 5 - 49. 5

:
3
5
12
18
: 49. 5 - 54. 5 54. 5 - 59. 5 59. 5 - 64. 5
:
14
6
2

We note that the distribution is regular. Thus, the modal class, by inspection, is
44.5 - 49.5.
Further, Lm = 44.5, D1 = 18 - 12 = 6, D2 = 18 - 14 = 4 and h = 5
\

Mode = 44.5 +

6
5 = 47.5 marks
6+4

Example 39: Calculate mode of the following data :

Weekly Wages ( Rs )
No. of Workers
Weekly Wages ( Rs )
No. of Workers

: 200- 250 250- 300 300- 350 350- 400

:
4
6
20
12
: 400- 450 450- 500 500- 550 550- 600
:
33
17
8
2

Solution: Since the frequency distribution is not regular, the modal class will be determined
by the method of grouping.

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Grouping Table

Analysis Table

Columns 300 - 350 350 - 400 400 - 450 450 - 500 500 - 550
1
1
2
1
1
3
1
1
4
1
1
1
5
1
1
1
6
1
1
1
Total
1
3
6
3
1

The modal class, from analysis table, is 400 - 500.

Thus, Lm = 400, D1 = 33 - 12 = 21, D2 = 33 - 17 = 16 and h = 50
Hence, mode = 400 +

21
50 = Rs 428.38
37

Example 40: Calculate mode of the following distribution :

Weights (lbs. )
No. of Students
Weights (lbs. )
No. of Students

: below 100
:
4
: below 150
:
86

below 110
6
below 160
96

below 120
24
below 170
99

below 130
46
below 180
100

below 140
67

Solution: Rewriting the above distribution in the form of a frequency distribution with
class limits, we get
Weights (lbs. )
Frequency
Weights (lbs. )
Frequency

: Less than 100

:
4
:
140 - 150
:
19

100 - 110 110 - 120 120 - 130 130 - 140

2
18
22
21
150 - 160 160 - 170 170 - 180
10
3
1

We note that there is a concentration of observations in classes 120 - 130 and 130 - 140,
therefore, modal class can be determined by the method of grouping.
Grouping Table

Measures of Central Tendency

Analysis Table

Columns 110 - 120 120 - 130 130 - 140 140 - 150 150 - 160
1
1
2
1
1
1
1
3
1
1
4
1
1
1
5
1
1
1
6
1
1
1
Total
2
5
5
3
1

Since the two classes, 120 - 130 and 130 - 140, are repeated maximum number of times
in the above table, it is not possible to locate modal class even by the method of grouping.
However, an approximate value of mode is given by the empirical formula:
Mode = 3 Median - 2 Mean (See 2.9)
Looking at the cumulative frequency column, given in the question, the median class is
130 - 140. Thus, Lm = 130, C = 46, fm = 21, h = 10.
\

Md = 130 +

50 - 46
10 = 131.9 lbs.
21

Assuming that the width of the first class is equal to the width of second, we can write
Mid - Values ( X )
f
X
135
u
10
fu

Thus, X = 135 -

95
4

105
2

115
18

125
22

135 145 155 165 175 Total

21 19 10
3
1
100

28 10
= 135 - 2.8 = 132.2 lbs.
100

Using the values of mean and median, we get

Mo = 3 131.9 - 2 132.2 = 131.3 lbs.
Remarks: Another situation, in which we can use the empirical formula, rather than the
interpolation formula, is when there is maximum frequency either in the first or in the last
class.
Calculation of Mode when either D1 or D2 is negative
The interpolation formula, for the calculation of mode, is applicable only if both D1 and
D2 are positive. If either D1 or D2 is negative, we use an alternative formula that gives
only an approximate value of the mode.
We recall that the position of mode, in a modal class, depends upon the frequencies of its
preceding and following classes, denoted by f1 and f2 respectively. If f1 = f2, the mode

f2
will be at the middle point which can be obtained by adding f + f h to the lower limit
1
2
f2
of the modal class or, equivalently, it can be obtained by subtracting f + f h from its
1
2
f1

upper limit. We may note that f f = f f = 2 when f1 = f2.

1
2
1
2
Further, if f2 > f1, the mode will lie to the right of the mid-value of modal class and,
therefore, the ratio f
1

will be greater than 2 . Similarly, if f2 < f1, the mode will lie to
f2

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f2
the left of the mid-value of modal class and, therefore, the ratio f + f will be less than
1
2
1
. Thus, we can write an alternative formula for mode as :
2

Mode = Lm +

f2
h or equivalently,
f1 + f 2

Mode = Um

f2
h
f1 + f 2

Remarks: The above formula gives only an approximate estimate of mode vis-a-vis the
interpolation formula.
Example 41: Calculate mode of the following distribution.
Mid - Values
Frequency

:
:

5
7

15
15

25
18

35
30

45
31

55
4

65
3

75
1

Solution: The mid-values with equal gaps are given, therefore, the corresponding class
intervals would be 0 - 10, 10 - 20, 20 - 30, etc.
Since the given frequency distribution is not regular, the modal class will be determined
by the method of grouping.
Grouping Table

Analysis Table

Columns
1
2
3
4
5
6
Total

10 - 20

1
1

20 - 30

30 - 40

1
1
1
1
1
5

1
1
3

40 - 50
1

50 - 60

1
1

1
4

From the analysis table, the modal class is 30 - 40.

Therefore, Lm = 30, D1 = 30 - 18 = 12, D2 = 30 - 31 = - 1 (negative) and h = 10.
We note that the interpolation formula is not applicable.

f2
31
10 = 36.33
Mode = Lm + f + f h = 30 +
18 + 31
1
2
Example 42: The rate of sales tax as a percentage of sales, paid by 400 shopkeepers of
a market during an assessment year ranged from 0 to 25%. The sales tax paid by 18%
of them was not greater than 5%. The median rate of sales tax was 10% and 75th
percentile rate of sales tax was 15%. If only 8% of the shopkeepers paid sales tax at a
rate greater than 20% but not greater than 25%, summarise the information in the form
of a frequency distribution taking intervals of 5%. Also find the modal rate of sales tax.
70

Solution: The above information can be written in the form of the following
distribution :

Class Intervals
(in percentage)

No. of
Shopkeepers

Measures of Central Tendency

18
400 = 72
100
5-10
200 - 72 = 128
10-15
300 - 200 = 100
15-20
400 - 72 - 128 - 100 - 32 = 68
8
400 = 32
20-25
100
By inspection, the modal class is 5 - 10.
0-5

Mo = 5 +

128 - 72
5 = 8.33%
128 - 72 + 128 - 100

Example 43: The following table gives the incomplete income distribution of 300 workers
of a firm, where the frequencies of the classes 3000 - 4000 and 5000 - 6000 are missing.
If the mode of the distribution is Rs 4428.57, find the missing frequencies.
Monthly Income ( Rs )
1000- 2000
2000- 3000
3000- 4000
4000- 5000
5000-6000
6000-7000
7000-8000

No. of Workers
30
35
?
75
?
30
15

Solution: Let the frequency of the class 3000 - 4000 be f1. Then the frequency of the
class 5000 - 6000 will be equal to 300 - 30 - 35 - f1 - 75 - 30 - 15 = 115 - f1. It is given that
mode = 4428.57, therefore, modal class is 4000 - 5000.
Thus, Lm = 4000, D1 = 75 - f1, D2 = 75 - (115 - f1) = f1 - 40 and h = 1000.
Using the interpolation formula, we have
4428.57 = 4000 +

75 - f1
1000
75 - f1 + f1 - 40

75 - f1
1000 or 14.999 = 75 - f1
35

428.57 =

f1 = 75 - 15 = 60 (taking 14.999 = 15). Also f2 = 115 - 60 = 55

Merits and Demerits of Mode

Merits

It is easy to understand and easy to calculate. In many cases it can be located just
by inspection.

It can be located in situations where the variable is not measurable but categorisation
or ranking of observations is possible.

Like mean or median, it is not affected by extreme observations. It can be calculated

even if these extreme observations are not known.

It can be determined even if the distribution has open end classes.

It can be located even when the class intervals are of unequal width provided that
the width of modal and that of its preceding and following classes are equal.

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It is a value around which there is more concentration of observations and hence

the best representative of the data.

Demerits

It is not based on all the observations.

It is not capable of further mathematical treatment.

In certain cases mode is not rigidly defined and hence, the important requisite of a
good measure of central tendency is not satisfied.

It is much affected by the fluctuations of sampling.

It is not easy to calculate unless the number of observations is sufficiently large

and reveal a marked tendency of concentration around a particular value.

It is not suitable when different items of the data are of unequal importance.

It is an unstable average because, mode of a distribution, depends upon the choice

of width of class intervals.

2.9 RELATION BETWEEN MEAN, MEDIAN AND MODE

The relationship between the above measures
of central tendency will be interpreted in
terms of a continuous frequency curve.
If the number of observations of a frequency
distribution are increased gradually, then
accordingly, we need to have more number
Fig. 2.6
of classes, for approximately the same range
of values of the variable, and simultaneously, the width of the corresponding classes
would decrease. Consequently, the histogram of the frequency distribution will get
transformed into a smooth frequency curve, as shown in Fig. 2.6.
For a given distribution, the mean is the value of the variable which is the point of
balance or centre of gravity of the
distribution. The median is the value such
that half of the observations are below it and
remaining half are above it. In terms of the
frequency curve, the total area under the
curve is divided into two equal parts by the
ordinate at median. Mode of a distribution is
a value around which there is maximum
Fig. 2.7
concentration of observations and is given
by the point at which peak of the curve occurs.
For a symmetrical distribution, all the three measures of central tendency are equal i.e.
X = Md = Mo, as shown in Fig. 2.7.

Imagine a situation in which the symmetrical distribution is made asymmetrical or positively

(or negatively) skewed by adding some observations of very high (or very low) magnitudes,
so that the right hand (or the left hand) tail of the frequency curve gets elongated.
Consequently, the three measures will depart from each other. Since mean takes into
account the magnitudes of observations, it would be highly affected. Further, since the
total number of observations will also increase, the median would also be affected but to
a lesser extent than mean. Finally, there would be no change in the position of mode.
More specifically, we shall have Mo < Md < X , when skewness is positive and X < Md
< Mo, when skewness is negative, as shown in Fig 2.8.
72

Measures of Central Tendency

Fig. 2.8

Empirical Relation between Mean, Median and Mode

Empirically, it has been observed that for a moderately skewed distribution, the difference
between mean and mode is approximately three times the difference between mean and

median, i.e., X - M o = 3 X - M d .
This relation can be used to estimate the value of one of the measures when the values
of the other two are known.
Example 44:
(a)

The mean and median of a moderately skewed distribution are 42.2 and 41.9
respectively. Find mode of the distribution.

(b)

For a moderately skewed distribution, the median price of men's shoes is Rs 380
and modal price is Rs 350. Calculate mean price of shoes.

Solution:
(a)

Here, mode will be determined by the use of empirical formula.

X - M o = 3 ( X - M d ) or

M o = 3M d - 2 X

It is given that X = 42.2 and Md = 41.9

\
(b)

Mo = 3 41.9 - 2 42.2 = 125.7 - 84.4 = 41.3

Using the empirical relation, we can write X =

3M d - M o
2

It is given that Md = Rs 380 and Mo = Rs. 350

3 380 - 350
= Rs 395
2

Example 45: Find mode of the following distribution :

Class Intervals
Frequency

:
:

0 - 10
45

10 - 20
20

20 - 30
14

30 - 40
7

40 - 50
3

Solution: Since the highest frequency occurs in the first class interval, the interpolation
formula is not applicable. Thus, mode will be calculated by the use of empirical formula.
Class
Intervals
0 - 10
10 - 20
20 - 30
30 - 40
40 - 50
Total

Since

Calculation of Mean and Median

X 25
Mid Frequency c. f . Values u
10
5
2
45
45
65
15
1
20
79
25
0
14
86
35
1
7
89
45
2
3
89

N 89
=
= 44.5, the median class is 0 - 10.
2
2

fu
90
20
0
7
6
97
73

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Md = 0 +

44.5 - 0
10 = 9.89
45

Also

X = 25

97 10
= 14.10
89

Thus, M o = 3M d - 2 X = 3 9.89 - 2 14.10 = 1.47

Example 46: Estimate mode of the following distribution :
Weekly Wages of
Workers ( Rs )
No.of Workers

: 105-115 115-125 125-135 135-145 145-155

Solution: We shall use empirical formula for the calculation of mode.

Calculation of X and Md

Class
Intervals
105 - 115
115 - 125
125 - 135
135 - 145
145 - 155
Total

Since
\

N
2

Frequency

c. f .

8
15
25
40
62
150

8
23
48
88
150

Mid Values
110
120
130
140
150

X 130
10
2
1
0
1
2

fu
16
15
0
40
124
133

150
= 75, the median class is 135 - 145
2

Md = 135 +

Also X = 130 +

75 - 48
10 = 135 + 6.75 = 141.75
40

133 10
= 138.87
150

Thus, Mo = 3 141.75 - 2 138.87 = 147.51

Choice of a Suitable Average

The choice of a suitable average, for a given set of data, depends upon a number of
considerations which can be classified into the following broad categories:
(a)

Considerations based on the suitability of the data for an average.

(b)

Considerations based on the purpose of investigation.

(c)

Considerations based on various merits of an average.

(a)

Considerations based on the suitability of the data for an average:

The nature of the given data may itself indicate the type of average that could
be selected. For example, the calculation of mean or median is not possible if
the characteristic is neither measurable nor can be arranged in certain order
of its intensity. However, it is possible to calculate mode in such cases. Suppose
that the distribution of votes polled by five candidates of a particular
constituency are given as below :

Name of the Candidates :

A
B
C
D
E
No. of votes polled
: 10,000 5,000 15,000 50,000 17,000

Since the above characteristic, i.e., name of the candidate, is neither measurable
nor can be arranged in the order of its intensity, it is not possible to
calculate the mean and median. However, the mode of the distribution is D
and hence, it can be taken as the representative of the above distribution.

(b)

(c)

If the characteristic is not measurable but various items of the distribution

can be arranged in order of intensity of the characteristics, it is possible to
locate median in addition to mode. For example, students of a class can be
classified into four categories as poor, intelligent, very intelligent and most
intelligent. Here the characteristic, intelligence, is not measurable. However,
the data can be arranged in ascending or descending order of intelligence. It
is not possible to calculate mean in this case.

If the characteristic is measurable but class intervals are open at one or both
ends of the distribution, it is possible to calculate median and mode but not a
satisfactory value of mean. However, an approximate value of mean can
also be computed by making certain assumptions about the width of class(es)
having open ends.

If the distribution is skewed, the median may represent the data more
appropriately than mean and mode.

If various class intervals are of unequal width, mean and median can be
satisfactorily calculated. However, an approximate value of mode can be
calculated by making class intervals of equal width under the assumption that
observations in a class are uniformly distributed. The accuracy of the computed
mode will depend upon the validity of this assumption.

Measures of Central Tendency

Considerations based on the purpose of investigation:

The choice of an appropriate measure of central tendency also depends upon

the purpose of investigation. If the collected data are the figures of income of
the people of a particular region and our purpose is to estimate the average
income of the people of that region, computation of mean will be most
appropriate. On the other hand, if it is desired to study the pattern of income
distribution, the computation of median, quartiles or percentiles, etc., might be
more appropriate. For example, the median will give a figure such that 50%
of the people have income less than or equal to it. Similarly, by calculating
quartiles or percentiles, it is possible to know the percentage of people having
at least a given level of income or the percentage of people having income
between any two limits, etc.

If the purpose of investigation is to determine the most common or modal size

of the distribution, mode is to be computed, e.g., modal family size, modal size
of garments, modal size of shoes, etc. The computation of mean and median
will provide no useful interpretation of the above situations.

Considerations based on various merits of an average: The presence or absence

of various characteristics of an average may also affect its selection in a given
situation.
1.

If the requirement is that an average should be rigidly defined, mean or median

can be chosen in preference to mode because mode is not rigidly defined in
all the situations.

An average should be easy to understand and easy to interpret. This

characteristic is satisfied by all the three averages.

It should be easy to compute. We know that all the three averages are easy
to compute. It is to be noted here that, for the location of median, the data
must be arranged in order of magnitude. Similarly, for the location of mode,
the data should be converted into a frequency distribution. This type of exercise
is not necessary for the computation of mean.

It should be based on all the observations. This characteristic is met only by

mean and not by median or mode.
75

Quantitative Techniques for

Management

It should be least affected by the fluctuations of sampling. If a number of

independent random samples of same size are taken from a population, the
variations among means of these samples are less than the variations among
their medians or modes. These variations are often termed as sampling
variations. Therefore, preference should be given to mean when the
requirement of least sampling variations is to be fulfilled. It should be noted
here that if the population is highly skewed, the sampling variations in mean
may be larger than the sampling variations in median.

It should not be unduly affected by the extreme observations. The mode is

most suitable average from this point of view. Median is only slightly
affected while mean is very much affected by the presence of extreme
observations.

It should be capable of further mathematical treatment. This characteristic is

satisfied only by mean and, consequently, most of the statistical theories use
mean as a measure of central tendency.

It should not be affected by the method of grouping of observations. Very

often the data are summarised by grouping observations into class intervals.
The chosen average should not be much affected by the changes in size of
class intervals. It can be shown that if the same data are grouped in various
ways by taking class intervals of different size, the effect of grouping on
mean and median will be very small particularly when the number of
observations is very large. Mode is very sensitive to the method of grouping.

It should represent the central tendency of the data. The main purpose of
computing an average is to represent the central tendency of the given
distribution and, therefore, it is desirable that it should fall in the middle of
distribution. Both mean and median satisfy this requirement but in certain
cases mode may be at (or near) either end of the distribution.

Exercise with Hints

The following is the distribution of monthly expenditure on food incurred by a sample

of 100 families in a town. Find the modal size of expenditure.
Expenditure ( Rs )
No. of families
Expenditure ( Rs )
No. of families

: 500 - 999 1000-1499 1500-1999

:
6
25
31
: 2000- 2499 2500- 2999 3000- 3499
:
26
8
4

Hint: Convert the class intervals into class boundaries.

Calculate mode of the following distribution of weekly income of workers of a

factory :
Weekly Income : 0 - 75 75 - 100 100 - 150 150 - 175 175 - 300 300 - 500
No. of Workers :
9
44
192
116
435
304

Hint: Make class intervals of equal width on the assumption that observations in a class
are uniformly distributed. On this basis, the class of 0 - 75 can be written as 0 - 25,
25 - 50 and 50 - 75 each with frequency 3. The class 100 - 150 will be split as
100 - 125 and 125 - 150 each with frequency 96, etc.
3.

Calculate the modal marks from the following distribution of marks of 100 students
of a class :
Marks ( More than)
No. of Students

90
0

80
4

70
15

60
33

50
53

40
76

30
92

20
98

Hint: Convert 'more than' type frequencies into ordinary frequencies.

10
100

The following table gives the number of geysers of different sizes (in litres) sold by
a company during winter season of last year. Compute a suitable average of the
distribution:

Measures of Central Tendency

Capacity : less than 5 5 - 10 10 - 15 15 - 20 20 - 25 25 - 30 above 30

Frequency :
1500
3000 2325
1750
1400
1225
800

Hint: Mode is the most suitable average.

Locate a suitable measure of tendency for the following distribution :

:
:

Colour of the hair

No. of Persons

Brown
200

Black
250

Grey
150

Hint: Since the characteristic is neither measurable nor can be arranged in order
of magnitude, mode is most suitable.
6.

The following table gives the classification of students of a class into various
categories according to their level of intelligence. Compute a suitable measures of
central tendency.
Characteristics
No. of Students

:
:

Poor
8

Intelligent
21

Very Intelligent
25

Most Intelligent
6

Hint: Median as well as mode.

The following table gives the distribution of 200 families according to the number
of children :
No. of Children
No. of families

:
:

0
12

1
18

2
49

3
62

4
36

5
13

6
7

7
3

Find X , Md and Mo and interpret these averages.

Hint: X represents mean number of children per family. Similarly interpret
Md and Mo.
8.

Given below is the income distribution of 500 families of a certain locality :

Monthly Income : 500 - 1000 1000 - 1500 1500 - 2000 2000 - 2500 2500 - 3000
No. of Families :
50
210
150
60
30

Find the most suitable average if

(i)

it is desired to estimate average income per family,

(ii)

it is to be representative of the distribution,

(iii) it is desired to study the pattern of the distribution.

Hint: (i) X , (ii) Mo, (iii) Md, quartiles, percentiles, etc.
9.

A distribution of wages paid to foremen would show that, although a few reach
very high levels, most foremen are at lower levels of the distribution. The same
applies, of course, to most income distributions. If you were an employer, resisting
a foreman's claim for an increase of wages, which average would suit your case?
Give reasons for supporting your argument. Do you think your argument will be
different in case you are a trade union leader?

Hint: An employer should use arithmetic mean because this is the highest average
when distribution is positively skewed. Mode will be used by a trade union leader.
10. Atul gets a pocket money allowance of Rs 12 per month. Thinking that this was
rather less, he asked his friends about their allowances and obtained the following
data which includes his allowance (in Rs) also.
12, 18, 10, 5, 25, 20, 20, 22, 15, 10, 10, 15, 13, 20, 18, 10, 15, 10, 18, 15, 12, 15, 10, 15,
10, 12, 18, 20, 5, 8.
He presented this data to his father and asked for an increase in his allowance as
he was getting less than the average amount. His father, a statistician, countered
pointing out that Atul's allowance was actually more than the average amount.
Reconcile these statements.

Quantitative Techniques for

Management

Hint: Atul's demand for more pocket money is based on the calculation of
arithmetic mean while his father countered his argument on the basis of mode.

2.10 GEOMETRIC MEAN

The geometric mean of a series of n positive observations is defined as the nth root of
their product.

Calculation of Geometric Mean

(a) Individual series

If there are n observations, X1, X2, ...... Xn, such that Xi > 0 for each i, their geometric
mean (GM) is defined as

F n In
GG X JJ , where the symbol P is used to denote the
Hi = 1 K
1

GM = X 1 . X 2 KK X n

1
n =

product of observations.
To evaluate GM, we have to use logarithms. Taking log of both sides we have
log (GM) =
=

1
log X 1 . X 2 KK X n
n

1
log X 1 + log X 2 +LL+ log X n
n

log X

Taking antilog of both sides, we have

log X i

GM = antilog
n

This result shows that the GM of a set of observations is the antilog of the arithmetic
mean of their logarithms.
Example 47: Calculate geometric mean of the following data :
1, 7, 29, 92, 115 and 375
Solution:
Calculation of Geometric Mean

X
log X

1
0. 0000

7
0. 8451

29
1. 4624

92
1. 9638

115
2. 0607

375
2. 5740

LM
N

log X
8. 9060

OP
Q

log X
= antilog 8.9060 = 30.50
GM = antilog
n
6

(b) Ungrouped Frequency Distribution

If the data consists of observations X1, X2, ...... Xn with respective frequencies f1, f2,
n

...... fn, where

f
i =1

= N , the geometric mean is given by=

L
= MX
MN

OP N
PQ
1

f1
1

. X2

KK X n

Measures of Central Tendency

Taking log of both sides, we have

log (GM) =

1
log X 1 f1 + log X 2 f2 + LL + log X n fn
N
n

1
f1 log X 1 + f2 log X 2 + LL + fn log X n =
N

f log X
i

i =1

1 n

or GM = antilog fi log X i , which is again equal to the antilog of the arithmetic

N i =1

mean of the logarithm of observations.

Example 48: Calculate geometric mean of the following distribution :
X
f

:
:

5
13

10
18

15
50

20
40

25
10

30
6

Solution:
Calculation of GM

X
5
10
15
20
25
30
Total

f
13
18
50
40
10
6
137

\ GM = antilog

logX
0. 6990
1. 0000
1.1761
1. 3010
1. 3979
1. 4771

f logX
9. 0870
18. 0000
58. 8050
52. 0400
13. 9790
8. 8626
160. 7736

LM 160.7736 OP = antilog 1.1735 = 14.91

N 137 Q

(c) Continuous Frequency Distribution

In case of a continuous frequency distribution, the class intervals are given. Let X1, X2,
......Xn denote the mid-values of the first, second ...... nth class interval respectively
with corresponding frequencies f1, f2, ...... fn, such that fi = N. The formula for calculation
of GM is same as the formula used for an ungrouped frequency distribution

fi log X i

i.e., GM = antilog
N

Example 49: Calculate geometric mean of the following distribution :

Class Intervals
Frequencies

:
:

5 - 15
10

15 - 25
22

25 - 35
25

35 - 45
20

45 - 55
8

Solution:
Calculation of GM

Class
5 - 15
15 - 25
25 - 35
35 - 45
45 - 55
Total

f
10
22
25
20
8
85

Mid - Value (X )
10
20
30
40
50

GM = antilog

logX
1. 0000
1. 3010
1. 4771
1. 6020
1. 6990

f logX
10. 0000
28. 6227
36. 9280
32. 0412
13. 5918
121.1837

121.1837
= antilog 1.4257 = 26.65
85

Quantitative Techniques for

Management

Weighted Geometric Mean

If various observations, X1, X2, ......Xn, are not of equal importance in the data, weighted
geometric mean is calculated. Weighted GM of the observations X1, X2, ......Xn with
respective weights as w1, w2 ......wn is given by :

wi log X i
, i.e., weighted geometric mean of
GM = antilog
wi

observations is equal to the antilog of weighted arithmetic mean of their logarithms.

Example 50: Calculate weighted geometric mean of the following data :

a f
a f

Variable X
Weights w

:
:

5
10

8
9

44
3

160
2

500
1

How does it differ from simple geometric mean?

Solution:
Calculation of weighted and simple GM

X
5
8
44
160
500
Total

Weights ( w)
10
9
3
2
1
25

logX
0. 6990
0. 9031
1. 6435
2. 2041
2. 6990
8.1487

wlogX
6. 9900
8.1278
4. 9304
4. 4082
2. 6990
27.1554

27.1554
= antilog 1.0862 = 12.20
25
8.1487
(n = 5) = antilog 1.6297 = 42.63
Simple GM = antilog
5

Weighted GM = antilog

Note that the simple GM is greater than the weighted GM because the given system of
weights assigns more importance to values having smaller magnitude.

Geometric Mean of the Combined Group

If G1, G2, ...... Gk are the geometric means of k groups having n1, n2, ...... nk observations
respectively, the geometric mean G of the combined group consisting of n1 + n2 + ...... +
nk observations is given by
G = antilog

n log G
LM n log G + n log G + LL + n log G OP

antilog
n + n + LL + n
N
Q
n

Example 51: If the geometric means of two groups consisting of 10 and 25 observations
are 90.4 and 125.5 respectively, find the geometric mean of all the 35 observations
combined into a single group.
Solution:

n1 log G1 + n2 log G2

Combined GM = antilog
n1 + n2

Here n1 = 10, G1 = 90.4 and n2 = 25, G2 = 125.5

10log90.4 + 25log125.5
\ GM = antilog

10 1.9562 + 25 2.0986
= antilog
= antilog 2.0579 = 114.27
35

To determine the average rate of change of price for the entire period when
the rate of change of prices for different periods are given

Measures of Central Tendency

Let P0 be the price of a commodity in the beginning of the first year. If it increases by k1
% in the first year, the price at the end of 1st year (or beginning of second year) is given
by

k1
k1
k1

P1 = P0 + P0 100 = P0 1 +
= P0(1 + r1), where r1 = 100 denotes the rate of
100
increase per rupee in first year. Similarly, if the price changes by k2% in second year, the
price at the end of second year is given by

k2
k2

P2 = P1 + P1 100 = P1 1 +
= P1(1 + r2)
100
Replacing the value of P1 as P0(1 + r1) we can write
P2 = P0(1 + r1)(1 + r2)
Proceeding in this way, if 100rn% is the rate of change of price in the i th year, the price
at the end of nth period, Pn, is given by
Pn = P0(1 + r1)(1 + r2) ...... (1 + rn)

.... (1)

Further, let 100rn % per year be the average rate of increase of price that gives the price
Pn at the end of n years. Therefore, we can write
Pn = P0(1 + r)(1 + r) ...... (1 + r) = P0(1 + r)n

.... (2)

Equating (1) and (2), we can write

(1 + rn) = (1 + r1)(1 + r2) ...... (1 + rn)
or

b gb

g b

(1 + r) = 1 + r1 1 + r2 KK 1 + rn

1
n

.... (3)

This shows that (1 + r) is geometric mean of (1 + r1), (1 + r2), ...... and (1 + rn).
From (3), we get

b gb

g b

r = 1 + r1 1 + r2 KK 1 + rn

1
n

-1

.... (4)

Note: Here r denotes the per unit rate of change. This rate is termed as the rate of
increase or the rate of growth if positive and the rate of decrease or the rate of decay if
negative.
Example 52: The price of a commodity went up by 5%, 8% and 77% respectively in
the last three years. The annual average rise of price is 26% and not 30%. Comment.
Solution: The correct average in this case is given by equation (4), given above.
Let r1, r2 and r3 be the increase in price per rupee in the respective years.
\

r1 =

5
8
77
= 0.05, r2 =
= 0.08 and r3 =
= 0.77
100
100
100

The average rate of rise of price, denoted by r, is given by

r = (1 + r1 )(1 + r2 ) (1 + r3 ) 3 - 1
1

= (1 + 0.05)(1 + 0.08)(1 + 0.77 ) 3 - 1 = (1.05 1.08 1.77 ) 3 - 1

Quantitative Techniques for

Management

Now log (1.05 1.08 1.77) 3 =

1
(log1.05 + log1.08 + log1.77)
3
1
1
[ 0.0212 + 0.0334 + 0.2480] = 0.3026 = 0.1009
3
3

\ (1.05 1.08 1.77 ) 3 = antilog 0.1009 = 1.26

Thus,

r = 1.26 - 1 = 0.26

Also, the percentage rise of price is 100r% = 26%.

Note: 30% is the arithmetic mean of 5%, 8% and 77%, which is not a correct average.
This can be verified as below :
If we take the average rise of price as 30% per year, then the price at the end of first
year, taking it to be 100 in the beginning of the year, becomes 130.
Price at the end of 2nd year =

130 130
= 169
100

Price at the end of 3rd year =

169 130
= 219.7
100

Similarly, taking the average as 26%, the price at the end of 3rd year
= 100

126 126 126

= 200.04
100 100 100

Also, the actual price at the end of 3rd year

105 108 177

= 2007 . This price is correctly given by the

100 100 100
geometric average and hence, it is the most suitable average in this case.
= 100

Average Rate of Growth of Population

The average rate of growth of price, denoted by r in the above section, can also be
interpreted as the average rate of growth of population. If P0 denotes the population in
the beginning of the period and Pn the population after n years, using Equation (2), we
can write the expression for the average rate of change of population per annum as

FP I
r=G J
HP K
n

1
n

- 1.

Similarly, Equation (4), given above, can be used to find the average rate of growth of
population when its rates of growth in various years are given.
Remarks: The formulae of price and population changes, considered above, can also be
extended to various other situations like growth of money, capital, output, etc.
Example 53: The population of a country increased from 2,00,000 to 2,40,000 within a
period of 10 years. Find the average rate of growth of population per year.
Solution: Let r be the average rate of growth of population per year for the period of 10
years. Let P0 be initial and P10 be the final population for this period.
We are given P0 = 2,00,000 and P10 = 2,40,000.

FP I
\ r=G J
HP K
10

1
10

2, 40,000 10
-1
1=
2,00,000

Now

24

20

1
10

Measures of Central Tendency

= antilog ( log 24 - log 20)

= anti log (1.3802 - 1.3010) = anti log (0.0079) =1.018

Thus, r = 1.018 - 1 = 0.018.

Hence, the percentage rate of growth = 0.018 100 = 1.8% p. a.
Example 54: The gross national product of a country was Rs 20,000 crores before 5
years. If it is Rs 30,000 crores now, find the annual rate of growth of G.N.P.
Solution: Here P5 = 30,000, P0 = 20,000 and n = 5.
1

30,000 5
r =
-1
20,000
1

3 5
1

Now = antilog (log 3 - log 2) = antilog (0.4771 - 0.3010)

2
5

= antilog (0.0352) = 1.084

Hence r = 1.084 - 1 = 0.084
Thus, the percentage rate of growth of G.N.P. is 8.4% p.a
Example 55: Find the average rate of increase of population per decade, which increased
by 20% in first, 30% in second and 40% in the third decade.
Solution: Let r denote the average rate of growth of population per decade, then
1

1
120 130 140 3
3
1
(1.2
1.3
1.4)
r=

-1
100 100 100
1

3
Now (1.2 1.3 1.4) = anti log (log1.2 + log1.3 + log1.4)
3

anti log

LM 1 (0.0792
N3

OP
Q

0.1139 0.1461) = antilog 0.1131 = 1.297

r = 1.297 - 1 = 0.297

Hence, the percentage rate of growth of population per decade is 29.7%.

Suitability of Geometric Mean for Averaging Ratios

It will be shown here that the geometric mean is more appropriate than arithmetic mean
while averaging ratios.
Let there be two values of each of the variables x and y, as given below :
Ratio

F xI
GH y JK

Ratio

FG y IJ
H xK

2/ 3

3/ 2

1/ 4

2 1
3
+
+4
11
11
3 4=
= .
Now AM of (x/y) ratios =
and the AM of (y/x) ratios = 2
2
4
2
24
83

Quantitative Techniques for

Management

We note that their product is not equal to unity.

However, the product of their respective geometric means, i.e.,

1
and
6

6 , is equal to

unity.
Since it is desirable that a method of average should be independent of the way in which
a ratio is expressed, it seems reasonable to regard geometric mean as more appropriate
than arithmetic mean while averaging ratios.

Properties of Geometric Mean

As in case of arithmetic mean, the sum of deviations of logarithms of values from

the log GM is equal to zero.
This property implies that the product of the ratios of GM to each observation, that
is less than it, is equal to the product the ratios of each observation to GM that is
greater than it. For example, if the observations are 5, 25, 125 and 625, their
GM = 55.9. The above property implies that

55.9 55.9 125 625

5
25 55.9 55.9
2.

Similar to the arithmetic mean, where the sum of observations remains

unaltered if each observation is replaced by their AM, the product of observations
remains unaltered if each observation is replaced by their GM.

Merits, Demerits and Uses of Geometric Mean

Merits

It is a rigidly defined average.

It is based on all the observations.

It is capable of mathematical treatment. If any two out of the three values, i.e., (i)
product of observations, (ii) GM of observations and (iii) number of observations,
are known, the third can be calculated.

In contrast to AM, it is less affected by extreme observations.

It gives more weights to smaller observations and vice-versa.

Demerits

It is not very easy to calculate and hence is not very popular.

Like AM, it may be a value which does not exist in the set of given observations.

It cannot be calculated if any observation is zero or negative.

Uses

It is most suitable for averaging ratios and exponential rates of changes.

It is used in the construction of index numbers.

It is often used to study certain social or economic phenomena.

Exercise with Hints

A sum of money was invested for 4 years. The respective rates of interest per
annum were 4%, 5%, 6% and 8%. Determine the average rate of interest p.a.
1

104 105 106 108 4

- 1 , \ average rate of interest = 100r %.

Hint: r =
100 100 100 100

The number of bacteria in a certain culture was found to be 4 106 at noon of one
day. At noon of the next day, the number was 9 106. If the number increased at
a constant rate per hour, how many bacteria were there at the intervening midnight?

Measures of Central Tendency

Hint: The number of bacteria at midnight is GM of 4 106 and 9 106.

If the price of a commodity doubles in a period of 4 years, what is the average

percentage increase per year?
1

P n
2 4
Hint: r = n - 1 = - 1 .
1
P
0

A machine is assumed to depreciate by 40% in value in the first year, by 25% in

second year and by 10% p.a. for the next three years, each percentage being
calculated on the diminishing value. Find the percentage depreciation p.a. for the
entire period.
1

3
Hint: 1 - r = (1 - r1 )(1 - r2 ) (1 - r3 ) 5 .

A certain store made profits of Rs 5,000, Rs 10,000 and Rs 80,000 in 1965, 1966
and 1967 respectively. Determine the average rate of growth of its
profits.
1

80,000 2
-1 .
Hint: r =
5,000

An economy grows at the rate of 2% in the first year, 2.5% in the second, 3% in
the third, 4% in the fourth ...... and 10% in the tenth year. What is the average rate
of growth of the economy?
1

Hint: r = (1.02 1.025 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10)10 1 .
7.

The export of a commodity increased by 30% in 1988, decreased by 22% in 1989

and then increased by 45% in the following year. The increase/decrease, in each
year, being measured in comparison to its previous year. Calculate the average
rate of change of the exports per annum.
1

Hint: r = (1.30 0.78 1.45) 3 1 .

Show that the arithmetic mean of two positive numbers a and b is at least as large
as their geometric mean.

Hint: We know that the square of the difference of two numbers is always
positive, i.e., (a - b)2 0. Make adjustments to get the inequality (a + b)2 4ab
and then get the desired result, i.e., AM GM.
9.

If population has doubled itself in 20 years, is it correct to say that the rate of
growth has been 5% per annum?

Hint: The annual rate of growth is given by 100r = 100 (2) 20 - 1 = 3.53%,

which is not equal to 5%.

10. The weighted geometric mean of 5 numbers 10, 15, 25, 12 and 20 is 17.15. If the
weights of the first four numbers are 2, 3, 5, and 2 respectively, find weight of the
fifth number.
1

Hint: Let x be the weight of the 5th number, then 102.153.255.122.20 x 12+ x = 17.15.

Quantitative Techniques for

Management

2.11 HARMONIC MEAN

The harmonic mean of n observations, none of which is zero, is defined as the reciprocal
of the arithmetic mean of their reciprocals.

Calculation of Harmonic Mean

(a) Individual series

If there are n observations X1, X2, ...... Xn, their harmonic mean is defined as
HM =

n
n
=
1
1
1
n 1
+
+ LL +
X1 X 2
X n i
= 1 Xi

Example 56: Obtain harmonic mean of 15, 18, 23, 25 and 30.
HM =

Solution:

5
5
=
= 20.92 Ans.
1 1
1
1
1 0.239
+ +
+
+
15 18 23 25 30

(b) Ungrouped Frequency Distribution

For ungrouped data, i.e., each X1, X2, ...... Xn, occur with respective frequency f1, f2 ......
fn, where Sfi = N is total frequency, the arithmetic mean of the reciprocals of observations
1

is given by N i
.
= 1 Xi

Thus,

HM =

N
fi

Example 57: Calculate harmonic mean of the following data :

:
:

X
f

10
5

11
8

12
10

13
9

14
6

Solution:
Calculation of Harmonic Mean

X
Frequency ( f )
1
f
X

10
5

11
8

12
10

13
9

14
6

Total
38

0. 5000

0. 7273

0. 8333

0. 6923

0. 4286

3.1815

\ HM =

38
= 11.94
3.1815

(c) Continuous Frequency Distribution

In case of a continuous frequency distribution, the class intervals are given. The midvalues of the first, second ...... nth classes are denoted by X1, X2, ...... Xn. The formula
for the harmonic mean is same, as given in (b) above.
Example 58: Find the harmonic mean of the following distribution :
86

Class Intervals : 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80
Frequency
: 5
8
11
21
35
30
22
18

Measures of Central Tendency

Solution:
Calculation of Harmonic Mean

Class Intervals 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 Total

Frequency ( f )
5
8
11
21
35
30
22
18
150
15
25
35
45
55
65
75
Mid - Values (X ) 5
f
1. 0000 0. 5333 0. 4400 0. 6000 0. 7778 0. 5455 0. 3385 0. 2400 4. 4751
X

\ HM =

150
= 33.52 Ans.
4.4751

Weighted Harmonic Mean

If X1, X2, ...... Xn are n observations with weights w1,w2, ...... wn respectively, their
weighted harmonic mean is defined as follows :

HM =

w
w
X

i
i
i

Example 59: A train travels 50 kms at a speed of 40 kms/hour, 60 kms at a speed of

50 kms/hour and 40 kms at a speed of 60 kms/hour. Calculate the weighted harmonic
mean of the speed of the train taking distances travelled as weights. Verify that this
harmonic mean represents an appropriate average of the speed of train.
Solution: HM =

w
w
X

i
i
i

150
150
=
50 60 40 1.25 + 1.20 + 0.67
+
+
40 50 60

.... (1)

= 48.13 kms/hour
Verification :

Average speed =

Total distance travelled

Total time taken

We note that the numerator of Equation (1) gives the total distance travelled by train.
Further, its denominator represents total time taken by the train in travelling 150 kms,
50
is time taken by the train in travelling 50 kms at a speed of 40 kms/hour.
40
60
40
and
are time taken by the train in travelling 60 kms and 40 kms at the
Similarly
50
60

since

speeds of 50 kms./hour and 60 kms/hour respectively. Hence, weighted harmonic mean

is most appropriate average in this case.
Example 60: Ram goes from his house to office on a cycle at a speed of 12 kms/hour
and returns at a speed of 14 kms/hour. Find his average speed.
Solution: Since the distances of travel at various speeds are equal, the average speed of
Ram will be given by the simple harmonic mean of the given speeds.
2
2
= 12.92 kms/hour
Average speed = 1 1 =
0.1547
+
12 14

Choice between Harmonic Mean and Arithmetic Mean

The harmonic mean, like arithmetic mean, is also used in averaging of rates like price per
unit, kms per hour, work done per hour, etc., under certain conditions. To explain the
method of choosing an appropriate average, consider the following illustration.

Quantitative Techniques for

Management

Let the price of a commodity be Rs 3, 4 and 5 per unit in three successive years. If we
3+4+5
take A.M. of these prices, i.e.,
= 4 , then it will denote average price when
3
equal quantities of the commodity are purchased in each year. To verify this, let us
assume that 10 units of commodity are purchased in each year.
\ Total expenditure on the commodity in 3 years = 10 3 + 10 4 + 10 5.
Total expenditure
10 3 + 10 4 + 10 5 3 + 4 + 5
Also, Average price =
=
=
,
Total quantity purchased
10 + 10 + 10
3
which is arithmetic mean of the prices in three years.
3
, it will denote the
1 1 1
+ +
3 4 5
average price when equal amounts of money are spent on the commodity in three years.
To verify this let us assume that Rs 100 is spent in each year on the purchase of the
commodity.

Further, if we take harmonic mean of the given prices, i.e.,

\ Average price =

Total expenditure
300
3
= 100 100 100 = 1 1 1
Total quantity purchased
+
+
+ +
3
4
5
3 4 5

Next, we consider a situation where different quantities are purchased in the three years.
Let us assume that 10, 15 and 20 units of the commodity are purchased at prices of Rs
3, 4 and 5 respectively.
Total expenditure
3 10 + 4 15 + 5 20
=
, which is weighted
Total quantity purchased
10 + 15 + 20
arithmetic mean of the prices taking respective quantities as weights.

Average price =

Further, if Rs 150, 200 and 250 are spent on the purchase of the commodity at prices of
Rs 3, 4 and 5 respectively, then
150 + 200 + 250
150 200
250
,
and
are the quantities
Average price = 150 200 250 , where
3
4
5
+
+
3
4
5
purchased in respective situations.

The above average price is equal to the weighted harmonic mean of prices taking money
spent as weights.
Therefore, to decide about the type of average to be used in a given situation, the first
step is to examine the rate to be averaged. It may be noted here that a rate represents a
money
distance
work done
ratio, e.g., price = quantity , speed =
, work done per hour =
, etc.
time
time taken
We have seen above that arithmetic mean is appropriate average of prices
money
quantity when quantities, that appear in the denominator of the rate to be averaged,
purchased in different situations are given. Similarly, harmonic mean will be appropriate
when sums of money, that appear in the numerator of the rate to be averaged, spent in
different situations are given.

To conclude, we can say that the average of a rate, defined by the ratio p/q, is given by
the arithmetic mean of its values in different situations if the conditions are given in
terms of q and by the harmonic mean if the conditions are given in terms of p. Further, if
the conditions are same in different situations, use simple AM or HM and otherwise use
weighted AM or HM.
88

Example 61: An individual purchases three qualities of pencils. The relevant data are
given below :
Quality

Measures of Central Tendency

Price per pencil ( Rs) Money Spent ( Rs)

1.00

1.50

2.00

Calculate average price per pencil.

Solution: Since different sums of money spent in various situations are given, we shall
calculate weighted harmonic mean to calculate average price.
50+30+20
100
=
= Rs 1.25
50
30
20
50 + 20 + 10
Weighted HM =
+
+
1.00 1.50 2.00

Example 62: In a 400 metre athlete competition, a participant covers the distance as
given below. Find his average speed.
Speed (Metres per second)

First 80 metres

Next 240 metres

7.5

Last 80 metres

distance
and the conditions are given in terms of distance
time
travelled at various speeds, HM will be the appropriate average.
Solution: Since Speed =

80 + 240 + 80
400
=
= 8.33 metres/second
80 240 80 8 + 32 + 8
+
+
10 7.5 10

Example 63: Peter travelled by a car for four days. He drove 10 hours each day. He
drove first day at the rate of 45 kms/hour, second day at the rate of 40 kms/hour, third
day at the rate of 38 kms/hour and fourth day at the rate of 37 kms/hour. What was his
average speed.

distance
Solution: Since the rate to be averaged is speed=
and the conditions are
time
given in terms of time, therefore AM will be appropriate. Further, since Peter travelled
for equal number of hours on each of the four days, simple AM will be calculated.
\ Average speed =

45 + 40 + 38 + 37
= 40 kms/hour
4

Example 64: In a certain factory, a unit of work is completed by A in 4 minutes, by B

in 5 minutes, by C in 6 minutes, by D in 10 minutes and by E in 12 minutes. What is their
average rate of working? What is the average number of units of work completed per
minute? At this rate, how many units of work each of them, on the average, will complete
in a six hour day? Also find the total units of work completed.
Solution: Here the rate to be averaged is time taken to complete a unit of work,

time
i.e., units of work done . Since we have to determine the average with reference to a
(six hours) day, therefore, HM of the rates will give us appropriate average.
89

Quantitative Techniques for

Management

5
Thus, the average rate of working = 1 1 1 1 1 = 6.25 minutes/unit.
+ + + +
4 5 6 10 12
1

The average number of units of work completed per minute = 6.25 = 0.16.
The average number of units of work completed by each person = 0.16 360 = 57.6.
Total units of work completed by all the five persons = 57.6 5 = 288.0.
Example 65: A scooterist purchased petrol at the rate of Rs 14, 15.50 and 16 per litre
during three successive years. Calculate the average price of petrol (i) if he purchased
150, 160 and 170 litres of petrol in the respective years and (ii) if he spent Rs 2,200, 2,500
and 2,600 in the three years.
Solution: The rate to be averaged is expressed as
(i)

Since the condition is given in terms of different litres of petrol in three years,
therefore, weighted AM will be appropriate.
\ Average price =

(ii)

money
litre

150 14 + 160 15.5 + 170 16

= Rs 15.21/litre.
150 + 160 + 170

The weighted HM will be appropriate in this case.

2200 + 2500 + 2600
7300
Average price = 2200 2500 2600 =
157.14 + 161.29 + 162.50
+
+
14
15.5
16

= Rs 15.18/litre
Merits and Demerits of Harmonic Mean
Merits
1.

It is a rigidly defined average.

It is based on all the observations.

It gives less weight to large items and vice-versa.

It is capable of further mathematical treatment.

It is suitable in computing average rate under certain conditions.

Demerits
1.

It is not easy to compute and is difficult to understand.

It may not be an actual item of the given observations.

It cannot be calculated if one or more observations are equal to zero.

It may not be representative of the data if small observations are given

correspondingly small weights.

Relationship among AM, GM and HM

If all the observations of a variable are same, all the three measures of central tendency
coincide, i.e., AM = GM = HM. Otherwise, we have AM > GM > HM.
Example 66: Show that for any two positive numbers a and b, AM GM HM.
Solution: The three averages of a and b are :
AM =
90

a +b
2
2ab
=
, GM = ab and HM =
1 1 a +b .
2
+
a b

Since the square of the difference between a and b is always a non-negative number, we
can write

Measures of Central Tendency

(a - b)2 0 or a2 + b2 - 2ab 0 or a2 + b2 2ab.

Adding 2ab to both sides, we have
a2 + b2 + 2ab 4ab or (a + b)2 4ab

(a + b)2 ab

a+b
ab
2

.... (1)

fi AM GM

.... (2)

Divide both sides of inequality (1) by

Multiply both sides by ab , to get

2 ab
a b
, to get 1
2
a+b

2ab
a+b

fi GM HM

.... (3)

Combining (2) and (3), we can write

AM GM HM
Note: The equality sign will hold when a = b
Example 67: For any two positive numbers, show that GM =

AM HM .

Solution: If a and b are two positive numbers, then

a +b
2ab
AM =
, GM = ab and HM =
2
a +b
Now

AM.HM =

GM =

a + b 2ab

= ab = (GM)2
2 a+b

AM HM . Hence the result.

Example 68:
(a)

If AM of two observations is 15 and their GM is 9, find their HM and the two

observations.

(b)

Comment on the following :

The AM of 20 observations is 25, GM = 20 and HM = 21.

Solution:
(a)

AM HM = GM

\ 15 HM = 9 or 15 HM = 81. Thus, HM = 5.4.

Let the two observations be X1 and X2. We are given that
or
Also

X1 + X2 = 30.
X1 .X2

X1 + X 2
= 15
2
.... (1)

9 or X1.X2 = 81

We can write (X1 - X2)2 = (X1 + X2)2 4X1X2

= 900 4 81 = 576
or

X1 - X2 = 24

.... (2)

Adding (1) and (2), we get

2X1 = 54, \ X1 = 27. Also X2 = 3
(b)

The statement is wrong because HM cannot be greater than GM.

Quantitative Techniques for

Management

Exercise with Hints

A train runs 25 miles at a speed of 30 m.p.h., another 50 miles at a speed of 40

m.p.h., then due to repairs of the track, 6 miles at a speed of 10 m.p.h. What should
be the speed of the train to cover additional distance of 24 miles so that the average
speed of the whole run of 105 miles is 35 m.p.h?

Hint: Let x be the speed to cover a distance of 24 miles,

\ 35 =

25 + 50 + 6 + 24
, find x .
25 50 6 24
+
+ +
30 40 10 x

Prices per share of a company during first five days of a month were
Rs 100, 120, 150, 140 and 50.
(i)

Find the average daily price per share.

(ii) Find the average price paid by an investor who purchased Rs 20,000 worth of
shares on each day.
(iii) Find the average price paid by an investor who purchased 100, 110, 120, 130
and 150 shares on respective days.
Hint: Find simple HM in (ii) and weighted AM in (iii).
3.

Typist A can type a letter in five minutes, B in ten minutes and C in fifteen minutes.
What is the average number of letters typed per hour per typist?

Hint: Since we are given conditions in terms of per hour, therefore, simple HM of speed
will give the average time taken to type one letter. From this we can obtain the
average number of letters typed in one hour by each typist.
Simple HM =

3
= 8.18 minutes per letter.
1 1 1
+ +
5 10 15

\ No. of letters typed in 60 minutes =

60
= 7.33
8.18

Ram paid Rs 15 for two dozens of bananas in one shop, another Rs 15 for three
dozens of bananas in second shop and Rs 15 for four dozens of
bananas in third shop. Find the average price per dozen paid by him.

Hint: First find the prices per dozen in three situations and since equal money is spent,
HM is the appropriate average.
5.

A country accumulates Rs 100 crores of capital stock at the rate of Rs 10 crores/

year, another Rs 100 crores at the rate of Rs 20 crores/year and Rs 100 crores at
the rate of Rs 25 crores/year. What is the average rate of accumulation?

Hint: Since Rs 100 crores, each, is accumulated at the rates of Rs 10, 20

and 25 crores/year, simple HM of these rates would be most appropriate.
6.

A motor car covered a distance of 50 miles 4 times. The first time at 50 m.p.h., the
second at 20 m.p.h., the third at 40 m.p.h. and the fourth at 25 m.p.h. Calculate the
average speed.

Hint: Use HM.

The interest paid on each of the three different sums of money yielding 10%, 12%
and 15% simple interest p.a. is the same. What is the average yield percent on the
sum invested?

Hint: Use HM.

Measures of Central Tendency

Quadratic Mean
Quadratic mean is the square root of the arithmetic mean of squares of observations.
If X1, X2 ...... Xn are n observations, their quadratic mean is given by
QM =

X 1 2 + X 2 2 + LL + X n 2
n

Similarly, the QM of observations X1, X2 ...... Xn with their respective frequencies as f1,
f2 ...... fn is given by QM

fX
i

2
i

, where N = Sfi.

Moving Average
This is a special type of average used to eliminate periodic fluctuations from the time
series data.

Progressive Average
A progressive average is a cumulative average which is computed by taking all the
available figures in each succeeding years. The average for different periods are obtained
as shown below :
X1 ,

X1 + X 2 X1 + X 2 + X 3
,
, LL etc.
2
3

This average is often used in the early years of a business.

Composite Average
A composite average is an average of various other averages. If for example,
X 1 , X 2 , KK X k are the arithmetic means of k series, their composite average
=

X 1 + X 2 + KK + X k
.
k
Check Your Progress 2.2

Establish the relation between AM, GM and HM.

What is Empirical relation among mean, median and mode.

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

Quantitative Techniques for

Management

2.12 LET US SUM UP

Thus we can say that Mean, Median, Mode is the essential phenomena in any statistical
analysis. Thus the measure central tendency helps in summarising the data and classify
it into simple form.

fX
i

(i)

(ii)

X = A+

(iii)

X = A+ h

(iv)

Xw =

(Simple AM)

fd
i

(Short-cut method)

i i

(Step-deviation method)

w X
w
i

(Weighted AM)

N 1 X 1 + N 2 X 2 + LL + N k X k
N 1 + N 2 + LL+ N k

(v)

X =

(vi)

N
-C
h
M d = Lm + 2
fm

(Median)

iN
C
4
fQi

(vii)

(viii)

kN
-C
100
h
Pk = LPk +
f Pk

(ix)

fi log X i
GM = Anti log

(x)

wi log X i
GM w = Anti log

(xi)

G = Anti log

LQi

where i = 1, 3

(Quartiles)

(k th Percentile)

(Simple GM)

(Weighted GM)

LM n log G + n log G + LL + n log G OP

n + n + LL+ n
N
Q (GM of the combined series)
r = b1 + r gb1 + r gb1 + r gKK b1 + r g 1 is average annual rate of growth per unit
1

(xii)

(Mean of combined series)

1
n

where r1, r2 ...... rn are the rates of growth in various years.

(xiii) HM =

(xiv)

(Simple HM)

f
Xi
i

HM w =

w
w
X

(Weighted HM)

i
i

2.13 LESSON-END ACTIVITY

The harmonic mean, like arithmetic mean, is also used in averaging of rates like price per
unit, kms per hour etc., under certain conditions. Explain the method of choosing an
appropriate average between arithmetic mean and harmonic mean.

2.14 KEYWORDS

Measures of Central Tendency

Mean
Median
Mode
Average
Central Tendency

2.15 QUESTIONS FOR DISCUSSION

Write True or False against each of the statement:

(a)

In computation of single arithematic mean equal importance is given to all the

items.

(b)

Median divides the value of variate into two equal parts.

(c)

The value that divides distribution into four equal parts are called Median.

(d)

Mode is that value of the variate which occurs maximum no. of times.

(e)

Harmonic mean is reciprocal of arithematic mean of their reciprocals.

Fill in the blanks :

(a)

................ is a value which is typical representative of a set of data.

(b)

A measure of ................ is a typical value around which other figures

congregate.

(c)

In ................ given observations are arranged in ascending or descending

order of magnitude.

(d)

Decile divides distribution into ................ equal parts.

(e)

Mode can be determined in two ways by ................ and by ................

Distinguish between:
(a)

Median and Mode

(b)

Percentile and Decile

(c)

Harmonic Mean and Geometric Mean

(d)

Progressive Average and Composite Average

(e)

Inclusive and Exclusive series

Comment on the following:

(a)

Summarisation of data is necessary for any statistical analysis.

(b)

Arithematic mean is the most popular average in statistics.

(c)

Median is a positional average.

(d)

An average is a substitute for complex group of variables.

2.16 TERMINAL QUESTIONS

What is a statistical average? Describe the characteristics of a good statistical

average.

What are the functions of an average? Discuss the relative merits and demerits of
various types of statistical averages.

Give the essential requisites of a measure of 'Central Tendency'. Under what

circumstances would a geometric mean or a harmonic mean be more appropriate
than arithmetic mean?

Quantitative Techniques for

Management

What do you mean by 'Central Tendency'? Describe the advantages and the
disadvantages of arithmetic mean and mode.

What are the characteristics of an ideal average? How far these are satisfied by
the mode and median?

Distinguish between a mathematical average and a positional average. Give

advantages and disadvantages of each type of average.

What do you understand by partition values? Give the definitions of quartiles, deciles
and percentiles.

"Each average has its own special features and it is difficult to say which one is the
best". Explain this statement.

Discuss the considerations that determine the selection of a suitable average. Explain
by giving one example of each case.

10. Explain the empirical relation between mean, median and mode. What are its uses?
Under what circumstances it is expected to hold true?
11.

Distinguish between a simple average and a weighted average. Explain with an

example the circumstances in which the latter is more appropriate than the former.

12. "An average is a substitute for a complex group of variables but it is not always
safe to depend on the substitute alone to the exclusion of individual measurements
of groups". Discuss.
13. Show that if all observations of a series are added, subtracted, multiplied or divided
by a constant b, the mean is also added, subtracted, multiplied or divided by the
same constant.
14. Prove that the algebric sum of deviations of a given set of observations from their
mean is zero.
15. Prove that the sum of squared deviations is least when taken from the mean.
16. The heights of 15 students of a class were noted as shown below. Compute
arithmetic mean by using (i) Direct Method and (ii) Short-Cut Method.
S. No. : 1
2
3
4
5
6 7
8
9 10 11 12 13 14 15
Ht (cms) : 160 167 174 158 155 171 162 152 156 175 178 167 177 162 153

17. Compute arithmetic mean of the following series :

Marks
No. of Students

:
:

0 - 10
12

10 - 20
18

20 - 30
27

30 - 40
20

40 - 50
17

50 - 60
6

18. Calculate arithmetic mean of the following data :

Mid -Values : 10 12 14 16 18 20
Frequency : 3 7 12 18 10 5

19. Calculate mean from the following data :

Wages ( in Rs ) : 8 - 12 14 - 18 20 - 24 26 - 30 32 - 36 38 - 42
No . of Workers :
6
10
17
13
3
1

20. Calculate mean marks from the following table :

Marks, less than
No. of Students

:
:

10
25

20
40

30
60

40
75

50
100

21. The weights (in gms) of 30 articles are given below :

14 16 16 14 22 13 15 24 12 23 14 20 17 21 18 18 19 20 17
16 15 11 12 21 20 17 18 19 22 23.

Construct a grouped frequency distribution by taking equal class intervals in which

the first interval should be 11 - 13 (exclusive). Also find the arithmetic mean.

Measures of Central Tendency

22. The following information relates to wages of workers in a factory, their total
working hours and the average working hours per worker. Calculate the wage per
worker and the total wage.
Wages ( Rs )
: 50-70 70- 90 90 -110 110-130 130-150 150-170
Total hours worked :
72
200
255
154
78
38
Average No. of hours
:
9
8
8.5
7
7.8
7.6
worked per worker

23. The monthly salaries of 30 employees of a firm are given below :

69 148 132 118 142 116 139 126 114 100 88 62 77 99 103 144
148 63 104 123 95 80 85 106 123 133 140 134 108 129
The firm gave bonus of Rs 10, 15, 20, 25, 30 and 35 for individuals in the respective
salary group; exceeding Rs 60 but not exceeding Rs 75, exceeding Rs 75 but not
exceeding Rs 90 and so on up to exceeding Rs 135 but not exceeding Rs 150. Find
out the average bonus paid per employee.
24. Find out the missing frequency in the following distribution with mean equal to 30.
Class
Frequency

25. (a)

0 - 10
5

10 - 20
6

20 - 30
10

30 - 40
?

40 - 50
13

The following table gives the monthly salary of academic staff of a college.
Calculate the simple and weighted arithmetic means of their monthly salary.
Which of these averages is most appropriate and why?

(i)
(ii)
(iii )
(iv)

(b)

:
:

Designation
Monthly Salary No. of Teachers
Principal
4500
1
Reader
3700
5
3000
15
Senior - Lecturer
Lecturer
2200
25

The sum of deviations of a certain number of observations from 12 is 166 and

the sum of deviations of these observations from 16 is 54. Find the number of
observations and their mean.

26. Twelve persons gambled on a certain night. Seven of them lost at an average rate
of Rs 10.50 while remaining five gained at an average of Rs 13.00. Is the information
given above is correct? If not, why?
27. The incomes of employees in an industrial concern are given below. The total
income of ten employees in the class over Rs 250 is Rs 3,000. Compute mean
income. Every employee belonging to the top 25% of the earners is required to pay
1% of his income to workers' relief fund. Estimate the contribution to this fund.
Income ( Rs ) : 0- 50 50-100 100-150 150- 200 200- 250 250 and above
Frequency
: 90
150
100
80
70
10

28. Comment on the performance of the students of three universities given below:
Calcutta University
Madras University
Bombay University
Courses
of Study Pass% No. of Students Pass% No. of Students Pass% No. of Students
82
200
81
200
M. A.
71
300
76
300
76
350
400
M. Com. 83
60
700
73
200
M. Sc.
66
300
73
73
600
74
450
500
B. A.
76
700
58
200
74
200
B. Com.
65
300
70
700
65
300
B. Sc.

Quantitative Techniques for

Management

29. (a)

Compute the weighted arithmetic mean of the indices of various groups as

given below:
Group

Index

Weight

120
130
150

4
2
2

100

160

Food
Clothing
Housing
Education of
Children
Miscellaneous

(b)

A cumulative frequency distribution has 65 as the mid-value of its last class

interval. The cumulative frequencies of the first, second ...... seventh classes
are 5, 21, 45, 72, 85, 94 and 100 respectively. If all the class intervals are of
equal width of 10 units, write down the relevant frequency distribution. Also
calculate its mean and median.

30. A distribution consists of three components each with total frequency of 200, 250
and 300 and with means of 25, 10 and 15 respectively. Find out the mean of the
combined distribution.
31. Find the average number of children per family for the sub-groups separately as
well as combined as a whole.
Sub - group I
No. of Children No. of families
0
10
1
50
2
60
3
40

Sub - group II
No. of Children No. of families
4-5
20
6-7
12
8-9
4
10 - 11
4

32. (a)

The mean of a certain number of items is 20. If an observation 25 is added to

the data, the mean becomes 21. Find the number of items in the original data.

(b)

The mean age of a combined group of men and women is 30 years. If the
mean age of the men's group is 32 years and that for the womens group is 27
years, find the percentage of men and women in the combined group.

33. The average age of 40 students entering B.A. (Honours) Economics first year in a
college was 19 years. Out of this only 25 students passed the third year examination.
If the average age of these 25 students is 22.5 years, find the average age of the
remaining students.
34. Fifty students took a test. The result of those who passed the test is given below:
Marks
No. of Students

:
:

4
8

5
10

6
9

7
6

8
4

9
3

If the average marks for all the 50 students was 5.16, find the average marks of
those who failed.
35. A person had 7 children. The average age of the children was 14 years when one
of the child died at the age of 8 years. What will be the average age of the remaining
children after five years of this death?
36. The mean marks of 100 students was calculated as 40. Later on it was discovered
that a score 53 was misread as 83. Find the correct mean.
37. An examination was held to decide the award of a scholarship. The weights given
to various subjects were different. Only three applicants for the scholarship obtained
over 50% marks in aggregate. The marks were as follows :

Subjects
Cost Accounting
Statistics
Business Law
Economics
Insurance

Weights
5
4
2
3
1

% Marks of A
70
63
50
55
60

% Marks of B
65
80
40
50
40

% Marks of C
90
75
65
40
38

Of the candidates, the one getting the highest average marks is to be awarded the
scholarship. Determine, who will get it?

Measures of Central Tendency

38. The number of fully formed tomatoes on 100 plants were counted with the following
results :
2 plants had 0 tomatoes
5
"
1
"
7
"
2
"
11
"
3
"
18
"
4
"
24
"
5
"
12
"
6
"
8
"
7
"
6
"
8
"
4
"
9
"
3
"
10
"
(i)

How many tomatoes were there in all?

(ii)

What was the average number of tomatoes per plant?

39. (a)

The average income of 300 employees of a company is Rs 1,800 p.m. Due to

rise in prices the company owner decided to give ad-hoc increase of 25% of
the average income to each of the 25% lowest paid employees, 10% of the
average income to each of the 10% highest paid employees and 15% to each
of the remaining employees. Find out the amount of money required for
ad hoc increase and also the average income of an employee after this increase.

(b) The frequency distribution of the number of casual leave taken by the
employees of a firm in a particular year is given below in which one entry
marked as '?' is missing. Determine the missing value if the average number
of casual leave taken by an employee is 8.5.
No. of Casual leave taken
No. of Employees

:
:

0
8

4
35

5
40

?
65

9
79

10
91

12
82

40. The mean salary paid to 1,000 employees of an establishment was found to be Rs
180.40. Later on, after disbursement of salary, it was discovered that the salaries
of two employees were wrongly entered as Rs 297 and Rs 165
instead of Rs 197 and 185 respectively. Find the correct mean salary.
41. The following variations were recorded in the measurements of parts by a machine:
Variations from the Standard ( mm. )
10 to 15
5 to 10
0 to 5
5 to 0
10 to 5
15 to 10
20 to 15
25 to 20
30 to 25
35 to 30

No. of parts
1
3
20
25
22
17
13
10
7
2

(i)

Find average variations.

(ii)

What proportion fell within a range of 5 mm. either way of the standard?

Quantitative Techniques for

Management

(iii) If those which fall more than 10 mm. apart from the standard are classified
as bad, what percentage of the parts are bad?
(iv) Which stretch of 15 mm. contains the greatest number of parts and what
fraction of the total fall inside this stretch?
42. (a)

The average monthly production of a certain factory for the first ten months
of a year was 3,500 units. Due to workers' unrest in the last two months, the
average monthly production for the whole year came down to 3,200 units.
Find the average monthly production of the last two months.

(b)

The average sales of a balloon seller on the first five days (i.e., Monday to
Friday) of a particular week was Rs 50 and his average sales for the entire
week was Rs 70. If his sales on Sunday were 40% higher than his sales on
Saturday, find his sales on each of the last two days, i.e., on Saturday and
Sunday.

43. Determine median from the following data :

30, 37, 54, 58, 61, 64, 31, 34, 52, 55, 62, 28, 47, 55, 60
44. Locate median of the following data:
65, 85, 55, 75, 96, 76, 65, 60, 40, 85, 80, 125, 115, 40
45. Locate Md, Q1, Q3, D3, D6, P20, P40, P85 and P90 from the following data :
S. No.
1
2
3
4
5
6

Marks
17
32
35
33
15
21

S. No.
7
8
9
10
11
12

Marks
41
32
10
18
20
22

S. No.
13
14
15
16
17
18

Marks
11
15
35
23
38
12

46. In a class of 16 students, the following are the marks obtained by them in statistics.
Find out the lower quartile, upper quartile, seventh decile and thirty-fifth percentile.
S. No. : 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Marks : 5 12 17 23 28 31 37 41 42 49 54 58 65 68 17 77

47. Locate Md, Q1, Q3, D4, D7, P26, P45, P66, P70 and P79 from the following data :
Age of Children (in years ) : 6
No. of Children
: 32

7
33

8
39

9 10 11 12
43 58 59 52

13 14 15
38 33 13

48. Find median from the series given below :

Marks (less than)
No. of Students

:
:

5
5

10
13

15
28

20
53

25
83

30
105

35
123

40
135

70
16

80
5

90
0

45
142

50
145

49. Calculate median from the following table :

Wages (more than)
No. of Workers

:
:

30
58

40
46

50
40

60
31

50. Calculate median from the following data :

Class : 0 - 5 5 - 10 10 - 15 15 - 20 20 - 25 25 - 30 30 - 35 35 - 40 40 - 45 45 - 50
Frequency : 5
8
5
22
20
25
19
25
6
5

51. Compute median from the following data :

100

Class
Frequency

:
:

10 - 20
15

20 - 30
8

30 - 40
17

40 - 50
29

50 - 60
7

60 - 70
4

Measures of Central Tendency

52. Find out median from the following :

:
:

No. of Workers
No. of factories

1- 5
3

6 - 10
8

11- 15
13

16 - 20
11

21- 25
5

53. Calculate median income for the following distribution :

Income ( Rs ) : 40- 44 45- 49 50- 54 55- 59 60- 64 65- 69 70-74
No. of Persons :
2
7
10
12
8
3
3

54. With the help of the following figures, prepare a cumulative frequency curve and
locate the median and quartiles:
:
:

Marks Obtained
No. of Students

0 - 10
10

10 - 20
12

20 - 30
20

30 - 40
18

40 - 50
10

55. Draw a cumulative frequency curve from the following data and find out the median
and both quartiles:
: 1 - 5 6 - 10 11 - 15 16 - 20 21- 25 26 - 30 31- 35 36 - 40 41- 45
Class
Frequency : 7
10
16
32
24
18
10
5
1

56. Calculate median and both quartiles from the following data :
: 20 - 24 25 - 29 30 - 34 35 - 39 40 - 44 45 - 49 50 - 54 55 - 59
Age
No. of Persons : 50
70
100
180
150
120
70
60

57. Calculate the quartiles, D7 and P85 from the following data :
Class
Frequency
Class
Frequency

: Less than 100 100 - 250 250 - 400 400 - 500 500 - 550
:
85
100
175
74
66
:
550 - 600
600 - 800 800 - 900 900 - 1000
:
35
5
18
2

58. Calculate arithmetic mean and median from the data given below :
Income in Rs ( less than )
No . of Workers

: 80 70 60 50 40 30 20 10
: 100 90 80 60 32 20 13 5

59. Calculate mean and median from the following series :

Class Intervals
Frequency

:
:

0 - 10
15

10 - 20
20

20 - 30
18

30 - 40
27

40 - 50
20

60. Calculate mean and median from the following table :

Price ( Rs ) : 10 - 20 10 - 30 10- 40 10 - 50 10- 60 10 -70 10- 80 10- 90
Frequency :
4
16
56
97
124
137
146
150

61. Compute mean and median from the following data :

Marks obtained : 0 - 9 10 - 19 20 - 29 30 - 39 40 - 49 50 - 59 60 - 69 70 - 79 80 - 89
No. of Students : 0
5
10
17
18
30
10
8
2

62. Calculate mean and median of the following distribution :

Size
Frequency

:
:

0-4
5

4-8
7

8 - 12
9

12 - 16
17

16 - 20
15

20 - 24
14

24 - 28
6

28 - 32
0

63. Following is the distribution of marks obtained by 50 students in 'mercantile law'.

Calculate median marks. If 60% of the students pass this test, find the minimum
marks obtained by a passed candidate.
Marks (more than)
No. of Students

:
:

0
50

10
46

20
40

30
20

40
10

50
3

101

Quantitative Techniques for

Management

64. Estimate the number of first, second and third divisioners and the number of failures
from the following data. First division is awarded at 60 or more marks, second
division at 50 and above but less than 60, third division at 36 or more but less than
50 and those securing less than 36 are failures.
M arks ( out of 100 )
N o . of Students

:
:

0 - 20
18

20 - 40
30

40 - 60
66
65

60 - 80
25

80 and above
11
12

65. Following relate to the weekly wages (in Rs) of workers of a factory :
100, 75, 79, 80, 110, 93, 109, 84, 95, 77, 100, 89, 84, 81, 106, 96, 94, 83, 95, 78, 101,
99, 83, 89, 102, 97, 93, 82, 97, 80, 102, 96, 87, 99, 107, 99, 97, 80, 98, 93, 106, 94, 88,
104, 103, 100, 98, 84, 100, 96, 86, 93, 89, 100, 101, 106, 92, 86, 105, 97, 82, 92, 75,
103, 101, 103, 100, 88, 106, 98, 87, 90, 76, 104, 101, 107, 97, 91, 103, 98, 109, 86, 76,
107, 88, 107, 88, 93, 85, 98, 104, 78, 79, 110, 94, 108, 86, 95, 84, 87.
Prepare a frequency distribution by taking class intervals as 75 - 80, 80 - 85, etc.
and locate its median and the two quartiles.
66. Find an appropriate average for the following distribution :
Weekly Income ( in Rs )
Below 100
100 - 200
200 - 300
300 - 400
400 - 500
500 and above

No . of families
50
500
555
100
3
2

67. In the frequency distribution of 100 families given below, the number of families
corresponding to weekly expenditure groups 200 - 400 and 600 - 800 are missing.
However, the median of the distribution is known to be Rs 500. Find the missing
frequencies.
Expenditure
No. of families

:
:

0 - 200 200 - 400

14
?

400 - 600
27

600 - 800
?

800 - 1000
15

68. Find median from the following distribution :

X
f

:
:

1
5

2
10

3
16

4
20

5-9
30

10 - 14
15

15 - 19
8

20 - 25
6

69. The following is the monthly wage distribution of a certain factory :

Wages ( Rs )
No. of Workers
Wages ( Rs )
No. of Workers

: 50 - 80
80 -100 100-110 110-120 120-130
:
50
120
200
250
170
: 130-150 150-170 170- 200
:
130
60
20

(a)

Find the median wage.

(b)

A fund is to be raised and it is decided that the workers getting less than Rs
120 should contribute 5% of their wages and those getting Rs 120 or more
should contribute 10% of their wages. What sum should be collected?

70. Determine the mode of the following data :

58, 60, 31, 62, 48, 37, 78, 43, 65, 48
71. Locate mode of the following series :

102

S. No.
Age

:
:

1
9

2
7

3
4

4
9

5
10

6
8

7
4

8
10

9
5

10
8

11
15

12
8

Measures of Central Tendency

72. Determine whether there is any mode in the following series :

S. No.
Size

:
:

1
10

2
10

3
10

4
10

5
10

6
10

7
10

8
10

73. The number of calls received in 240 successive one minute intervals at an exchange
are shown in the following frequency distribution. Calculate mode:
No. of calls
Frequency

:
:

0
14

1
21

2
25

3
43

4
51

5
35

6
39

7
12

74. Calculate mode from the following data :

Midpoints
Frequency

: 1 2 3 4 5 6 7 8
: 5 50 45 30 20 10 15 5

75. Calculate mode from the following series :

Class Intervals
Frequency

:
:

10 - 19
4

20 - 29
6

30 - 39
8

40 - 49
5

50 - 59
4

60 - 69
2

76. Calculate mode of the following frequency distribution :

:
:

Marks
No. of Students

0-6
12

6 - 12
24

12 - 18
36

18 - 24
38

24 - 30
37

30 - 36
6

77. Calculate mode from the following distribution :

Marks (less than)
No. of Students

:
:

7
20

14
25

21
33

28
41

35
45

42
50

49
52

78. Calculate median and mode from the following data :

: 10 - 20 10 - 30 10 - 40 10 - 50 10 - 60 10 - 70 10 - 80 10 - 90
Size
Frequency :
4
16
56
97
124
137
146
150

79. Calculate X and Mo from the following distribution :

Class Intervals
Frequency

:
:

6 - 10
20

11- 15
30

16 - 20
50

21- 25
40

26 - 30
10

80. Find out mode of the following data graphically and check the result by calculation:
: 0 - 1 1 - 2 2 - 3 3 - 4 4 - 5 5 - 6 6 - 7 7 - 8 8 - 9 9 - 10 10 - 11
Size
Frequency : 3
7
9
15 25 20 14 12
8
6
2

81. (a)

Construct a frequency distribution of the marks obtained by 50 students in

economics as given below :
42, 53, 65, 63, 61, 47, 58, 60, 64, 45, 55, 57, 82, 42, 39, 51, 65, 55, 33, 70, 50, 52,
53, 45, 45, 25, 36, 59, 63, 39, 65, 30, 45, 35, 49, 15, 54, 48, 64, 26, 75, 20, 42, 40,
41, 55, 52, 46, 35, 18. (Take the first class interval as 10 - 20).

(b)

Calculate mode of the above distribution.

82. The monthly profits (in Rs) of 100 shops are distributed as follows :
: 0 - 100 100 - 200 200 - 300 300 - 500 500 - 600 600 - 800
Profits
No. of Shops : 19
21
30
40
10
12

Calculate mode of the distribution.

83. The mode of the following incomplete distribution of weights of 160 students is 56.
Find the missing frequencies.
Weights ( kgs) : 30 - 40 40 - 50 50 -60 60 -70 70 -80 80- 90
No. of Students :
20
36
?
?
15
5

103

Quantitative Techniques for

Management

84. Calculate mean, median and mode from the following table :
Wages ( Rs ) No. of Persons
5
Less than 8
12
Less than 16
8- 24
29
24 and above
31
32 - 40
8
40 and above
19
48- 56
5

85. (a)

In a moderately skewed distribution, the arithmetic mean is 10 and mode is 7.

Find median.

(b)

In a moderately asymmetrical distribution, the mean is 25 and the median is

23.5. Find mode.

86. Find geometric mean from the following daily income (in Rs) of 10 families:
85, 70, 15, 75, 500, 8, 45, 250, 40 and 36.
87. Calculate geometric mean of the following distribution :
Marks (less than)
No. of Students

:
:

10
12

20
27

30
72

40
93

50
100

88. The value of a machine depreciates at a constant rate from the cost price of Rs
1,000 to the scrap value of Rs 100 in ten years. Find the annual rate of depreciation
and the value of the machine at the end of one, two, three years.
89. Calculate weighted GM from the following data :
Items
Wheat
Milk
Sugar
Eggs

Weights
10
5
2
6

Price Index
135
140
160
120

90. The price of a commodity increased by 12% in 1986, by 30% in 1987 and by 15%
in 1988. Calculate the average increase of price per year.
91. The population of a city was 30 lakh in 1981 which increased to 45 lakh in 1991.
Determine the rate of growth of population per annum. If the same growth continues,
what will be the population of the city in 1995.
92. The value of a machine depreciated by 30% in 1st year, 13% in 2nd year and by
5% in each of the following three years. Determine the average rate of depreciation
for the entire period.
93. The following table gives the diameters of screws obtained in a sample enquiry.
Calculate mean diameter by using geometric average.
Diameter (mm) : 130 135 140 145 146 148 149 150 157
No. of Screws
: 3
4
6
6
3
5
2
1
1

104

94. (a)

The price of a commodity doubles in a period of 5 years. What will be the

average rate of increase per annum.

(b)

If a sum of Rs 1,500 is invested at 15% rate of interest compounded annually,

determine the amount after 5 years.

95. (a)

Find the average rate of increase per decade in the population which increased
by 10% in the first decade, by 20% in the second and by 40% in the third.

(b)

The price of a commodity increased by 10% in 1st year, by 15% in 2nd year
and decreased by 10% in 3rd year. Determine the average change of price
after 3 years.

Measures of Central Tendency

96. The following table gives the marks obtained by 70 students in mathematics.
Calculate arithmetic and geometric means:
Marks ( more than)
No. of Students

:
:

80
0

70
7

60
18

50
40

40
40

30
63

20
70

97. The population of a city has grown in the following manner :

:
:

Years
Population (lacs)

1951
10

1961
13

1971
15. 5

1981
20. 8

1991
30. 5

Find the average growth per decade.

98. The geometric means of three groups consisting of 15, 20 and 23 observations are
14.5, 30.2 and 28.8 respectively. Find geometric mean of the combined group.
99. A sum of money was invested for 3 years. The rates of interest in the first, second
and third year were 10%, 12% and 14% respectively. Determine the average rate
of interest per annum.
100. The weighted geometric mean of four numbers 8, 25, 17 and 30 is 15.3. If the
weights of first three numbers are 5, 3 and 4 respectively, find the weight of the
fourth number.
101. The annual rates of growth of output of a factory in five years are 5.0, 6.5, 4.5, 8.5
and 7.5 percent respectively. What is the compound rate of growth of output per
annum for the period?
102. (a)

A man invested Rs 1,000, Rs 12,000 and Rs 15,000 at the respective

rates of return of 5%, 14% and 13% p.a. respectively. Determine his average
rate of return per annum.

(b)

The arithmetic and the geometric means of two numbers are 20.5 and 20
respectively. Find the numbers.

103. (a)

Calculate the harmonic mean of the following data :

9, 5, 2, 10, 15, 35, 20, 24, 21

(b)

Calculate HM of the following items :

1.0, 1.5, 15.0, 250, 0.5, 0.05, 0.095, 1245, 0.009

104. Calculate X , GM and HM and verify that X > GM > HM.

Class Intervals
Frequency

:
:

5 - 15
6

15 - 25
9

25 - 35
15

35 - 45
8

45 - 55
4

105. Four typists take 15, 10, 8, 7 minutes respectively to type a letter. Determine the
average time required to type a letter if
(a)

Four letters are to be typed by each typist.

(b)

Each typist works for two hours.

106. (a)

A person spends Rs 60 for oranges costing Rs 10 per dozen and another Rs

70 for oranges costing Rs 14 per dozen. What is the average price per dozen
paid by him?

(b)

Three mechanics take 10, 8, and 6 hours respectively to assemble a machine.

Determine the average number of hours required to assemble one machine.

105

Quantitative Techniques for

Management

107. At harvesting time, a farmer employed 10 men, 20 women and 16 boys to lift
potatoes. A woman's work was three quarters as effective as that of a man, while
a boy's work was only half. Find the daily wage bill if a man's rate was Rs 24 per
day and the rates for the women and boys were in proportion to their effectiveness.
Calculate the average daily rate for the 46 workers.
108. Saddam takes a trip which entails travelling 1,350 kms by train at a speed of 60
kms/hr, 630 kms by aeroplane at 350 kms/hr, 4,500 kms by ship at 25 kms/hr and
20 kms by car at 30 kms/hr. What is the average speed for the entire journey?
109. (a)

A man travels from Lucknow to Kanpur, a distance of 80 kms, at a speed of

45 kms/hr. From Kanpur he goes to Etawah, a distance of 165 kms, at a
speed of 65 kms/hr and from Etawah he comes back to Lucknow, along the
same route, at a speed of 60 kms/hr. What is his average speed for the entire
journey?

(b)

If refills for 5 rupees are purchased at 40 paise each and for another 5 rupees
are purchased at 60 paise each, the average price would be 48 paise and not
50 paise. Explain and verify.

110. (a)

An aeroplane travels distances of 2,500, 1,200, and 500 kms at the speeds of
500, 400 and 250 kms/hour respectively. Find the average speed for the entire
trip, commenting upon the choice of your average.

(b)

A train goes from Delhi to Agra in four hours at speeds of 25, 60, 80 and 40
kms/hour in each successive hour respectively. Find the average speed of the
train and verify your answer.

111. A can do a unit of work in 10 minutes, B in 18 minutes and C in 20 minutes. Find

their average rate of working when :
(i)

A works for 8 hours, B for 9 hours and C for 10 hours per day.

(ii)

Each of them have to complete 40 units of work per day.

Also determine the total units of work done per day in each of the above situations
and verify your answer.
112. Choose an appropriate average to find the average price per kg., for the
following data:
Articles Qty Purchased Rate ( in gms ./ rupee )
5 kg .
250
Wheat
3 kg .
150
Rice
1 kg .
100
Sugar
2 kg .
90
Pulses

113. Calculate the weighted harmonic mean of the following data :

X
w

:
:

3
6

10
3

25
4

40
1

Now change the weights as 12, 6, 8 and 2 respectively and recalculate the weighted
harmonic mean. What do you conclude?
114. (a)

The speeds of various buses of a company plying on the same route was
found to be as given below :
Speed ( in miles / hour ) : 12 15 18
No . of Buses
: 3 5 2

Find the average speed of the 10 buses.

106

(b)

Find mean daily earnings from the following data :

Measures of Central Tendency

50 men get at the rate of Rs 50 per man per day

100

115. A college canteen sells tea for 75 paise per cup, coffee for Rs 1.50 per cup and
bread pakora for Rs 2 per plate. If on a particular day, it sold tea worth
Rs 150, coffee worth Rs 165 and bread pakora worth Rs 200, what is the average
price per item sold?
116. A firm of readymade garments makes both men's and women's shirts. Its profit
average 6% of sales ; its profit in men's shirts average 8% of sales. If the share of
women's shirts in total sales is 60%, find the average profit as a percentage of the
sales of women's shirts.
117. Which of the averages will be most suitable in the following circumstances?
(i)

Average rate of growth of population in a given period.

(ii) Average number of children in a family.

(iii) Average size of oranges on a tree.
(iv) Average speed of work.
(v)

Average marks of students in a class.

(vi) Average intelligence of students in a class.

(vii) Average size of collars.
(viii) Average income of a lawyer.
(ix) Average size of readymade garments.
(x)

Average size of agricultural holdings.

(xi) Average change in prices.

(xii) Average level of health.
118. Select the correct alternative.
(a)

Relationship between mean (m), geometric mean (g) and harmonic mean (h)
is:
(i) g =

(b)

m+h
m.h
(ii) g = m.h (iii) g =
(iv) None of the these.
2
m+h

In a moderately skewed distribution, mode (Mo) can be calculated by:

(i) M o =

3 X - 2M d
, (ii) M o = 3 X - 2 M d
2

(iii) M o = 3 X - 3M d , (iv) M o = 3M d - 2 X
(c)

Which of the following would be an appropriate average for determining the

average size of readymade garments :
(i) Arithmetic mean (ii) Median (iii) Mode (iv) Geometric mean

(d)

Most appropriate average to determine the size of oranges on a tree is:

(i)

(e)

Mode (ii) Median (iii) Mean (iv) None of the these.

Most appropriate measure for qualitative measurements is :

(i) Mode (ii) Median (iii) Mean (iv) None of the these.

107

Quantitative Techniques for

Management

(f)

The most unstable measure of central tendency is :

(i) Mean (ii) Median (iii) Mode (iv) None of the these.

(g)

The sum of deviations of observations is zero when measured from :

(i) Median (ii) GM (iii) Mode (iv) Mean

(h)

The average, most affected by the extreme observations, is :

(i) Mode (ii) Mean (iii) GM (iv) Median

(i)

The most stable average is :

(i) Mode (ii) Mean (iii) Median (iv) GM

119. State whether the following statements are true or false :

(i) X can be calculated for a distribution with open ends.
(ii) Md is not affected by the extreme observations.
(iii) X is based on all the observations.
(iv) X = Mo = Md, for a symmetrical distribution.
(v) Mo can be calculated if class intervals are of unequal width.
(vi) The class limits should be exclusive for the calculation of Md and Mo.
120. Fill in the blanks :
(i)

...... is most suitable for measuring average rate of growth.

(ii)

...... or ...... are used for averaging rates under certain conditions.

(iii) ...... or ...... are the averages which can be calculated for a distribution with
open ends.
(iv) ...... or ...... are the averages used to study the pattern of a distribution.
(v)

...... or ...... are the averages which can be calculated when the characteristics
are not measurable.

(vi) ...... or ...... or ...... averages depend upon all the observations.
(vii) The sum of squares of deviations is ...... when taken from mean.
(viii) The average which divides a distribution into two equal parts is ...... .
(ix) Md of a distribution is also equal to its ...... quartile.
(x)

The point of intersection of the 'less than type' and 'more than type' ogives
corresponds to ...... .

(xi) The algebric sum of deviations of 30 observations from a value 14 is 3. The

mean of these observations is ...... .
121. Examine the validity of the following statements giving necessary proofs and reasons
for your answer :
50

(i)

For a set of 50 observations Xi, i = 1, 2 ...... 50,

- 10) = 90 , when

i =1

X = 10.

(ii) Geometric mean of a given number of observations cannot be obtained if one

of them is zero.
(iii) The mean depth of water of a river is 130 cms, therefore, a man with a height
of 165 cms can cross the river safely.

108

(iv) For a wholesale manufacturer, interested in the type which is usually in

demand, median is the most suitable average.

(v)

If AM = 25 and HM = 9, then GM = 15 for two positive values of a variable.

Measures of Central Tendency

(vi) For a set of 8 observations AM, GM and HM are 5.2, 6.3 and 7.1 respectively.
(vii) If 2y 6x = 6 and mode of y is 66, then mode of x is 21.

2.17 MODEL
DISCUSSION

ANSWERS

(a) True

(b) True

(a) Average (b) Central Tendency

QUESTIONS

(d) True

(e) True

(d) Ten

FOR

(e) Inspection, grouping

2.18 SUGGESTED READINGS

Mario F. Triola, Elementary Statistics, Addison-Wesley January 2006.
David & Moae, Introduction to the Practice of Statistics, W.H. Freeman & Co.
February 2005.
Allan & Blumon, Elementary Statistics : A Step by Step Approach. McGraw-Hill College,
June 2003.
James T. McClave Terry Sincich, William Mendenhall, Statistics, Prentice Hall
February 2005
Mark L. Berenson, David M. Revine, Tineothy C. Krehbiel, Basic Business Statistics:
Concepts & Applications, Prentice Hall, May 2005.

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LESSON

3
MATHEMATICAL MODEL

CONTENTS
3.0 Aims and Objectives
3.1 Introduction
3.2 Mathematics The Language of Modelling
3.3 Building a Mathematical Model
3.4 Verifying and Refining a Model
3.5 Variables and Parameters
3.6 Continuous-in-Time vs. Discrete-in-Time Models
3.7 Deterministic Model Example
3.8 Probabilistic Models
3.9 Let us Sum Up
3.10 Lesson-end Activity
3.11 Keywords
3.12 Questions for Discussion
3.13 Model Answers to Questions for Discussion
3.14 Suggested Readings

3.0 AIMS AND OBJECTIVES

In the previous and preceding previous lessons we had an elaborative view on quantitative
techniques and distinguishable statistical approaches. In this lesson we are going to discuss
various models or rather we can say mathematical models which are extremely powerful
because they usually enable predictions to be made about the system.

3.1 INTRODUCTION

110

Models in science come in different forms. A physical model that you probably are
familiar with is an anatomically detailed model of the human body. Mathematical models
are less commonly found in science classes, but they form the core of modem cosmology.
Mathematical models are extremely powerful because they usually enable predictions to
be made about a system. The predictions then provide a road map for further
experimentation. Consequently, it is important for you to develop an appreciation for this
type of model as you learn more about cosmology. Two sections of the activity develop
mathematical models of direct relevance to cosmology and astronomy. The math skills
required in the activity increase with each section, but nothing terribly advanced is required.
A very common approach to the mathematical modeling of a physical system is to collect

a set of experimental data and then figure out a way to graph the data so that one gets a
straight line. Once a straight line is obtained, it is possible to generalize the information
contained in the straight line in terms of the powerful algebraic equation: You probably
are familiar with this equation. In it y represents a value on the y-axis, x represents a
value on the x-axis, m represents the slope of the straight line, and b represents the value
of the intercept of the line on the y-axis. In all sections of this activity, your goal will be
to analyze and then graph a set of data so that you obtain a straight line. Then you will
derive the equation that describes the line, and use the equation to make predictions
about the system. So relax and have fun with math!

Mathematical Model

y = mx + b
Mathematical modeling is the process of creating a mathematical representation of some
phenomenon in order to gain a better understanding of that phenomenon. It is a process
that attempts to match observation with symbolic statement. During the process of building
a mathematical model, the model will decide what factors are relevant to the problem and
what factors can be de-emphasized. Once a model has been developed and used to answer
questions, it should be critically examined and often modified to obtain a more accurate
reflection of the observed reality of that phenomenon. In this way, mathematical modeling
is an evolving process; as new insight is gained, the process begins again as additional
factors are considered. Generally the success of a model depends on how easily it can be
used and how accurate are its predictions. (Edwards & Hamson, 1994, p. 3)

3.2 MATHEMATICS THE LANGUAGE OF MODELLING

Like other languages, the essence of mathematics is the way it enables us to express,
communicate, and reason about ideas and, especially, ideas about our world. The word
red in English is important because it describes the color below. Without seeing this
color one misses a great deal about the word red.
We are interested in using mathematics to talk about meaningful problems. For this
reason, laboratory equipment like the Texas Instrument CBL that allows us to collect
and record quantitative information about the real world, and sources like the United
States Census are especially important to us.
Working with real problems requires the full power of mathematics the ability to work
with symbols, with graphics, and with numerical calculations. For this reason computer
algebra systems like MathCad, Maple, Mathematica, and the CAS built into the TI-92
are an integral part of our tool kit. They give us powerful environments for doing
mathematics. And together with a browser, like Netscape, some cables, and equipment
like the TI-CBL they give us the ability to use the full power of mathematics with real
data from the real world.

3.3 BUILDING A MATHEMATICAL MODEL

Building a mathematical model for your project can be challenging, yet interesting, task.
A thorough understanding of the underlying scientific concepts is necessary and a mentor
with expertise in your project topic is invaluable. It is also best to work as part of a team
to provide more brainstorming power. In industry and engineering, it is common practice
for a team of people to work together in building a model, with the individual team
members bringing different areas of expertise to the project.
Although problems may require very different methods of solution, the following steps
outline a general approach to the mathematical modeling process:
1.

Identify the problem, define the terms in your problem, and draw diagrams
where appropriate.
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Begin with a simple model, stating the assumptions that you make as you focus
on particular aspects of the phenomenon.

Identify important variables and constants and determine how they relate to
each other.

Develop the equation(s) that express the relationships between the variables
and constants.
Check Your Progress 3.1

What is the difference between physical model and mathematical model?

What are the different steps of mathematical modelling process?

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

3.4 VERIFYING AND REFINING A MODEL

Once the model has been developed and applied to the problem, your resulting model
solution must be analyzed and interpreted with respect to the problem. The interpretations
and conclusions should be checked for accuracy by answering the following questions:
l

Is the information produced reasonable?

Are the assumptions made while developing the model reasonable?

Are there any factors that were not considered that could affect the outcome?

How do the results compare with real data, if available?

In answering these questions, you may need to modify your model. This refining process
should continue until you obtain a model that agrees as closely as possible with the real
world observations of the phenomenon that you have set out to model.

3.5 VARIABLES AND PARAMETERS

112

Mathematical models typically contain three distinct types of quantities: output variables,
input variables, and parameters (constants). Output variables give the model solution.
The choice of what to specify as input variables and what to specify as parameters is
somewhat arbitrary and often model dependent. Input variables characterize a single
physical problem while parameters determine the context or setting of the physical problem.
For example, in modeling the decay of a single radioactive material, the initial amount of
material and the time interval allowed for decay could be input variables, while the decay
constant for the material could be a parameter. The output variable for this model is the
amount of material remaining after the specified time interval.

3.6 CONTINUOUS-IN-TIME VS. DISCRETE-IN-TIME

MODELS

Mathematical Model

Mathematical models of time dependent processes can be split into two categories
depending on how the time variable is to be treated. A continuous-in-time mathematical
model is based on a set of equations that are valid for any value of the time variable.
A discrete-in-time mathematical model is designed to provide information about the state
of the physical system only at a selected set of distinct times.
The solution of a continuous-in-time mathematical model provides information about the
physical phenomenon at every time value. The solution of a discrete-in-time mathematical
model provides information about the physical system at only a fInite number of time
values. Continuous-in-time models have two advantages over discrete-in-time models:
(1) they provide information at all times and (2) they more clearly show the qualitative
effects that can be expected when a parameter or an input variable is changed. On the
other hand, discrete in time models have two advantages over continuous in time models:
(1) they are less demanding with respect to skill level in algebra, trigonometry, calculus,
differential equations, etc. and (2) they are better suited for implementation on a computer.
Some Examples of Mathematical Models
Population

Growth

Spring

Mass

System

Falling

Rock

Heat Flow

Problem 1
Rotating all or part of a space station can create artificial gravity in the station. The
resulting centrifugal force will be indistinguishable from gravitational force. Develop a
mathematical model that will determine the rotational rate of the station as a function of
the radius of the station (distance from the center of rotation) and the desired artificial
gravitational force. Use this model to answer the question: What rotational rate is needed
if the radius of the station is 150 m and Earth surface gravity is desired.
Problem 2
A stretch of Interstate 25 is being widened to accommodate increasing traffIc going
north and south. Unfortunately, the Department of Transportation is going to have to
bring out the orange barrels and close all but one lane at the big I intersection.
The department would like to have traffIc move along as quickly as possible without
additional accidents. What speed limit would provide for maximum, but safe, traffic
flow?

3.7 DETERMINISTIC MODEL EXAMPLE

An example of a deterministic model is a calculation to determine the return on a 5-year
investment with an annual interest rate of 7%, compounded monthly. The model is just
the equation below:
F = P (1 + r/m)YM
The inputs are the initial investment (P = $1000), annual interest rate (r = 7% = 0.07), the
compounding period (m = 12 months), and the number of years (Y = 5).
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One of the purposes of a model such as this is to make predictions and try What If?
scenarios. You can change the inputs and recalculate the model and youll get a new
answer. You might even want to plot a graph of the future value (F) vs. years (Y). In
some cases, you may have a fixed interest rate, but what do you do if the interest rate is
allowed to change? For this simple equation, you might only care to know a worst/best
case scenario, where you calculate the future value based upon the lowest and highest
interest rates that you might expect.

3.8 PROBABILISTIC MODELS

The toy roulette at the left is a pale model of a real roulette wheel. Real roulette wheels
are usually found in casinos, surrounded by glitter and glitz. But this toy captures the
essentials of roulette. Both the toy and real roulette wheels have 38 slots, numbered 1
through 36, 0, and 00. Two of the slots are colored green; 18 are colored red and 18 are
colored black. Betters often bet on red. If they wager $1.00 on red then if the roulette
ball lands in a red slot they win $1.00 but if it lands in either a green slot or a black slot
they lose $1.00. Because there are 18 red slots out of a total of 38 slots the chances of
winning this bet are 18/38 considerably less than even. The casinos make up the rules
and they make them up so that they make huge profits.
Gambling games like roulette are good models for many phenomena involving chance
for example, investing in the stock market. It is easier to analyze games involving a
roulette wheel than investments involving the stock market but the same ideas are involved.
In this section we will consider and compare two different strategies that a gamber
might use playing roulette. The same kinds of strategies and considerations are involved
with investments. The same tools that we develop here for roulette can be used by
investors.

Suppose that you have $10.00 and that you want to win an additional $10.00. We will
consider two different strategies.
l

114

The Flamboyant Strategy:

You stride purposefully up to the wheel with a devil-may-care smile on your face.
You bet your entire fortune of $10.00 on one spin of the wheel. If the ball lands in
a red slot then you win, pocket your winnings, and leave with $20.00 and a genuine
happy smile on your face. If the ball lands in a slot of a different color then you

smile bravely at everyone as if $10.00 is mere chickenfeed and leave with empty
pockets and feeling gloomy. With the flamboyant strategy your chances of
winning are 18/38 or roughly 0.4737.
l

Mathematical Model

The Timid Strategy:

With this strategy you approach the roulette table with obvious trepidation. After
watching for a while and working up your courage, you bet $1.00. When the ball
falls in a slot you either win or lose $1.00. Now you have either $9.00 or $11.00.
You continue betting one dollar on each spin of the wheel until you either go broke
or reach your goal of $20.00.

Before continuing pause and think about these two strategies. Which of the two do you
think gives you the best chance of winning? or are your chances of winning the same
whichever strategy you use?

One way to study the questions raised above is by trying the two strategies in real
casinos, wagering your own real money. This approach has several advantages and
several disadvantages. One advantage is that this approach is realistic. Real casinos are
run by people who know how to make a profit. They are skilled at creating an atmosphere
that is likely to encourage customers to bet and lose more than they might like. The
lessons that you learn in a real casino are more likely to be real lessons than the ones you
learn in a simulated casino like the one we use below. One disadvantage is that this
approach can be very costly both in terms of money and time.
We take a different approach using the CAS window to simulate playing with the
second, or timid, strategy. We already know the chances of winning with the first, or
flamboyant, strategy 18/38, or roughly 0.4737.

Computer algebra systems like Maple, MathCad, Mathematica, or the CAS system in
the TI-92 have a procedure that generates random numbers. For example, on the TI-92
the command randO, produces a random number between zero and one. The screen
below shows the results of executing this command seven times. Notice that it produced
seven different random numbers.

Using the random number generator in your CAS window, you can easily simulate one
spin of a roulette with a procedure like the one shown below.
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Your CAS window has a program that is built on this basic idea and will simulate playing
roulette using the timid strategy. Use this program to answer the questions below.

Compare the timid strategy to the flamboyant strategy.

Consider an intermediate strategy betting $2.00 on each spin of the wheel.

Consider another, intermediate strategy betting $5.00 on each spin of the wheel.

Some people enjoy gambling. If you play the flamboyant strategy then you spin the
wheel just once. On the average how often would you spin the wheel with each of
the strategies above.

What conclusion can you draw from our work in this module regarding the
advisability of diversifying your investments? Be careful. Your answer depends on
your investment goals and your beliefs about whether stock prices are more likely
to rise or to fall.
Check Your Progress 3.2

What is the difference between Variables and Parameters?

Give two applications of computer algebra system.

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

3.9 LET US SUM UP

116

This course is about the essence of science understanding the world in which we live.
We use mathematics as a language to help us describe and understand our world. Because
the purpose of Mathematical Modeling is to talk about our world, the most important
part of this course are the applications our mathematical discussions about real world

phenomena. In this first chapter we have looked at the following applications. Everything
we have discussed above the content of the course the tools and the technology
would be useless without you. Indeed, without you there would be no purpose.
The purpose of mathematical modeling is to enable people like you and me to learn about
our world, to form mental pictures of how it works and how we can make it a bit better.
Mathematical modeling requires your active participation thinking, working with your
computer algebra system, with old-fashioned paper and pencil, exploring the world with
the TI-CBL, rubber bands, and TinkerToys, and exchanging ideas with friends and
colleagues.

Mathematical Model

3.10 LESSON-END ACTIVITY

As we know that mathematical modelling is the process of creating a mathematical
representation of some phenomenon. So constructing a mathematical model for your
project can be a challenging, yet interesting task. Being a technician and a computer use
you have to think of a system where mathematical modelling will be used. Like use of
mathematical modelling in a National Stock Exchange.

3.11 KEYWORDS
Model
Time Models
Flamboyant Strategy
Timid Strategy
Parameters

3.12 QUESTIONS FOR DISCUSSION

Write True or False against each statement:

(a)

Mathematical Modelling is the process of creating a mathematical

representaiton.

(b)

Mathematical models typically contain input and output variables and

parameters.

(c)

Models only represents patterns found in graphs.

(d)

Mathematical Modelling is used to collect a set of experimental data and

figure out to graph.

Distinguish between:
(a)

Variables and Parameters

(b)

Continuous-in-Time and Discrete-in-Time Mathematical Model

(c)

The Flamboyant Strategy and The Timid Strategy

(d)

Probabilistic Model and Deterministic Model

(e)

Mathematics and Mathematical Modelling

Write short notes on:

(a)

Model

(b)

Building a Mathematical Model

(c)

Time Mathematical Model

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(d)

Compound Interest Model

(e)

Probabilistic Models Strategy

Fill in the blanks:

(a)

A good model should .................. the essential character of the model to be

analysed.

(b)

Building Model can be .................. yet .................. task.

(c)

.................. model is based on a set of equations.

(d)

The best example of probabilistic model is ..................

(e)

.................. is based other than flamboyant and timid strategy.

3.13 MODEL
DISCUSSION
1.

(a) True

(b) True

(a) Capture

ANSWERS

QUESTIONS

FOR

(c) False (d) True

(b) Challenging, interesting

(d) Gambling games (e) CAS window

3.14 SUGGESTED READINGS

M.P. Williams, Model Building in Mathematical Programming, Wiley
Bruno Poizat, Moses Klein, A Course in Model Theory: An Introduction to
Contemporary Mathematical Logic, Springer Verlag, May 2000
N.N. Bogulubov, Jr, A.S. Shunovsly, B.I. Sadovnikov, A.S. Shumovskii, Mathematical
Methods of Statistical Mechanics of Model System CRC, Pr I LIC
A.H. Lingstone, Mathematical Logic: An Introduction to Model Theory, Kluwer
Academic (Pub)
Goran Pjordevic, J.Wess, Lyubisa Nesic, Mathematical, Theoretical and
Phenomenological Challenges, World Scientific Pub Co. Inc. (March 2005)

118

LESSON

4
LINEAR PROGRAMMING: GRAPHICAL METHOD

CONTENTS
4.0 Aims and Objectives
4.1 Introduction
4.2 Essentials of Linear Programming Model
4.3 Properties of Linear Programming Model
4.4 Formulation of Linear Programming
4.5 General Linear Programming Model
4.6 Maximization & Minimization Models
4.7 Graphical Method
4.8 Solving Linear Programming Graphically Using Computer
4.9 Summary of Graphical Method
4.10 Unbounded LP Problem
4.11 Let us Sum Up
4.12 Lesson-end Activity
4.13 Keywords
4.14 Questions for Discussion
4.15 Terminal Questions
4.16 Model Answers to Questions for Discussion
4.17 Suggested Readings

4.0 AIMS AND OBJECTIVES

In this unit we have talked about Quantitative Techniques and the Measurement of
Mean, Median and Mode and the various Mathematical Models and now we will talk
about linear programming and in this lesson we will learn the graphical method of linear
programming.

4.1 INTRODUCTION
Linear programming is a widely used mathematical modeling technique to determine the
optimum allocation of scarce resources among competing demands. Resources typically
include raw materials, manpower, machinery, time, money and space. The technique is
very powerful and found especially useful because of its application to many different
types of real business problems in areas like finance, production, sales and distribution,
personnel, marketing and many more areas of management. As its name implies, the

Quantitative Techniques
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linear programming model consists of linear objectives and linear constraints, which
means that the variables in a model have a proportionate relationship. For example, an
increase in manpower resource will result in an increase in work output.

4.2 ESSENTIALS OF LINEAR PROGRAMMING MODEL

For a given problem situation, there are certain essential conditions that need to be
solved by using linear programming.
1.

Limited resources

limited number of labour, material equipment and

finance

Objective

refers to the aim to optimize (maximize the profits or

minimize the costs).

Linearity

increase in labour input will have a proportionate

increase in output.

Homogeneity

the products, workers' efficiency, and machines are

assumed to be identical.

Divisibility

it is assumed that resources and products can be divided

into fractions. (in case the fractions are not possible,
like production of one-third of a computer, a modification
of linear programming called integer programming can
be used).

4.3 PROPERTIES OF LINEAR PROGRAMMING MODEL

The following properties form the linear programming model:
1.

Relationship among decision variables must be linear in nature.

A model must have an objective function.

Resource constraints are essential.

A model must have a non-negativity constraint.

4.4 FORMULATION OF LINEAR PROGRAMMING

Formulation of linear programming is the representation of problem situation in a
mathematical form. It involves well defined decision variables, with an objective function
and set of constraints.

Objective function
The objective of the problem is identified and converted into a suitable objective function.
The objective function represents the aim or goal of the system (i.e., decision variables)
which has to be determined from the problem. Generally, the objective in most cases will
be either to maximize resources or profits or, to minimize the cost or time.
For example, assume that a furniture manufacturer produces tables and chairs. If the
manufacturer wants to maximize his profits, he has to determine the optimal quantity of
tables and chairs to be produced.
Let

120

Optimal production of tables

Profit from each table sold

Optimal production of chairs

Profit from each chair sold.

Linear Programming:
Graphical Method

Total profit from tables = p1 x1

Hence,

Total profit from chairs = p2 x2

The objective function is formulated as below,
Maximize Z or Zmax = p1 x1 + p2 x2

Constraints
When the availability of resources are in surplus, there will be no problem in making
decisions. But in real life, organizations normally have scarce resources within which the
job has to be performed in the most effective way. Therefore, problem situations are
within confined limits in which the optimal solution to the problem must be found.
Considering the previous example of furniture manufacturer, let w be the amount of
wood available to produce tables and chairs. Each unit of table consumes w1 unit of
wood and each unit of chair consumes w2 units of wood.
For the constraint of raw material availability, the mathematical expression is,
w1 x1 + w2 x2 w
In addition to raw material, if other resources such as labour, machinery and time are
also considered as constraint equations.

Non-negativity constraint
Negative values of physical quantities are impossible, like producing negative number of
chairs, tables, etc., so it is necessary to include the element of non-negativity as a constraint
i.e.,
x1, x2 0

4.5 GENERAL LINEAR PROGRAMMING MODEL

A general representation of LP model is given as follows:
Maximize or Minimize, Z = p1 x1 + p2 x2 pn xn
Subject to constraints,
w11 x1 + w12 x2 + w1n xn or = or w1 (i)
w21 x1 + w22 x2 w2n xn or = or w2
.

wm1 x1 + wm2 x2 +wmn xn or = wm

(ii)

(iii)

Non-negativity constraint,
xi o (where i = 1,2,3 ..n)
Check Your Progress 4.1

What are the essentials of LP Model?

Why linear programming is used?

Contd...

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Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

4.6 MAXIMIZATION & MINIMIZATION MODELS

Example 1: A biscuit manufacturing company plans to produce two types of biscuits,
one with a round shape and another with a square shape. The following resources are
used in manufacturing the biscuits,
(i)

Raw material, of which daily availability is 150 kg.

(ii)

Machinery, of which daily availability is 25 machine hours.

(iii) Labour, of which daily availability is 40 man-hours.

The resources used are shown in Table 1. If the unit profit of round and square biscuits
is Rs 3.00 and Rs 2.00 respectively, how many round and square biscuits should be
produced to maximize total profit ?
Table 4.1: Resources Used
Resources
Raw Material
Machine
Manpower

Requirement/Unit
Round
Square
100
115
10
12
3
2

Daily availability
1500 grams
720 minutes
240 minutes

Solution:
Key Decision: To determine the number of round and square biscuits to be produced.
Decision Variables:
Let x1 be the number of round biscuits to be produced daily, and
x2 be the number of square biscuits to be produced daily
Objective function: It is given that the profit on each unit of round biscuits is Rs 3.00
and of square biscuits is Rs. 2.00. The objective is to maximize profits, therefore, the
total profit will be given by the equation,
Zmax = 3x1+2x2
Constraints: Now, the manufacturing process is imposed by a constraint with the limited
availability of raw material. For the production of round biscuits, 100x 1 of raw material is
used daily and for the production of square biscuits, 115x2 of raw material is used daily.
It is given that the total availability of raw material per day is 1500 grams.
Therefore, the constraint for raw material is,
122

100x1 + 115x2 1500

Linear Programming:
Graphical Method

Similarly, the constraint for machine hours is,

10x1+12x2 720
and for the manpower is,
3x1 +2x2 240
Since the resources are to be used within or below the daily available level, inequality
sign of less than or equal sign () is used. Further, we cannot produce negative number
of units of biscuits which is a non-negative constraint expressed as,
x1 0 and x2 0
Thus, the linear programming model for the given problem is,
Maximize Z = 3x1 + 2x2
Subject to constraints,
100x1+115x2 1500

..........................(i)

10x1+12x2 720

..........................(ii)

3x1+2x2 240

..........................(iii)

where x1 0, x2 0
Example 2: Rahul Ads, an advertising company is planning a promotional campaign for
the client's product, i.e., sunglasses. The client is willing to spend Rs. 5 lakhs. It was
decided to limit the campaign media to a weekly magazine, a daily newspaper and TV
advertisement. The product is targeted at middle-aged men and women, and the following
data was collected (Table 4.2).
Table 4.2: Data Collected
Campaign media

Cost per advertisement (Rs.)

Weekly Magazine
Daily Newspaper
TV Advetisement

30,000
45,000
1,25,000

Expected
viewers
1,15,000
2,05,000
7,00,000

The client is interested to spend only Rs. 1 lakh on the ads in the weekly magazine which
expecting a viewership of a minimum of 21 lakh people in the case of the television
advertising. Maximize the viewers to the advertisements.
Solution:
Key Decision: To determine number of advertisements on weekly magazine, daily
newspaper and TV.
Let

x1 be the number of weekly magazine advertisements.

x2 be the number of daily newspaper advertisements.
x3 be the number of TV advertisements.

Objective function: The objective is to maximize the number of viewers through all
media. The total viewers will be given by the equation,
Zmax = 115000x1 + 205000x2+ 700000x3
Constraints: Firstly, the client is willing to spend Rs. 500000 on all media,
30000x1 + 45000x2 + 125000x3 500000
or
30x1 + 45x2+ 125x3 500

..........................(i)
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Secondly, a minimum of 2100000 people should view the television advertising,

700000x3 2100000
or
x3 3

..........................(ii)

Lastly, the client is interested to pay only Rs. 100000 in weekly magazine advertising,
30000x1 100000
or
3x1 10

..........................(iii)

Summarizing the LP model for the given problem,

Maximize Z = 115000x1 + 205000x2 + 700000x3
Subject to constraints,
30x1 + 45x2 + 125x3 500

..........................(i)

x3 3

..........................(ii)

3x1 10

..........................(iii)

where x1, x2, x3 0

Example 3: The data given in Table 4.3 represents the shipping cost (in Rs.) per unit for
shipping from each warehouse to each distribution centre. The supply and demand data
of each warehouse and distribution centre is given. Determine how many units should be
shipped from each warehouse to each centre in order to minimize the overall
transportation cost.
Table 4.3: Data Shows Shipping Cost from Warehouse to Distribution
Warehouse
1
2
Demand

Distribution Centre
1
2
3
9
10
11
4
6
8
150
100
150

Supply
150
250
400

Solution:
Decision Variables
Let xij be the number of units to be shipped from warehouse i to distribution centre j.
x11 be the number of units to be shipped from warehouse 1 to distribution centre 1.
x12 be the number of units to be shipped from warehouse 1 to distribution centre 2.
x13 be the number of units to be shipped from warehouse 1 to distribution centre 3.
x21 be the number of units to be shipped from warehouse 2 to distribution centre 1.
x22 be the number of units to be shipped from warehouse 2 to distribution centre 2.
x23 be the number of units to be shipped from warehouse 2 to distribution centre 3.
Objective Function: The Table 4.3 shows the transportation cost from each warehouse
to each distribution centre. Therefore 9x11 represents the total cost of shipping x11 units
from warehouse 1 to distribution centre 1. The objective function is to minimize the
transportation cost. Therefore, the objective function is,
Minimize Z = 9x11 + 10x12+11x13+4x21+6x22+8x23

124

Constraints: The supply and demand constraints to ship the units from warehouses are,
to ship the units and distribution centres must receive the shipped units. Since the given
table is a 2 3 matrix we have a total 5 constraints apart from the non-negativity
constraint. The constraints are as follows,

x11+ x12+x13 150

..........................(i)

x21+ x22+ x23 250

..........................(ii)

x11+ x21 = 150

..........................(iii)

x12+ x22=100

..........................(iv)

x13+ x23=150

..........................(v)

where xij 0

Linear Programming:
Graphical Method

(i =1,2, and j = 1,2,3)

Thus the LP model for the given transportation problem is summarized as,
Minimize Z = 9x11 + 10x12+11x13+4x21+6x22+8x23
Subject to constraints,
x11+ x12+ x13 150

..........................(i)

x21+ x22+ x23 250

..........................(ii)

x11 + x21 = 150

..........................(iii)

x12 + x22 = 100

..........................(iv)

x13 + x23 = 150

..........................(v)

where xij > 0

(i =1,2, and j = 1,2,3)

Example 4: Sivakumar & Co., manufactures two types of T-shirts, one with collar and
another without collar. Each T-shirt with collar yields a profit of Rs. 20, while each Tshirt without collar yields Rs. 30. Shirt with collar requires 15 minutes of cutting and 25
minutes of stitching. Shirt without collar requires 10 minutes of cutting and 20 minutes of
stitching. The full shift time is available for cutting in an 8 hour shift, but only 6 hours are
available for stitching. Formulate the problem as an LP model to maximize the profit.
Solution:
Key decision: To determine the number of T-shirts with collar and without collar to be
manufactured.
Decision variables:
Let

x1 be the number of T-shirts with collar

x2 be the number of T-shirts without collar

Objective Function:
Zmax = 20x1 + 30x2
Constraints:
15x1 + 10x2 8 60 (Cutting)

..........................(i)

25x1 + 20x2 6 60 (Stitching)

..........................(ii)

Non-negativity constraints:
x1 0 , x2 0
The linear programming model is,
Zmax = 20x1 + 30x2
Subject to constraints,
15x1 + 10x2 480

..........................(i)

25x1 + 20x2 360

..........................(ii)

where x1 , x2 0

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Example 5: An agricultural urea company must daily produce 500 kg of a mixture

consisting of ingredients x1, x2 and x3. Ingredient x1 costs Rs. 30 per kg, x2 Rs. 50 per kg
and x3 Rs. 20 per kg. Due to raw material constraint, not more than 100 kg of x1, 70 kg
of x2 and 45 kg of x3 must be used. Determine how much of each ingredient should be
used if the company wants to minimize the cost.
Solution:
Let

x1 be the kg of ingredient x1 to be used

x2 be the kg of ingredient x2 to be used
x3 be the kg of ingredient x3 to be used

The objective is to minimize the cost,

Minimize Z = 30x1 + 50x2 + 20x3
Subject to constraints,

where

x1+ x2+ x3 = 500

(total production)

.......................(i)

100

(max. use of x1)

.......................(ii)

(max. use of x2)

.......................(iii)

(max. use of x3)

.......................(iv)

x1, x2, x3 0

(non-negativity)

Example 6: Chandru Bag Company produces two types of school bags: deluxe and
ordinary. If the company is producing only ordinary bags, it can make a total of 200
ordinary bags a day. Deluxe bag requires twice as much labour and time as an ordinary
type. The demand for deluxe bag and ordinary bag are 75 and 100 bags per day
respectively. The deluxe bag yields a profit of Rs 12.00 per bag and ordinary bag yields
a profit of Rs. 7.00 per bag. Formulate the problem as LP model.
Solution:
Let

x1 be deluxe bags to be produced per day

x2 be ordinary bags to be produced per day

Objective function: The objective is to maximize the profit. Deluxe bag yields a profit of
Rs. 12.00 per bag and ordinary bag yields a profit of Rs. 7.00 per bag.
Maximize Z = 12x1 + 7x2
Constraints: There are two constraints in the problem, the "number of bags" constraint
and "demand" constraint. It is given that the deluxe bag takes twice as much time of
ordinary bag and if only ordinary bags alone are produced, the company can make 200
bags.
The constraint is,
2x1 + x2 200
The demand for the deluxe bag is 75 bags and ordinary bag is 100 bags
The constraints are,
x1 75
x2 100
and the non-negativity constraint is,
126

x1 0 , x 2 0

Linear Programming:
Graphical Method

The LP formulation is
Maximize, Z = 12x1+ 7x2
Subject to constraints,
2x1 + x2 200

..........................(i)

x1 75

..........................(ii)

x2 100

..........................(iii)

x1 , x2 0

where

Example 7: Geetha Perfume Company produces both perfumes and body spray from
two flower extracts F1 and F2 The following data is provided:
Table 4.4: Data Collected

Flower Extract, F1
Flower Extract, F2
Profit Per litre (Rs.)

Litres of Extract
Perfume
Body Spray
8
4
2
3
7
5

Daily Availability (litres)

20
8

The maximum daily demand of body spray is 20 bottles of 100 ml each. A market survey
indicates that the daily demand of body spray cannot exceed that of perfume by more
than 2 litres. The company wants to find out the optimal mix of perfume and body spray
that maximizes the total daily profit. Formulate the problem as a linear programming
model.
Solution:
Let

x1 be the litres of perfume produced daily

x2 be the litres of body spray produced daily

Objective function: The company wants to increase the profit by optimal product mix
Zmax = 7x1+5x2
Constraints: The total availability of flower extract F1 and flower extract F2 are 20 and
8 litres respectively. The sum of flower extract F1 used for perfume and body spray
must not exceed 20 litres. Similarly, flower extract F2 must not exceed 8 litres daily.
The constraints are,
8x1+4x2 20 (Flower extract F1)
2x1+3x2 8 (Flower extract F2)
The daily demand of body spray x2 is limited to 20 bottles of 100ml each (i.e, 20 100 =
2000 ml = 2 litres)
Therefore,

x2 2

Again, there is an additional restriction, that the difference between the daily production
of perfume and body spray , x2 x1 does not exceed 2 litres, which is expressed as
x2x1 2
(or)
x1 + x2 2.
The model for Geetha perfumes company is,
Maximize , Z = 7x1+ 5x2

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Subject to constraints,
8x1 + 4x2 20

.(i)

2x1 + 3x2 8

..(ii)

x1 + x2 2
x2 2

.....(iii)
.............(iv)

x1, x2 0

where

Feasible Solution: Any values of x1 and x2 that satisfy all the constraints of the model
constitute a feasible solution. For example, in the above problem if the values of x1 = 2
and x2 = l are substituted in the constraint equation, we get
(i)

8(2) + 4(1) 20
20 20

(ii)

2(2) + 3 (1) 8
78

(iii) 2 +1 2
12
(iv) 1 2
All the above constraints (including non-negativity constraint) are satisfied. The objective
function for these values of x1 = 2 and x2 = 1, are
Zmax

= 7(2 ) + 5(1)
= 14 + 5 = Rs. 19.00

As said earlier, all the values that do not violate the constraint equations are feasible
solutions. But, the problem is to find out the values of x1 and x2 to obtain the optimum
feasible solution that maximizes the profit. These optimum values of x1 and x2 can be
found by using the Graphical Method or by Simplex Method. (The above problem is
solved using graphical method shown on page number 117).

4.7 GRAPHICAL METHOD

Linear programming problems with two variables can be represented and solved
graphically with ease. Though in real-life, the two variable problems are practiced very
little, the interpretation of this method will help to understand the simplex method. The
solution method of solving the problem through graphical method is discussed with an
example given below.
Example 8: A company manufactures two types of boxes, corrugated and ordinary
cartons. The boxes undergo two major processes: cutting and pinning operations. The
profits per unit are Rs. 6 and Rs. 4 respectively. Each corrugated box requires 2 minutes
for cutting and 3 minutes for pinning operation, whereas each carton box requires 2
minutes for cutting and 1 minute for pinning. The available operating time is 120 minutes
and 60 minutes for cutting and pinning machines. Determine the optimum quantities of
the two boxes to maximize the profits.
Solution:
Key Decision: To determine how many (number of) corrugated and carton boxes are to
be manufactured.
Decision variables:
Let

xl be the number of corrugated boxes to be manufactured.

x2 be the number of carton boxes to be manufactured

128

Objective Function: The objective is to maximize the profits. Given profits on corrugated
box and carton box are Rs. 6 and Rs. 4 respectively.

Linear Programming:
Graphical Method

The objective function is,

Zmax = 6x1 + 4x2
Constraints: The available machine-hours for each machine and the time consumed by
each product are given.
Therefore, the constraints are,
2x1 + 3x2 120

..........................(i)

2x1+ x2 60

..........................(ii)

x1, x2 0

where

Graphical Solution: As a first step, the inequality constraints are removed by replacing
equal to sign to give the following equations:
2x1 + 3x2 = 120

.......................(1)

2x1 + x2 = 60

.......................(2)

Find the co-ordinates of the lines by substituting x1 = 0 and x2 = 0 in each equation. In

equation (1), put x1 = 0 to get x2 and vice versa
2x1 + 3x2 = 120
2(0) + 3x2 = 120, x2 = 40
Similarly, put x2 = 0,
2x1 + 3x2 = 120
2x1 + 3(0) = 120, x1 = 60
The line 2x1 + 3x2 = 120 passes through co-ordinates (0, 40) (60, 0).
The line 2x1 + x2 = 60 passes through co-ordinates (0,60)(30,0).
The lines are drawn on a graph with horizontal and vertical axis representing boxes x1
and x2 respectively. Figure 4.1 shows the first line plotted.

No. of carton boxes x2

100
90
80
70
60
50
40

(0, 40)

2x1 + 3x2 = 120

20
(60, 0)

10
10

20 30 40

50 60 70 80 90 100

No. of corrugated boxes x1

Figure 4.1: Graph Considering First Constraint

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The inequality constraint of the first line is (less than or equal to) type which means the
feasible solution zone lies towards the origin. The no shaded portion can be seen is the
feasible area shown in Figure 4.2 (Note: If the constraint type is then the solution zone
area lies away from the origin in the opposite direction). Now the second constraints line
is drawn.
x2
100
90
80
70
60
50

(0, 60)
2x1 + x2 = 60

L2 40

30
20

2x1 + 3x2 = 120

10
10

20 30 40

50 60 70 80 90 100

L1
Figure 4.2: Graph Showing Feasible Area

When the second constraint is drawn, you may notice that a portion of feasible area is
cut. This indicates that while considering both the constraints, the feasible region gets
reduced further. Now any point in the shaded portion will satisfy the constraint equations.
For example, let the solution point be (15,20) which lies in the feasible region.
If the points are substituted in all the equations, it should satisfy the conditions.
2x1 + 3x2 120 = 30 + 60 120 = 90 120
2x1 + x2 60 = 30 + 20 60 = 50 60
Now, the objective is to maximize the profit. The point that lies at the furthermost point
of the feasible area will give the maximum profit. To locate the point, we need to plot the
objective function (profit) line.
Equate the objective function for any specific profit value Z,
Consider a Z-value of 60, i.e.,
6x1 + 4x2 = 60
Substituting x1 = 0, we get x2 = 15 and
if

x2 = 0,

then x1 = 10

Therefore, the co-ordinates for the objective function line are (0,15), (10,0) as indicated
by dotted line L1 in Figure 4.2. The objective function line contains all possible combinations
of values of xl and x2.

130

The line L1 does not give the maximum profit because the furthermost point of the
feasible area lies above the line L1. Move the line (parallel to line L1) away from the
origin to locate the furthermost point. The point P, is the furthermost point, since no area
is seen further. Take the corresponding values of x1 and x2 from point P, which is 15 and
30 respectively, and are the optimum feasible values of x1 and x2.

Therefore, we conclude that to maximize profit, 15 numbers of corrugated boxes and 30

numbers of carton boxes should be produced to get a maximum profit. Substituting
x1 = 15 and x2= 30 in objective function, we get
Zmax

Linear Programming:
Graphical Method

= 6x1 + 4x2
= 6(15) + 4(30)

Maximum profit : Rs. 210.00

4.8 SOLVING LINEAR PROGRAMMING GRAPHICALLY

USING COMPUTER
The above problem is solved using computer with the help of TORA. Open the TORA
package and select LINEAR PROGRAMMING option. Then press Go to Input and
enter the input data as given in the input screen shown below, in Figure 4.3.

Figure 4.3: Linear Programming, TORA Package (Input Screen)

Now, go to Solve Menu and click Graphical in the 'solve problem' options. Then click
Graphical , and then press Go to Output . The output screen is displayed with the graph
grid on the right hand side and equations in the left hand side. To plot the graphs one by
one, click the first constraint equation. Now the line for the first constraint is drawn
connecting the points (40, 60). Now, click the second equation to draw the second line on
the graph. You can notice that a portion of the graph is cut while the second constraint is
also taken into consideration. This means the feasible area is reduced further. Click on
the objective function equation. The objective function line locates the furthermost point
(maximization) in the feasible area which is (15,30) shown in Figure 4.4 below.

Figure 4.4: Graph Showing Feasible Area

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Example 9: A soft drink manufacturing company has 300 ml and 150 ml canned cola as
its products with profit margin of Rs. 4 and Rs. 2 per unit respectively. Both the products
have to undergo process in three types of machine. The following Table 4.5, indicates the
time required on each machine and the available machine-hours per week.
Table 4.5: Available Data
Requirement

Cola 300 ml

Cola 150 ml

Machine 1
Machine 2
Machine 3

3
2
5

2
4
7

Available machinehours per week

300
480
560

Formulate the linear programming problem specifying the product mix which will maximize
the profits within the limited resources. Also solve the problem using computer.
Solution: Let x1 be the number of units of 300 ml cola and x2 be the number of units of
150 ml cola to be produced respectively. Formulating the given problem, we get
Objective function:
Zmax = 4x1 + 2x2
Subject to constraints,
3x1 + 2x2 300

............................(i)

2x1 +4x2 480

............................(ii)

5x1 +7x2 560

............................(iii)

x1 , x2 0

where

The inequalities are removed to give the following equations:

3x1 + 2x2 = 300

............................(iv)

2x1 + 4x2 = 480

............................(v)

5x1 + 7x2 = 560

............................(vi)

Find the co-ordinates of lines by substituting x1 = 0 to find x2 and x2 = 0 to find x1.

Therefore,
Line 3x2 + 2x2 = 300 passes through (0,150),(100,0)
Line 2x1 + 4x2 = 480 passes through (0,120),(240,0)
Line 5x1 + 7x2 = 650 passes through (0,80),(112,0)

132

Figure 4.5: Graphical Presentation of lines (TORA, Output Screen)

Linear Programming:
Graphical Method

For objective function,

The Line 4x1 + 2x2 = 0 passes through (10,20),(10,20)
Plot the lines on the graph as shown in the computer output Figure 4.5.
The objective is to maximize the profit. Move the objective function line away from the
origin by drawing parallel lines. The line that touches the furthermost point of the feasible
area is (100, 0). Therefore, the values of x1 and x2 are 100 and 0 respectively.
Maximum Profit, Zmax = 4x1 + 2x2
= 4(100) + 2(0)
= Rs. 400.00
Example 10: Solve the following LPP by graphical method.
Minimize Z = 18x1+ 12x2
Subject to constraints,
2x1 + 4x2 60

........................(i)

3x1 + x2 30

........................(ii)

8x1 + 4x2 120

........................(iii)

x1 , x2 0

where
Solution:

The inequality constraints are removed to give the equations,

2x1 + 4x2 = 60

........................(iv)

3x1 + x2 = 30

........................(v)

8x1 + 4x2 = 120

........................(vi)

The equation lines pass through the co-ordinates as follows:

For constraints,
2x1 + 4x2 = 60 passes through (0,15), (30,0).
3x1 + x2 = 30 passes through (0,30), (10,0).
8x1 + 4x2 = 120 passes through (0,30), (15,0).
The objective function,
18x1 + 12x2 = 0 passes through (10,15), (10,15).
Plot the lines on the graph as shown in Figure 4.6
Here the objective is minimization. Move the objective function line and locate a point in
the feasible region which is nearest to the origin, i.e., the shortest distance from the
origin. Locate the point P, which lies on the x axis. The co-ordinates of the point P are
(15,0) or x1 = 15 and x2 = 0.
The minimum value of Z
Zmin

= 18 x1 + 12x2
= 18 (15) + 12 (0)
= Rs. 270.00

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Figure 4.6: Graphical Presentation (Output Screen, TORA)

4.9 SUMMARY OF GRAPHICAL METHOD

Step 1: Convert the inequality constraint as equations and find co-ordinates of the line.
Step 2: Plot the lines on the graph.
(Note: If the constraint is type, then the solution zone lies away from the
centre. If the constraint is type, then solution zone is towards the centre.)
Step 3: Obtain the feasible zone.
Step 4: Find the co-ordinates of the objectives function (profit line) and plot it on the
graph representing it with a dotted line.
Step 5: Locate the solution point.
(Note: If the given problem is maximization, zmax then locate the solution point at
the far most point of the feasible zone from the origin and if minimization, Zmin
then locate the solution at the shortest point of the solution zone from the origin).
Step 6: Solution type

134

If the solution point is a single point on the line, take the corresponding values
of x1 and x2.

ii.

If the solution point lies at the intersection of two equations, then solve for x 1
and x2 using the two equations.

iii.

If the solution appears as a small line, then a multiple solution exists.

iv.

If the solution has no confined boundary, the solution is said to be an unbound

solution.

Example 11: Solve the Geetha perfume company (Example 1.7) graphically using
computer.

Linear Programming:
Graphical Method

The formulated LP model is,

Zmax = 7x1 + 5x2
Subject to constraints,
8x1+ 4x2 20

.........................(i)

2x1+ 3x2 8

.........................(ii)

x1+ x2 2

.........................(iii)

x2 2

.........................(iv)

x1, x2 0

where

Solution: The input values of the problem are given to obtain the output screen as shown
in Figure 4.7.

Figure 4.7: Graphical Presentation (Output Screen, TORA)

Results:
Perfumes to be produced, x1 = 1.75 litres or 17.5 say 18 bottles of 100 ml each
Body sprays to be produced, x2 = 1.50 litres or 15 bottles of 100 ml each
Maximum profit, Zmax = Rs. 19.75
Check Your Progress 4.2

Discuss the limitations of graphical method in solving LPP.

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

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4.10 UNBOUNDED LP PROBLEM

Example 12: Solve the following LPP graphically
Zmax = 6x1+ 10x2
Subject to constraints,
x1 6

.........................(i)

x2 10

.........................(ii)

2x1+ 4x2 20

.........................(iii)

x1 0, x2 0

where
Solution:

The inequality constraints are converted as equations

x1 = 6
x2 = 10
2x1+ 4x2 = 20
The co-ordinates of lines are
x1 = 6 passes through (6,0)
x2 = 10 passes through (0,10)
2x1+ 4x2 = 20 passes through (10,0), (5,0)

Figure 4.8: Graphical Presentation (Output Screen, TORA)

136

The given problem is maximization one. The solution point should be located at the
furthermost point of the feasible region.

The feasible zone (shaded area) shown in Figure 4.8 is open-ended, i.e., it has no confined
boundary. This means that the maximization is not possible or the LPP has no finite
solution, and hence the solution is unbounded.

Linear Programming:
Graphical Method

Example 13: Solve the given linear programming problem graphically using a computer.
Maximize Z = 3x1 + 2x2
Subject to constraints
x1 x2 1

..........................(i)

x1 + x2 3

..........................(ii)

x1 , x2 0
Solution: The input as required is entered into the TORA input screen, the following
output is obtained as shown in Figure 4.9 which shows that the solution is unbounded.

Figure 4.9: Graphical LP Solution (Output Screen, TORA)

Check Your Progress 4.3

What is unbound LP problem?

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

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4.11 LET US SUM UP

Thus we can say that LP is a method of planning whereby objective function is maximised
or minimised while at the same time satisfying the various restrictions placed on the
potential solution. In technical words, linear programming is defined as a methodology
whereby a linear function in optimized (minimised or maximised) subject to a set of
linear constraints in the form of equalities or inequalities. Thus LP is a planning technique
of selecting the best possible (optimal) strategy among number of alternatives.

4.12 LESSON-END ACTIVITY

LP is about trying to get the best result (e.g. maximum profit, least effort etc.) given
some list of constraints Linear Programming allows for the ethical allocation of scarce
or costly resources while still meeting all technical parameters. Explain how LP
programmes are being used in self-diverse industries an sausage making, fruit juice
mixing, baby cereals and milks, health foods, soups. Also facilitates in formulating
receipes.

4.13 KEYWORDS
Linear Programming
Graphical Method
Maximisation
Minimisation
Constraints
Profit
Optimality

4.14 QUESTIONS FOR DISCUSSION

138

Write True or False against each statement:

(a)

LP is a widely used mathematical modeling technique.

(b)

LP consists of linear objectives and linear constraints.

(c)

Divisibility refers to the aim to optimize.

(d)

Limited resources means limited number of labour, material equipment and

finance.

(e)

The objective function represents the aim or goal of the system, which has to
be determined from the solution.

Briefly comment on the following statements:

(a)

Formulation of LP is the representation of problem situation in a mathematical

form.

(b)

A model must have an objective function.

(c)

When feasible zone lies towards the origin.

(d)

LP techniques are used to optimize the resource for best result.

(e)

LP techniques are used in analyzing the effect of changes.

Fill in the blanks:

(a)

Organization normally have _________ resources.

(b)

A model has a _________ constraint.

(c)

In real life, the two _________ problems are practiced very little.

(d)

_________ refer to the products, workers, efficiency, and machines are

assumed to be identical.

(e)

The _________ function represents the aim or goal of the system.

Linear Programming:
Graphical Method

4.15 TERMINAL QUESTIONS

Define Linear Programming.

What are the essential characteristics required for a linear programming model?

What is meant by objective function in LP model?

What is a constraint? Give a few examples of constraints in real life situations.

Enumerate the steps involved in solving a LPP by graphical approach.

What is the major limitation of the graphical method?

List out the various constraint types in formulating a LP model.

Define the feasible area.

What are the possible solution types that can result in the graphical method?

10. What is meant by an unbounded solution?

11.

How are multiple solutions interpreted in the graphical method?

Exercise Problems
1.

For the problem given in Example 7, formulate the constraints for the following
without any change in R.H.S.:
(a)

The flower extract F1 must be used at most to 15 litres and at least 5 litres.

(b)

The demand for perfume cannot be less than the demand for body spray.

(c)

The daily demand of body spray exceeds that of perfume by at least 2 litres.

For the problem given in Example 1.7, determine the best feasible solution among
the following values of x1 and x2:
(a)

x1 =2,

x2 = 1

(b)

x1 =0,

x2 = 3

(c)

x1 =3,

x2 = 1

(d)

x1 = 5,

x2 = 1

(e)

x1 = 2,

x2 = 1

(f)

x1 = 1.75,

x2 = 1.50

Determine the feasible space for each of the following constraints:

(a)

2x1 2x2 5

(b)

5x1 + 10x2 60

(c)

x1 x2 0

(d)

4x1 + 3x2 15

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(e)

x2 5

(f)

x1 30

A company manufactures two types of products, A and B. Each product uses two
processes, I and II. The processing time per unit of product A on process I is 6
hours and on the process II is 5 hours. The processing time per unit of product B on
process I is 12 hours and on process II is 4 hours. The maximum number of hours
available per week on process I and II are 75 and 55 hours respectively. The profit
per unit of selling A and B are Rs.12 and Rs.10 respectively.
(i)

Formulate a linear programming model so that the profit is maximized.

(ii) Solve the problem graphically and determine the optimum values of product A
and B.
5.

Formulate the following data as a linear programming model.

Time required (minutes/unit)

Products

Profit

Lathe

Drilling

Cleaning

Hours Available

250

400

200

A nutrition scheme for babies is proposed by a committee of doctors. Babies can

be given two types of food (I and II) which are available in standard sized packets,
weighing 50 gms. The cost per packet of these foods are Rs. 2 and Rs. 3 respectively.
The vitamin availability in each type of food per packet and the minimum vitamin
requirement for each type of vitamin are summarized in the table given. Develop a
linear programming model to determine the optimal combination of food type with
the minimum cost such that the minimum requirement of vitamin is each type is
satisfied.
Details of food type
Vitamin availability per product
Vitamin

Food

Minimum Daily

Type I

Type II

requirement

Cost/Packet (Rs.)

Formulate the problem as a LP model

Resources/Constraints

8.
140

Products/unit
A

Budget (Rs.)

4000

Machine Time

1000 hours

Assembly Time

750 hours

Selling Price

Rs. 20

Rs. 40

Cost Price

Rs. 5

Rs. 20

Solve the Chandru Bag company problem graphically.

(a)

Availability

Determine the values of x1, x2 and Zmax.

(b)

If the company has increased the demand for ordinary bag from 100 to 150,
what is the new Zmax value?

(c)

If the demand for deluxe bags has reduced to 50 bags, determine the optimal
profit value.

Linear Programming:
Graphical Method

Solve the following linear programming model graphically:

Maximize Z = 30x1 + 100x2
Subject to constraints,
4x1 + 6x2 90
8x1 + 6x2 100
5x1 + 4x2 80
where

x1 , x2 0

10. Solve the following LP graphically:

Maximize Z = 8x1 + 10x2
Subject to constraints,
2x1 + 3x2 20
4x1 + 2x2 25
where
11.

x1 , x2 0

Solve the two variable constraints using graphical method.

Maximize Z = 50x1 + 40x2
Subject to constraints
x1 20
x2 25
2x1 + x2 60
where

x1 , x2 0

12. Solve the following LP graphically using TORA.

Maximize Z = 1200x1 + 1000x2
Subject to constraints,
10x1 + 4x2 600
7x1 + 10x2 300
2x1 + 4x2 1000
9x1 + 7x2 2500
5x1 + 4x2 1200
where

x1 , x2 0

13. Solve graphically:

Maximize Z = 2x1 + 3x2
Subject to constraints,
x1 x2 0
3x1 + x2 25
where

x1 , x2 0

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14. Solve the following LP graphically:

Maximize Z = 8x1 + 10x2
Subject to constraints,
0.5x1 + 0.5x2 150
0.6x1 + 0.4x2 145
x1 30
x1 150
x2 40
x2 200
x1 , x 2 0

where

15. Determine the optimal values of x1 and x2 and hence find the maximum profits for
the following LP problem:
Maximize Z = 4x1 + 5x2
Subject to constraints
x1 + 3x2 2
4x1 + 5x2 6
x1 , x 2 0

where

4.16 MODEL
DISCUSSION

ANSWERS

(a) True

(b) True

(a) scarce

(b) non-negative

(d) True

QUESTIONS

FOR

(e) False

(c) variable (d) Homogeneity

(e) objective

4.17 SUGGESTED READINGS

William H, Model Building in Mathematical Programming, Wiley Newyork.
Rohn E., "A New LP Approach to Bond Portfolio Management", Journal of Financial
& Quantitative Analysis 22 (1987): 439-467.
Wagner H, Principles of OR, 2nd ed. Englewood Cliffs, N.J: Prentice Hall, 1975.
Moondra S.,An LP Model for Workforce Scheduling in Banks", Journal of Bank
Research (1976).

142

LESSON

5
LINEAR PROGRAMMING: SIMPLEX METHOD

CONTENTS
5.0 Aims and Objectives
5.1 Introduction
5.2 Additional Variables used in Solving LPP
5.3 Maximization Case
5.4 Solving LP Problems Using Computer with TORA
5.5 Minimization LP Problems
5.6 Big M Method
5.7 Degeneracy in LP Problems
5.8 Unbounded Solutions in LPP
5.9 Multiple Solutions in LPP
5.10 Duality in LP Problems
5.11 Sensitivity Analysis
5.12 Let us Sum Up
5.13 Lesson-end Activities
5.14 Keywords
5.15 Questions for Discussion
5.16 Terminal Questions
5.17 Model Answers to Questions for Discussion
5.18 Suggested Readings

5.0 AIMS AND OBJECTIVES

In the previous lesson we have learnt linear programming with the help of graphical now
we will learn the linear programming with the help of Simplex Method using minimization
and maximization problems and the degeneracy in LP problems and also the Duality and
Sensitivity Analysis.

5.1 INTRODUCTION
In practice, most problems contain more than two variables and are consequently too
large to be tackled by conventional means. Therefore, an algebraic technique is used to
solve large problems using Simplex Method. This method is carried out through iterative
process systematically step by step, and finally the maximum or minimum values of the
objective function are attained.

Quantitative Techniques
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The basic concepts of simplex method are explained using the Example 1.8 of the
packaging product mix problem illustrated in the previous chapter. The simplex method
solves the linear programming problem in iterations to improve the value of the objective
function. The simplex approach not only yields the optimal solution but also other valuable
information to perform economic and 'what if' analysis.

5.2 ADDITIONAL VARIABLES USED IN SOLVING LPP

Three types of additional variables are used in simplex method such as,
(a)

Slack variables (S1, S2, S3..Sn): Slack variables refer to the amount of unused
resources like raw materials, labour and money.

(b)

Surplus variables (-S1, -S2, -S3..-Sn): Surplus variable is the amount of resources
by which the left hand side of the equation exceeds the minimum limit.

(c)

Artificial Variables (a1, a2, a3.. an): Artificial variables are temporary slack
variables which are used for purposes of calculation, and are removed later.

The above variables are used to convert the inequalities into equality equations, as given
in the Table 5.1 below.
Table 5.1: Types of Additional Variables
Constraint Type

Variable added

Format

Less than or equal to

Add Slack Variable

Greater than or equal to

Subtract surplus variable and add

-S+a

artificial variable
c)

Equal to

Add artificial variable

5.3 MAXIMIZATION CASE

The packaging product mix problem is solved using simplex method.
Maximize Z = 6x1 + 4x2
Subject to constraints,
2x1+3x2 120 (Cutting machine)

.....................(i)

2x1+ x2 60 (Pinning machine)

......................(ii)

where x1, x2 0
Considering the constraint for cutting machine,
2x1+ 3x2 120
The inequality indicates that the left-hand side of the constraints equation has some
amount of unused resources on cutting machine. To convert this inequality constraint
into an equation, introduce a slack variable, S3 which represents the unused resources.
Introducing the slack variable, we have the equation
2x1+ 3x2 + S3 = 120
Similarly for pinning machine, the equation is
2x1+ x2 + S4 = 60

144

The variables S3 and S4 are known as slack variables corresponding to the three constraints.
Now we have in all four variables (which includes slack variable) and two equations. If
any two variables are equated to zero, we can solve the three equations of the system in
two unknowns.

Linear Programming :
Simplex Method

If variables x1 and x2 are equated to zero,

i.e., x1 = 0 and x2 = 0, then
S3 = 120
S4 = 60
This is the basic solution of the system, and variables S3 and S4 are known as Basic
Variables, SB while x1 and x2 known as Non-Basic Variables. If all the variables are
non-negative, a basic feasible solution of a linear programming problem is called a Basic
Feasible Solution.
Rewriting the constraints with slack variables gives us,
Zmax = 6x1 + 4x2 + 0S3 + 0S4
Subject to constraints,
2x1 + 3x2 + S3 = 120

....................(i)

2x1 + x2 + S4 = 60

....................(ii)

where x1, x2 0
Though there are many forms of presenting Simplex Table for calculation, we represent
the coefficients of variables in a tabular form as shown in Table 5.2.
Table 5.2: Co-efficients of Variables
Iteration
Number

Basic
Variables

Solution
Value

X1
KC

Minimum
Ratio

120

Equation

If the objective of the given problem is a maximization one, enter the co-efficient of the
objective function Zj with opposite sign as shown in Table 5.3. Take the most negative
coefficient of the objective function and that is the key column Kc. In this case, it is -6.
Find the ratio between the solution value and the key column coefficient and enter it in
the minimum ratio column. The intersecting coefficients of the key column and key row
are called the pivotal element i.e. 2. The variable corresponding to the key column is the
entering element of the next iteration table and the corresponding variable of the key
row is the leaving element of the next iteration table. In other words, x1 replaces S4 in the
next iteration table. Table 5.3 indicates the key column, key row and the pivotal element.
Table 5.3

Iteration
Number

Basic
Variables

Solution
Value

X1
KC

Minimum
Ratio

120

-Zj

-6

-4

Equation

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In the next iteration, enter the basic variables by eliminating the leaving variable (i.e., key
row) and introducing the entering variable (i.e., key column). Make the pivotal element
as 1 and enter the values of other elements in that row accordingly. In this case, convert
the pivotal element value 2 as 1 in the next interation table. For this, divide the pivotal
element by 2. Similarly divide the other elements in that row by 2. The equation is S4 /2.
This row is called as Pivotal Equation Row Pe. The other co-efficients of the key column
in iteration Table 5.4 must be made as zero in the iteration Table 5.5. For this, a solver, Q,
is formed for easy calculation. Change the sign of the key column coefficient, multiply
with pivotal equation element and add with the corresponding variable to get the equation,
Q = SB + (Kc Pe)

Solver,

The equations for the variables in the iteration number 1 of table 8 are,
For S3 Q = SB + ( Kc Pe)
= S3 + (2x Pe)
= S3 2Pe

(i)

Q = SB + ( Kc Pe)

For Z,

= Z + (( 6) Pe)
= Z + 6Pe

(ii)

Using the equations (i) and (ii) the values of S3 and Z for the values of Table 1 are
found as shown in Table 5.4
Table 5.4: S3 and Z Values Calculated
Iteration
Number
0
Kr

1
Kr
Pe

Basic
Variables

Solution
Value

X1
KC

X2
KC

Minimum
Ratio

120

S3 2Pe

S4 / 2

100

Equation

Z + 6Pe

Using these equations, enter the values of basic variables SB and objective function Z. If
all the values in the objective function are non-negative, the solution is optimal. Here, we
have one negative value 1. Repeat the steps to find the key row and pivotal equation
values for the iteration 2 and check for optimality.
In the iteration 2 number of Table 5.5, all the values of Zj are non-negative, Zj 0, hence
optimality is reached. The corresponding values of x1 and x2 for the final iteration table
gives the optimal values of the decision variables i.e., x1 = 15, x2 = 30. Substituting these
values in the objectives function equation, we get
Zmax

= 6x1 + 4x2
= 6(15) + 4(30)
= 90 + 120

146

= Rs. 210.00

Linear Programming :
Simplex Method

Table 5.5: Iteration Table

Iteration

Basic

Solution

Number

Variables

Value

120

S3 2pe

S4/2

100

Z + 6Pe

S3/2

1/2

S3 Pe/2

210

1/4

Z + Pe

5/2

Kr
1

Minimum

Ratio

Equation

The solution is,

x1 = 15 corrugated boxes are to be produced and
x2 = 30 carton boxes are to be produced to yield a
Profit, Zmax = Rs. 210.00

Summary of LPP Procedure

Step 1: Formulate the LP problem.
Step 2: Introduce slack /auxiliary variables.
if constraint type is introduce + S
if constraint type is introduce S + a and
if constraint type is = introduce a
Step 3: Find the initial basic solution.
Step 4: Establish a simplex table and enter all variable coefficients. If the objective
function is maximization, enter the opposite sign co-efficient and if minimization,
enter without changing the sign.
Step 5: Take the most negative coefficient in the objective function, Zj to identify the
key column (the corresponding variable is the entering variable of the next
iteration table).
Step 6: Find the ratio between the solution value and the coefficient of the key column.
Enter the values in the minimum ratio column.
Step 7: Take the minimum positive value available in the minimum ratio column to
identify the key row. (The corresponding variable is the leaving variable of the
table).
Step 8: The intersection element of the key column and key row is the pivotal element.
Step 9: Construct the next iteration table by eliminating the leaving variable and
introducing the entering variable.
Step 10: Convert the pivotal element as 1 in the next iteration table and compute the
other elements in that row accordingly. This is the pivotal equation row (not
key row).
Step 11: Other elements in the key column must be made zero. For simplicity, form the
equations as follows: Change the sign of the key column element, multiply with
pivotal equation element and add the corresponding variable.

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Step 12: Check the values of objective function. If there are negative values, the solution
is not an optimal one; go to step 5. Else, if all the values are positive, optimality
is reached. Non-negativity for objective function value is not considered. Write
down the values of x1, x2,..xi and calculate the objective function for
maximization or minimization.
Note:

(i)

If there are no x1, x2 variables in the final iteration table, the values of x1 and x2 are
zero.

(ii) Neglect the sign for objective function value in the final iteration table.

5.4 SOLVING LP PROBLEMS USING COMPUTER WITH

TORA
From the MAIN MENU, select LINEAR PROGRAMMING option, and enter the
input values of the previously discussed problem as shown in the Figure 5.1.

Figure 5.1: Solving LPP using Computer with TORA (Input Screen )

Click Solve Menu, and select Solve Problem Algebraic Iterations All-Slack
Starting Solution. Now, click Go To Output screen, then the first iteration table will be
displayed. To select the entering variable, click a non-basic variable (if correct, the column
turns green). Similarly, select the leaving variable (if correct, the row turns red),
Figure 5.2.

148

Figure 5.2: Selecting the Leaving Variable (TORA, Output Screen)

Then click Next Iteration button to display the next iteration table as shown in Figure 5.3.

Linear Programming :
Simplex Method

Figure 5.3: Next Iteration Table (TORA, Output Screen)

Again click next iteration button to get the third and final iteration table. A pop-up menu
also indicates that the solution has reached the optimal level. Now we can notice that all
the values in the objective function Zmax row are non-negative which indicates that the
solution is optimal. The final Iteration Table is shown in Figure 5.4.

Figure 5.4: Final Iteration Table (TORA, Output Screen)

From the final Iteration Table, the values of X1, X2 and Zmax are taken to the corresponding
values in the solution column (last column) of the simplex table.
i.e.,

Zmax = 210.00
X1 = 30.00
X2 = 15.00

Example 1: Solve the LP problem using Simplex method. Determine the following :
(a)

What is the optimal solution?

(b)

What is the value of the objective function?

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(c)

Which constraint has excess resources and how much?

Zmax = 5x1 + 6x2
Subject to constraints,
2x1 + x2 2000

....................(i)

x1 800

....................(ii)

x2 200

....................(iii)

x1, x2 0

where

Solution: Converting the inequality constraints by introducing the slack variables,

Zmax = 5x1 + 6x2 + 0S3 + 0S4 + 0S5
2x1 + x2 + S3 = 2000
x1 + S4 = 800
x2 + S5 = 200
Equate x1 and x2 to zero , to find the initial basic solution
2(0) + 0 + S3 =2000
0 + S4 = 800
0 + S5 = 200
The initial basic solution is,
S3 = 2000
S4 = 800
S5 = 200
Establish a simplex table to represent the co-efficient of variables for optimal computation
as shown in Table 5.6.
Table 5.6: Simplex Table
Iteration
Number
0

Basic
Variable
S3

Solution
Value
2000

Min
Ratio
2000

800

200

-Z

1200

-5

-6

1800

-1

900

S3 P e

800

200

-Z

1200

-5

Z + 6Pe

200

-2

-1

S3 2Pe

800

200

-Zj

5200

Z + 5Pe

2
Pe

Equation

In the final table, all the values of Zj are 0, hence optimality is reached. The optimum
solution is,
(a)
150

The value of x1 = 800 units

x2 = 200 units

(b)

Linear Programming :
Simplex Method

Objective function Zmax = 5x1 + 6x2

= 5(800) + 6(200)
= Rs. 5200.00

(c)

In the final iteration Table 5.2, slack variable S3 represents the first constraint,
therefore this constraint has excess unused resources of 200 units.

5.5 MINIMIZATION LP PROBLEMS

In real life we need to minimize cost or time in certain situations. The objective now is
minimization. Procedure for minimization problems is similar to maximization problems.
The only difference is, enter the coefficients of the objective function in the simplex
table without changing the sign.
Another way to solve minimization problems is by converting the objective function as a
maximization problem by multiplying the equation by ( 1).
For example, if the objective function is,
Minimize Z =10x1+ 5x2
Convert the objective function into maximization and solve
Maximize Z = 10x1 5x2

5.6 BIG M METHOD

So far, we have seen the linear programming constraints with less than type. We come
across problems with greater than and equal to type also. Each of these types must
be converted as equations. In case of greater than type, the constraints are rewritten
with a negative surplus variable S1 and by adding an artificial variable a. Artificial variables
are simply used for finding the initial basic solutions and are thereafter eliminated. In
case of an equal to constraint, just add the artificial variable to the constraint.
The co-efficient of artificial variables a1, a2,.. are represented by a very high value M,
and hence the method is known as BIG-M Method.
Example 2: Solve the following LPP using Big M Method.
Minimize Z = 3x1 + x2
Subject to constraints

where

4x1 + x2 = 4

....................(i)

5x1 + 3x2 7

....................(ii)

3x1 + 2x2 6

....................(iii)

x1 , x2 0

Solution: Introduce slack and auxiliary variables to represent in the standard form.
Constraint 4x1 + x2 = 4 is introduced by adding an artificial variable a1, i.e.,
4x1 + x2 + a1 = 4
Constraint, 5x1 + 3x2 7 is converted by subtracting a slack S1 and adding an auxiliary
variable a2.
5x1+ 3x2 S1 + a2 = 7
Constraint 3x2 + 2x2 6 is included with a slack variable S2
3x2 + 2x2 + S2 = 6

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The objective must also be altered if auxiliary variables exist. If the objective function is
minimization, the co-efficient of auxiliary variable is +M (and -M, in case of maximization)
The objective function is minimization,
Minimize Z

= 3x1+ x2 + 0S1+ 0S2+ Ma1+ Ma2

Zmin = 3x1 + x2+ Ma1+ Ma2

The initial feasible solution is (Put x1, x2, S1 = 0)

a1 = 4
a2 = 7
s2 = 6
Establish a table as shown below and solve:
Table 5.7: Simplex Table
Iteration
B asic
N um ber V ariables

S olution
V alue

0.75

1.6

11M

9M + 3

4M + 1

a 1 /4

7/4

1.14

a 2 5P e

5/4

2.4

S 2 3P e

2M -3

7M /4
+1/4

Z 1 + (9M
3) P e

5/7

X 1 P e /4

a2
7/4

Z 1 + (7M /4

0
Kr

M in
R atio

E quation

Z + ( M a 1 )
M a2

1/7
x2

8/7

4/7

22/14

10/
14

23/7

1/7

) Pe
0

The solution is,

= 5/7 or 0.71

= 8/7 or 1.14

Zmin

= 3 x 5 / 7 + 8/7
= 23/7 or 3.29
Check Your Progress 5.1

152

What are the different types of additional variables used in simplex method?

How will you introduce/auxiliary variables in solving LPT problem?

Contd....

Notes: (a)

Linear Programming :
Simplex Method

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

5.7 DEGENERACY IN LP PROBLEMS

In solving linear programming problem, while improving the basic solution, it may so
transpire that there is no scope to generate an optimal solution. This is known as
'degeneracy' in linear programming. This occurs when there is a tie in the minimum ratio
column. In other words, two or more values in the minimum ratio column are the same.
To resolve degeneracy, the following method is used. Divide the key column values (of
the tied rows) by the corresponding values of columns on the right side. This makes the
values unequal and the row with minimum ratio is the key row.
Example 3: Consider the following LPP,
Maximize Z = 2x1+ x2
Subject to constraints,
4x1 + 3x2 12
4x1+x2

...................(i)

...................(ii)

4x1 x2

...................(iii)

Solution: Converting the inequality constraints by introducing the slack variables,

Maximize Z=2x1+ x2
Subject to constraints,
4x1+ 3x2+ S3 = 12

...................(iv)

4x1+ x2 + S4 = 8

...................(v)

4x1 x2+ S5

...................(vi)

= 8

Equating x1, x2 = 0, we get

S3 = 12
S4 = 8
S5 = 8
Table 5.8: Illustrating Degeneracy
Iteration
Number
0

Basic
Variables
S3

Solution
Value
12

Minimum
Ratio
3

-1

-Z

-2

-1

Equation

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For S4; 4/2 = 2

tie

For S5; 4/2 = 2

After entering all the values in the first iteration table, the key column is -2, variable
corresponding is x1. To identify the key row there is tie between row S4 and row S5 with
same values of 2, which means degeneracy in solution. To break or to resolve this,
consider the column right side and divide the values of the key column values. We shall
consider column x2, the values corresponding to the tie values 1, 1. Divide the key
column values with these values, i.e., 1/4, 1/4 which is 0.25 and 0.25. Now in selecting
the key row, always the minimum positive value is chosen i.e., row S4. Now, S4 is the
leaving variable and x1 is an entering variable of the next iteration table. The problem is
solved. Using computer and the solution is given in the Figure 5.5.

Figure 5.5: LPP Solved Using Computer with TORA (Output Screen)

5.8 UNBOUNDED SOLUTIONS IN LPP

In a linear programming problem, when a situation exists that the value objective function
can be increased infinitely, the problem is said to have an 'unbounded' solution. This can
be identified when all the values of key column are negative and hence minimum ratio
values cannot be found.
Table 5.9: Illustrating Unbounded Solution
Iteration
Value
1

Basic
Variable
S3

Solution
Value
12

X1
S4
-Z

-2

-1

-4

-8

For S3; 12/-2

For X1; 8 /-1
For S4; 4/-4
154

all values are negative

Minimum
Ratio

Equation

Linear Programming :
Simplex Method

5.9 MULTIPLE SOLUTIONS IN LPP

In the optimal iteration table if (Pj - Zj) value of one or more non-basic variable is equal
to 0, then the problem is said to have multiple or alternative solutions.
Table 5.10: Illustrating Multiple Solutions
Pj

Iteration
Number

Basic
Number

Solution
Value

-1

-2

Pj Zj

Minimum
Ratio

Equation

5.10 DUALITY IN LP PROBLEMS

All linear programming problems have another problem associated with them, which is
known as its dual. In other words, every minimization problem is associated with a
maximization problem and vice-versa. The original linear programming problem is known
as primal problem, and the derived problem is known as its dual problem. The optimal
solutions for the primal and dual problems are equivalent.
Conversion of primal to dual is done because of many reasons. The dual form of the
problem, in many cases, is simple and can be solved with ease. Moreover, the variables
of the dual problem contain information useful to management for analysis.

Procedure
Step 1: Convert the objective function if maximization in the primal into minimization in
the dual and vice versa. Write the equation considering the transpose of RHS of
the constraints
Step 2: The number of variables in the primal will be the number of constraints in the
dual and vice versa.
Step 3: The co-efficient in the objective function of the primal will be the RHS constraints
in the dual and vice versa.
Step 4: In forming the constraints for the dual, consider the transpose of the body matrix
of the primal problems.
Note: Constraint inequality signs are reversed
Example 4: Construct the dual to the primal problem
Maximize Z = 6x1 + 10x2
Subject to constraints,

where

2x1 + 8x2 60

.......................(i)

3x1 + 5x2 45

.......................(ii)

5x1 - 6x2 10

.......................(iii)

x2 40

.......................(iv)

x1, x2 0

Solution:
Minimize W = 60y1 + 45y2 + 10y3 + 40y4

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Subject to constraints,
2y1+3y2+5y3+ 0y4 6
8y1+ 5y2 + 6y3+ y4 10
where y1, y2, y3, y4 0
Example 5: Construct a dual for the following primal
Minimize Z = 6x1 4x2+ 4x3
Subject to constraints,

where

6x1 10x2 + 4x3 14

..................(i)

6x1+ 2x2 + 6x3 10

..................(ii)

7x1 2x2 + 5x3 20

..................(iii)

x1 4x2 + 5x3 3

..................(iv)

4x1+ 7x2 4x3 20

..................(v)

x1, x2, x3 0

Solution: Convert 'less than' constraints into 'greater than' type by multiplying by
(1) on both sides (i.e., for e.g. iii).
6x1 10x2 + 4x3 14
6x1+ 2x2 + 6x3 10
7x1 + 2x2 5x3 20
x1 4x2 + 5x3 3
4x1 + 7x2 4x3 20
The dual for the primal problem is,
Maximize W = 14y1+10y2+20y3+3y4+20y5
Subject to constraints,
6y1+ 6y2 7y3+ y4 + 4y5 6
10y1+ 2y2 + 2y3 4y4+7y5 4
4y1+ 6y2 5y3+ 5y4 4y5 4
where

y1, y2, y3, y4 and y5 0

5.11 SENSITIVITY ANALYSIS

Sensitivity analysis involves 'what if?' questions. In the real world, the situation is constantly
changing like change in raw material prices, decrease in machinery availability, increase
in profit on one product, and so on. It is important to decision makers for find out how
these changes affect the optimal solution. Sensitivity analysis can be used to provide
information and to determine solution with these changes.
Sensitivity analysis deals with making individual changes in the co-efficient of the objective
function and the right hand sides of the constraints. It is the study of how changes in the
co-efficient of a linear programming problem affect the optimal solution.
We can answer questions such as,

156

How will a change in an objective function co-efficient affect the optimal solution?

ii.

How will a change in a right-hand side value for a constraint affect the optimal
solution?

For example, a company produces two products x1 and x2 with the use of three different
materials 1, 2 and 3. The availability of materials 1, 2 and 3 are 175, 50 and 150 respectively.
The profit for selling per unit of product x1 is Rs. 40 and that of x2 is Rs. 30. The raw
material requirements for the products are shown by equations, as given below.

Linear Programming :
Simplex Method

Zmax = 40x1 + 30x2

Subject to constraints
4x1 + 5x2 175
2x2 50

....................(ii)

6x1 + 3x2 150

where

....................(i)

....................(iii)

x1, x2 0

The optimal solution is

x1 = Rs. 12.50
x2 = Rs. 25.00
Zmax = 40 12.50 + 30 25.00
= Rs. 1250.00
The problem is solved using TORA software and the output screen showing sensitivity
analysis is given in Table 5.11.

Change in objective function co-efficients and effect on optimal solution

Table 5.11: Sensitivity Analysis Table Output

Referring to the current objective co-efficient, if the values of the objective function coefficient decrease by 16 (Min. obj. co-efficient) and increase by 20 (Max. obj. coefficient) there will not be any change in the optimal values of x 1 = 12.50 and
x2 = 25.00. But there will be a change in the optimal solution, i.e. Zmax.

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Note: This applies only when there is a change in any one of the co-efficients of variables
i.e., x1 or x2. Simultaneous changes in values of the co-efficients need to apply for 100
Percent Rule for objective function co-efficients.
For x1, Allowable decrease = Current value - Min. Obj. co-efficient
= 40 24
= Rs. 16

------------------ (i)

Allowable increase = Max. Obj. co-efficient Current value

= 60 40
= Rs. 20.00

---------------- (ii)

Similarly, For x2, Allowable decrease = Rs. 10.00

---------------- (iii)

Allowable increase = Rs. 20.00

--------------- (iv)

For example, if co-efficient of x 1 is increased to 48, then the increase is

48 40 = Rs. 8.00. From (ii), the allowable increase is 20, thus the increase in x1 coefficient is 8/20 = 0.40 or 40%.
Similarly,
If co-efficient of x2 is decreased to 27, then the decrease is 30 - 27 = Rs. 3.00.
From (iii), the allowable decrease is 10, thus the decrease in x2 co-efficient is 3/10 = 0.30
or 30%.
Therefore, the percentage of increase in x1 and the percentage of decrease in x2 is 40
and 30 respectively.
i.e. 40% + 30% = 70%
For all the objective function co-efficients that are changed, sum the percentage of the
allowable increase and allowable decrease. If the sum of the percentages is less than or
equal to 100%, the optimal solution does not change, i.e., x1 and x2 values will not change.
But Zmax will change, i.e.,
= 48(12.50) + 27(25)
= Rs. 1275.00
If the sum of the percentages of increase and decrease is greater than 100%, a different
optimal solution exists. A revised problem must be solved in order to determine the new
optimal values.
Change in the right-hand side constraints values and effect on optimal solution
Suppose an additional 40 kgs of material 3 is available, the right-hand side constraint
increases from 150 to 190 kgs.
Now, if the problem is solved, we get the optimal values as
x1 = 23.61, x2 = 16.11 and Zmax = 1427.78
From this, we can infer that an additional resources of 40 kgs increases the profit by
= 1427.78 1250 = Rs. 177.78
Therefore, for one kg or one unit increase, the profit will increase by
= 177.78 / 40
= Rs. 4.44
158

Dual price is the improvement in the value of the optimal solution per unit increase in the
right-hand side of a constraint. Hence, the dual price of material 3 is Rs 4.44 per kg.

Increase in material 2 will simply increase the unused material 2 rather than increase in
objective function. We cannot increase the RHS constraint values or the resources. If
the limit increases, there will be a change in the optimal values.

Linear Programming :
Simplex Method

The limit values are given in Table 2.10, i.e., Min RHS and Max RHS values.
For example, for material 3, the dual price Rs. 4.44 applies only to the limit range 150 kgs
to 262.50 kgs.
Where there are simultaneous changes in more than one constraint RHS values, the 100
per cent Rule must be applied.
Reduced Cost

Cost of consumed Profit per unit

Reduced cost / unit of activity = resources per unit of activity

of activity

If the activity's reduced cost per unit is positive, then its unit cost of consumed resources
is higher than its unit profit, and the activity should be discarded. This means that the
value of its associated variable in the optimum solution should be zero.
Alternatively, an activity that is economically attractive will have a zero reduced cost in
the optimum solution signifying equilibrium between the output (unit profit) and the input
(unit cost of consumed resources).
In the problem, both x1 and x2 assume positive values in the optimum solution and hence
have zero reduced cost.
Considering one more variable x3 with profit Rs. 50
Zmax = 40x1 + 30x2 + 50x3
Subject to constraints,

where

4x1 + 5x2 + 6x3 175

....................(i)

2x2 + 1x3 50

....................(ii)

6x1 + 3x2 + 3x3 150

....................(iii)

x1, x2, x3 0

The sensitivity analysis of the problem is shown in the computer output below in
Table 5.12.
Table 5.12: Sensitivity Analysis

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The reduced cost indicates how much the objective function co-efficient for a particular
variable would have to improve before that decision function assumes a positive value in
the optimal solution.
The reduced cost of Rs.12.50 for decision variable x2 tells us that the profit contribution
would have to increase to at least 30 + 12.50 = 42.50 before x3 could assume a positive
value in the optimal solution.
Check Your Progress 5.2

What is Duality concept?

What is meant by degeneracy in Linear Programming?

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

5.12 LET US SUM UP

Thus LP is a planning technique of selecting the best possible (optimal) strategy among
number of alternatives. The chosen strategy is said to be the best because it involves
minimization/maximization of source desired action e.g. maximization of profits,
minimization of costs, smoothening running of the business.

5.13 LESSON-END ACTIVITIES

Linear Programming is a general method usable for a wide range of problems.

Go to any nutrition center which sells health-food. Bring into play the applications
of LP in formation and building.

LP is no doubt an vital problem. Not in this counters of petty problems with only a
couple of variables, but is much bigger problem.
Exaggerate this logic with the help of illstrations which can be matched and linked
with you real-life-situations.

5.14 KEYWORDS
Slack
Simplex method
Surplus
160

Linear Programming :
Simplex Method

Variable
Solution

5.15 QUESTIONS FOR DISCUSSION

Write True or False against each statement:

(a)

Artificial variable are imaginary and do not have any physical meaning.

(b)

Simplex method solve the LPP in iteration to enhance the value of the objective
function.

(c)

Sensitivity analysis can not be used to provide information and to determine

solution with these changes.

Briefly comment on the following statement:

(a)

Two or more entries in the ratio column.

(b)

LP is a planning techniques.

(c)

LP techniques are used to optimise the resources for best result.

(d)

LP in a part of management science.

(e)

Algebraic techniques is used to solve large problems using simplex method.

5.16 TERMINAL QUESTIONS

Explain the procedure involved in the simplex method to determine the optimum
solution.

What are slack, surplus and artificial variables ?

What is degeneracy in LP problems ? When does it occur ? How can degeneracy

problem be resolved ?

What is a basic variable and a non-basic variable ?

Explain what is an unbounded solution in LPP.

Differentiate between primal and dual problems.

Why is the simplex method more advantageous than the graphical method?

What are the rules in selecting key column, key row and pivotal element?

Discuss the role of sensitivity analysis in linear programming.

10. In sensitivity analysis, explain

The effect of change of objective function coefficients

ii.

The effect of change in the right hand side of constraints

Exercise Problems
1.

A company manufactures three products A, B and C, which require three raw

materials I, II and III. The table given below shows the amount of raw materials
required per kg of each product. The resource availability per day and the profit
contribution for each product is also given.

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Product

Availability (kg)

Raw Material
I

800

1500

III

1200

Profit per unit (Rs)

Formulate the problem as a linear programming problem.

ii.

Solve the problem and determine the optimal product mix.

A metal fabricator manufactures three types of windows. Each of the windows

needs four processes. The time taken on various machines differ due to the size of
windows. The time taken and available hours are given in the table below:
Window Type

Cutting

Heat Treating

Forging

Grinding

Available time (Hrs)

The profit contribution for windows A, B and C are Rs. 3.00, Rs. 4.00 and Rs. 5.00
respectively.

Formulate the problem.

Solve the problem using simplex method to maximize the profit.

Determine the excess time available in each processes and by how much.

Solve the following LPP using simplex method.

Maximize , Z = 2x1 + x2
Subject to constraints,

where
4.

4x1+ 3x2 12

.....................(i)

4x1+ x2 8

.....................(ii)

4x1 x2 8

.....................(iii)

x1, x2 0

Solve the following LPP:

Zmax = 20x1 + 28x2 + 23x3
Subject to constraints,
4x1+ 4x2 75

where
5.
162

....................(i)

2x1+ x2 + 2x3 100

....................(ii)

3x1+ 2x2 + x3 50

....................(iii)

x1, x2, x3 0

Three high precision products are manufactured by a Hi-Tech Machine Tools

Company. All the products must undergo process through three machining centers
A, B and C. The machine hours required per unit are,

Machining Center

Product
II
4
6
2

I
2
3
3

A
B
C

III
6
2
1

Linear Programming :
Simplex Method

The available time in machine hours per week is

Machining Center

Machine Hours Per Week

150

100

120

It is estimated that the unit profits of the product are

Product

Unit Profits (Rs)

III

Formulate the problem as a LPP.

Solve the problem to determine the optimal solution. What is the number of
units to be made on each product.

Does machining center C has any extra time to spare? If so, how much spare
time is available ?

If additional 10 machine hours are available with machining center A, then

what is the optimal product mix ? What is the change in the value of profit ?

Raghu Constructions is considering four projects over the next 3 years. The expected
returns of each project and cash outlays for these projects are listed in the tables
given. All values are in Lacs of Rupees.
Cash outlay (lakh Rs.)

Project

Return

Year 1

Year 2

Year 3

12.32

11.10

9.50

42.25

11.15

9.75

8.11

31.20

7.65

5.50

4.75

15.10

10.71

10.31

7.77

12.05

Available funds

110.00

40.00

35.00

(lakh Rs.)

Raghu has to decide to undertake construction projects. Ignore the time value of
money. As a consultant, what suggestion you would like to give Raghu in deciding
about the projects to select. Determine the solution using TORA.
7.

Solve the following LP Problem using Big M Method.

Minimize, Z = 2x1+ 9x2 + x3
Subject to constraints,

where
8.

x1+ 4x2+ 2x3 5

.......................(i)

3x1 + x2 + 2x3 4

.......................(ii)

x1, x2, x3 0

Solve the following LPP

Zmin = 4x1 + x2

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Subject to constraints,
.................(i)

4x +3x2 6

.................(ii)

x1 + 2x2 3

................(iii)

x1, x2 0

where
9.

3x + x2 = 3

Solve the following LPP. Find whether multiple or alternate solution exists
Maximize Z = 2x1+ 4x2 + 6x3
Subject to constraints,
10x1 + 4x2 + 6x3 150

..................(i)

8x1+ 6x2 + 2x3 100

..................(ii)

x1 + 2x2 + x3 120

....................(iii)

x1, x2, x3 0

where

10. Write the dual of the following LP problem

Minimize Z = 6x1 4x2 + 4x3
Subject to constraints,
.......................(i)

12x1 + 2x2 + 5x3 4

...................(ii)

5x1 4x2 2x3 10

...................(iii)

x1 3x2 + 6x3 3

...................(iv)

4x1 + 9x2 4x3 2

...................(v)

x1, x2, x3 0

where
11.

3x1 + 10x2 + 4x3 15

Obtain the dual of the following linear programming problem

Maximize Z , = 4x1 + 9x2 + 6x3
Subject to constraints,

5.17 MODEL
DISCUSSION
(a) True

.......................(i)

-5x1 + 5x3 + 6x3 8

.......................(ii)

14x1 2x2 5x3 20

........................(iii)

5x1 4x2 +7x3 3

........................(iv)

8x1+ 10x2 5x3 = 2

.......................(v)

x1, x2, x3 0

where

10x1 + 10x2 2x3 6

ANSWERS

(b) True

QUESTIONS

FOR

5.18 SUGGESTED READINGS

Dantzig, G and M. Thapa, Linear Programming 1: Introduction, Springer,
New York 1997.
Simonnard M., Linear Programming. Englewood Cliffs, N.J. Prentice Hall, 1966.
164

Bersitman, D, and J Tsitsiklin, Introduction to Linear Optimization, Belmont. Mass:

Athena Publishing 1997.

Unit-II

LESSON

6
TRANSPORTATION MODEL

CONTENTS
6.0 Aims and Objectives
6.1 Introduction
6.2 Mathematical Formulation
6.3 Network Representation of Transportation Model
6.4 General Representation of Transportation Model
6.5 Use of Linear Programming to Solve Transportation Problem
6.6 Formulation of LP model
6.7 Solving Transportation Problem Using Computer
6.8 Balanced Transportation Problem
6.9 Unbalanced Transportation Problem
6.10 Procedure to Solve Transportation Problem
6.11 Degeneracy in Transportation Problems
6.12 Maximization Transportation Problem
6.13 Prohibited Routes Problem
6.14 Transhipment Problem
6.15 Let us Sum Up
6.16 Lesson-end Activity
6.17 Keywords
6.18 Questions for Discussion
6.19 Terminal Questions
6.20 Model Answers to Questions for Discussion
6.21 Suggested Readings

6.0 AIMS AND OBJECTIVES

In this unit we would be able to learn the Time Management Models. i.e. Transportation
and Assignment Models, thus would be able to learn transportation models in this lesson
and also we will talk about transhipment problems.

Quantitative Techniques
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6.1 INTRODUCTION
Transportation problem is a particular class of linear programming, which is associated
with day-to-day activities in our real life and mainly deals with logistics. It helps in solving
problems on distribution and transportation of resources from one place to another. The
goods are transported from a set of sources (e.g., factory) to a set of destinations (e.g.,
warehouse) to meet the specific requirements. In other words, transportation problems
deal with the transportation of a product manufactured at different plants (supply origins)
to a number of different warehouses (demand destinations). The objective is to satisfy
the demand at destinations from the supply constraints at the minimum transportation
cost possible. To achieve this objective, we must know the quantity of available supplies
and the quantities demanded. In addition, we must also know the location, to find the cost
of transporting one unit of commodity from the place of origin to the destination. The
model is useful for making strategic decisions involved in selecting optimum transportation
routes so as to allocate the production of various plants to several warehouses or
distribution centers.
The transportation model can also be used in making location decisions. The model helps
in locating a new facility, a manufacturing plant or an office when two or more number
of locations is under consideration. The total transportation cost, distribution cost or
shipping cost and production costs are to be minimized by applying the model.

6.2 MATHEMATICAL FORMULATION

The transportation problem applies to situations where a single commodity is to be
transported from various sources of supply (origins) to various demands (destinations).
Let there be m sources of supply S1, S2, ...............Sm having ai ( i = 1,2,......m) units of
supplies respectively to be transported among n destinations D1, D2 Dn with bj
( j = 1,2..n) units of requirements respectively. Let Cij be the cost for shipping one unit
of the commodity from source i, to destination j for each route. If xij represents the units
shipped per route from source i, to destination j, then the problem is to determine the
transportation schedule which minimizes the total transportation cost of satisfying supply
and demand conditions.
The transportation problem can be stated mathematically as a linear programming problem
as below:

Minimize Z =

i =1

j =1

cijxij

Subject to constraints,
n

x
j=1

= ai,

i = 1,2,..m (supply constraints)

= bj,

j = 1,2,..m (demand constraints)

x
i=1

and xij > 0 for all

168

i = 1,2,..m and,
j = 1,2,..m

Transportation Model

6.3 NETWORK REPRESENTATION OF

TRANSPORTATION MODEL
The transportation model is represented by a network diagram in Figure 6.1.
Destination

Source

Factory

Warehouse

c11 : x11
S1

Supply

Demand

cmn : xmn

Figure 6.1: Network Transportation Model

where,
m be the number of sources,
n be the number of destinations,
Sm be the supply at source m,
Dn be the demand at destination n,
cij be the cost of transportation from source i to destination j, and
xij be the number of units to be shipped from source i to destination j.
The objective is to minimize the total transportation cost by determining the unknowns
xij, i.e., the number of units to be shipped from the sources and the destinations while
satisfying all the supply and demand requirements.

6.4 GENERAL REPRESENTATION OF

TRANSPORTATION MODEL
The Transportation problem can also be represented in a tabular form as shown in
Table 6.1
Let Cij be the cost of transporting a unit of the product from ith origin to jth destination.
ai be the quantity of the commodity available at source i,
bj be the quantity of the commodity needed at destination j, and
xij be the quantity transported from ith source to jth destination
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Table 6.1: Tabular Representation of Transportation Model

Supply
D1

From

C 11
x 11

C 12

C 1n

C 22

C 2n

x 12
C 21

x 21

x 22

.
.

Cm1

Cm2

Cmn

xm1

xm2
m

B1
m

i =1

ai =

i =1

ai =

b
j =1

If the total supply is equal to total demand, then the given transportation problem is a
balanced one.

6.5 USE OF LINEAR PROGRAMMING TO SOLVE

TRANSPORTATION PROBLEM
Factory
Source

Warehouse
Destination

6000
5
Chennai
1

Bangalore
1

5000

9
7
7
Supply
5000

Coimbatore
2

Hyderabad
2

Demand
4000

2
4

4000

Madurai
3

3
5

2000

Goa
4

4000

Transportation cost

170

Cochin
3

Figure 6.2: Linear Programming Solution

The network diagram shown in Figure 6.2 represents the transportation model of M/s
GM Textiles units located at Chennai, Coimbatore and Madurai. GM Textiles produces
ready-made garments at these locations with capacities 6000, 5000 and 4000 units per
week at Chennai, Coimbatore and Madurai respectively. The textile unit distributes its
ready-made garments through four of its wholesale distributors situated at four locations
Bangalore, Hyderabad, Cochin and Goa. The weekly demand of the distributors are
5000, 4000, 2000 and 4000 units for Bangalore, Hyderabad, Cochin and Goa respectively.

Transportation Model

The cost of transportation per unit varies between different supply points and destination
points. The transportation costs are given in the network diagram.
The management of GM Textiles would like to determine the number of units to be
shipped from each textile unit to satisfy the demand of each wholesale distributor. The
supply, demand and transportation cost are as follows:
Table 6.2: Production Capacities
Supply

Textile Unit

Weekly Production (Units)

Chennai

6000

Coimbatore

5000

Madurai

4000

Table 6.3: Demand Requirements

Destination
1
2
3
4

Wholesale Distributor
Bangalore
Hyderabad
Cochin
Goa

Weekly Demand (Units)

5000
4000
2000
4000

Table 6.4: Transportation cost per unit

Supply
Chennai
Coimbatore
Madurai

Destination
Blore
5
7
6

Hyderabad
6
8
3

Cochin
9
2
5

Goa
7
4
3

A linear programming model can be used to solve the transportation problem.

Let,
X11 be number of units shipped from source1 (Chennai) to destination 1 (Blore).
X12 be number of units shipped from source1 (Chennai) to destination 2 (Hyderabad).
X13 number of units shipped from source 1 (Chennai) to destination 3 (Cochin).
X14 number of units shipped from source 1 (Chennai) to destination 4 (Goa)
and so on.
Xij = number of units shipped from source i to destination j, where i = 1,2,..m
and,
j = 1,2,n.
Check Your Progress 6.1

What is the transportation problem?

Give a tabular representation of transportation model.

Contd....

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Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

6.6 FORMULATION OF LP MODEL

Objective function: The objective is to minimize the total transportation cost. Using the
cost data table, the following equation can be arrived at:
Transportation cost for units
shipped from Chennai = 5x11+6x12+9x13+7x14
Transportation cost for units
shipped from Coimbatore = 7x21+8x22+2x23+4x24
Transportation cost for units
shipped from Madurai

= 6x31+3x32+5x33+3x34

Combining the transportation cost for all the units shipped from each supply point with
the objective to minimize the transportation cost, the objective function will be,
Minimize Z = 5x11+6x12+9x13+7x14+7x21+8x22+2x23+4x24+6x31+3x32+5x33+3x34
Constraints:
In transportation problems, there are supply constraints for each source, and demand
constraints for each destination.
Supply constraints:
For Chennai, x11+ x12+ x13+ x14 < 6000
For Coimbatore, x21+ x22+ x23+ x24 < 5000
For Madurai, x31+ x32+ x33+ x34 < 4000
Demand constraints:
For Blore, x11+ x21+ x31 = 5000
For Hyderabad, x12 + x22 + x32 = 4000
For Cochin, x13 + x23 + x33 = 2000
For Goa, x14 + x24 + x34 = 4000
The linear programming model for GM Textiles will be write in the next line. Minimize
Z = 5x11 + 6x12 + 9x13 + 7x14 + 7x21 + 8x22 + 2x23 + 4x24 + 6x31 + 3x32 + 5x33 + 3x34
Subject to constraints,
172

X11+x12+x13+x14 < 6000

......................(i)

X21+x22+x23+x24 < 5000

.......................(ii)

X31+x32+x33+x34 < 4000

........................(iii)

X11+x21+x31 = 5000

........................(iv)

X12+x22+x32 = 4000

........................(v)

X13+x23+x33 = 2000

........................(vi)

X14+x24+x34 = 4000

........................(vii)

Transportation Model

Where, xij > 0 for i = 1, 2, 3 and j = 1, 2, 3, 4.

6.7 SOLVING TRANSPORTATION PROBLEM USING

COMPUTER
Input screen for solving TP & LP models using TORA

Figure 6.3: TORA Screen for TP Model

Output screen using TP & LP models

Figure 6.4: TORA Screen for LP Model

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Example 1: Consider the following transportation problem (Table 6.5) and develop a
linear programming (LP) model.
Table 6.5: Transportation Problem
Destination

Source
1

Supply

350

200

400

Demand

250

400

300

Solution: Let xij be the number of units to be transported from the source i to the destination
j, where i = 1, 2, 3,m and j = 1, 2, 3,n.
The linear programming model is
Minimize Z = 15x11+20x12+30x13+10x21+9x22+15x23+14x31+12x32+18x33
Subject to constraints,
x11+x12+x13 < 350

..................(i)

x21+x22+x23 < 200

...................(ii)

x31+x32+x33 < 400

...................(iii)

x11+x12+x31 = 250

...................(iv)

x12+x22+x32 = 400

...................(v)

x13+x23+x33 = 300

...................(vi)

xij > 0 for all i and j.

In the above LP problem, there are m n = 3 3 = 9 decision variables and
m + n = 3 + 3 = 6 constraints.

6.8 BALANCED TRANSPORTATION PROBLEM

When the total supplies of all the sources are equal to the total demand of all destinations,
the problem is a balanced transportation problem.
Total supply = Total demand
m

i =1

ai =

b
j =1

The problem given in Example 3.1 represents a balanced transportation problem.

6.9 UNBALANCED TRANSPORTATION PROBLEM

When the total supply of all the sources is not equal to the total demand of all destinations,
the problem is an unbalanced transportation problem.
Total supply Total demand
m

i =1

b
j =1

Demand Less than Supply

174

In real-life, supply and demand requirements will rarely be equal. This is because of
variation in production from the supplier end, and variations in forecast from the customer

end. Supply variations may be because of shortage of raw materials, labour problems,
improper planning and scheduling. Demand variations may be because of change in
customer preference, change in prices and introduction of new products by competitors.
These unbalanced problems can be easily solved by introducing dummy sources and
dummy destinations. If the total supply is greater than the total demand, a dummy
destination (dummy column) with demand equal to the supply surplus is added. If the
total demand is greater than the total supply, a dummy source (dummy row) with supply
equal to the demand surplus is added. The unit transportation cost for the dummy column
and dummy row are assigned zero values, because no shipment is actually made in case
of a dummy source and dummy destination.

Transportation Model

Example 2: Check whether the given transportation problem shown in Table 6.6 is a
balanced one. If not, convert the unbalanced problem into a balanced transportation
problem.
Table 6.6: Transportation Model with Supply Exceeding Demand
Destination

Source

Supply

200

100

400

Demand

200

100

300

Solution: For the given problem, the total supply is not equal to the total demand.

b
3

j=1

i=1

since,

a i = 700 0and

i=1

b = 600
3

j=1

The given problem is an unbalanced transportation problem. To convert the unbalanced

transportation problem into a balanced problem, add a dummy destination (dummy column).
i.e., the demand of the dummy destination is equal to,

a b
3

i=1

j=1

Thus, a dummy destination is added to the table, with a demand of 100 units. The modified
table is shown in Table 6.7 which has been converted into a balanced transportation
table. The unit costs of transportation of dummy destinations are assigned as zero.
Table 6.7: Dummy Destination Added
Destination

Source

Supply

200

100

400

Demand

200

100

300

100

700/700

Similarly,
n

j =1

bj >

a then include a dummy source to supply the excess demand.

i =1

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Quantitative Techniques
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Demand Greater than Supply

Example 3: Convert the transportation problem shown in Table 6.8 into a balanced
problem.
Table 6.8: Demand Exceeding Supply
Destination

Source

Supply

200

300

Demand

100

200

450

250

1000/800

Solution: The given problem is,

a
4

bj >

j =1

i=1

a = 800 and b
4

= 1000

j =1

i =1

The given problem is an unbalanced one. To convert it into a balanced transportation

problem, include a dummy source (dummy row) as shown in Table 6.9
Table 6.9: Balanced TP Model
Source

Destination
1

Supply

200

300

200

Demand

100

200

450

250

1000/1000

6.10 PROCEDURE TO SOLVE TRANSPORTATION

PROBLEM
Step 1:

Formulate the problem.

Formulate the given problem and set up in a matrix form. Check whether
the problem is a balanced or unbalanced transportation problem. If
unbalanced, add dummy source (row) or dummy destination (column) as
required.

Step 2:

Obtain the initial feasible solution.

The initial feasible solution can be obtained by any of the following three
methods:
i. Northwest Corner Method (NWC)
ii. Least Cost Method (LCM)
iii. Vogels Approximation Method (VAM)

176

The transportation cost of the initial basic feasible solution through Vogels
approximation method, VAM will be the least when compared to the other
two methods which gives the value nearer to the optimal solution or optimal
solution itself. Algorithms for all the three methods to find the initial basic
feasible solution are given.

Algorithm for North-West Corner Method (NWC)

(i)

Select the North-west (i.e., upper left) corner cell of the table and allocate the
maximum possible units between the supply and demand requirements. During
allocation, the transportation cost is completely discarded (not taken into
consideration).

(ii)

Delete that row or column which has no values (fully exhausted) for supply or
demand.

Transportation Model

(iii) Now, with the new reduced table, again select the North-west corner cell and
allocate the available values.
(iv) Repeat steps (ii) and (iii) until all the supply and demand values are zero.
(v)

Obtain the initial basic feasible solution.

Algorithm for Least Cost Method (LCM)

(i)

Select the smallest transportation cost cell available in the entire table and allocate
the supply and demand.

(ii) Delete that row/column which has exhausted. The deleted row/column must not be
considered for further allocation.
(iii) Again select the smallest cost cell in the existing table and allocate. (Note: In case,
if there are more than one smallest costs, select the cells where maximum allocation
can be made)
(iv) Obtain the initial basic feasible solution.
Algorithm for Vogels Approximation Method (VAM)
(i)

Calculate penalties for each row and column by taking the difference between the
smallest cost and next highest cost available in that row/column. If there are two
smallest costs, then the penalty is zero.

(ii) Select the row/column, which has the largest penalty and make allocation in the cell
having the least cost in the selected row/column. If two or more equal penalties
exist, select one where a row/column contains minimum unit cost. If there is again
a tie, select one where maximum allocation can be made.
(iii) Delete the row/column, which has satisfied the supply and demand.
(iv) Repeat steps (i) and (ii) until the entire supply and demands are satisfied.
(v)

Obtain the initial basic feasible solution.

Remarks: The initial solution obtained by any of the three methods must satisfy the
following conditions:
(a)

The solution must be feasible, i.e., the supply and demand constraints must be
satisfied (also known as rim conditions).

(b)

The number of positive allocations, N must be equal to m+n-1, where m is the

number of rows and n is the number of columns.

6.11 DEGENERACY IN TRANSPORTATION PROBLEMS

Step 3:

Check for degeneracy

The solution that satisfies the above said conditions N = m + n 1 is a
non-degenerate basic feasible solution otherwise, it is a degenerate solution.
Degeneracy may occur either at the initial stage or at subsequent iterations.
If number of allocations, N = m + n 1, then degeneracy does not exist.
Go to Step 5.
If number of allocations, N m + n 1, then degeneracy does exist. Go to
Step 4.

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Step 4:

Resolving degeneracy
To resolve degeneracy at the initial solution, allocate a small positive quantity
e to one or more unoccupied cell that have lowest transportation costs, so as
to make m + n 1 allocations (i.e., to satisfy the condition N = m + n 1).
The cell chosen for allocating e must be of an independent position. In
other words, the allocation of e should avoid a closed loop and should not
have a path.
The following Table 6.10 shows independent allocations.
Table 6.10: Independent Allocations

*
*

The following Tables 6.10 (a), (b) and (c) show non-independent allocations.
Table 6.10 (a): Non-Independent Allocations

Table 6.10 (b)

Table 6.10 (c)

*
*

Optimal Solution
Step 5:

Test for optimality

The solution is tested for optimality using the Modified Distribution (MODI)
method (also known as U-V method).
Once an initial solution is obtained, the next step is to test its optimality. An
optimal solution is one in which there are no other transportation routes
that would reduce the total transportation cost, for which we have to
evaluate each unoccupied cell in the table in terms of opportunity cost. In
this process, if there is no negative opportunity cost, and the solution is an
optimal solution.
(i)

178

Row 1, row 2,, row i of the cost matrix are assigned with variables
U1, U2, ,Ui and the column 1, column 2,, column j are assigned
with variables V1, V2, ,Vj respectively.

(ii) Initially, assume any one of Ui values as zero and compute the values
for U1, U2, ,Ui and V1, V2, ,Vj by applying the formula for
occupied cell.

Transportation Model

For occupied cells,

Cij + Ui + Vj = 0
Ui

C ij
A
Vj

(iii) Obtain all the values of Cij for unoccupied cells by applying the formula
for unoccupied cell.
For unoccupied cells,
Opportunity Cost, Cij = Cij + Ui + Vj
Ui

Cij

If Cij values are > 0 then, the basic initial feasible solution is optimal.
Go to step 7.
If Cij values are =0 then, the multiple basic initial feasible solution
exists. Go to step 7.
If Cij values are < 0 then, the basic initial feasible solution is not
optimal. Go to step 6.
Step 6:

Procedure for shifting of allocations

Select the cell which has the most negative Cij value and introduce a
positive quantity called q in that cell. To balance that row, allocate a q
to that row in occupied cell. Again, to balance that column put a positive
q in an occupied cell and similarly a -q to that row. Connecting all the
qs and -qs, a closed loop is formed.
Two cases are represented in Table 6.11(a) and 6.11(b). In Table 6.11(a) if
all the q allocations are joined by horizontal and vertical lines, a closed loop
is obtained.
The set of cells forming a closed loop is
CL = {(A, 1), (A, 3), (C, 3), (C, 4), (E, 4), (E, 1), (A, 1)}
The loop in Table 6.11(b) is not allowed because the cell (D3) appears
twice.
Table 6.11(a): Showing Closed Loop

1
A

B
C

D
E

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Table 6.11(b)
1

A
B

C
D
E

Conditions for forming a loop

(i)

The start and end points of a loop must be the same.

(ii) The lines connecting the cells must be horizontal and vertical.
(iii) The turns must be taken at occupied cells only.
(iv) Take a shortest path possible (for easy calculations).
Remarks on forming a loop
(i)

Every loop has an even number of cells and at least four cells

(ii) Each row or column should have only one + and sign.
(iii) Closed loop may or may not be square in shape. It can also be a
rectangle or a stepped shape.
(iv) It doesnt matter whether the loop is traced in a clockwise or anticlockwise direction.
Take the most negative ' q' value, and shift the allocated cells
accordingly by adding the value in positive cells and subtracting it in
the negative cells. This gives a new improved table. Then go to step
5 to test for optimality.
Step 7:

Calculate the Total Transportation Cost.

Since all the Cij values are positive, optimality is reached and hence the
present allocations are the optimum allocations. Calculate the total
transportation cost by summing the product of allocated units and unit costs.

Example 4: The cost of transportation per unit from three sources and four destinations
are given in Table 6.12. Obtain the initial basic feasible solutions using the following
methods.
(i)

North-west corner method

(ii)

Least cost method

(iii) Vogels approximation method

Table 6.12: Transportation Model
Destination

Source

Supply

450

500

Demand

200

400

300

1200

250

Solution: The problem given in Table 6.13 is a balanced one as the total sum of supply is
equal to the total sum of demand. The problem can be solved by all the three methods.

180

North-West Corner Method: In the given matrix, select the North-West corner cell.
The North-West corner cell is (1,1) and the supply and demand values corresponding to
cell (1,1) are 250 and 200 respectively. Allocate the maximum possible value to satisfy
the demand from the supply. Here the demand and supply are 200 and 250 respectively.
Hence allocate 200 to the cell (1,1) as shown in Table 6.13.

Transportation Model

Table 6.13: Allocated 200 to the Cell (1, 1)

D e stin a tio n
1

2
4

1
S ou rce

S u p p ly

250 50

200

400

300

450

500

D em an d

200
0

300

Now, delete the exhausted column 1 which gives a new reduced table as shown in
Tables 6.14 (a, b, c, d). Again repeat the steps.
Table 6.14 (a): Exhausted Column 1 Deleted

Destination
2
2

1
Source

Supply

50 0

50
7

400
Demand

300

450

500

350

Table after deleting Row 1

Table 6.14 (b): Exhausted Row 1 Deleted

Destination
2
2

7
350
4

Source
3

350
0

Demand

Supply

450 100

300

500

300

Table after deleting column 2

Table 6.14 (c): Exhausted Column 2 Deleted

Destination
3
Source

2
3

Demand

4
8

Supply

500

100
3
300
200

Finally, after deleting Row 2, we have

100 0

300

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Table 6.14 (d): Exhausted Row 2 Deleted

Destination
3
Source

3
300

Demand

Supply
500

1
200

300

200

Now only source 3 is left. Allocating to destinations 3 and 4 satisfies the supply of 500.
The initial basic feasible solution using North-west corner method is shown in Table 6.15
Table 6.15: Initial Basic Feasible Solution Using NWC Method
P la n t

S u p p ly

25
10

30
5

W a reh o u se

20
15

14
5

4
20
20

D em and

Transportation cost

8
10

105

= (4 200) + (2 50) + (7 350) + (5 100) +

(2 300) + (1 300)
= 800 + 100 + 2450 + 500 + 600 + 300
= Rs. 4,750.00

Least Cost Method

Select the minimum cost cell from the entire Table 6.16, the least cell is (3,4). The
corresponding supply and demand values are 500 and 300 respectively. Allocate the
maximum possible units. The allocation is shown in Table 6.16.
Table 6.16: Allocation of Maximum Possible Units

Destination
1
Source

2
3

Demand

182

350

100

0
3

200

400

200

300

Supply
250
450
500 200

300
0

From the supply value of 500, the demand value of 300 is satisfied. Subtract 300 from
the supply value of 500 and subtract 300 from the demand value of 300. The demand of

destination 4 is fully satisfied. Hence, delete the column 4; as a result we get, the table
as shown in Table 6.17.

Transportation Model

Table 6.17: Exhausted Column 4 Deleted

Destination
1
Source

Supply

250

250
7

350

100

200

400
150

200

Demand

450

300

Now, again take the minimum cost value available in the existing table and allocate it
with a value of 250 in the cell (1,2).
The reduced matrix is shown in Table 6.18
Table 6.18: Exhausted Row 1 Deleted
Desitnation

2
Source

Supply

450 250

450

150

300

2000
9

200

Demand

In the reduced Table 6.18, the minimum value 3 exists in cell (2,1) and (3,3), which is a
tie. If there is a tie, it is preferable to select a cell where maximum allocation can be
made. In this case, the maximum allocation is 200 in both the cells. Choose a cell
arbitrarily and allocate. The cell allocated in (2,1) is shown in Table 6.18. The reduced
matrix is shown in Table 6.19.
Table 6.19: Reduced Matrix
Destination

2
Source

Supply

250

200 0

350

200

150

300
100

Demand

Now, deleting the exhausted demand row 3, we get the matrix as shown in
Table 6.20
Table 6.20: Exhausted Row 3 Deleted
D e stin a tio n

2
Source
D em and

S u p p ly
250

150

100

150

100

0
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The initial basic feasible solution using least cost method is shown in a single
Table 6.21
Table 6.21: Initial Basic Feasible Solution Using LCM Method
D e s t in a t io n

1
1
Source

250
8

200

1500

1000

200

300

200

D em and

400

300

S u p p ly

250
450
500

300
0

Transportation Cost = (2 250)+ (3 200) + (7 150) + (5 100)+ ( 3 200) +

(1 300)
= 500 + 600 + 1050 + 500 + 600 + 300 = Rs. 3550
Vogels Approximation Method (VAM): The penalties for each row and column
are calculated (steps given on pages 176-77) Choose the row/column, which has the
maximum value for allocation. In this case there are five penalties, which have the
maximum value 2. The cell with least cost is Row 3 and hence select cell (3,4) for
allocation. The supply and demand are 500 and 300 respectively and hence allocate 300
in cell (3,4) as shown in Table 6.22
Table 6.22: Penalty Calculation for each Row and Column
D e s t in a t io n

1
Source

350

100

S u p p ly P e n a lt y

0
3

3
D em and

200

300

250

(1 )

450

(2 )

500
200

200

400

300

(1 )

(2 )

0
(2 )

(2 )

Since the demand is satisfied for destination 4, delete column 4 . Now again calculate the
penalties for the remaining rows and columns.
Table 6.23: Exhausted Column 4 Deleted
D e s tin a tio n

1
Source

2
3

D em and

250

350

100

200

400

300

150
184

(1 )

(2 )

S u p p ly P e n a lty
250 0

(2 )

450

(2 )

200

(1 )

In the Table 6.24 shown, there are four maximum penalties of values which is 2. Selecting
the least cost cell, (1,2) which has the least unit transportation cost 2. The cell
(1, 2) is selected for allocation as shown in Table 6.23. Table 6.24 shows the reduced
table after deleting row l.

Transportation Model

Table 6.24: Row 1 Deleted

Destination

1
3

Supply
450
250

200
(6)

150
(3)

300
(2)

Penalty
(2)

200

Source
3
Demand

(1)
200

After deleting column 1 we get the table as shown in the Table 6.25 below.
Table 6.25: Column 1 Deleted

Destination

2
2
Source

Supply

Penalty

250

(2)

200
50

(1)

150
150

300

Demand

(3)

(2)

Finally we get the reduced table as shown in Table 6.26

Table 6.26: Final Reduced Table

Destination
3
5
Source

250
3

3
Demand

Supply
250
0

50
300
0

50
0

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The initial basic feasible solution is shown in Table 6.27.

Table 6.27: Initial Basic Feasible Solution
Destination
W2
W3

Supply

140
140 (4) (4) (8) (48) (48)

F1
17

210
260 (2) (2) (8) (45) (45)

F2
20

10
100

12
250

360 (5) (5) (10) (50) __

F3
15

220
220 (9) __ __ __ __ __

F4
13
200
(2)
(2)
(2)
(2)
(3)

Demand

Transportation cost

1
320
(1)
(5)
__
__
__

250
(4)
(4)
__
__
__

210
(0)
(0)
(0)
(0)
(0)

= (2 250) + (3 200) + (5 250) + (4 150) + (3 50) +

(1 300)
= 500 + 600 + 1250 + 600 + 150 + 300
= Rs. 3,400.00

Example 5: Find the initial basic solution for the transportation problem and hence
solve it.
Table 6.28: Transportation Problem

Destination

1
Source 2
3
Demand

4
3
9
200

2
7
4
400

7
5
3
300

3
8
1
300

Supply
250
450
500

Solution: Vogels Approximation Method (VAM) is preferred to find initial feasible solution.
The advantage of this method is that it gives an initial solution which is nearer to an
optimal solution or the optimal solution itself.

186

Step 1:

The given transportation problem is a balanced one as the sum of supply

equals to sum of demand.

Step 2:

The initial basic solution is found by applying the Vogels Approximation

method and the result is shown in Table 6.29.

Table 6.29: Initial Basic Solution Found by Applying VAM

Transportation Model

Destination
1

250

Supply
250

Source

200

350

3
Demand

Step 3:

2500

150

500

200

400

300

1
500

300
300

Calculate the Total Transportation Cost.

Initial Transportation cost =

Step 4:

450

(2 250) + (3 200) + (5 250) + (4 150) +

(3 50) + (1 300)

500 + 600 + 1250 + 600 + 150 + 300

Rs. 3,400

Check for degeneracy. For this, verify the condition,

Number of allocations, N= m + n 1
6=3+41
6=6
Since the condition is satisfied, degeneracy does not exist.

Step 5:

Test for optimality using modified distribution method. Compute the values
of Ui and Vj for rows and columns respectively by applying the formula
for occupied cells.
Cij+Ui+Vj = 0
Then, the opportunity cost for each unoccupied cell is calculated using the
formula Cij = Cij + Ui + Vj and denoted at the left hand bottom corner of
each unoccupied cell. The computed valued of uj and vi and are shown in
Table 6.30.
Table 6.30: Calculation of the Opportunity Cost

Destination
2

1
5

250

Supply

450 U2 = -2

2
1

200

250

500 U3 = 0

3
8

Demand

250 U1 = 2

Source

150

200

V1 = 1

400

V2 = 4

300

V3 = -3

V4 = 1

Calculate the values of Ui and Vj, using the formula for occupied cells. Assume any one
of Ui and Vj value as zero (U3 is taken as 0)

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Quantitative Techniques
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Cij + Ui + Vj = 0
4 + 0 + V2 = 0, V2 = 4
5 + V2 3 = 0, U2 = 2
3 2 + V1 = 0, V1 = 1
2 4 + U1 = 0, U1 = 2
Calculate the values of Cij , using the formula for unoccupied cells

Cij = Cij + Ui + Vj
C11 = 4+2 1 = 5
C13 = 7+2 3 = 6
C14 = 3+2 1 = 4
C22 = 72 4 = 1
C24 = 82 1 = 5
C31 = 9 +0 1 = 8
Since all the opportunity cost, Cij values are positive the solution is optimum.
Total transportation cost

= (2 25) + (3 200) + (5 250) + (4 150) + (3 50)

+ (1 300)
= 50 + 600 +1250 + 600 + 150 + 300
= Rs 2,950/-

Example 6: Find the initial basic feasible solution for the transportation problem given in
Table 6.31.
Table 6.31: Transportation Problem
To

From
I
II
III
Requirement

50
90
250
4

30
45
200
2

220
170
50
2

Available
1
3
4

Solution : The initial basic feasible solution using VAM is shown in Table 6.32.
Table 6.32: Initial Basic Feasible Solution Using VAM
To
A
B
C
Available

From

220

0
90

170

200

250

III

4(150) (50)
2 0

188

3 (45) (45)
0

Requirement

1 (20) (20)

2
20 0

(40)

(15)

(40)

(15)

20 0
(120)
--

Transportation Model

Check for degeneracy,

The number of allocations, N must be equal to m + n 1.
i.e.,

N = m+n 1
5 = 3+3 1

since

4 5, therefore degeneracy exists.

To overcome degeneracy, the condition N = m + n 1 is satisfied by allocating a very

small quantity, close to zero in an occupied independent cell. (i.e., it should not form a
closed loop) or the cell having the lowest transportation cost. This quantity is denoted by
e.
This quantity would not affect the total cost as well as the supply and demand values.
Table 6.33 shows the resolved degenerate table.
Table 6.33: Resolved Degenerate Table

From

To
B

Available

220

170

250

200

3
III

2
4

Requirement

Total transportation cost

2
2

= (50 1)+ (90 3) + (200 2) + (50 2) + (250 e)

= 50 + 270 + 400 + 100 + 250 e
= 820 + 250 e = Rs. 820 since e 0

Example 7: Obtain an optimal solution for the transportation problem by MODI method
given in Table 6.34.
Table 6.34: Transportation Problem

Destination

Source

Supply

Demand

Solution:
Step1:

The initial basic feasible solution is found using Vogels Approximation

Method as shown in Table 6.35.

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Table 6.35: Initial Basic Feasible Solution Using VAM

Destination
D1
19

Source

Supply

7 (9) (9) (40) (40

2 0

7
40

2
1020

5 0

2 0
18 (12) (20) (50) -10 0

8
Demand

9 (10) (20) (20) (20)

8 0

7 0

4 2 0

(21)
(22)
(10) (10)
(21)
-(10) (10)
--(10) (10)
--(10) (50)
Total transportation cost =
(19 5) + (10 2) + (40 7) + (60 2) + (8 8) +
(20 10)

Step 2:

95 + 20 + 280 + 120 + 64 + 200

Rs. 779.00

To check for degeneracy, verify the number of allocations, N = m+n 1.

In this problem, number of allocation is 6 which is equal m+n 1.
\N=m+n1
6=3+41
6=6

Step 3:

therefore degeneracy does not exist.

Test for optimality using MODI method. In Table 6.36 the values of Ui and
Vj are calculated by applying the formula Cij + Ui + Vj = 0 for occupied
cells , and Cij = Cij + Ui + Vj for unoccupied cells respectively.
Table 6.36: Optimality Test Using MODI Method
Destination
D1

7 U1 = 0

S1
5

Source

Supply

9U2 = -50

S2
1

-18

18 U3 = 10

S3
11

Demand

V1 = 19

V2 = 2

V3 = 10 V4 = 10

Find the values of the dual variables Ui and Vj for occupied cells.
Initially assume Ui = 0,
190

Cij + Ui + Vj

= 0,

19 + 0 + Vi

= 0,

V1 = 19

10 + 0 + V4

= 0,

V4 = 10

60 + U2 10

= 0,

U2 = 50

20 + U3 10

= 0,

U3 = 10

8 10 + V2

= 0,

V2 = 2

40 50 + V3

= 0,

V3 = 10

Transportation Model

Find the values of the opportunity cost, Cij for unoccupied cells,

Cij = Cij + Ui + Vj
C12 = 30 + 0 + 2 = 32
C13 = 50 + 0 + 10 = 60
C21 = 70 50 19 = 1
C22 = 30 50 + 2 = 18
C31 = 40 10 19 = 11
C33 = 70 10 + 10 = 70
In Table the cell (2,2) has the most negative opportunity cost. This negative
cost has to be converted to a positive cost without altering the supply and
demand value.
Step 4:

Construct a closed loop . Introduce a quantity + q in the most negative cell

(S2, D2 ) and a put q in cell (S3, D2 ) in order to balance the column D2.
Now, take a right angle turn and locate an occupied cell in column D4. The
occupied cell is (S3, D4) and put a + q in that cell. Now, put a q in cell (S2,
D4 ) to balance the column D4. Join all the cells to have a complete closed
path. The closed path is shown in Figure 6.5.

-
2

-
8

0
Figure 6.5: Closed Path

Now, identify the q values, which are 2 and 8. Take the minimum value, 2 which is the
allocating value. This value is then added to cells (S2, D2 ) and (S3, D4 ) which have +
signs and subtract from cells (S2, D4 ) and (S3, D2 ) which have signs. The process
is shown in Figure 6.6

-
(S2, D4)
2-2 = 0

(S2, D2)
0+2 = 2

-
(S3, D2)
8-2 = 6

Figure 6.6

(S3, D4)
10+2 = 12
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Quantitative Techniques
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Table 6.37: Closed Path

Destination
D2
D3

Supply

5
32

Source S2

40
11

- 8
5

Demand

10
7

The table after reallocation is shown in Table 6.38

Table 6.38: After Reallocation

Destination
D2
D3

D1
19

Supply

5
2
70

Source S2

7
2

S3
Demand

40
6
5

12
8

Now, again check for degeneracy. Here allocation number is 6.

Verify whether number of allocations,
N=m+n1
6=3+41
6=6
therefore degeneracy does not exits.
Again find the values of Ui, Vj and Cij for the Table 6.39 shown earlier.
For occupied cells, Cij + Ui + Vj = 0

192

19 + 0 + V1 = 0,

V1 = 19

10 + 0 + V4 = 0,

V4 = 10

20 + U3 10 = 0,

U3 = 10

8 10 + V2 = 0,

V2 = 2

30 + U2 + 2 = 0,

U2 = 32

40 50 + V3 = 0,

V3 = 10

Transportation Model

For unoccupied cells, Cij = Cij+Ui+Vj

C12 = 30 + 0 + 20 = 50
C13 = 50 + 0 8

= 42

C21 = 70 32 19 = 19
C24 = 60 32 10 = 18
C31 = 40 10 19 = 11
C33 = 70 10 8 = 52
The values of the opportunity cost Cij are positive. Hence the optimality is reached.
The final allocations are shown in Table 6.39.
Table 6.39: Final Allocation
Destination
D1

10
7 U1 = 0

S1
5

2
30

70
Source

Supply

9 U2 = 32

S2
7

2
8

20
18 U3 = 10

S3
6
5

Demand

V1 = 19

12
8

V2 = 2

V3 = 8 V4 = 10

Total transportation cost = (19 5) + (10 2) + (30 2) + (40 7) + (8 6)

+ (20 12)
= 95 + 20 + 60 + 280 + 48 + 240
= Rs. 743
Example 8: Solve the transportation problem

Destination

Source

Demand

Supply

23
25

The problem is unbalanced if S ai = S bj, that is, when the total supply is not equal to the
total demand. Convert the unbalanced problem into a balanced one by adding a dummy
row or dummy column as required and solve.
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Here the supply does not meet the demand and is short of 2 units. To convert it to a
balanced transportation problem add a dummy row and assume the unit cost for the
dummy cells as zero as shown in Table 6.40 and solve.
Table 6.40: Dummy Row Added to TP

Destination
1

Source

Supply

Demand

25
25

6.12 MAXIMIZATION TRANSPORTATION PROBLEM

In this type of problem, the objective is to maximize the total profit or return. In this case,
convert the maximization problem into minimization by subtracting all the unit cost from
the highest unit cost given in the table and solve.
Example 9: A manufacturing company has four plants situated at different locations, all
producing the same product. The manufacturing cost varies at each plant due to internal
and external factors. The size of each plant varies, and hence the production capacities
also vary. The cost and capacities at different locations are given in the following table:
Table 6.41: Cost and Capacity of Different Plants
Particulars

Plant
A

unit (Rs.)

Capacity

150

250

100

Production cost per

The company has five warehouses. The demands at these warehouses and the
transportation costs per unit are given in the Table 6.42 below. The selling price per unit
is Rs. 30/Table 6.42: Transportation Problem
Warehouse

194

Transportation cost (Rs) Unit-wise

Demand

100

200

120

(i)

Formulate the problem to maximize profits.

(ii)

Determine the solution using TORA.

(iii) Find the total profit.

Transportation Model

Solution:
(i)

The objective is to maximize the profits. Formulation of transportation problem as

profit matrix table is shown in Table 6.43. The profit values are arrived as follows.
Profit = Selling Price Production cost Transportation cost
Table 6.43: Profit Matrix
Destination
A

Demand

100

200

120

Supply

150

250

100

570

Converting the profit matrix to an equivalent loss matrix by subtracting all the profit
values from the highest value 13. Subtracting all the values from 13, the loss matrix
obtained is shown in the Table 6.44
Table 6.44: Loss Matrix
Destination
A

Demand

100

200

120

Supply

150

250

100

570

(ii) To determine the initial solution using TORA

Input Screen:

Figure 6.7: TORA, Input Screen for TP Max Problem

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Output Screen:

Figure 6.8: TORA Output Screen (Vogels Method)

The first iteration itself is optimal, hence optimality is reached.

(iii) To find the total cost:
The total maximization profit associated with the solution is
Total Profit = (6 10) + (4 20) + (10 120) + (3 180) + (9 70) + (10 20)
+ (13 80) + (15 70)
= 60 + 80 + 1200 + 540 + 630 + 200 + 1040 + 1050
= Rs 4800.00

6.13 PROHIBITED ROUTES PROBLEM

In practice, there may be routes that are unavailable to transport units from one source
to one or more destinations. The problem is said to have an unacceptable or prohibited
route. To overcome such kind of transportation problems, assign a very high cost to
prohibited routes, thus preventing them from being used in the optimal solution regarding
allocation of units.
Example 10:The following transportation table shows the transportation cost per unit
(in Rs.) from sources 1,2, and 3 to destinations A, B, C. Shipment of goods is prohibited
from source 2 to destination C. Solve the transportation problem using TORA
Table 6.45: Problem for TORA Solution

Destination
A

Supply

120

Demand

150

125

150

Solution: The entries of the transportation cost are made using TORA
196

Transportation Model

Input Screen:

Figure 6.9: TP Prohibited Route TORA (Input Screen)

Output Screen:

Figure 6.10: TP Prohibited Route (TORA Output Screen)

From the output Schedule, there are no goods that are to be shipped from source 2 to
destination C. The total transportation cost is Rs 4600 /-

6.14 TRANSHIPMENT PROBLEM

The transshipment problem is an extension of the transportation problem in which the
commodity can be transported to a particular destination through one or more intermediate
or transshipment nodes.
Each of these nodes in turn supply to other destinations. The objective of the transshipment
problem is to determine how many units should be shipped over each node so that all the
demand requirements are met with the minimum transportation cost.
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Considering a company with its manufacturing facilities situated at two places, Coimbatore
and Pune. The units produced at each facility are shipped to either of the companys
warehouse hubs located at Chennai and Mumbai. The company has its own retail outlets
in Delhi, Hyderabad, Bangalore and Thiruvananthapuram. The network diagram
representing the nodes and transportation per unit cost is shown in Figure 6.11. The
supply and demand requirements are also given.
Manufacturing
facility (Origin nodes)

Warehouses
Retail Outlets Demand
(Transshipment nodes ) (Destination nodes)

D elh i
5

C o im b a to re
1

C h en n a i
3
H yd era b a d
6

S u p p ly

D em and

B a n g a lo re
7

M um bai
4

Pune
2

T h iru v a n a n th ap u ra m
8

Figure 6.11: Network Representation of Transshipment Problem

Solving Transshipment Problem using Linear Programming

Let
Xij be the number of units shipped from node i to node j,
X13 be the number of units shipped from Coimbatore to Chennai,
X24 be the number of units shipped from Pune to Mumbai, and so on
Table 6.46 shows the unit transportation cost from sources to destination.
Table 6.46: TP of the Shipment
Warehouse
Facility

Chennai

Mumbai

Coimbatore

Pune

Warehouses

198

Retail outlets
Delhi

Hyderabad

Bangalore

Thiruvananthapuram

Chennai

Mumbai

Transportation Model

Objective
The objective is to minimize the total cost
Minimize
Z = 4X13+ 7X14+ 6X23+ 3X24+ 7X35+ 4X36+ 3X37+ 5X38+ 5X456X46+ 7X47+ 8X48
Constraints: The number of units shipped from Coimbatore must be less than or equal
to 800. Because the supply from Coimbatore facility is 800 units. Therefore, the constraints
equation is as follows:
X13+ X14 < 800 .. (i)
Similarly, for Pune facility
X23+ X24 < 600 ...(ii)
Now, considering the node 3,
Number of units shipped out from node 1 and 2 are,
X13+ X23
Number of units shipped out from node 3 is,
X35 + X36 + X37 + X38
The number of units shipped in must be equal to number of units shipped out, therefore
X13 + X23 = X35 + X36 + X37 + X38
Bringing all the variables to one side, we get
X13 X23 + X35 + X36 + X37 + X38 = 0

.(iii)

Similarly for node 4

X14 X24 + X45X46 + X47 + X48 =0

..(iv)

Now considering the retail outlet nodes, the demand requirements of each outlet must be
satisfied. Therefore for retail node 5, the constraint equation is
X35 + X45 = 350

.................(v)

Similarly for nodes 6, 7, and 8, we get,

X36 + X46 = 200

...........(vi)

X37 + X47 = 400

...........(vii)

X38 + X48 = 450

...........(viii)

Linear Programming formulation,

Minimize Z = 4X13+7X14+6X22+3X24+7X35+4X36+3X37+5X38+5X45+6X46+7X47+8X48
Subject to constraints ,
X13+ X14

< 800

X23+ X23

< 600

origin constraints

X13 X23 + X35 + X36 + X37 + X38 = 0

X14 X24 + X45 + X46 + X47 + X48 = 0
X35 + X45 = 350

X36 + X46 = 200

destination constraints

X37 + X47 = 400

X38 + X48 = 450

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Check Your Progress 6.2

In the transportation model an example of decision under certainty or decisionmaking under uncertainty.

How can the travelling sales man problem be solved using transportation
model.

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

6.15 LET US SUM UP

The use of transportation models to minimize the cost of shipping from a number of
source to number of destinations. In most general form, a transportation problems has a
number of origins and a number of destination. A number of techniques are there to
compute the initial basic feasible solution of a TP. These are NWC, LCM, VAM. Further
there can be an optimum solution while could obtained from MODI and stepping stone.
Transportation problem can be generalized into transshipment problem where shipment
could be feasible from origin to origin.

6.16 LESSON-END ACTIVITY

I hope you all are familiar with the Aeroplane and Airport. The Airport authorities take
lot of pain in streamlining and maintaining traffic. So that the havoc situations could be
controlled and also there may not be any confusion among each other. Being an expert
in Transportation know this. Transportation programming techniques facilitates. in
maintaining the traffic rules. Apply with the help of illustrations.

6.17 KEYWORDS

200

Origin

: Origin of a TP is the from which shipments are dispatched.

Destination

: Destination of TA is a point to where shipment are

transported.

Source

: Supply location is a TP.

Northwest corner

: A systematic procedure for establishing our initial feasible

solution to an optimal

Degeneracy

: A situation that occurs where the number of occupied squares

in any solution is less than number of row play number of
column in a transportation basic.

Unbalance problem

: A situation is which demand in not equal to supply.

Transportation Model

Summary Destination : An artificial destination.

VAM

: Vogel Approximation Method is an interactive proceeded of

a feasible solution.

6.18 QUESTIONS FOR DISCUSSION

Explain the initial basic feasible solution of transportation model.

Is the TP model is are example of decision-making under certainty or

decision-making under uncertainty why?

Write True or False against each statement:

(a)

TP is a special type of liner programming

(b)

Dummy rows to dummy column are assigned source values.

(c)

Initial Basic solution can be obtained by MODI method.

(d)

Least cost method is a best method to find initial basic solution.

(e)

In maximisation the objective is to maximise the total profit.

Briefly comment on the following statements:

(a)

Transportation problem is said to be unbalanced.

(b)

Optimum solution have an edge as compared to initial basic feasible solution.

(c)

Transportation problem can be generalize with a transshipment problem.

(d)

Problem is known as unbalanced TP if they are unequal.

(e)

MODI distribution method provides a minimum cost solution.

(f)

Degeneracy does not cause any serious difficulty.

(g)

Transportation problem is a balanced when sum of supply equals to sum of

demand.

Fill in the blanks:

(a)

In the transportation problem __________ are always transported

(b)

Initial basis feasible solution through VAM will be ________________

(c)

Demand variation may occur because of change in _______________

preference

(d)

TP deals with the transportation of a ______________manufactured.

(e)

In real life supply & demand requirement will be rarely ______________

Differentiate between the following:

(a)

MODI vs Shipping Stone

(b)

LCM vs NWC

(c)

VAM vs MODI

6.19 TERMINAL QUESTIONS

What is a transportation problem ?

What is the difference between a balanced transportation problem and an

unbalanced transportation problem ?

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What are the methods used to find the initial transportation cost ?

Which of the initial three methods give a near optimal solution ?

Explain Vogels approximation method of finding the initial solution.

What is degeneracy in a transportation problem ? How is it resolved ?

What are the conditions for forming a closed loop ?

How are the maximization problems solved using transportation model ?

How is optimality tested in solving transportation problems ?

10. In what ways is a transshipment problem different from a transportation problem ?

Exercise Problems
1.

Develop a network representation of the transportation problem for a company

that manufactures products at three plants and ships them to three warehouses.
The plant capacities and warehouse demands are shown in the following table:
The transportations cost per unit (in Rs.) is given in matrix.
Plant

Warehouse

Plant Capacity
(no. of units)

350

450

200

Warehouse demand

250

450

300

(no. of units)

Determine whether a dummy source or a dummy destination is required to balance

the model given.
(a)

Supply a1 = 15, a2 = 5, a3 = 4, a4 = 6
Demand b1 = 4, b2 = 15, b3 = 6, b4 = 10

(b)

Supply a1 = 27, a2 = 13, a3 = 10

Demand b1 = 30, b2 = 10, b3 = 6, b4 = 10

(c)

Supply a1 = 2, a2 = 3, a3 = 5
Demand b1 = 3, b2 = 2, b3 = 2, b4 = 2, b5 = 1.

A state has three power plants with generating capacities of 30, 40 and 25 million
KWH that supply electricity to three cities located in the same state. The demand
requirements (maximum) of the three cities are 35, 40 and 20 million KWH. The
distribution cost (Rs. in thousand) per million unit for the three cities are given in
the table below:
City

Plant

202

Transportation Model

(a)

Formulate the problem as a transportation model.

(b)

Determine an economical distribution plan.

(c)

If the demand is estimated to increase by 15%, what is your revised plan?

(d)

If the transmission loss of 5% is considered, determine the optimal plan.

Find the initial transportation cost for the transportation matrix given using NorthWest corner method, Least cost method and Vogels Approximation Method.
Destination
1

Supply

Source B

Demand

In problem No. 4, if the demand for destination 4 increases from 15 units to 25

units, develop the transportation schedule incorporating the change.

Find the initial solution using all the three methods and hence find the optimal solution
using TORA package for the following transportation problem. The unit
transportation cost is given in the following matrix:
Warehouse

Supply

Factory C

Demand

The Sharp Manufacturing Company produces three types of monoblock pumps for
domestic use. Five machines are used for manufacturing the pumps. The production
rate varies for each machine and also the unit product cost. Daily demand and
machine availability are given below.
Demand Information
Product

Demand (units)

2000

15000

700

Machine Availability Details

Machine capacity (units)

Available

700

1000

1500

1200

800
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Unit Product Cost

Product
Machine

150

120

112

100

121

125

Determine the minimum production schedule for the products and machines.
8.

A company has plants at locations A, B and C with the daily capacity to produce
chemicals to a maximum of 3000 kg, 1000 kg and 2000 kg respectively. The cost of
production (per kg) are Rs. 800 Rs. 900 and Rs. 7.50 respectively. Customers
requirement of chemicals per day is as follows:
Customer

Chemical Required

Price offered

1
2
3
4

2000
1000
2500
1000

200
215
225
200

Transportation cost (in rupees) per kg from plant locations to customers place is
given in table.
Customer

Plant

Find the transportation schedule that minimizes the total transportation cost.
9.

A transportation model has four supplies and five destinations. The following table
shows the cost of shipping one unit from a particular supply to a particular destination.
Source

Destination

Supply

Demand

The following feasible transportation pattern is proposed:

x11 = 10, x12 = 3, x22 = 9, x23 = 6, x33 = 9, x34 = 4, x44 = 9, x45 = 5.
Test whether these allocations involve least transportation cost. If not, determine
the optimal solution.
10. A linear programming model is given:
204

Minimize Z = 8x11 + 12x12 + 9x22 + 10x23 + 7x31 + 6x32 + 15x33 , subject to the
constraints,

Transportation Model

x11 + x12 + x13 = 60

x21 + x22 + x23 = 50 Supply constraints

x31 + x32 + x33 = 30

x11 + x21 + x31 = 20

x12 + x22 + x32 = 60 Demand constraints

x13 + x23 + x33 = 30

Formulate and solve as a transportation problem to minimize the transportation
cost.
11.

A company has four factories situated in four different locations in the state and
four company showrooms in four other locations outside the state. The per unit
sale price, transportation cost and cost of production is given in table below, along
with weekly requirement.
Factory

Cost of production
(Rs)

Showrooms
1

Factory

Weekly Capacity (units)

Weekly demand (units)

Determine the weekly distribution schedule to maximize the sales profits.

12. Solve the given transportation problem to maximize profit.
Source

Profit / unit

Supply

200

225

125

Demand

Use TORA to solve the problem.

13. A computer manufacturer has decided to launch an advertising campaign on
television, magazines and radio. It is estimated that maximum exposure for these
media will be 70, 50, and 40 million respectively. According to a market survey, it
was found that the minimum desired exposures within age groups 15-20, 21-25, 2630, 31-35 and above 35 are 10, 20, 25, 35 and 55 million respectively. The table
below gives the estimated cost in paise per exposure for each of the media.
Determine an advertising plan to minimize the cost.

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Quantitative Techniques
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Media

Age Groups
15-20

21-25

26-30

31-35

above 35

Radio

Magazine

Solve the problem and find the optimal solution, i.e., maximum coverage at minimum
cost.
14. A garment manufacturer has 4 units I, II, III, and IV, the production from which
are received by 4 direct customers. The weekly production of each manufacturing
unit is 1200 units and all the units are of the same capacity. The company supplies
the entire production from one unit to one supplier. Since the customers are situated
at different locations, the transportation cost per unit varies. The unit cost of
transportation is given in the table. As per the companys policy, the supply from
unit B is restricted to customer 2 and 4, and from unit D to customer 1 and 3. Solve
the problem to cope with the supply and demand constraints.
Manufacturing
unit
A

15. Check whether the following transportation problem has an optimal allocation:
Warehouse
1

Supply

100

Dummy
Demand

150

100

200

100

150

16. A company dealing in home appliances has a sales force of 20 men who operate
from three distribution centers. The sales manager feels that 5 salesmen are needed
to distribute product line I, 6 to distribute product line II, 5 for product line III and 4
to distribute product line IV. The cost (in Rs) per day of assigning salesmen from
each of the offices are as follows:
Product Line

Source

206

III

Currently, 8 salesmen are available at center A, 5 at center B and 7 at center C.

How many salesmen should be assigned from each center to sell each product line,
in order to minimize the cost? Is the solution unique?

Transportation Model

17. Solve the following degenerate transportation problem:

Destination

Source

III

Supply

Demand

18. Three water distribution tanks with daily capacities of 7, 6 and 9 lakh litres
respectively, supply three distribution areas with daily demands of 5, 8 and 9 lakh
litres respectively. Water is transported to the distribution areas through an
underground network of pipelines. The cost of transportation is Rs 0.50 per 1000
litres per pipeline kilometer. The table shows the pipeline lengths between the water
tanks and the distribution areas.
Distribution Area

Source

120

250

150

300

250

140

Formulate the transportation model

Use TORA to determine the optimum distribution schedule

19. In problem 18, if the demand for distribution area 3 increases to 11 lakh litres,
determine a suitable distribution plan to meet the excess demand and minimize the
distribution cost. Use TORA to solve the problem.
20. Formulate a linear programming model for the following transshipment network
given below.

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6.20 MODEL
DISCUSSION
3.
5.

(a)
(a)

True
(b)
consignment

ANSWERS
False
(b) least

QUESTIONS

False
(d) False
customer (d) product

(e)
(e)

FOR
True
equal

6.21 SUGGESTED READINGS

Render, B. E. Stair, R.M., Management Science: A self-correcting approach, Boston
Allyn and Bacon, Inc.
Bowman E., Production Scheduling by the transportation method of LP, Operation
Research.
Srinivasan V., A transshipment model for cost management decision. Management
Science, Vol. 20, June 1974.
Sadleir C.D., Use of Transportation Method of LP in Production Planning: A Case
Study, Operation Research Vol. 21. No. 4.

208

Assignment Model

LESSON

7
ASSIGNMENT MODEL

CONTENTS
7.0 Aims and Objectives
7.1 Introduction
7.2 Mathematical Structure of Assignment Problem
7.3 Network Representation of Assignment Problem
7.4 Use of Linear Programming to Solve Assignment Problem
7.5 Types of Assignment Problem
7.6 Hungarian Method for Solving Assignment Problem
7.7 Unbalanced Assignment Problem
7.8 Restricted Assignment Problem
7.9 Multiple and Unique Solutions
7.10 Maximization Problem
7.11 Travelling Salesman Problem
7.12 Solving Problems on the Computer with TORA
7.13 Solving Unbalanced Assignment Problem using Computer
7.14 Solving Maximization Problems Using Computers
7.15 Let us Sum Up
7.16 Lesson-end Activity
7.17 Keywords
7.18 Questions for Discussion
7.19 Terminal Questions
7.20 Model Answers to Questions for Discussion
7.21 Suggested Readings

7.0 AIMS AND OBJECTIVES

In this lesson we would be able to learn assignment of various work activities using
various methods of assignment problems. Solving both maximization and minimization
problems and both bounded and unbounded solutions of assignment problem.

7.1 INTRODUCTION
The basic objective of an assignment problem is to assign n number of resources to n
number of activities so as to minimize the total cost or to maximize the total profit of
allocation in such a way that the measure of effectiveness is optimized. The problem of

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assignment arises because available resources such as men, machines, etc., have varying
degree of efficiency for performing different activities such as job. Therefore cost, profit
or time for performing the different activities is different. Hence the problem is, how
should the assignments be made so as to optimize (maximize or minimize) the given
objective. The assignment model can be applied in many decision-making processes like
determining optimum processing time in machine operators and jobs, effectiveness of
teachers and subjects, designing of good plant layout, etc. This technique is found suitable
for routing travelling salesmen to minimize the total travelling cost, or to maximize the
sales.

7.2 MATHEMATICAL STRUCTURE OF ASSIGNMENT

PROBLEM
The structure of assignment problem of assigning operators to jobs is shown in
Table 7.1.
Table 7.1: Structure of Assignment Problem

Job

1
t11

2
t12

2
.

t21
.

t22

I
.
n

ti1
.
tn1

ti2
.
tn2

Operator

j
t1j

..
.

n
t1n

t2j

t2n

tij

tin

tnj

tnn

Let n be the number of jobs and number of operators.

tij be the processing time of job i taken by operator j.
A few applications of assignment problem are:
i.

assignment of employees to machines.

ii.

assignment of operators to jobs.

iii.

effectiveness of teachers and subjects.

iv.

allocation of machines for optimum utilization of space.

salesmen to different sales areas.

vi.

clerks to various counters.

In all the cases, the objective is to minimize the total time and cost or otherwise maximize
the sales and returns.

7.3 NETWORK REPRESENTATION OF ASSIGNMENT

PROBLEM
An assignment model is represented by a network diagram in Figure 1 for an operator
job assignment problem, given in Table 7.2 the time taken (in mins.) by operators to
perform the job.
Table 7.2: Assignment Problem
Operator

210

Job
1

The assignment problem is a special case of transportation problem where all sources
and demand are equal to 1.

Assignment Model

Source
1

Destination
10

Operator
A

Job
1

7
Supply

Operator
B

17
6

Operator
C

Job
3

Demand

Job
2

Time Taken (in mins)

Figure 7.1: Network Diagram for an Operator-job Assignment Problem

7.4 USE OF LINEAR PROGRAMMING TO SOLVE

ASSIGNMENT PROBLEM
A linear programming model can be used to solve the assignment problem. Consider the
example shown in Table 2, to develop a linear programming model.
Let,
x 11

represent the assignment of operator A to job 1

x 12

represent the assignment of operator A to job 2

x 13

represent the assignment of operator A to job 3

x 21

represent the assignment of operator B to job 1

and so on.
Formulating the equations for the time taken by each operator,
10 x11 + 16 x12 + 7 x13 = time taken by operator A.
9 x21 + 17 x22 + 6 x23 = time taken by operator B.
6 x31 + 13 x32 + 5 x33 = time taken by operator C.
The constraint in this assignment problem is that each operator must be assigned to only
one job and similarly, each job must be performed by only one operator. Taking this
constraint into account, the constraint equations are as follows:
x11 + x12 + x13 < 1 operator A
x21 + x22 + x23 < 1 operator B
x31 + x32 + x33 < 1 operator C
x11 + x21 + x31 = 1 Job 1

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x12 + x22 + x32 = 1 Job 2

x13 + x23 + x33 = 1 Job 3
Objective function: The objective function is to minimize the time taken to complete all
the jobs. Using the cost data table, the following equation can be arrived at:
The objective function is,
Minimize Z = 10 x11 + 16 x12 + 7 x13 +9 x21 + 17 x22 + 6 x23 +6 x31 + 13 x32 + 5 x33
The linear programming model for the problem will be,
Minimize Z = 10 x11 + 16 x12 + 7 x13 +9 x21 + 17 x22 + 6 x23 +6 x31 + 13 x32 + 5 x33
subject to constraints
x11 + x12 + x13 < 1

....................(i)

x21 + x22 + x23 < 1

....................(ii)

x31 + x32 + x33 < 1

....................(iii)

x11 + x12 + x13 = 1

....................(iv)

x12 + x22 + x32 = 1

....................(v)

x13 + x23 + x33 = 1

....................(vi)

where, xij > 0 for i = 1,2,3 and j = 1,2,3.

The problem is solved on a computer, using transportation model in TORA package.
The input screen and output screens are shown in Figure 7.1 and Figure 7.2 respectively.

Figure 7.2: TORA, Input Screen

212

Assignment Model

Figure 7.3: TORA, Output Screen

The objective function value = 28 mins.
Table 7.3: The Assignment Schedule
Men

Job

Time Taken
(in mins.)

Total

7.5 TYPES OF ASSIGNMENT PROBLEM

The assignment problems are of two types (i) balanced and (ii) unbalanced. If the number
of rows is equal to the number of columns or if the given problem is a square matrix, the
problem is termed as a balanced assignment problem. If the given problem is not a
square matrix, the problem is termed as an unbalanced assignment problem.
If the problem is an unbalanced one, add dummy rows /dummy columns as required so
that the matrix becomes a square matrix or a balanced one. The cost or time values for
the dummy cells are assumed as zero.

7.6 HUNGARIAN METHOD FOR SOLVING ASSIGNMENT

PROBLEM
Step 1:

In a given problem, if the number of rows is not equal to the number of

columns and vice versa, then add a dummy row or a dummy column. The
assignment costs for dummy cells are always assigned as zero.
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Step 2:

Reduce the matrix by selecting the smallest element in each row and subtract
with other elements in that row.

Step 3:

Reduce the new matrix column-wise using the same method as given in step 2.

Step 4:

Draw minimum number of lines to cover all zeros.

Step 5:

If Number of lines drawn = order of matrix, then optimally is reached, so

proceed to step 7. If optimally is not reached, then go to step 6.

Step 6:

Select the smallest element of the whole matrix, which is NOT COVERED
by lines. Subtract this smallest element with all other remaining elements that
are NOT COVERED by lines and add the element at the intersection of
lines. Leave the elements covered by single line as it is. Now go to step 4.

Step 7:

Take any row or column which has a single zero and assign by squaring it.
Strike off the remaining zeros, if any, in that row and column (X). Repeat the
process until all the assignments have been made.

Step 8:

Write down the assignment results and find the minimum cost/time.

Note: While assigning, if there is no single zero exists in the row or column, choose any
one zero and assign it. Strike off the remaining zeros in that column or row, and repeat
the same for other assignments also. If there is no single zero allocation, it means multiple
number of solutions exist. But the cost will remain the same for different sets of allocations.
Example 1: Assign the four tasks to four operators. The assigning costs are given in
Table 7.4.
Table 7.4: Assignment Problem
Operators

Tasks

Solution:
Step 1:

The given matrix is a square matrix and it is not necessary to add a dummy
row/column

Step 2:

Reduce the matrix by selecting the smallest value in each row and subtracting
from other values in that corresponding row. In row A, the smallest value is
13, row B is 15, row C is 17 and row D is 12. The row wise reduced matrix
is shown in Table 7.5.
Table 7.5: Row-wise Reduction
Operators

Tasks

214

Step 3:

Reduce the new matrix given in Table 6 by selecting the smallest value in
each column and subtract from other values in that corresponding column. In
column 1, the smallest value is 0, column 2 is 4, column 3 is 3 and column 4 is
0. The column-wise reduction matrix is shown in Table 7.6.

Assignment Model

Table 7.6: Column-wise Reduction Matrix

Operators

Tasks

Step 4:

Draw minimum number of lines possible to cover all the zeros in the matrix
given in Table 7.7
Table 7.7: Matrix with all Zeros Covered
Operators

Tasks

No. of lines drawn = order

of matrix

The first line is drawn crossing row C covering three zeros, second line is
drawn crossing column 4 covering two zeros and third line is drawn crossing
column 1 (or row B) covering a single zero.
Step 5:

Check whether number of lines drawn is equal to the order of the matrix, i.e.,
3 4. Therefore optimally is not reached. Go to step 6.

Step 6:

Take the smallest element of the matrix that is not covered by single line,
which is 3. Subtract 3 from all other values that are not covered and add 3 at
the intersection of lines. Leave the values which are covered by single line.
Table 7.8 shows the details.

Table 7.8: Subtracted or Added to Uncovered Values and Intersection Lines Respectively
Operators

Tasks

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Step 7:

Now, draw minimum number of lines to cover all the zeros and check for
optimiality. Here in Table 7.9 minimum number of lines drawn is 4 which is
equal to the order of matrix. Hence optimality is reached.
Table 7.9: Optimality Matrix

Operators
1

Tasks B

Step 8:

No. of lines
drawn = order of matrix

Assign the tasks to the operators. Select a row that has a single zero and
assign by squaring it. Strike off remaining zeros if any in that row or column.
Repeat the assignment for other tasks. The final assignment is shown in
Table 7.10.
Table 7.10: Final Assignment

Operators

Tasks

Therefore, optimal assignment is:

Task

Operator

Cost

Total Cost = Rs. 67.00

Example 2: Solve the following assignment problem shown in Table 7.11 using Hungarian
method. The matrix entries are processing time of each man in hours.
216

Table 7.11: Assignment Problem

Assignment Model

M en

Job

III

Solution: The row-wise reductions are shown in Table 7.12

Table 7.12: Row-wise Reduction Matrix

Men

Job

III

V
2
2
0
3
The column wise reductions are shown in Table 7.13.

Table 7.13: Column-wise Reduction Matrix

Men

Job

III

Matrix with minimum number of lines drawn to cover all zeros is shown in
Table 7.14.
Table 7.14: Matrix will all Zeros Covered

Men

Job

III

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The number of lines drawn is 5, which is equal to the order of matrix. Hence optimality
is reached. The optimal assignments are shown in Table 7.15.
Table 7.15: Optimal Assignment

Men

Job

III

Therefore, the optimal solution is:

Job

Men

Time

III

Total time = 86 hours

7.7 UNBALANCED ASSIGNMENT PROBLEM

If the given matrix is not a square matrix, the assignment problem is called an unbalanced
problem. In such type of problems, add dummy row(s) or column(s) with the cost
elements as zero to convert the matrix as a square matrix. Then the assignment problem
is solved by the Hungarian method.
Example 3: A company has five machines that are used for four jobs. Each job can be
assigned to one and only one machine. The cost of each job on each machine is given in
the following Table 7.16.
Table 7.16: Assignment Problem

Machines
A

Job

218

Solution: Convert the 4 5 matrix into a square matrix by adding a dummy row D5.

Assignment Model

Table 7.17: Dummy Row D5 Added

Machines

Job

Table 7.18: Row-wise Reduction of the Matrix

Machines

Job

Column-wise reduction is not necessary since all columns contain a single zero. Now,
draw minimum number of lines to cover all the zeros, as shown in Table 7.19.
Table 7.19: All Zeros in the Matrix Covered

Machines

Job

Number of lines drawn Order of matrix. Hence not optimal.

Select the least uncovered element, i.e., 1, subtract it from other uncovered elements,
add to the elements at intersection of lines and leave the elements that are covered with
single line unchanged as shown in Table 7.20.
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Table 7.20: Subtracted or Added to Elements

Machines

Job

Number of lines drawn Order of matrix. Hence not optimal.

Table 7.21: Again Added or Subtracted 1 from Elements

Machines

Job

Number of lines drawn = Order of matrix. Hence optimality is reached. Now assign the
jobs to machines, as shown in Table 7.22.
Table 7.22: Assigning Jobs to Machines

Machines

Job

220

0
0

Assignment Model

Hence, the optimal solution is:

Job

Machine

Cost

Total Cost

= Rs.15.00

Example 4: In a plant layout, four different machines M1, M2, M3 and M4 are to be
erected in a machine shop. There are five vacant areas A, B, C, D and E. Because of
limited space, Machine M2 cannot be erected at area C and Machine M4 cannot be
erected at area A. The cost of erection of machines is given in the Table 7.23.
Table 7.23: Assignment Problem

Area

Machine

Find the optimal assignment plan.

Solution: As the given matrix is not balanced, add a dummy row D5 with zero cost
values. Assign a high cost H for (M2, C) and (M4, A). While selecting the lowest cost
element neglect the high cost assigned H, as shown in Table 7.24 below.
Table 7.24: Dummy Row D5 Added

Area

Machine

Row-wise reduction of the matrix, is shown in Table 7.25.

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Table 7.25: Matrix Reduced Row-wise

Area

Machine

Note: Column-wise reduction is not necessary, as each column has at least one single
zero. Now, draw minimum number of lines to cover all the zeros, see Table 7.26.
Table 7.26: Lines Drawn to Cover all Zeros

Area

Machine

Number of lines drawn Order of matrix. Hence not Optimal. Select the smallest
uncovered element, in this case 1. Subtract 1 from all other uncovered element and
add 1 with the elements at the intersection. The element covered by single line remains
unchanged. These changes are shown in Table 7.27. Now try to draw minimum number
of lines to cover all the zeros.
Table 7.27: Added or Subtracted 1 from Elements

Area

Machine

222

Now number of lines drawn = Order of matrix, hence optimality is reached. Optimal
assignment of machines to areas are shown in Table 7.28.

Assignment Model

Table 7.28: Optimal Assignment

Area

M1
Machine

Hence, the optimal solution is:

Machines

Area

Erection Cost

Total Erection Cost = Rs.10.00

7.8 RESTRICTED ASSIGNMENT PROBLEM

In real practice, situations may arise where a particular machine cannot be assigned to
an operator because he may not be skilled enough to operate it. Because of this, no
assignment is made for the operator on that machine. This situation is overcome by
assigning a large value, or by assigning M. This will result in no assignment made to the
restricted combinations.
Example 5: Five jobs are to be assigned to five men. The cost (in Rs.) of performing
the jobs by each man is given in the matrix (Table 7.29). The assignment has restrictions
that Job 4 cannot be performed by Man 1 and Job 3 cannot be performed by Man 4 Find
the optimal assignment of job and its cost involved.
Table 7.29: Assignment Problem
Men

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Solution: Assign large value to the restricted combinations or introduce M, see

Table 7.30.
Table 7.30: Large Value Assignment to Restricted Combinations

Job

Men

Table 7.31: Reducing the matrix row-wise

Job

Men

Table 7.32: Reducing the matrix column-wise

Job

Men

Draw minimum number of lines to cover all zeros, see Table 7.33.
Table 7.33: All Zeros Covered

Job

Men

224

Now, number of lines drawn = Order of matrix, hence optimality is reached (Table 7.34).

Assignment Model

Allocating Jobs to Men.

Table 7.34: Job Allocation to Men

Job

Men

Table 7.35: Assignment Schedule and Cost

Men

Job

Cost

17
Total Cost = Rs. 71.00

As per the restriction conditions given in the problem, Man 1 and Man 4 are not assigned
to Job 4 and Job 3 respectively.

7.9 MULTIPLE AND UNIQUE SOLUTIONS

For a given Job-Men assignment problem, there can be more than one optimal solution,
i.e., multiple solutions can exist. Two assignment schedules that give same results are
called Multiple optimal solutions. If the problem has only one solution then the solution
is said to be Unique solution. A problem having multiple optimal solutions is shown in
Example 4.6.

7.10 MAXIMIZATION PROBLEM

In maximization problem, the objective is to maximize profit, revenue, etc. Such problems
can be solved by converting the given maximization problem into a minimization problem.
i.

Change the signs of all values given in the table.

ii.

Select the highest element in the entire assignment table and subtract all the elements
of the table from the highest element.

Example 6: A marketing manager has five salesmen and sales districts. Considering
the capabilities of the salesmen and the nature of districts, the marketing manager estimates
that sales per month (in hundred rupees) for each salesman in each district would be as
follows (Table 7.36). Find the assignment of salesmen to districts that will result in
maximum sales.
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Table 7.36: Maximization Problem

District

Salesman

Solution: The given maximization problem is converted into minimization problem

(Table 7.37) by subtracting from the highest sales value (i.e., 41) with all elements of the
given table.
Table 7.37: Conversion to Minimization Problem

District

Salesman

Reduce the matrix row-wise (see Table 7.38)

Table 7.38: Matrix Reduced Row-wise

District

Salesman

226

Reduce the matrix column-wise and draw minimum number of lines to cover all the
zeros in the matrix, as shown in Table 7.39.

Assignment Model

Table 7.39: Matrix Reduced Column-wise and Zeros Covered

District

Salesman

Number of lines drawn Order of matrix. Hence not optimal.

Select the least uncovered element, i.e., 4 and subtract it from other uncovered elements,
add it to the elements at intersection of line and leave the elements that are covered with
single line unchanged, Table 7.40.
Table 7.40: Added & Subtracted the least Uncovered Element

District

Salesman

Now, number of lines drawn = Order of matrix, hence optimality is reached.

There are two alternative assignments due to presence of zero elements in cells (4, C),
(4, D), (5, C) and (5, D).
Table 7.41: Two Alternative Assignments

1
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Therefore,
Assignment 1

Assignment 2

Salesman Districts

Sales

Salesman Districts

(in 00) Rs.

Sales
(in 00) Rs.

Total Rs. = 191.00

7.11 TRAVELLING SALESMAN PROBLEM

The Travelling salesman problem is very similar to the assignment problem except that
in the former, there are additional restrictions that a salesman starts from his city, visits
each city once and returns to his home city, so that the total distance (cost or time) is
minimum.
Procedure:
Step 1:

Solve the problem as an assignment problem.

Step 2:

Check for a complete cycle or alternative cycles. If the cycle is complete, Go

to Step 4. If not, go to the Step 3.

Step 3:

To start with, assign the next least element other than zero, (only for first
allocation) and complete the assignment. Go to Step 2.

Step 4:

Write the optimum assignment schedule and calculate the cost/time.

(Note: If there are two non-zero values in the matrix, it means that there are two optimal
solutions. Calculate the cost for the two allocations and find the optimal solution.)
Example 7: A Travelling salesman has to visit five cities. He wishes to start from a
particular city, visit each city once and then return to his starting point. The travelling
cost (in Rs.) of each city from a particular city is given below.
Table 7.42: Travelling Salesman Problem

To city

From city

What should be the sequence of the salesman's visit, so that the cost is minimum?
228

Solution: The problem is solved as an assignment problem using Hungarian method; an

optimal solution is reached as shown in Table 7.43.

Assignment Model

Table 7.43: Optimal Solution Reached Using Hungarian Method

To city

From city

In this assignment, it means that the travelling salesman will start from city A, then go to
city E and return to city A without visiting the other cities. The cycle is not complete.
To overcome this situation, the next highest element can be assigned to start with. In this
case it is 1, and there are three 1s. Therefore, consider all these 1s one by one and find
the route which completes the cycle.
Case 1: Make the assignment for the cell (A, B) which has the value 1. Now, make the
assignments for zeros in the usual manner. The resulting assignments are shown in
Table 7.44.
Table 7.44: Resulting Assignment

To city

From city

0
0

The assignment shown in Table 7.42 gives the route sequence

A B, B C, C D, D E and E A.
The travelling cost to this solution is
= 2000 + 3000 + 4000 + 5000 + 1000
= Rs.15,000.00
Case 2: If the assignment is made for cell (D, C) instead of (D, E), the feasible solution
cannot be obtained. The route for the assignment will be A B C D C. In
this case, the salesman visits city C twice and cycle is not complete.
Therefore the sequence feasible for this assignment is
A B C D E A.
with the travelling cost of Rs.15,000.00
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7.12 SOLVING PROBLEMS ON THE COMPUTER WITH

TORA
Transportation model option is used for assignment values. Similar to transportation model
the cost or time values are entered in the input grid. With the constraint that each operator
has to be assigned with one job, the supply and demand values are entered as 1. For
example, the worked out example 1 is used for solving using computer.
Input screen:

Figure 7.4: Assignment Problem Using TORA (Input Screen)

Output screen:

Figure 7.5: Assignment Problem Using TORA (Output Screen)

From the output screen, the objective is to minimize cost = Rs. 67.00
230

The assignment schedule is given below in Table 7.45.

Assignment Model

Table 7.45: Assignment Schedule

Task

Operator

Cost

12
Total Cost = Rs.67.00

7.13 SOLVING UNBALANCED ASSIGNMENT PROBLEM

USING COMPUTER
Worked out Example 3 has been solved again using computer. The Input screen 4 5
matrix is shown.

Figure 7.6: Unbalanced Assignment Problems Using TORA (Input Screen)

Output screen:

Figure 7.7: Unbalanced Assignment Problem Using TORA (Output Screen)

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From the output obtained, the objective function value is Rs.15.00.

The assignment schedule is given in the Table 7.46 below.
Table 7.46: Assignment Schedule
Job

Machine

Cost

0
Total Cost = Rs. 15.00

7.14 SOLVING MAXIMIZATION PROBLEMS USING

COMPUTERS
As we know, the transportation model is also used for solving assignment problems.
In transportation model, the objective is to minimize the cost of transportation. For a
maximization problem, the objective is to maximize the profit or returns. While entering
the values the maximization matrix must be converted to minimization matrix by subtracting
all the values with the highest value cell. This is shown by solving the solved problem
Ex. 6. The given problem is maximization of sales (Table 7.47).
Table 7.47: Maximization Problem

District

Salesman

Taking the highest value in the given maximization matrix, i.e., 41 and subtracting all
other values, we get the following input matrix:

District

Salesman

232

Assignment Model

Input screen:

Figure 7.8: Solving Maximization Using TORA (Input Screen)

Part of the output screen is shown below in Figure 7.9.

Figure 7.9: Part of Output Screen (Enlarged)

The output given by TORA is the assignment schedule with the objective of minimization.
The given problem is to maximize the sales. To arrive at the maximize sales value, add
the assigned values from the given matrix, as shown in Table 7.48.
Table 7.48: Assignment Schedule
Salesman

District

*Sales
(in 00) Rs.

35
Total Cost = Rs.191.00

* values taken from the given matrix.

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Check Your Progress 7.1

How could can assignment problem be solved using the transportation

approach.

Describe the approach you would use to solve an assignment problem with
the help of illustration.

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

7.15 LET US SUM UP

AP bring into play the allocation of a number of jobs to a number of persons in order to
minimize the completion time. Although an AP can be formulated as LPP, it solved by a
special method known a Hungarian method. The Hungarian method of assignment
provides us with an efficient means of finding the optimal solution without having to
make a direct comparison of every option. Further we will take into consideration the
opportunity cost. This is a next best alternative cost.

7.16 LESSON-END ACTIVITY

Visit to your nearest fast moving consumer goods manufacturing company like LG,
Samsung, Videocon, Onida etc. and apply the concept of assignment model to increase
its produce line.

7.17 KEYWORDS
Balanced Assigned Problem
Unbalanced Assignment Problem
Hungarian Method
Restricted Assignment Problem
Dummy job
Opportunity cost

7.18 QUESTIONS FOR DISCUSSION

234

Write True or False against each statement:

(a)

Basic objective of an AP is to assign n-number of resources to a number of

activities.

(b)

Application of AP is an allocation of machine for optimum utilization of

space.

(c)

Hungarian method could also be applicable to transportation model.

(d)

Assignment problem not consider the allocation of number of jobs to a number

of person.

(e)

An optimal assignment is found, if the number of assigned cells equal the

number of row (columns).

Assignment Model

Briefly comment on the following statement:

(a)

Assignment problem are of the types balanced and unbalanced.

(b)

Cost or time value for the dummy cells are assumed zero.

(c)

Maximization problem objective is to maximize profit.

Fill in the blank:

(a)

Assignment model can be applied in many ______________.

(b)

If the given matrix is not a _____________, matrix, the AP is called an

__________ problem.

(c)

Transportation model is used for _____________ values.

(d)

A dummy job is an ______________ jobs.

Write short Notes:

(a)

What is meant by matrix reduction.

(b)

Describe the approach of the Hungarian method.

7.19 TERMINAL QUESTIONS

What is an assignment problem? Give its areas of application.

Explain the structure of an assignment problem with objectives as maximization

and minimization.

How can an assignment problem be solved using linear programming ? Illustrate

with a suitable example.

Explain the steps involved in solving an assignment problem.

What is meant by an unbalanced assignment problem?

How is an assignment problem solved when certain assignments are restricted?

What is the difference between a multiple and a unique solution in an assignment

problem?

How is a maximization problem dealt with, in solving assignment problems?

What is Travelling-salesman problem? How does it differ from an assignment

problem?

10. Discuss how assignment problems are solved using transportation model.

Exercise Problems
1.

Consider the assignment problem having the following cost table:

Men
A
B
C

1
7
5
4

Job
2
9
8
5

3
6
7
6

Draw the network representation of the problem.

Solve the problem and determine the optimal assignment for each man.
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Quantitative Techniques
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Consider the assignment problem having the following table. Use TORA to find
the optimal solution that minimizes the total cost:
Operator

Job
1

Four trucks are used for transporting goods to four locations. Because of varying
costs of loading and unloading the goods, the cost of transportation also varies for
each truck. The cost details (in Rs.) is given in the table below. There is no constraint,
and any truck can be sent to any location. The objective is to assign the four trucks
to minimize the total transportation cost. Formulate and solve the problem using
TORA.
Truck

Location
1

525

825

320

200

600

750

250

175

500

900

270

150

620

800

300

160

A two-wheeler service station head has four workmen and four tasks to be
performed daily as a routine work. Before assigning the work, the service station
head carried out a test by giving each work to all the workmen. The time taken by
workmen is given in the table, below.
Work

Time Taken (in mins)

Workman
1

How should the service station head assign the work to each workman so as to
minimize the total time?
5.

Consider an unbalanced assignment problem having the following cost table:

Operator

236

Task
1

Assignment Model

Consider the following assignment problem:

Destination

Unit cost (Rs.)

Supply

Demand

Source

Draw the network representation of the assignment problem.

Formulate a linear programming model for the assignment problem.

Five operators have to be assigned to five machines. Depending on the efficiency

and skill, the time taken by the operators differs. Operator B cannot operate machine
4 and operator D cannot operator machine 2. The time taken is given in the following
table.
Operator

Machine
1

---

Determine the optimal assignment using TORA.

A consumer durables manufacturing company has plans to increase its product

line, namely, washing machine, refrigerator, television and music system. The
company is setting up new plants and considering four locations. The demand
forecast per month for washing machine, refrigerator, television and music system
are 1000, 750, 850 and 1200, respectively. The company decides to produce the
forecasted demand. The fixed and variable cost per unit for each location and item
is given in the following table. The management has decided not to set-up more
than one unit in one location.
Location

Fixed cost (lakhs)

Variable cost / unit

Chennai

Coimbatore

Madurai

Selam

Determine the location and product combinations so that the total cost is minimized.

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Solve the following travelling salesman problem so as to minimize the cost of travel.

City
A

10. Solve the travelling salesman problem for the given matrix cell values which represent
the distances between cities.
c12 = 31,

c13 = 10,

c14 = 15,

c21 = 9,

c23 = 12,

c31 = 10,

c34 = 9,

c41 = 18,

c42 = 25.

There is no route between cities i and j if value for cij is not given.

7.20 MODEL
DISCUSSION

ANSWERS

(a)

True

(b)

(a)
(c)

True

QUESTIONS

(c)

False

(d)

False

decision-making

(b)

square, unbalanced

assignment

(d)

imaginary

FOR

(e) True

7.21 SUGGESTED READINGS

Ross, G.T. and Soaland, R.H, Modeling facility location problem as generalized
assignment problems, Management Science.
U.L. Gupta, D.T. Lee, J.T. Leung, An optimal solution for the channel-assignment
problem.
Abara J., Applying Integer Linear Programming to the Fleet Assignment Problem,
Interfaces, Vol. 19, No. 41, pp. 20-28.

238

Unit-III

LESSON

8
NETWORK MODEL

CONTENTS
8.0 Aims and Objectives
8.1 Introduction
8.2 PERT / CPM Network Components
8.3 Errors to be avoided in Constructing a Network
8.4 Rules in Constructing a Network
8.5 Procedure for Numbering the Events Using Fulkerson's Rule
8.6 Critical Path Analysis
8.7 Determination of Float and Slack Times
8.8 Solving CPM Problems using Computer
8.9 Project Evaluation Review Technique, PERT
8.10 Solving PERT Problems using Computer
8.11 Cost Analysis
8.12 Let us Sum Up
8.13 Lesson-end Activity
8.14 Keywords
8.15 Questions for Discussion
8.16 Terminal Questions
8.17 Model Answers to Questions for Discussion
8.18 Suggested Readings

8.0 AIMS AND OBJECTIVES

In this lesson we are going to discuss the various Network Model Like Critical Path
Method and Project Evaluations Review Technique. The CPM in a diagrammatical
technique whereas PERT in a unique controlling device.

8.1 INTRODUCTION
Any project involves planning, scheduling and controlling a number of interrelated activities
with use of limited resources, namely, men, machines, materials, money and time. The
projects may be extremely large and complex such as construction of a power plant, a
highway, a shopping complex, ships and aircraft, introduction of new products and research
and development projects. It is required that managers must have a dynamic planning
and scheduling system to produce the best possible results and also to react immediately
to the changing conditions and make necessary changes in the plan and schedule. A
convenient analytical and visual technique of PERT and CPM prove extremely valuable
in assisting the managers in managing the projects.

Quantitative Techniques
for Management

Both the techniques use similar terminology and have the same purpose. PERT stands
for Project Evaluation and Review Technique developed during 1950s. The technique
was developed and used in conjunction with the planning and designing of the Polaris
missile project. CPM stands for Critical Path Method which was developed by DuPont
Company and applied first to the construction projects in the chemical industry. Though
both PERT and CPM techniques have similarity in terms of concepts, the basic difference
is, PERT is used for analysis of project scheduling problems. CPM has single time estimate
and PERT has three time estimates for activities and uses probability theory to find the
chance of reaching the scheduled time.
Project management generally consists of three phases.
Planning: Planning involves setting the objectives of the project. Identifying various
activities to be performed and determining the requirement of resources such as men,
materials, machines, etc. The cost and time for all the activities are estimated, and a
network diagram is developed showing sequential interrelationships (predecessor and
successor) between various activities during the planning stage.
Scheduling: Based on the time estimates, the start and finish times for each activity are
worked out by applying forward and backward pass techniques, critical path is identified,
along with the slack and float for the non-critical paths.
Controlling: Controlling refers to analyzing and evaluating the actual progress against
the plan. Reallocation of resources, crashing and review of projects with periodical reports
are carried out.

8.2 PERT/CPM NETWORK COMPONENTS

PERT / CPM networks contain two major components
i.

Activities, and

ii.

Events

Activity: An activity represents an action and consumption of resources (time, money,

energy) required to complete a portion of a project. Activity is represented by an arrow,
(Figure 8.1).
A
i

A is called as an Activity

Figure 8.1: An Activity

Event: An event (or node) will always occur at the beginning and end of an activity. The
event has no resources and is represented by a circle. The ith event and jth event are the
tail event and head event respectively, (Figure 8.2).
A
i

Tail Event

Head Event
Figure 8.2: An Event

Merge and Burst Events

One or more activities can start and end simultaneously at an event (Figure 8.3 a, b).

(a) Merge Event

242

(b) Burst Event

Figure 8.3

Network Model

Preceding and Succeeding Activities

Activities performed before given events are known as preceding activities
(Figure 8.4), and activities performed after a given event are known as succeeding
activities.

A
i

Figure 8.4: Preceding and Succeeding Activities

Activities A and B precede activities C and D respectively.

Dummy Activity
An imaginary activity which does not consume any resource and time is called a dummy
activity. Dummy activities are simply used to represent a connection between events in
order to maintain a logic in the network. It is represented by a dotted line in a network,
see Figure 8.5.

3
A
1

B
2

Dummy

C
4

Figure 8.5: Dummy Activity

8.3 ERRORS TO BE AVOIDED IN CONSTRUCTING A

NETWORK
a.

Two activities starting from a tail event must not have a same end event. To ensure
this, it is absolutely necessary to introduce a dummy activity, as shown in
Figure 8.6.

3
Dummy

A
1

Incorrect
Figure 8.6: Correct and Incorrect Activities

Correct
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Looping error should not be formed in a network, as it represents performance

of activities repeatedly in a cyclic manner, as shown below in Figure 8.7.

1
Incorrect

Figure 8.7: Looping Error

In a network, there should be only one start event and one ending event as shown
below, in Figure 8.8.

3
D ummy

A
1

Figure 8.8: Only One Start and End Event

The direction of arrows should flow from left to right avoiding mixing of direction
as shown in Figure 8.9.

1
Incorrect

Figure 8.9: Wrong Direction of Arrows

8.4 RULES IN CONSTRUCTING A NETWORK

244

No single activity can be represented more than once in a network. The length of
an arrow has no significance.

The event numbered 1 is the start event and an event with highest number is the
end event. Before an activity can be undertaken, all activities preceding it must be
completed. That is, the activities must follow a logical sequence (or interrelationship) between activities.

In assigning numbers to events, there should not be any duplication of event numbers
in a network.

Dummy activities must be used only if it is necessary to reduce the complexity of

a network.

A network should have only one start event and one end event.

Some conventions of network diagram are shown in Figure 8.10 (a), (b), (c), (d) below:

(a)
A

Activity B can be performed

only after completing activity A,
and activity C can be performed
only after completing activity B.

(b)

Activities B and C can start

simultaneously only after
completing A.

Network Model

(c)

Activities A and B must be

completed before start of
activity C.

A
C
B

(d)

Activity C must start only after

completing activities A and B.
But activity D can start after
completion of activity B.

Figure 8.10 (a), (b), (c), (d): Some Conventions followed in making Network Diagrams

8.5 PROCEDURE FOR NUMBERING THE EVENTS

USING FULKERSON'S RULE
Step1:

Number the start or initial event as 1.

Step2:

From event 1, strike off all outgoing activities. This would have made one or
more events as initial events (event which do not have incoming activities).
Number that event as 2.

Step3:

Repeat step 2 for event 2, event 3 and till the end event. The end event must
have the highest number.

Example 1: Draw a network for a house construction project. The sequence of activities
with their predecessors are given in Table 8.1, below.
Table 8.1: Sequence of Activities for House Construction Project
Name of
the activity

Starting and
finishing event

Description of activity

Predecessor

Time duration
(days)

(1,2)

Prepare the house plan

(2,3)

Construct the house

(3,4)

Fix the door / windows

(3,5)

Wiring the house

(4,6)

Paint the house

(5,6)

Polish the doors / windows

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Quantitative Techniques
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Solution:
Fix the doors (2 days)
Prepare the
house plan

Construct the
house

2
A
(4 days)

Paint the house (1 day)

3
B
(58 days)

F
Polish the doors (1 day)

Wiring the
house (2 days)
Figure 8.11: Network diagram representing house construction project.

The network diagram in Figure 8.11 shows the procedure relationship between the
activities. Activity A (preparation of house plan), has a start event 1 as well as an ending
event 2. Activity B (Construction of house) begins at event 2 and ends at event 3. The
activity B cannot start until activity A has been completed. Activities C and D cannot
begin until activity B has been completed, but they can be performed simultaneously.
Similarly, activities E and F can start only after completion of activities C and D
respectively. Both activities E and F finish at the end of event 6.
Example 2: Consider the project given in Table 8.2 and construct a network diagram.
Table 8.2: Sequence of Activities for Building Construction Project
Activity
A
B
C
D
E
F

Description
Purchase of Land
Preparation of building plan
Level or clean the land
Register and get approval
Construct the building
Paint the building

Predecessor
A
A, B
C
D

Solution: The activities C and D have a common predecessor A. The network

representation shown in Figure 8.12 (a), (b) violates the rule that no two activities can
begin and end at the same events. It appears as if activity B is a predecessor of activity
C, which is not the case. To construct the network in a logical order, it is necessary to
introduce a dummy activity as shown in Figure 8.12.

F
(a)

246

Network Model

E
A

F
(b)

Figure 8.12: Network representing the Error

C
E
A
Dummy

F
D

Figure 8.13: Correct representation of Network using Dummy Activity

Example 3: Construct a network for a project whose activities and their predecessor
relationship are given in Table 8.3.
Table 8.3: Activity Sequence for a Project
Activity

Predecessor

H, I

F, G

Solution: The network diagram for the given problem is shown in Figure 8.14 with
activities A, B and C starting simultaneously.
H

A
B

5
I

F
C

Figure 8.14: Network Diagram

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Quantitative Techniques
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Example 4: Draw a network diagram for a project given in Table 8.4.

Table 8.4: Project Activity Sequence
Activity
Immediate
Predecessor

A
-

B
A

C
B

D
A

E
D

F
C, E

G
D

H
D

I
H

J
H

K
F, H

L
G, J

Solution: An activity network diagram describing the project is shown in Figure 8.15,
below:

B
A

K
E

Dummy
H

L
G
Figure 8.15: Network Diagram

8.6 CRITICAL PATH ANALYSIS

The critical path for any network is the longest path through the entire network. Since all
activities must be completed to complete the entire project, the length of the critical path
is also the shortest time allowable for completion of the project. Thus if the project is to
be completed in that shortest time, all activities on the critical path must be started as
soon as possible. These activities are called critical activities. If the project has to be
completed ahead of the schedule, then the time required for at least one of the critical
activity must be reduced. Further, any delay in completing the critical activities will increase
the project duration.
The activity, which does not lie on the critical path, is called non-critical activity. These
non-critical activities may have some slack time. The slack is the amount of time by
which the start of an activity may be delayed without affecting the overall completion
time of the project. But a critical activity has no slack. To reduce the overall project time,
it would require more resources (at extra cost) to reduce the time taken by the critical
activities to complete.
Scheduling of Activities: Earliest Time and Latest Time
Before the critical path in a network is determined, it is necessary to find the earliest and
latest time of each event to know the earliest expected time (TE) at which the activities
originating from the event can be started and to know the latest allowable time (TL) at
which activities terminating at the event can be completed.
Forward Pass Computations (to calculate Earliest, Time TE)
Procedure

248

Step 1:

Begin from the start event and move towards the end event.

Step 2:

Put TE = 0 for the start event.

Step 3:

Go to the next event (i.e node 2) if there is an incoming activity for event 2,
add calculate T E of previous event (i.e event 1) and activity time.
Note: If there are more than one incoming activities, calculate TE for all
incoming activities and take the maximum value. This value is the TE for
event 2.

Step 4:

Repeat the same procedure from step 3 till the end event.

Backward Pass Computations (to calculate Latest Time TL)

Network Model

Procedure
Step 1:

Begin from end event and move towards the start event. Assume that the
direction of arrows is reversed.

Step 2:

Latest Time TL for the last event is the earliest time. TE of the last event.

Step 3:

Go to the next event, if there is an incoming activity, subtract the value of TL

of previous event from the activity duration time. The arrived value is TL for
that event. If there are more than one incoming activities, take the minimum
TE value.

Step 4:

Repeat the same procedure from step 2 till the start event.
Check Your Progress 8.1

What are the differences between critical and non-critical?

Discuss procedural steps of Hungarian method for solving assignment problem.

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

8.7 DETERMINATION OF FLOAT AND SLACK TIMES

As discussed earlier, the non critical activities have some slack or float. The float of an
activity is the amount of time available by which it is possible to delay its completion time
without extending the overall project completion time.
For an activity i = j, let
t ij

duration of activity

= earliest expected time

= latest allowable time

ESij = earliest start time of the activity

EF ij =

earliest finish time of the activity

LS ij =

latest start time of the activity

LF ij =

latest finish time of the activity

Total Float TFij: The total float of an activity is the difference between the latest start
time and the earliest start time of that activity.
TFij = LS ij ESij

....................(1)

or
TFij = (TL TE) tij

....................(2)

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Free Float FFij: The time by which the completion of an activity can be delayed from
its earliest finish time without affecting the earliest start time of the succeeding activity
is called free float.
FF ij = (Ej Ei) tij

....................(3)

FFij = Total float Head event slack

Independent Float IFij: The amount of time by which the start of an activity can be
delayed without affecting the earliest start time of any immediately following activities,
assuming that the preceding activity has finished at its latest finish time.
IF ij = (Ej Li) tij

....................(4)

IFij = Free float Tail event slack

Where tail event slack = Li Ei
The negative value of independent float is considered to be zero.
Critical Path: After determining the earliest and the latest scheduled times for various
activities, the minimum time required to complete the project is calculated. In a network,
among various paths, the longest path which determines the total time duration of the
project is called the critical path. The following conditions must be satisfied in locating
the critical path of a network.
An activity is said to be critical only if both the conditions are satisfied.
1.

TL TE = 0

TLj tij TEj = 0

Example 8.5: A project schedule has the following characteristics as shown in

Table 8.5
Table 8.5: Project Schedule
Activity
1-2
1-3
2-4
3-4
3-5
4-9

Name
A
B
C
D
E
F

Time
4
1
1
1
6
5

Activity
5-6
5-7
6-8
7-8
8-10
9-10

Construct PERT network.

ii.

Compute TE and TL for each activity.

iii.

Find the critical path.

Name
G
H
I
J
K
L

Time (days)
4
8
1
2
5
7

Solution:
(i)

From the data given in the problem, the activity network is constructed as shown in
Figure 8.16.

9
7

5
1

8
1

250

1
4
6

Figure 8.16: Activity Network Diagram

(ii)

To determine the critical path, compute the earliest, time TE and latest time TL for
each of the activity of the project. The calculations of TE and TL are as follows:

Network Model

To calculate TE for all activities,

T E1 =

T E2 =

TE1 + t1, 2 = 0 + 4 = 4

T E3 =

TE1 + t1, 3 = 0 + 1 =1

T E4 =

max (TE2 + t2, 4 and TE3 + t3, 4)

max (4 + 1 and 1 + 1) = max (5, 2)

5 days

T E5 =

TE3 + t3, 6 = 1 + 6 = 7

T E6 =

TE5 + t5, 6 = 7 + 4 = 11

T E7 =

TE5 + t5, 7 = 7 + 8 = 15

T E8 =

max (TE6 + t6, 8 and TE7 + t7, 8)

max (11 + 1 and 15 + 2) = max (12, 17)

17 days

T E9 =

TE4 + t4, 9 = 5 + 5 = 10

T E10 =

max (TE9 + t9, 10 and TE8 + t8, 10)

max (10 + 7 and 17 + 5) = max (17, 22)

22 days

To calculate TL for all activities

T L10 =

TE10 = 22

T L9 =

TE10 t9,10 = 22 7 = 15

T L8 =

TE10 t8, 10 = 22 5 = 17

T L7 =

TE8 t7, 8 = 17 2 = 15

T L6 =

TE8 t6, 8 = 17 1 = 16

T L5 =

min (TE6 t5, 6 and TE7 t5, 7)

min (16 4 and 15 8) = min (12, 7)

7 days

T L4 =

TL9 t4, 9 = 15 5 =10

T L3 =

min (TL4 t3, 4 and TL5 t3, 5 )

min (10 1 and 7 6) = min (9, 1)

1 day

T L2 =
T L1 =
=

TL4 t2, 4 = 10 1 = 9
Min (TL2 t1, 2 and TL3 t1, 3)
Min (9 4 and 1 1) = 0
Table 8.6: Various Activities and their Floats

Activity

Activity
Name

Normal
Time

Earliest Time

Latest Time

Start

Finish

Start

Finish

Total Float

1-2

1-3

2-4

Contd...

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Quantitative Techniques
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3-4

3-5

4-9

5-6

5-7

6-8

7-8

8-10

9-10

(iii) From the Table 8.6, we observe that the activities 1 3, 3 5, 5 7,7 8 and
8 10 are critical activities as their floats are zero.

4
TE
0

9
4

10 15

22 22

7
15 15
10

4
1

5
8
1

17 17

2
1

11 16

Figure 8.17: Critical Path of the Project

The critical path is 1-3-5-7-8-10 (shown in double line in Figure 8.17) with the project
duration of 22 days.
Check Your Progress 8.2

Which does a critical path actually signify in a project i.e. in what ways does it
differ from any other path? And What ways are its activities particularly impossible?
Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

8.8 SOLVING CPM PROBLEMS USING COMPUTER

Network Model

The worked out example, Ex. 5.5 is solved using computer.

Go to MAIN MENU and select PROJECT PLANNING and CPM CRITICAL
PATH METHOD . Enter the values of the network problem as shown in Figure 8.17.

Figure 8.18: Solving Network Problem on Computer Using TORA (Input Screen)

Now select SOLVE MENU and GO TO OUTPUT SCREEN. There are two options
for output, select CPM calculations. For step-by-step calculation of earliest time and
latest time using forward pass and backward pass procedure click NEXT STEP button.
To get all the values instantly, then press ALL STEPS button. The screen gives all the
required values to analyze the problem. You may note that at the bottom of the table, the
critical activities are highlighted in red colour. The output screen is shown in Figure 8.19,
below:

Figure 8.19: Solving Network Problem on Computer Using TORA (Output Screen)

Example 5: The following Table 8.7 gives the activities in construction project and time
duration.

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Quantitative Techniques
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Table 8.7: Project Schedule with Time Duration

Activity

Preceding Activity

Normal time (days)

1-2

1-3

2-3

1-2

2-4

1-2

3-4

1-3,2-3

4-5

2-4,3-4

Draw the activity network of the project.

Find the total float and free float for each activity.

Solution:
a.

From the activity relationship given, the activity network is shown in Figure 8.20
below:
2

10
1

4
25

Figure 8.20: Activity Network Diagram

The total and free floats for each activity are calculated as shown in Table 8.8
Table 8.8: Calculation of Total and Free Floats

Activity

1-2
1-3
2-3
2-4
3-4
4-5

Normal
time
(days)

Earliest Time

20
25
10
12
5
10

Latest Time

Float

Start

Finish

Start

Finish

Total

Free

0
0
20
20
30
35

20
25
30
32
35
45

0
5
20
23
30
35

20
30
30
35
35
45

0
5
0
3
0
0

Example 6: Draw the network for the following project given in Table 8.9.
Table 8.9: Project Schedule

254

Activity

Preceded by Initial activity

Duration (weeks)

g,h

Number the events by Fulkersons rule and find the critical path. Also find the time for
completing the project.

Network Model

Solution: The network is drawn as shown in Figure 8.21 using the data provided. Number
the events using Fulkersons rule and find the Earliest and Latest time and total float is
computed for each activity to find out the critical path as given Table 8.10.
Table 8.10: TL, TL and TFij Calculated
Activity

Duration
weeks

Earliest Time

Latest Time

Start

Finish

Total
Float

Start

Finish

19 25
d

3
0

29 35

25 12
i

l
e

10 10

25 31

11
42 42

Dummy

g
4
f
17 17

9
h

23 23

31 31

Figure 8.21: Activity Network Diagram

The critical path is a c f h j and the minimum time for the completion of the project
is 42 weeks.

8.9 PROJECT EVALUATION REVIEW TECHNIQUE, PERT

In the critical path method, the time estimates are assumed to be known with certainty.
In certain projects like research and development, new product introductions, it is difficult
to estimate the time of various activities. Hence PERT is used in such projects with a

255

probabilistic method using three time estimates for an activity, rather than a single estimate,
as shown in Figure 8.22.

Pessimistic time (tp)

Most likely time (tm)

Optimistic time (tO)

Expected time (te)

Beta Curve

Probability

Quantitative Techniques
for Management

Time duration of activity

Figure 8.22: PERT Using Probabilistic Method with 3 Time Estimates

Optimistic time tO:

It is the shortest time taken to complete the activity. It means that if everything goes well
then there is more chance of completing the activity within this time.
Most likely time tm:
It is the normal time taken to complete an activity, if the activity were frequently repeated
under the same conditions.
Pessimistic time tp:
It is the longest time that an activity would take to complete. It is the worst time estimate
that an activity would take if unexpected problems are faced.
Taking all these time estimates into consideration, the expected time of an activity is
arrived at.
The average or mean (ta) value of the activity duration is given by,

Ta =

t0 + 4tm + tp
6

.....................(5)

The variance of the activity time is calculated using the formula,

Ta =

256

t0 + 4tm + tp
6

...................(6)

Network Model

Probability for Project Duration

The probability of completing the project within the scheduled time (Ts) or contracted
time may be obtained by using the standard normal deviate where Te is the expected
time of project completion.
Z0 =

Ts Te
in critical path

.......................(7)

Probability of completing the project within the scheduled time is,

P (T< Ts) = P ( Z< Z0 ) (from normal tables)

.................(8)

Example 8: An R & D project has a list of tasks to be performed whose time estimates
are given in the Table 8.11, as follows.
Time expected for each activity is calculated using the formula (5):
Ta =

t0 + 4tm + tp
6
4 + 4(6) + 8
36
=
= 6 days for activity A
6
6

Similarly, the expected time is calculated for all the activities.

The variance of activity time is calculated using the formula (6).

tp t0
=
6

2
1

8 4
= 0.444
=
6

Similarly, variances of all the activities are calculated. Construct a network diagram and
calculate the time earliest, TE and time Latest TL for all the activities.

7
14 14

2
6
0

0
9

7
5

4
3

8
4

4
12 8

Figure 8.23: Network Diagram

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Table 8.11: Time Estimates for R & D Project

Activity
i

Activity Name

A
B
C
D
E
F
G
H
I
J

4
2
6
1
6
6
3
4
2
2

tm
( in days)
6
3
8
2
7
7
5
11
4
9

j
1-2
1-3
1-4
2-4
3-4
3-5
4-6
4-7
5-7
6-7

tp
8
10
16
3
8
14
7
12
6
10

Draw the project network.

Find the critical path.

Find the probability that the project is completed in 19 days. If the probability is less
that 20%, find the probability of completing it in 24 days.

Solution:
Calculate the time average ta and variances of each activity as shown in Table 8.12.
Table 8.12: Te & s2 Calculated
Activity
1-2
1-3
1-4
2-4
3-4
3-5
4-6
4-7
5-7
6-7

To
4
2
6
1
6
6
3
4
2
2

Tm
6
3
8
2
7
7
5
11
4
9

Tp
8
10
16
3
8
14
7
12
6
10

Ta
6
4
9
2
7
8
5
10
4
8

From the network diagram Figure 8.24, the critical path is identified as
1-4, 4-6, 6-7, with a project duration of 22 days.
The probability of completing the project within 19 days is given by,
P (Z< Z0)
To find Z0 ,

Ts Te
Ss in critical path

Z0 =

19 - 22

=
2.777 + 0.444 + 1.777

-3
= = 1.3416 days
5
258

2
0.444
1.777
2.777
0.111
0.111
1.777
0.444
1.777
0.444
1.777

we know, P (Z <Z0) = 0.5 Y (1.3416) (from normal tables, Y (1.3416) = 0.4099)

Network Model

= 0.5 0.4099
= 0.0901
= 9.01%
Thus, the probability of completing the R & D project in 19 days is 9.01%. Since the
probability of completing the project in 19 days is less than 20%, we find the probability
of completing it in 24 days.

Z0 =

Ts Te
in critical path

24 - 22 2
= = 0.8944 days
5 5

P (Z < Z0) = 0.5 Y (0.8944)

(from normal tables, Y (0.8944) = 0.3133)

= 0.5 + 0.3133
= 0.8133
= 81.33%

8.10 SOLVING PERT PROBLEMS USING COMPUTER

Example 8.8 is solved using computer with TORA. Go to MAIN MENU, SELECT
PROJECT PLANNING and Click PERT Program Evaluation Review Technique.
Enter the values as shown in Figure 8.24 below.

Figure 8.24: Solving PERT Problem Using Computer with TORA (Input Screen)

Now, go to solve menu and click. In the output screen, select Activity mean / Variance
option in select output option. The following screen appears as shown in Figure 8.25.

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Quantitative Techniques
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Figure 8.25: TORA (Output Screen), Select PERT Calculations.

Selecting the PERT calculations option. The following screen appears. This shows the
average duration and standard deviation for the activities.

Figure 8.26: TORA (Output Screen) Showing Average Durations and Standard Deviation for
Activities

8.11 COST ANALYSIS

The two important components of any activity are the cost and time. Cost is directly
proportional to time and vice versa. For example, in constructing a shopping complex,
the expected time of completion can be calculated using be time estimates of various
260

activities. But if the construction has to the finished earlier, it requires additional cost to
complete the project. We need to arrive at a time / cost trade-off between total cost of
project and total time required to complete it.

Network Model

Normal time: Normal time is the time required to complete the activity at normal
conditions and cost.
Crash time: Crash time is the shortest possible activity time; crashing more than the
normal time will increase the direct cost.

Cost Slope
Cost slope is the increase in cost per unit of time saved by crashing. A linear cost curve
is shown in Figure 8.27.

Cost

Crash cost

Normal cost
Time
Crash time

Normal time

Figure 8.27: Linear Cost Curve

Cost slope

Crash cost Cc Normal cost N c

Normal time N t Crash time C t

Cc N c
N t Ct

.........................(9)

Example 8: An activity takes 4 days to complete at a normal cost of Rs. 500.00. If it is

possible to complete the activity in 2 days with an additional cost of Rs. 700.00, what is
the incremental cost of the activity?
Solution:
C N

c
c
Incremental Cost or Cost Slope = N C
t
t

700 500
42

= Rs. 100.00

It means, if one day is reduced we have to spend Rs. 100/- extra per day.

Project Crashing
Procedure for crashing

Step1:

Draw the network diagram and mark the Normal time and Crash time.

Step2:

Calculate TE and TL for all the activities.

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Step3:

Find the critical path and other paths.

Step 4:

Find the slope for all activities and rank them in ascending order.

Step 5:

Establish a tabular column with required field.

Step 6:

Select the lowest ranked activity; check whether it is a critical activity. If so,
crash the activity, else go to the next highest ranked activity.
Note: The critical path must remain critical while crashing.

Step 7:

Calculate the total cost of project for each crashing.

Step 8:

Repeat Step 6 until all the activities in the critical path are fully crashed.

Example 9: The following Table 8.13 gives the activities of a construction project and
other data.
Table 8.13: Construction Project Data
Activity

Normal
Time (days)
6
5
5
8
5
2

1-2
1-3
2-4
2-5
3-4
4-5

Crash
Cost (Rs)
50
80
60
100
140
60

Time (days)
4
3
2
6
2
1

Cost (Rs)
80
150
90
300
200
80

If the indirect cost is Rs. 20 per day, crash the activities to find the minimum duration of
the project and the project cost associated.
Solution: From the data provided in the table, draw the network diagram (Figure 8.28)
and find the critical path.

6 6
8
2
0

5
14 14

6
5

2
11 12

4
5

Figure 8.28: Network Diagram

From the diagram, we observe that the critical path is 1-2-5 with project duration of
14 days
The cost slope for all activities and their rank is calculated as shown in Table 8.14
Cost slope
262

Crash cost Cc Normal cost N c

Normal time N t Crash time C t

80 50
Cost Slope for activity 1 2 =
64

Network Model

30
=
= 15.
2

Table 8.14: Cost Slope and Rank Calculated

Activity
1-2
1-3
2-4
2-5
3-4
4-5

Cost Slope
15
35
10
100
20
20

Rank
2
4
1
5
3
3

The available paths of the network are listed down in Table 8.15 indicating the sequence
of crashing (see Figure 8.29).
Table 8.15: Sequence of Crashing
Path
1-2-5
1-2-4-5
1-3-4-5

14
13
12

Number of days crashed

12 11
10
11
11
10
12
11
10

7
8

2
6-4
4

2-1

52
53

4
52
4
3

Figure 8.29: Network Diagram Indicating Sequence of Crashing

The sequence of crashing and the total cost involved is given in Table 8.16
Initial direct cost

= sum of all normal costs given

= Rs. 490.00
Table 8.16: Sequence of Crashing & Total Cost

Activity
Crashed

Project
Duration

Critical Path

Direct Cost
in (Rs.)

Indirect Cost
(in Rs.)

125

490

14 20 = 280

Total
Cost (in
Rs)
770

1 2(2)

125

490 + (2 15) = 520

12 20 = 240

760

Contd...

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2 5 (1)

3 4 (1)

125

520 + (1 100) + (1 20) =

1345

640

11 20 = 220

860

10 20 = 200

970

1245
2 5 (1)

125

640 + (1 100) + (1 10) +

2 4 (1)

1345

(1 20) = 770

3 4 (1)

1245

It is not possible to crash more than 10 days, as all the activities in the critical path are
fully crashed. Hence the minimum project duration is 10 days with the total cost of
Rs. 970.00.
Check Your Progress 8.3

If an activity zero free float, does this mean that a delay in completing that activity
is likely to delay the completion of data of the project on whole.
Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

8.12 LET US SUM UP

Network analysis, as stated above, is a technique related to sequencing problems which
are linked with minimizing same measure of performance of the system like the total
consumption time of the project. This is a very productive technique for describing the
elements in a complex situation for purpose of designing, coordinating, planning, analysing,
controlling and making decision. The new most popular form of learnings PERT and
CPM.

8.13 LESSON-END ACTIVITY

As you know that we all live in houses. Those houses are constructed by the construction
company like DLF, Unitech, Parsavnath, Ansals etc. You have to visit to one of the
construction company and analyse its modules-operandi to function. Apply the concept
of network model (line PERT and CPM) to proper completion of work in time.

8.14 KEYWORDS

264

Critical path

: Is a network and a continuous chain of activities that connect

the initial event to the terminal event.

Activity

: An activity represents an action and consumption of sources.

PERT

: Project Evaluation Review Technique is a unique and

important controlling device. The PERT take into
consideration the three types of time optimistic time,
pessimistic time and likely time.

CPM

: Critical Plan Method is a diagrammatical technique for

planning and scheduling of projects.

Float

: Is used in the context of network analysis. Float may be

+ive or ive.

Arrow

: Direction shows the general progression in time.

Slack

: Normally associated with events. It indicates the amount of

latitude.

Network

: Is a series of related activities which result in once produces

(or services). It is a pictorial presentation of the various events
and activities covering a project.

Event

: An event represent the start or completion of activity.

Network Model

8.15 QUESTIONS FOR DISCUSSION

Write True or False against each statement:

(a)

Critical path for any network is the longest path through the entire network.

(b)

An imaginary activity always consumes resource and time.

(c)

Slack is the amount of time by which the start of an activity may be delayed.

(d)

Crash time is the maximum possible activity time.

(e)

An activity which lies on the critical path is called non-critical activity .

Briefly comment on the following:

(a)

PERT/CPM system results in considerable improvements.

(b)

PERT/CPM network techniques in their original developments have essentially

time oriented techniques.

(c)

CPM does not incorporate statistical analysis.

(d)

Two important components of any activity are the cost and time.

(e)

Project involved planning, scheduling and controlling a number of interrelated

activities.

(f)

Project managements in general have their phases.

(g)

Network should have only one start event and one end event.

Fill in the blank:

(a)

....................... is the shortest possible activity time.

(b)

CPM is a ....................... time estimate and PERT has ....................... time

estimate.

(c)

Cost single is the increase in cost per ........................

(d)

....................... time is the shortest time taken to complete the activity.

Write Short Notes:

(a) PERT

(b) CPM

(d) Activity

(e) Crashing
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8.16 TERMINAL QUESTIONS

What is the difference between CPM and PERT?

Explain the logic in constructing a network diagram. What are the network
components?

List out the rules in constructing a network diagram.

What is a dummy activity?

What are critical path activities and why are they considered important?

Explain the procedure for computing earliest time and latest time of an activity.

What is (i) Total float (ii) Free float and (iii) Independent float ?

Briefly describe PERT and its advantages.

Explain the terms (i) Time estimates (ii) Expected time and (iii) Variance of activity
time.

10. What is project crashing? Explain the procedure for crashing of project activities.

Exercise Problems
1.

You are required to prepare a network diagram for constructing a 5 floor apartment.
The major activities of the project are given as follows:
Activity

Description

Selection of site

Preparation of drawings

Arranging the for finance

Selection of contractor

Getting approval from Govt

Laying the foundation

Start construction

D, F

Advertise in newspaper

B, C

Allocation of tenants

G, H

For the problem No.1 the time estimates in days are given. Determine the Time
earliest and Time latest, and the critical activities
Activity

Time (days)

An assembly having the following sequence of activities given along with their
predecessor in the table below. Draw a network diagram for the assembly.
Activity

266

Immediate Predecessor

Description

Predecessor

Pick bolt & washer

Insert washer in screw

Fix the bolt in flange

Screw the nut with bolt

Pick the spanner

Tighten the nut

Place the assembly apart

B, C

Activity

Predecessor

Network Model

Draw a network diagram for the project:

F
C

F, G

D, E, F

Determine the critical path and project duration for the following project:
Activity

Immediate Predecessor

Time (days)

C,D

E,F

A national conference is planned in a college. The activities are listed down along
with their predecessors and time taken. Prepare a network diagram and determine
the critical activities.

Activity

Description

Immediate

Duration (days)

Predecessor

Confirm lead speaker and topic

Prepare brochure

Send letters to other speakers

Get confirmation from speakers

Send letters to participants

C,D

Obtain travel plans from speakers

Arrange for accommodation for speakers

Get handouts from speakers

Finalize registrations

G,H

Arrange hall and AV

Conduct of programme

Consider the following project with the list of activities:

Activity

Predecessors

Duration (months)

D,E

G,H

Contd....

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Construct the project network diagram.

Compute the earliest start time and earliest finish time.

Find the latest start and latest finish time.

Find the slack for each activity.

Determine the critical path and project duration.

Use TORA to compare and check answer.

You are alone at home and have to prepare a bread sandwich for yourself. The
preparation activities and time taken are given in the table below:
Task

Description

Predecessor

Time (minutes)

Purchase of bread

Take cheese and apply on bread

Get onions from freezer

Fry onions with pepper

B,C

Purchase sauce for bread

Toast Bread

B,C

Assemble bread and fried onions

Arrange in plate

Determine the critical activities and preparation time for tasks given in table.

Find the earliest time and latest time for all activities.

While purchasing sauce, you met a friend and spoke to him for 6 minutes. Did
this cause any delay in preparation?

An amusement park is planned at a suitable location. The various activities are

listed with time estimates. Using TORA, determine the critical path. Also, find
whether the amusement park can be opened for public within 35 days from the
start of the project work.
Activity

Time (days) :

The predecessor activities are given below:

Activity

268

Predecessor

E,F

H,E

10. Draw the network from the following activity and find the critical path and total
duration of project.

11.

Activity

Duration (days)

1-2

1-3

1-4

2-3

2-5

3-5

4-5

Network Model

Draw a network diagram and determine the project duration

Activity

Duration (weeks)

1-2

1-4

1-3

2-5

3-4 (Dummy)

4-6

3-6

5-7

5-6

5-8

6-7

7-9

8-9

12. Determine the critical path and project duration for the network given.

A
(5)

Dummy
D (0)

3
C (8)

(7)

(6)
(0)Dummy

B (6)

H (4)

(1) I

F
4

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13. For the PERT problem find the critical path and project duration. What is the
probability that the project will be completed in 25 days?
Activity

Predecessor

Time
Optimistic

Most likely

Pessimistic

E,F

14. The following table lists the jobs of a network along with their estimates.
Activity

Time (Weeks)

Cost (Rs)

Normal

Crash

Normal

Crash

1-2

1300

2400

1-3

1000

1380

2-3

7000

1540

2-4

1200

1920

2-5

1700

2240

3-6

600

700

4-5

1000

1600

5-6

900

1200

Draw the project network diagram.

Calculate the length and variance of the critical path.

What is the probability that the jobs on the critical path can be completed in
41 days?

15. The following table gives data at normal time and cost crashed time and project
cost.
Activity

270

Time (W eeks)

Cost (Rs)

Normal

Crash

Normal

Crash

1-2

1300

2400

1-3

1000

1380

2-3

7000

1540

2-4

1200

1920

2-5

1700

2240

3-6

600

700

4-5

1000

1600

5-6

900

1200

Find the optimum project time and corresponding minimum total project cost by
crashing appropriate activities in proper order. Show the network on time-scale at
each step. Indicated cost per day is Rs. 400.00.

Network Model

16. Solve the following project, and find the optimum project time and project cost.
Activity

Time (weeks)

Cost (Rs.)

Crash

Normal

Crash

time
1-2

500

900

2-3

800

1400

2-4

400

600

2-5

500

600

3-6

300

500

4-6

200

360

5-7

1000

1400

6-7

700

1060

8.17 MODEL
DISCUSSION

ANSWERS

(a)

True

(b)

False

(a)

Crash time

(b)

single, three

(c)

TO
True

QUESTIONS

FOR

(d)

False

(e)

False

(c)

unit

(d) optimistic

8.18 SUGGESTED READINGS

Harry & Evartis, Introduction to PERT
S.K. Bhatnagar, Network Analysis Technique

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LESSON

9
WAITING MODEL (QUEUING THEORY)

CONTENTS
9.0 Aims and Objectives
9.1 Introduction
9.2 Queuing Systems
9.3 Characteristics of Queuing System
9.3.1 The Arrival Pattern
9.3.2 The Service Mechanism
9.3.3 The Queue Discipline
9.3.4 The Number of Customers allowed in the System
9.3.5 The Number of Service Channels
9.3.6 Attitude of Customers
9.4 Poisson and Exponential Distribution
9.5 Symbols and Notations
9.6 Single Server Queuing Model
9.7 Solving the Problem Using Computer with TORA
9.8 Let us Sum Up
9.9 Lesson-end Activity
9.10 Keywords
9.11 Questions for Discussion
9.12 Terminal Questions
9.13 Model Answers to Questions for Discussion
9.14 Suggested Readings

9.0 AIMS AND OBJECTIVES

In this lesson we are going to talk about the queuing theory which is also known as
waiting line. These queuing theory will facilitate in solving the queue related problem of
the industry. The most important point will be taken into consideration in the designing
queue system which should balance service to customers.

9.1 INTRODUCTION
Queuing theory deals with problems that involve waiting (or queuing). It is quite common
that instances of queue occurs everyday in our daily life. Examples of queues or long
waiting lines might be
272

Waiting for service in banks and at reservation counters.

Waiting for a train or a bus.

Waiting for checking out at the Supermarket.

Waiting at the telephone booth or a barber's saloon.

Waiting Model
(Queuing Theory)

Whenever a customer arrives at a service facility, some of them usually have to wait
before they receive the desired service. This forms a queue or waiting line and customers
feel discomfort either mentally or physically because of long waiting queue.
We infer that queues form because the service facilities are inadequate. If service facilities
are increased, then the question arises how much to increase? For example, how many
buses would be needed to avoid queues? How many reservation counters would be
needed to reduce the queue? Increase in number of buses and reservation counters
requires additional resource. At the same time, costs due to customer dissatisfaction
must also be considered.
In designing a queuing system, the system should balance service to customers (short
queue) and also the economic considerations (not too many servers). Queuing theory
explores and measures the performance in a queuing situation such as average number
of customers waiting in the queue, average waiting time of a customer and average
server utilization.

9.2 QUEUING SYSTEMS

The customers arrive at service counter (single or in groups) and are attended by one or
more servers. A customer served leaves the system after getting the service. In general,
a queuing system comprises with two components, the queue and the service facility.
The queue is where the customers are waiting to be served. The service facility is
customers being served and the individual service stations. A general queuing system
with parallel server is shown in Figure 9.1 below:

Customers
Arrival (x)

(x) Customers
Departure

S2 (x)

.
.
.
Sn.

(x) Customers
Departure

Service Facility

Queue

Queuing System

Figure 9.1: A typical queuing system

9.3 CHARACTERISTICS OF QUEUING SYSTEM

In designing a good queuing system, it is necessary to have a good information about the
model. The characteristics listed below would provide sufficient information.
1.

The arrival pattern.

The service mechanism.

The queue discipline.

The number of customers allowed in the system.

The number of service channels.

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9.3.1 The Arrival Pattern

The arrival pattern describes how a customer may become a part of the queuing system.
The arrival time for any customer is unpredictable. Therefore, the arrival time and the
number of customers arriving at any specified time intervals are usually random variables.
A Poisson distribution of arrivals correspond to arrivals at random. In Poisson distribution,
successive customers arrive after intervals which independently are and exponentially
distributed. The Poisson distribution is important, as it is a suitable mathematical model
of many practical queuing systems as described by the parameter "the average arrival
rate".

9.3.2 The Service Mechanism

The service mechanism is a description of resources required for service. If there are
infinite number of servers, then there will be no queue. If the number of servers is finite,
then the customers are served according to a specific order. The time taken to serve a
particular customer is called the service time. The service time is a statistical variable
and can be studied either as the number of services completed in a given period of time
or the completion period of a service.

9.3.3 The Queue Discipline

The most common queue discipline is the "First Come First Served" (FCFS) or
"First-in, First-out" (FIFO). Situations like waiting for a haircut, ticket-booking counters
follow FCFS discipline. Other disciplines include "Last In First Out" (LIFO) where
last customer is serviced first, "Service In Random Order" (SIRO) in which the
customers are serviced randomly irrespective of their arrivals. "Priority service" is
when the customers are grouped in priority classes based on urgency. "Preemptive
Priority" is the highest priority given to the customer who enters into the service,
immediately, even if a customer with lower priority is in service. "Non-preemptive
priority" is where the customer goes ahead in the queue, but will be served only after
the completion of the current service.

9.3.4 The Number of Customers allowed in the System

Some of the queuing processes allow the limitation to the capacity or size of the waiting
room, so that the waiting line reaches a certain length, no additional customers is allowed
to enter until space becomes available by a service completion. This type of situation
means that there is a finite limit to the maximum queue size.

9.3.5 The Number of Service Channels

The more the number of service channels in the service facility, the greater the overall
service rate of the facility. The combination of arrival rate and service rate is critical for
determining the number of service channels. When there are a number of service channels
available for service, then the arrangement of service depends upon the design of the
system's service mechanism.
Parallel channels means, a number of channels providing identical service facilities so
that several customers may be served simultaneously. Series channel means a customer
go through successive ordered channels before service is completed. The arrangements
of service facilities are illustrated in Figure 45. A queuing system is called a one-server
model, i.e., when the system has only one server, and a multi-server model i.e., when
the system has a number of parallel channels, each with one server.
(a) Arrangement of service facilities in series

Customers

XXXX
274

Served Facility
Served Customers

(1)

Waiting Model
(Queuing Theory)

Single Queue Single Server

Served Facility

XXXX

(2)
(b)

Served Customers

Single Queue, Multiple Server

Arrangement of Service facilities in Parallel

Service Facility

Customers
XXXX

Served Customers
Service Facility
Served Customers

(c)

Arrangement of Mixed Service facilities

Customers
XXXX
Served
Customer

Service Facilities
Figure 9.2: Arrangements of Service Facilities (a, b, c)

9.3.6 Attitude of Customers

Patient Customer: Customer arrives at the service system, stays in the queue until
served, no matter how much he has to wait for service.
Impatient Customer: Customer arrives at the service system, waits for a certain time
in the queue and leaves the system without getting service due to some reasons like long
queue before him.
Balking: Customer decides not to join the queue by seeing the number of customers
already in service system.
Reneging: Customer after joining the queue, waits for some time and leaves the service
system due to delay in service.
Jockeying: Customer moves from one queue to another thinking that he will get served
faster by doing so.

9.4 POISSON AND EXPONENTIAL DISTRIBUTIONS

Both the Poisson and Exponential distributions play a prominent role in queuing theory.
Considering a problem of determining the probability of n arrivals being observed during
a time interval of length t, where the following assumptions are made.

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Probability that an arrival is observed during a small time interval (say of length v)
is proportional to the length of interval. Let the proportionality constant be l, so that
the probability is lv.

ii.

Probability of two or more arrivals in such a small interval is zero.

iii.

Number of arrivals in any time interval is independent of the number in nonoverlapping time interval.

These assumptions may be combined to yield what probability distributions are likely to
be, under Poisson distribution with exactly n customers in the system.
Suppose function P is defined as follows:
P (n customers during period t) = the probability that n arrivals will be observed
in a time interval of length t
then,

P (n, t) =

(t)n e t
n!

(n = 0, 1, 2,)

..................(1)

This is the Poisson probability distribution for the discrete random variable n, the number
of arrivals, where the length of time interval, t is assumed to be given. This situation in
queuing theory is called Poisson arrivals. Since the arrivals alone are considered (not
departures), it is called a pure birth process.
The time between successive arrivals is called inter-arrival time. In the case where
the number of arrivals in a given time interval has Poisson distribution, inter-arrival times
can be shown to have the exponential distribution. If the inter-arrival times are independent
random variables, they must follow an exponential distribution with density f(t) where,
f (t) = le lt (t > 0)

.................(2)

Thus for Poisson arrivals at the constant rate l per unit, the time between successive
arrivals (inter-arrival time) has the exponential distribution. The average Inter - arrival
time is denoted by I .

By integration, it can be shown that E(t) = I/

.................(3)

If the arrival rate l = 30/hour, the average time between two successive arrivals are
1/30 hour or 2 minutes.
For example, in the following arrival situations, the average arrival rate per hour, l and
the average inter arrival time in hour, are determined.
(i)

One arrival comes every 15 minutes.

Average arrival rate , l =

(ii)

60
= 4 arrivals per hour.
15

Average inter arrival time I = 15 minutes = or 0.25 hour.

Three arrivals occur every 6 minutes.
Average arrival rate, l = 30 arrivals per hour.
6

=
Average Inter-arrival time, I =
3

2 minutes =

1
or 0.33 hr.
30

(iii) Average interval between successive intervals is 0.2 hour.

Average arrival rate, l =

1
= 5 arrivals per hour.
0.2

Average Inter-arrival time, I = 0.2 hour.

276

Similarly, in the following service situations, the average service rate per hour, and
average service time in hours are determined.

(i)

One service is completed in 10 minutes.

Average service rate, m =

60
= 6 services per hour.
10

Waiting Model
(Queuing Theory)

(ii)

Average service time, S =

= 10 minutes or 0.166 hour.
4
Number of customers served in 15 minutes is 4.
Average service rate, m =

4
x 60 =16 services per hour.
15
30

Average services time, S =

= 3.75 mins or 0.0625 hour.
4
(iii) Average service time is 0.25 hour.
Average service rate , m = 4 services per hour.
Average service time S = 15 mins or 0.25 hour.
Example 1: In a factory, the machines break down and require service according to a
Poisson distribution at the average of four per day. What is the probability that exactly
six machines break down in two days?
Solution: Given l = 4, n = 6, t =2
P(n, t) = P(6, 4) when l = 4
we know,

P(n, t) =

(4 2) e
6

P(6,2) =
6

(t)n et
n!

8 e
720
= 0.1221
=

Solving the Problem using Computer

Example 1 is solved using computer with TORA. Enter into TORA package and select
Queuing Analysis option. Press 'go to input screen' to enter the values. The input
screen is shown in Figure 9.3 given below. The numbers scenarios is 1 and the value of
Lambda is lt = 4 2 = 8.

Figure 9.3: Queuing Analysis Using TORA (Input Screen)

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Press 'solve', to view the Queuing Analysis output . Select Scenario 1 option, to get the
result, as shown in Figure 9.4.

Figure 9.4: Queuing Analysis Using TORA (Output Screen)

In the output screen, for n = 6 the probability, Pn is given as 0.12214.

Example 2: On an average, 6 customers arrive in a coffee shop per hour. Determine
the probability that exactly 3 customers will reach in a 30 minute period, assuming that
the arrivals follow Poisson distribution.
Solution: Given,

l = 6 customers / hour
t = 30 Minutes = 0.5 hour
n=2

we know,

P(n, t) =

(t)n et
n!

(6 0 . 5 ) e
2

P(6,2) =

6 0 . 5

= 0.22404

Similarly, when the time taken to serve different customers are independent, the probability
that no more than t periods would be required to serve a customer is given by exponential
distribution as follows:
p(not more than t time period) = 1 e mt where m = average service rate
Example 3: A manager of a fast food restaurant observes that, an average of 9 customers
are served by a waiter in a one-hour time period. Assuming that the service time has an
exponential distribution, what is the probability that

278

(a)

A customer shall be free within 12 minutes.

(b)

A customer shall be serviced in more than 25 minutes.

Waiting Model
(Queuing Theory)

Solution:
(a)

Given, m = 9 customers / hour

t = 15 minutes = 0.25 hour

Therefore, p (less than 15 minutes) = l e mt

= 1 e 9 0.25
= 0.8946
(b)

Given, m = 9 customers / hour

t = 25 minutes = 0.4166 hour

Therefore, P (more than 25 minutes) = l e mt

= 1 e 9 0.4166
= 0.0235
To analyze queuing situations, the questions of interest that are typically concerned with
measures of queuing system performance include,
l

What will be the waiting time for a customer before service is complete?

What will be the average length of the queue?

What will be the probability that the queue length exceeds a certain length?

How can a system be designed at minimum total cost?

How many servers should be employed?

Should priorities of the customers be considered?

Is there sufficient waiting area for the customers?

9.5 SYMBOLS AND NOTATIONS

The symbols and notations used in queuing system are as follows:
n

Number of customers in the system (both waiting and in service).

Average number of customers arriving per unit of time.

Average number of customers being served per unit of time.

l/m

P, traffic intensity.

Number of parallel service channels (i,e., servers).

Average or expected number of customers in the system (both waiting

and in service).

Average or expected number of customers in the queue.

Average waiting time in the system (both waiting and in service).

Average waiting time of a customer in the queue.

Time independent probability that there are n customers in the system

(both waiting and in service).

Pn (t) =

Probability that there are n customers in the system at any time t

(both waiting and in service).
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9.6 SINGLE SERVER QUEUING MODEL

a / FIFO)
Model 1: (MM1) : (a
This model is based on the following assumptions:
(i)

The arrivals follow Poisson distribution, with a mean arrival rate l.

(ii)

The service time has exponential distribution, average service rate m.

(iii) Arrivals are infinite population a.

(iv) Customers are served on a First-in, First-out basis (FIFO).
(v)

There is only a single server.

System of Steady-state Equations

In this method, the question arises whether the service can meet the customer demand.
This depends on the values of l and m.
If l m
m, i.e., if arrival rate is greater than or equal to the service rate, the waiting line
would increase without limit. Therefore for a system to work, it is necessary that l < m.
As indicated earlier, traffic intensity r = l / m. This refers to the probability of time. The
service station is busy. We can say that, the probability that the system is idle or there are
no customers in the system, P0 = 1 r.
From this, the probability of having exactly one customer in the system is P1 = r P0.
Likewise, the probability of having exactly 2 customers in the system would be
P3 = rP1 = r2 P0
The probability of having exactly n customers in the system is
Pn = rnP0 = rn(1-r) = (l / m)n P0
The expected number of customers in the system is given by,

Ls =

n=1

n(1 / )(/ )

nPn =

n= 1

=
1

........................(2)

The expected number of customers in the queue is given by,

Ln =

(n 1)P

280

nP P
n =1

n =1

2
2
=
( ) 1

....................(3)

With an average arrival rate l, the average time between the arrivals is 1 / l. Therefore,
the mean waiting time in queue, wq is the product of the average time between the
arrivals and the average queue length,

1
1

....................(4)

Waiting Model
(Queuing Theory)

( )

Substituting

Similarly the average waiting time in the system , Ws

.......................(5)

putting Ls = l (m l) , we get
1
Ws =

Queuing Equations
The evaluation of Model I is listed below:
1.

Expected number of customers in the system,

Ls =

Expected number of customers in the queue,

Lq =

=
1
2
2
=
( ) 1

Average waiting time in the system,

Ws =

Average waiting time in the queue,

Wq =

( )

Average waiting time for a customer,

W(w / w > 0) =

Expected length of non-empty queue,

L(m / m > 0) =

1
1
or
(1 )

( )

Probability that there are n customers in the system,

Pn = P0 =

Probability that there is nobody in the system,

P0 =

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Quantitative Techniques
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Probability that there is at least one customer or queue is busy,

Pb = 1 P0

10. Traffic intensity,

Example 4: Consider a situation where the mean arrival rate (l) is one customer every
4 minutes and the mean service time (m) is 2 minutes. Calculate the average number
of customers in the system, the average queue length and the time taken by a customer
in the system and the average time a customer waits before being served.
Solution: Given, Average Arrival Rate l = 1 customer every 4 minutes or 15 customers
per hour
Average Service -Rate m = 1 customer every 2 minutes or 24 customers per hour
(i) The average number of customers in the system,

Ls =

15
= 1.66 customers
24 15

(ii)

The average queue length,

Lq =

=

15
15

24 24 15

= 1.04 customers
(iii) The average time a customer spends in the system,
Ws =

1
24 15

= 0.11 60 = 6.66 minutes

(iv) The average time a customer waits before being served,
Wq =

( )
15
24(24 15)

= 0.069 60
= 4.16 minutes
Example 5: Trucks at a single platform weigh-bridge arrive according to Poisson
probability distribution. The time required to weigh the truck follows an exponential
probability distribution. The mean arrival rate is 12 trucks per day, and the mean service
rate is 18 trucks per day. Determine the following:

282

(a)

What is the probability that no trucks are in the system?

(b)

What is the average number of trucks waiting for service?

(c)

What is the average time a truck waits for weighing service to begin?

(d)

What is the probability that an arriving truck will have to wait for service?

Solution: Given l = 12 trucks per days, m = 18 trucks per day.

(a)

Waiting Model
(Queuing Theory)

Probability that no trucks are waiting for service,

P0 = 1

= 1

12
18

= 0.3333 or 33.33%
(b)

Average number of trucks waiting for service,

Lq =

12 12
=
18 18 12

= 1.33 trucks
(c)

Average time a truck waits for weighing service to begin,

Wq =
=

( )
12
18(18 12)

= 0.1111 days or 53.3 minutes.

(d)

Probability that an arriving truck will have to wait for service,

P0 = 1 P0
= 1 0.333
= 0.6667 or 66.67%
Check Your Progress 9.1

Explain Queuing Theory giving few examples.

Both the Poisson and Exponential distributions play a prominent role in queuing
theory. Jusify the statement.

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

Quantitative Techniques
for Management

9.7 SOLVING THE PROBLEM USING COMPUTER WITH

TORA
Example 5 is solved using computer with TORA.
Enter the values l = 12
m = 18
No. of server = 1
The input screen is shown in Figure 9.5.

Figure 9.5: Queuing Analysis Using TORA (Input Screen)

Press Solve to get the output screen and select scenario 1 option in the select output
option menu. The output screen for the problem is displayed as shown in Figure 9.6.

284

Figure 9.6: Queuing Analysis Using TORA (Output Screen)

Waiting Model
(Queuing Theory)

The values are

(a)

P0 = 0.3333 (for n = 0)

(b)

Lq = 1.33

(c)

Wq = 0.1111

(d)

Pb (or)

= 0.66667
C

In the same problem, to determine the probability that there are 2 trucks in the system,
we use the formula,
n

Pn = 1

2

12 12
= 1
18 18

= 0.4444 0.3333
= 0.14815 or 14.81%
This can also be read in the output screen for n=2 the probability P n = 0.14815,
Similarly, the probabilities for different values of n can be directly read.
Example 6: A TV repairman finds that the time spent on his jobs has a exponential
distribution with mean 30 minutes. If he repairs TV sets in the order in which they come
in, and if the arrivals follow approximately Poisson distribution with an average rate of
10 per 8 hour day, what is the repairman's expected idle time each day? How many jobs
are ahead of the average with the set just brought in?
Solution: Given l = 10 TV sets per day.
m = 16 TV sets per day.
(i)

The Probability for the repairman to be idle is,

P0 = 1 r
We know, r = l / 30 = 10 / 16 =0.625
P0 = 1 r
= 1 0.625 = 0.375
Expected idle time per day = 8 0.375
= 3 hours.

(ii)

How many jobs are ahead of the average set just brought in
Ls =
=

10
10
=
16 10
6

= 1.66 say 2 jobs.

Example 7: Auto car service provides a single channel water wash service. The incoming
arrivals occur at the rate of 4 cars per hour and the mean service rate is 8 cars per hour.
Assume that arrivals follow a Poisson distribution and the service rate follows an
exponential probability distribution. Determine the following measures of performance:

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Quantitative Techniques
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(a)

What is the average time that a car waits for water wash to begin?

(b)

What is the average time a car spends in the system?

(c)

What is the average number of cars in the system?

Solution: Given l = 4 cars per hour, m = 8 cars per day.

(a) Average time that a car waits for water - wash to begin,
Wq =

=
(b)

4
8(8 4)

= 0.125 hours or 7.5 mins.

Average time a car spends in the system,
Ws =

=
(c)

( )

1
1
=
= 0.25 hours or 15 mins.
84
4

Average number of cars in the system,

Ls =
=

=
8 4

4
= 1 car.
4

Example 8: Arrivals at a telephone booth are considered to be Poisson distributed with

an average time of 10 minutes between one arrival and the next. The length of phone
call is assumed to be distributed exponentially, with mean 3 minutes.
(i)

What is the probability that a person arriving at the booth will have to wait?

(ii) The telephone department will install a second booth when convinced that an arrival
would expect waiting for at least 3 minutes for phone call. By how much should the
flow of arrivals increase in order to justify a second booth?
(iii) What is the average length of the queue that forms from time to time?
(iv) What is the probability that it will take him more than 10 minutes altogether to wait
for the phone and complete his call?
(v)

What is the probability that it will take him more than 10 minutes altogether to wait
for the phone and complete his call?

Solution: Given l = 1/10 = 0.10 person per minute.

m = 1/3 = 0.33 person per minute.
(i)

Probability that a person arriving at the booth will have to wait,

P (w > 0) = 1 P0
= 1 (1 - l / m) = l / m
=

0.10
= 0.3
0.33

(ii) The installation of second booth will be justified if the arrival rate is more than
the waiting time.
Expected waiting time in the queue will be,
Wq =
286

( )

Where, E(w) = 3 and l = l (say ) for second booth. Simplifying we get

l = 0.16

Waiting Model
(Queuing Theory)

Hence the increase in arrival rate is, 0.16-0.10 =0.06 arrivals per minute.
(iii) Average number of units in the system is given by,
Ls =

0.3
=
= 0.43 customers
1 1 0.3

(iv) Probability of waiting for 10 minutes or more is given by

P ( W 10) =

l
(
m (m l ) e

m l)

a
10

(0.3) (0.23) e 0.23dt

e -0.23t
= 0.069

-0.23 10

= 0.03
This shows that 3 percent of the arrivals on an average will have to wait for 10 minutes
or more before they can use the phone.
Example 9: A bank has decided to open a single server drive-in banking facility at its
main branch office. It is estimated that 20 customers arrive each hour on an average.
The time required to serve a customer is 3 minutes on an average. Assume that arrivals
follow a Poisson distribution and the service rate follows an exponential probability
distribution.
The bank manager is interested in knowing the following:
(a)

What will be the average waiting time of a customer to get the service?

(b)

The proportion of time that the system will be idle.

(c)

The space required to accommodate all the arrivals, on an average, the space
taken by each car is 10 feet that is waiting for service.

Solution: l = 20 Customers per hour, m =

(a)

Average waiting time of a customer to get the service,

Wq =

(b)

60
= 2.4 customers per hour.
25

( )

20
20
=
24 ( 24 20 ) 96

= 0.208 hour or 12.5 mins.

The proportion of time that the system will be idle,
P0 = 1
= 1

20
24

= 0.166 hours or 10 mins.

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Quantitative Techniques
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(c ) Average number of customers waiting in the queue,

Lq =

2
( )

20 2
400
=
24 ( 24 20 )
96

= 4.66 customers.
10 feet is required for 1 customer. Hence, for 4.66 customers, the space required is
10 4.66 = 46.6 feet.
Example 10: In a Bank, customers arrive to deposit cash to a single counter server
every 15 minutes. The bank staff on an average takes 10 minutes to serve a customer.
The manager of the bank noticed that on an average at least one customer was waiting
at the counter. To eliminate the customer waiting time, the manager provided an automatic
currency counting machine to the staff. This decreased the service time to 5 minutes on
an average to every customer. Determine whether this rate of service will satisfy the
manager's interest. Also use computer with TORA for solving the problem.
Solution:
60
60
= 4 customers per hour, =
= 60 = 6 customers per hour.
15
10

Case 1: =

Average number of customers in the system,

Ls =

4
4
=
= 2 customers.
64
2

Case 2: l = 4 , =

60
= 12 customers per hour.
15

Average number of customers in the system,

Ls =

4
12 4

4
1
= = 0.5, say, 1 customer.
8
2

Average number of customers in the queue

Lq =

2
( )

42
16
=
= 0.01 customers.
12 ( 12 4 )
96

Since no customers are standing in the queue the manager's interest is satisfied.

288

The problem is worked out using TORA. Enter the values as shown in the input screen
below in Figure 9.7.

Waiting Model
(Queuing Theory)

Figure 9.7: Queuing Analysis Using TORA (Input Screen)

Press Solve and go to output screen. Select comparative analysis option in the
queuing output analysis menu. The following output screen is displayed (Figure 9.8).

Figure 9.8: Comparative Analysis of Queuing Output Analysis Using TORA (Output Screen)

Now, on comparing scenario 1 and scenario 2, under Ls i.e., the average number of
customers in the system is 2 and 0.5 respectively. In the first scenario, it means that in
the entire system, one customer will be waiting in the queue while others are being
served. In scenario 2, only one customer is in the system and being served, where on an
average no customer will be waiting.
Example 11: 12 counters are available in a computerized railway reservation system.
The arrival rate during peak hours is 90 customers per hour. It takes 5 minutes to serve
a customer on an average. Assume that the arrivals joining in a queue will not be jockeying
(i.e., move to another queue). How many counters have to be opened if the customers
need not to wait for more than 15 minutes?

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Solution: The problem is to be solved as one system comprising of 'n' number of single
server queuing model.
Arrival rate, l =90 customers per hour
Service rate, m =

60
=12 per hour
5

Average waiting time, Wq =

15
= 0.25 hours
60

Average waiting time, Wq = ( )

i.e.,

0.25 = ( )

................................(i)

Let, number of counters be x,

Considering the single server queuing system, the number of counters required to serve
90 arrivals per hour, =

0.25 =

90
90
substituting =
in equation (i),
x
x

90 / x
90

12 12

90
12(12x 90 )

0.25 12(12x 90) = 90

3(12x 90) = 90
36x 270 = 90
36x = 360
x=

360
= 10 counters
36

Hence, 10 counters are required so that an average arrival will wait less than 15 minutes.
Example 12: In a single pump petrol station, vehicles arrive at the rate of 20 customers
per hour and petrol filling takes 2 minutes on an average. Assume the arrival rate is
Poisson probability distribution and service rate is exponentially distributed, determine
(a)

What is the probability that no vehicles are in the petrol station?

(b)

What is the probability that 1 customer is filling and no one is waiting in the queue?

(c)

What is the probability that 1 customer is filling and 2 customers are waiting in the
queue?

(d)

What is the probability that more than 2 customers are waiting?

Solution : l = 20 vehicles per hour, m = 60/2 = 30 vehicles per hour.

290

(a)

Probability that no vehicles are in the petrol station,

P1 = 1

= 1
30

Waiting Model
(Queuing Theory)

= 0.3334 or 33.34%
(b)

Probability that 1 customer is filling and no one is waiting in the queue,

= P0 =

20
20
P1 =
1
30
30

= 0.6666 0.3334
= 0.2222 or 22.22%
(c)

Probability that 1 customer is filling and 2 customers are waiting in the queue, i.e.,
there are 3 customers in the system,
3

20
20
P3 =
1
30
30

= 0.2963 0.3334
= 0.09878 or 9.87 %
(d)

Probability that more than 3 customers are in the system,

20
20
P4 =
1

30
30

= 0.1975 0.334
= 0.6585 or 65.85%
The calculation made for the above problem is represented in the TORA output screen
shown below in Figure 9.9.

Figure 9.9: Queuing Analysis Using TORA (Output Screen)

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Quantitative Techniques
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Check Your Progress 9.2

The assumption of queuing theory are so restrictive as to render behaviour

prediction of queuing system practically worthless Discuss.

Explain the meaning of a queue and state the object of queuing analysis.
Briefly describe with the help of hypothetical example the elements of the
queuing system.

Give examples of five situations/circumstances in which there in a limited a

finite waiting line.

Elaborate the vital operating characteristis of a queuing system.

What are the modules of the following queuing system? Draw and explains
the configuration of each
(a)

General store

(b)

Big Bazar

(c)

Railway reservation

(d)

Car wash at the service center.

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

9.8 LET US SUM UP

Queuers or waiting lines are very familiar in day to day life. In general quite often we
face the problem of long queues for a bus, a movie ticket, railway reservation, ATM
m/c and various, other situation. The queuing model are those where a facility perform a
service. A queuing problem arises when the current services rate of a facility fall short
of the current flow rate of customer. Thus if the service facility capable of servicing
customers arrive there will be no pitfalls. Thus the queuing theory is related with the
decision making process of the business unit which relates with the queue question and
makes decision relative to the number of service facilities which are operating.

9.9 LESSON-END ACTIVITY

292

As you are travelling from one place to another. You need a various mode of transportation
from one destination to other. These transportation are known as Bus, Train, Aeroplane
etc. While taking reservation of this particular transport. We have to go to the reservation
counter and book tickets and finally face a huge waiting line or queue of passengers.
Apply the waiting line theory to regulate this problem and find solution to make the
system stream-line.

9.10 KEYWORDS
Balking

: A customer may not like to join the queue seeing it very long
and he may not like to wait.

Reneging

: He may leave the queue due to impatience after joining in

collusion several customers may collaborate and only one of
them may stand in queue.

Jockeying

: If there are number of queues then one may leave one queue
to join another.

Queue length

: No. of customers waiting in the queue.

Queuing system

: System consisting arrival of customers, waiting in queue,

picked up for sevice according to a certain discipline, being
serviced and departure of customers.

Service station

: Point where service is provided

Customer

: Person or unit arriving at a station for service. Customer

may be a machine or person.

Waiting time

: Time a customer spends in the queue before being serviced.

Waiting Model
(Queuing Theory)

9.11 QUESTIONS FOR DISCUSSION

Write True or False against each statement:

(a)

Parallel channel means, a number of channels providing identical services.

(b)

Queuing theory is concerned with the decision making process.

(c)

Customer decide not to joins the queue is Reneging.

(d)

The line that form in front of service facilities is called a queue.

(e)

Random arrival mean when there is how service point.

Briefly comment on the following statements:

(a)

In designing a queuing system, the system should balance service to customers.

(b)

Queuing theory deals with problem that involve waiting.

(c)

Most of queuing models are quite complex and cannot be easily understood.

(d)

In a single channel facility the output of the queue does not pose any problem.

(e)

The object of the queuing theory is to achieve a good economic balance and
also to minimise the total waiting & service cost.

Fill in the blank:

(a)

The arrival time for any customer is _____________

(b)

The most common queue discipline _____________

(c)

If there is queue then _____________ has to wait for same lines.

(d)

Cost associated with service or the facility are known as _____________

(e)

Waiting time is a time which customer spends in the _____________

Write Short Notes:

(a)

Queue discipline

(b)

Service mechanism is queuing theory

(c)

Queuing system

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9.12 TERMINAL QUESTIONS

What is the queuing theory?

Define arrival rate and service rate.

Explain the characteristics of MM1 queuing model.

Briefly explain Service Mechanism and Queue Discipline.

What is system of steady-state?

Exercise Problems
1.

294

A Bank operates a single facility ATM machine. Customers arrive at the rate of
10 customers per hour according to Poisson probability distribution. The time taken
for an ATM transaction is exponential which means 3 minutes on an average. Find
the following:
(a)

Average waiting time of a customer before service.

(b)

Average number of customers in the system.

(c)

Probability that the ATM is idle.

At an average 12 cars per hour arrive at a single-server, drive-in teller. The average
service time for each customer is 4 minutes, and the arrivals and services are
Poisson and exponentially distributed respectively. Answer the following questions:
(a)

What is the proportion that the teller is idle?

(b)

What is the time spent by a customer to complete his transaction?

(c)

What is the probability that an arriving car need not wait to take-up service?

At a single facility security check at an airport, passengers arrive at the checkpoint on an average of 8 passengers per minute and follows a Poisson probability
distribution. The checking time for a customer entering security check area takes
10 passengers per minute and follows an exponential probability distribution.
Determine the following:
(a)

On an average, how many passengers are waiting in queue to enter the checkpoint?

(b)

On an average, what is the time taken by a customer leaving the checkpoint?

In a college computer lab, computers are interconnected to one laser printer. The
printer receives data files for printing from these 25 computers interconnected to
it. The printer prints the files received from these 25 computers at the rate of 5
data files per minute. The average time required to print a data file is 6 minutes.
Assuming the arrivals are Poisson distributed and service times are exponentially
distributed, determine
(a)

What is the probability that the printer is busy?

(b)

On an average, how much time must a computer operator wait to take a

print-out?

(c)

On an average, what is the expected number of operators that will be waiting

to take a print-out?

Skyline pizza is a famous restaurant operating a number of outlets. The restaurant

uses a toll-free telephone number to book pizzas at any of its outlets. It was found
that an average of 15 calls are received per hour and the average time to handle
each call is 2.5 minutes. Determine the following:

Waiting Model
(Queuing Theory)

(a)

What is the average waiting time of an incoming caller?

(b)

What is the probability that a caller gets connected immediately?

(c)

If the restaurant manager feels that average waiting time of a caller is more
than 5 minutes, will lead to customer loss and the restaurant will have to go in
for a second toll free facility, what should be the new arrival rate in order to
justify another facility?

From historical data, a two-wheeler service station observe that bikes arrive only
for water wash is at the rate of 7 per hour per 8 hour shift. The manager has a
record that it takes 5 minutes for water service and another 2 minutes for greasing
and general check. Assuming that one bike is washed at a time, find the following:
(a)

Average number of bikes in line.

(b)

Average time a bike waits before it is washed.

(c)

Average time a bike spends in the system.

(d)

Utilization rate of the bike wash.

(e)

Probability that no bikes are in the system.

In a department at store, an automated coffee vending machine is installed.

Customers arrive at a rate of 3 per minute and it takes average time of 10 seconds
to dispense a cup of coffee:
(a)

Determine the number of customers in the queue.

(b)

Determine the waiting time of a customer.

(c)

Find the probability that there are exactly 10 customers in the system.

In a toll gate, vehicles arrive at a rate of 120 per hour. An average time for a
vehicle to get a pass is 25 seconds. The arrivals follow a Poisson distribution and
service times follow an exponential distribution. (a) Find the average number of
vehicles waiting and the idle time of the check-post. (b) If the idle time of the
check post is less than 10%, the check-post authorities will install a second gate.
Suggest whether a second gate is necessary ?

A hospital has an X-ray lab where patients (both in-patient and out-patient) arrive
at a rate of 5 per minute. Due to variation in requirement, the time taken for one
patient is 3 minutes and follows an exponential distribution. (a) What is the probability
that the system is busy? and (b) What is the probability that nobody is in the system?

10. In the production shop of a company breakdown of the machine is found to be

Poisson with an average rate of 3 machines per hour. Breakdown time at one
machine costs Rs. 40 per hour to the company. There are two choices before the
company for hiring the repairmen, one of the repairmen is slow but cheap, the
other is fast but expensive. The slow-cheap repairman demands Rs. 20 per hour
and will repair the breakdown machine exponentially at the rate of 4 per hour. The
fast expensive repairman demands Rs. 30 per hour and will repair exponentially on
an average rate of Rs.6 per hour. Which repairman should be hired?

9.13 MODEL
DISCUSSION
1.

ANSWERS

QUESTIONS

(a)

True

(b)

True

(c)

(d)

True

(e)

False

(a)

unpredictable

(b)

[First come first serve (FCFS)]

(c)

customer

(d)

service cost

(e)

FOR

False

queue

295

Quantitative Techniques
for Management

9.14 SUGGESTED READINGS

T.L. Satty, Elements of Queuing, New York McGraw Hill Theory.
A.M. Lee, Applied Queuing thoery.
Cooper, R.B., Introduction to Queuing theory, New York MacMillan Co.
Morse, Philip M.Ques, Inventories & maintenance, New York John Wiley & Sons.
Panieo, J.A., Queuing Theory: A Study of Waiting Line of Business, Economics,
Science, Englewood, No. 3, Prentice-Hall.
Bhat, U.N. The Value of Queuing Theory A Rejoinder Interface, Vol. 8, No. 3
pp. 27-78.
Byrd. J., The value of queuing & Interfaces, Vol. 8, No. 3, pp. 22-26.
Render, B & Stain R.M., Cases & readings in quantitative analysis, Boston: Allyn &
Bacon, 1982.
Graff G, Simple Queuing thoery saves Unneccessary Equipment, Industrial
Engineering, Vol. 3.
Paul R.I., Stevens R.E., Staffing service activities with waiting the models decision,
Science, Vol. 2

296

Unit-IV

LESSON

10
PROBABILITY

CONTENTS
10.0 Aims and Objectives
10.1 Introduction
10.2 Classical Definition of Probability
10.3 Counting Techniques
10.4 Statistical or Empirical Definition of Probability
10.5 Axiomatic or Modern Approach to Probability
10.6 Theorems on Probability-I
10.7 Theorems on Probability-II
10.8 Let us Sum Up
10.9 Lesson-end Activity
10.10 Keywords
10.11 Questions for Discussion
10.12 Terminal Questions
10.13 Model Answers to Questions for Discussion
10.14 Suggested Readings

10.0 AIMS AND OBJECTIVES

The probability, theoretical probability distribution and probability distribution of random
variable in the three important interrelated trades which we are going to discuss in this
head (Unit IV). As we know that probability associated with the occurence of various
events are determined by specifying the condition of a random experiments.

10.1 INTRODUCTION
The concept of probability originated from the analysis of the games of chance in the
17th century. Now the subject has been developed to the extent that it is very difficult to
imagine a discipline, be it from social or natural sciences, that can do without it.
The theory of probability is a study of Statistical or Random Experiments. It is the
backbone of Statistical Inference and Decision Theory that are essential tools
of the analysis of most of the modern business and economic problems.
Often, in our day-to-day life, we hear sentences like 'it may rain today', 'Mr X has fiftyfifty chances of passing the examination', 'India may win the forthcoming cricket match
against Sri Lanka', 'the chances of making profits by investing in shares of company A
are very bright', etc. Each of the above sentences involves an element of uncertainty.

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A phenomenon or an experiment which can result into more than one possible outcome,
is called a random phenomenon or random experiment or statistical experiment. Although,
we may be aware of all the possible outcomes of a random experiment, it is not possible
to predetermine the outcome associated with a particular experimentation or trial.
Consider, for example, the toss of a coin. The result of a toss can be a head or a tail,
therefore, it is a random experiment. Here we know that either a head or a tail would
occur as a result of the toss, however, it is not possible to predetermine the outcome.
With the use of probability theory, it is possible to assign a quantitative measure, to
express the extent of uncertainty, associated with the occurrence of each possible outcome
of a random experiment.

10.2 CLASSICAL DEFINITION OF PROBABILITY

This definition, also known as the mathematical definition of probability,
was given by J. Bernoulli. With the use of this definition, the probabilities associated with
the occurrence of various events are determined by specifying the conditions of a random
experiment. It is because of this that the classical definition is also known as 'a priori'
definition of probability.
Definition

If n is the number of equally likely, mutually exclusive and exhaustive outcomes of a

random experiment out of which m outcomes are favourable to the occurrence of an
event A, then the probability that A occurs, denoted by P(A), is given by :

P ( A) =

Number of outcomes favourable to A m

=
Number of exhaustive outcomes
n

Various terms used in the above definition are explained below :

Equally likely outcomes: The outcomes of random experiment are said to be

equally likely or equally probable if the occurrence of none of them is expected in
preference to others. For example, if an unbiased coin is tossed, the two possible
outcomes, a head or a tail are equally likely.

Mutually exclusive outcomes: Two or more outcomes of an experiment are said

to be mutually exclusive if the occurrence of one of them precludes the occurrence
of all others in the same trial. For example, the two possible outcomes of toss of a
coin are mutually exclusive. Similarly, the occurrences of the numbers 1, 2, 3, 4, 5,
6 in the roll of a six faced die are mutually exclusive.

Exhaustive outcomes: It is the totality of all possible outcomes of a random

experiment. The number of exhaustive outcomes in the roll of a die are six. Similarly,
there are 52 exhaustive outcomes in the experiment of drawing a card from a pack
of 52 cards.

Event: The occurrence or non-occurrence of a phenomenon is called an event.

For example, in the toss of two coins, there are four exhaustive outcomes, viz.
(H, H), (H, T), (T, H), (T, T). The events associated with this experiment can be
defined in a number of ways. For example, (i) the event of occurrence of head on
both the coins, (ii) the event of occurrence of head on at least one of the two coins,
(iii) the event of non-occurrence of head on the two coins, etc.

An event can be simple or composite depending upon whether it corresponds to a single

outcome of the experiment or not. In the example, given above, the event defined by (i)
is simple, while those defined by (ii) and (iii) are composite events.
Example 1: What is the probability of obtaining a head in the toss of an unbiased coin?

300

Solution: This experiment has two possible outcomes, i.e., occurrence of a head or tail.
These two outcomes are mutually exclusive and exhaustive. Since the coin is given to be
unbiased, the two outcomes are equally likely. Thus, all the conditions of the classical
definition are satisfied.

No. of cases favourable to the occurrence of head = 1

Probability

No. of exhaustive cases = 2

\ Probability of obtaining head P ( H ) = 1 .
2
Example 2: What is the probability of obtaining at least one head in the simultaneous
toss of two unbiased coins?
Solution: The equally likely, mutually exclusive and exhaustive outcomes of the experiment
are (H, H), (H, T), (T, H) and (T, T), where H denotes a head and T denotes a tail.
Thus, n = 4.
Let A be the event that at least one head occurs. This event corresponds the first three
outcomes of the random experiment. Therefore, m = 3.
Hence, probability that A occurs, i.e., P ( A) = 3 .
4
Example 3: Find the probability of obtaining an odd number in the roll of an unbiased
die.
Solution: The number of equally likely, mutually exclusive and exhaustive outcomes,
i.e., n = 6. There are three odd numbers out of the numbers 1, 2, 3, 4, 5 and 6. Therefore,
m = 3.
Thus, probability of occurrence of an odd number = 3 = 1 .
6 2
Example 4: What is the chance of drawing a face card in a draw from a pack of 52
well-shuffled cards?
Solution: Total possible outcomes n = 52.
Since the pack is well-shuffled, these outcomes are equally likely. Further, since only one
card is to be drawn, the outcomes are mutually exclusive.
There are 12 face cards, \ m = 12.
Thus, probability of drawing a face card = 12 = 3 .
52 13
Example 5: What is the probability that a leap year selected at random will contain 53
Sundays?
Solution: A leap year has 366 days. It contains 52 complete weeks, i.e, 52 Sundays. The
remaining two days of the year could be anyone of the following pairs :
(Monday, Tuesday), (Tuesday, Wednesday), (Wednesday, Thursday), (Thursday, Friday),
(Friday, Saturday), (Saturday, Sunday), (Sunday, Monday). Thus, there are seven
possibilities out of which last two are favourable to the occurrence of 53rd Sunday.
2
.
Hence, the required probability =
7
Example 6: Find the probability of throwing a total of six in a single throw with two
unbiased dice.
Solution: The number of exhaustive cases n = 36, because with two dice all the possible
outcomes are :
(1, 1), (1, 2), (1, 3), (1, 4), (1, 5), (1, 6),
(2, 1), (2, 2), (2, 3), (2, 4), (2, 5), (2, 6),
(3, 1), (3, 2), (3, 3), (3, 4), (3, 5), (3, 6),
(4, 1), (4, 2), (4, 3), (4, 4), (4, 5), (4, 6),
(5, 1), (5, 2), (5, 3), (5, 4), (5, 5), (5, 6),
(6, 1), (6, 2), (6, 3), (6, 4), (6, 5), (6, 6).

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Out of these outcomes the number of cases favourable to the event A of getting 6 are :
(1, 5), (2, 4), (3, 3), (4, 2), (5, 1). Thus, we have m = 5.

\ P ( A) =

5
36

Example 7: A bag contains 15 tickets marked with numbers 1 to 15. One ticket is
drawn at random. Find the probability that:
(i)

the number on it is greater than 10,

(ii)

the number on it is even,

(iii) the number on it is a multiple of 2 or 5.

Solution: Number of exhaustive cases n = 15
(i) Tickets with number greater than 10 are 11, 12, 13, 14 and 15. Therefore, m = 5 and
5 1
hence the required probability =
=
15 3
(ii) Number of even numbered tickets m = 7

7
15 .
(iii) The multiple of 2 are : 2, 4, 6, 8, 10, 12, 14 and the multiple of 5 are : 5, 10, 15.
\ m = 9 (note that 10 is repeated in both multiples will be counted only once).
\ Required probability =

Thus, the required probability =

9
15

3
5

10.3 COUNTING TECHNIQUES

Counting techniques or combinatorial methods are often helpful in the enumeration of
total number of outcomes of a random experiment and the number of cases favourable
to the occurrence of an event.
Fundamental Principle of Counting
If the first operation can be performed in any one of the m ways and then a second
operation can be performed in any one of the n ways, then both can be performed
together in any one of the m n ways.
This rule can be generalised. If first operation can be performed in any one of the n1
ways, second operation in any one of the n2 ways, ...... kth operation in any one of the nk
ways, then together these can be performed in any one of the n1 n2 ...... nk ways.
Permutation
A permutation is an arrangement of a given number of objects in a definite order.
(a)

Permutations of n objects: The total number of permutations of n distinct objects

is n!. Using symbols, we can write n Pn = n!, (where n denotes the permutations of
n objects, all taken together).
Let us assume there are n persons to be seated on n chairs. The first chair can be
occupied by any one of the n persons and hence, there are n ways in which it can
be occupied. Similarly, the second chair can be occupied in n - 1 ways and so on.
Using the fundamental principle of counting, the total number of ways in which n
chairs can be occupied by n persons or the permutations of n objects taking all at a
time is given by :
n
Pn = n(n 1)(n 2) ...... 3.2.1 = n!

(b)
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Permutations of n objects taking r at a time: In terms of the example, considered

above, now we have n persons to be seated on r chairs, where r n.
Thus, n Pr = n(n 1)(n 2) ...... [n (r 1)] = n(n 1)(n 2) ...... (n r + 1).

On multiplication and division of the R.H.S. by (n - r)!, we get

Pr =

b gb g b
bn r g !

gb g

n n 1 n 2 .... n r + 1 n r !

Probability

n!
(n r )!

(c)

Permutations of n objects taking r at a time when any object may be repeated

any number of times: Here, each of the r places can be filled in n ways. Therefore,
total number of permutations is nr.

(d)

Permutations of n objects in a circular order: Suppose that there are three

persons A, B and C, to be seated on the three chairs 1, 2 and 3, in a circular order.
Then, the following three arrangements are identical:

Figure 10.1

Similarly, if n objects are seated in a circle, there will be n identical arrangements of

the above type. Thus, in order to obtain distinct permutation of n objects in circular
order we divide n Pn by n, where n Pn denotes number of permutations in a row.

(e)

Hence, the number of permutations in a circular order n! = (n 1)!

n
Permutations with restrictions: If out of n objects n1 are alike of one kind, n2 are

n!
n1 ! n2 ! .... nk !
Since permutation of ni objects, which are alike, is only one (i = 1, 2, ...... k).
Therefore, n! is to be divided by n1!, n2! .... nk!, to get the required permutations.
alike of another kind, ...... nk are alike, the number of permutations are

Example 8: What is the total number of ways of simultaneous throwing of (i) 3 coins,
(ii) 2 dice and (iii) 2 coins and a die ?
Solution:
(i)

Each coin can be thrown in any one of the two ways, i.e, a head or a tail,
therefore, the number of ways of simultaneous throwing of 3 coins = 23 = 8.

(ii) Similarly, the total number of ways of simultaneous throwing of two dice is equal to
62 = 36 and
(iii) The total number of ways of simultaneous throwing of 2 coins and a die
is equal to 22 6 = 24.
Example 9: A person can go from Delhi to Port-Blair via Allahabad and Calcutta using
following mode of transport :
Delhi to Allahabad
By Rail
By Bus
By Car
By Air

Allahabad to Calcutta
By Rail
By Bus
By Car
By Air

Calcutta to Port-Blair
By Air
By Ship

In how many different ways the journey can be planned?

Solution: The journey from Delhi to Port-Blair can be treated as three operations; From
Delhi to Allahabad, from Allahabad to Calcutta and from Calcutta to Port-Blair. Using
the fundamental principle of counting, the journey can be planned in 4 4 2 = 32 ways.

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Example 10: In how many ways the first, second and third prize can be given to 10
competitors?
Solution: There are 10 ways of giving first prize, nine ways of giving second prize and
eight ways of giving third prize. Therefore, total no. ways is 10 9 8 = 720.
Alternative method:
Here n = 10 and r = 3, \

P3 =

10!
= 720
(10 - 3)!

Example 11:
(a)

There are 5 doors in a room. In how many ways can three persons enter the room
using different doors?

(b)

A lady is asked to rank 5 types of washing powders according to her preference.

Calculate the total number of possible rankings.

(c)

In how many ways 6 passengers can be seated on 15 available seats.

(d)

If there are six different trains available for journey between Delhi to Kanpur,
calculate the number of ways in which a person can complete his return journey by
using a different train in each direction.

(e)

In how many ways President, Vice-President, Secretary and Treasurer of an

association can be nominated at random out of 130 members?

Solution:
(a) The first person can use any of the 5 doors and hence can enter the room in 5
ways. Similarly, the second person can enter in 4 ways and third person can enter
in 3 ways. Thus, the total number of ways is
(b)
(c)

P3 =

5!
= 60 .
2!

5!
(Note that 0! = 1)
= 120 .
0!
Total number of ways of seating 6 passengers on 15 seats are
15!
15
P6 =
= 36,03,600.
9!

Total number of rankings are

P5 =

(d)

Total number of ways of performing return journey, using different train in each
direction are 6 5 = 30, which is also equal to 6 P2 .

(e)

Total number of ways of nominating for the 4 post of association are

130

P4 =

130!
= 27, 26,13,120 .
126!

Example 12: Three prizes are awarded each for getting more than 80% marks, 98%
attendance and good behaviour in the college. In how many ways the prizes can be
awarded if 15 students of the college are eligible for the three prizes?
Solution: Note that all the three prizes can be awarded to the same student. The prize
for getting more than 80% marks can be awarded in 15 ways, prize for 90% attendance
can be awarded in 15 ways and prize for good behaviour can also be awarded in 15
ways.
Thus, the total number of ways is nr = 153 = 3,375.
Example 13:

304

(a)

In how many ways can the letters of the word EDUCATION be arranged?

(b)

In how many ways can the letters of the word STATISTICS be arranged?

(c)

In how many ways can 20 students be allotted to 4 tutorial groups of 4, 5, 5 and

6 students respectively?

(d)

In how many ways 10 members of a committee can be seated at a round table if (i)
they can sit anywhere (ii) president and secretary must not sit next to each other?

Probability

Solution:
(a)

The given word EDUCATION has 9 letters. Therefore, number of

permutations of 9 letters is 9! = 3,62,880.

(b)

The word STATISTICS has 10 letters in which there are 3S's, 3T's, 2I's, 1A and
1C. Thus, the required number of permutations

(c)

Required number of permutations

(d)

(i)

10!
= 50,400.
3!3!2!1!1!

20! = 9,77,72,87,522
4!5!5!6!

Number of permutations when they can sit anywhere = (10-1)!= 9! = 3,62,880.

(ii) We first find the number of permutations when president and secretary must
sit together. For this we consider president and secretary as one person.
Thus, the number of permutations of 9 persons at round table = 8! = 40,320.
\ The number of permutations when president and secretary must not sit together
= 3,62,880 - 40,320 = 3,22,560.
Example 14:
(a)

In how many ways 4 men and 3 women can be seated in a row such that women
occupy the even places?

(b)

In how many ways 4 men and 4 women can be seated such that men and women
occupy alternative places?

Solution:
(a)

4 men can be seated in 4! ways and 3 women can be seated in 3! ways. Since each
arrangement of men is associated with each arrangement of women, therefore,
the required number of permutations = 4! 3! = 144.

(b)

There are two ways in which 4 men and 4 women can be seated
MWMWMWMWMW or WMWMWMWMWM
\ The required number of permutations = 2 .4! 4! = 1,152

Example 15: There are 3 different books of economics, 4 different books of commerce
and 5 different books of statistics. In how many ways these can be arranged on a
shelf when
(a)

all the books are arranged at random,

(b)

books of each subject are arranged together,

(c)

books of only statistics are arranged together, and

(d)

books of statistics and books of other subjects are arranged together?

Solution:
(a)

The required number of permutations = 12!

(b)

The economics books can be arranged in 3! ways, commerce books in 4! ways

and statistics book in 5! ways. Further, the three groups can be arranged in 3!
ways. \ The required number of permutations = 3! 4! 5! 3! =1,03,680.

(c)

Consider 5 books of statistics as one book. Then 8 books can be arranged in 8!

ways and 5 books of statistics can be arranged among themselves in 5! ways.
\ The required number of permutations = 8! 5! = 48,38,400.

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(d)

There are two groups which can be arranged in 2! ways. The books of other
subjects can be arranged in 7! ways and books of statistics can be arranged in 5!
ways. Thus, the required number of ways = 2! 7! 5! = 12,09,600.

Combination
When no attention is given to the order of arrangement of the selected objects, we get a
combination. We know that the number of permutations of n objects taking r at a time is
n

Pr . Since r objects can be arranged in r! ways, therefore, there are r! permutations

corresponding to one combination. Thus, the number of combinations of n objects taking

r at a time, denoted by nCr , can be obtained by dividing
n

Cr =

Pr by r!, i.e.,

Pr
n!
.
=
r ! r !( n r )!

Note: (a) Since nCr nCn r , therefore, nCr is also equal to the combinations of n
objects taking (n - r) at a time.
(b) The total number of combinations of n distinct objects taking 1, 2, ...... n
respectively, at a time is n C1 + n C2 + ...... + n Cn = 2n - 1 .
Example 16:
(a)

In how many ways two balls can be selected from 8 balls?

(b)

In how many ways a group of 12 persons can be divided into two groups of 7 and
5 persons respectively?

(c)

A committee of 8 teachers is to be formed out of 6 science, 8 arts teachers and a

physical instructor. In how many ways the committee can be formed if
1.

Any teacher can be included in the committee.

There should be 3 science and 4 arts teachers on the committee such that
(i) any science teacher and any arts teacher can be included, (ii) one particular
science teacher must be on the committee, (iii) three particular arts teachers
must not be on the committee?

Solution:
(a)
(b)

8!
= 28 ways.
2!6!
Since n Cr = n Cn - r , therefore, the number of groups of 7 persons out of 12 is also
equal to the number of groups of 5 persons out of 12. Hence, the required number
2 balls can be selected from 8 balls in

C2 =

12!
= 792 .
7!5!
Alternative Method: We may regard 7 persons of one type and remaining 5 persons
of another type. The required number of groups are equal to the number of
permutations of 12 persons where 7 are alike of one type and 5 are alike of another
type.
of groups is

(c)

C7 =

1. 8 teachers can be selected out of 15 in

(i)

C8 =

15!
= 6,435 ways.
8!7!

3 science teachers can be selected out of 6 teachers in 6 C3 ways and 4

arts teachers can be selected out of 8 in 8C4 ways and the physical
instructor can be selected in 1C1 way. Therefore, the required number

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of ways = 6C3 8C4 1C1 = 20 70 1 = 1400.

(ii) 2 additional science teachers can be selected in 5C2 ways. The number
of selections of other teachers is same as in (i) above. Thus, the required
number of ways = 5C2 8C4 1C1 = 10 70 1 = 700.

Probability

(iii) 3 science teachers can be selected in 6 C3 ways and 4 arts teachers out
of remaining 5 arts teachers can be selected in 5C4 ways.
\ The required number of ways = 6C3 5C4 = 20 5 = 100.

Ordered Partitions
1.

Ordered Partitions (distinguishable objects)

(a)

The total number of ways of putting n distinct objects into r compartments

which are marked as 1, 2, ...... r is equal to rn.
Since first object can be put in any of the r compartments in r ways, second
can be put in any of the r compartments in r ways and so on.

(b)

The number of ways in which n objects can be put into r compartments such
that the first compartment contains n1 objects, second contains n2 objects and
so on the rth compartment contains nr objects, where n1 + n2 + ...... + nr = n,
n!

is given by n !n ! ...... n ! .
1 2
r
To illustrate this, let r = 3. Then n1 objects in the first compartment can be put
in nCn1 ways. Out of the remaining n n1 objects, n2 objects can be put in the
second compartment in n n1 Cn2 ways. Finally the remaining n n1 n2 = n3
objects can be put in the third compartment in one way. Thus, the required
number of ways is
2.

Cn1 n - n1 Cn2 =

n!
n1 !n2 !n3 !

Ordered Partitions (identical objects)

(a)

The total number of ways of putting n identical objects into r compartments

marked as 1, 2, ...... r, is n r 1Cr 1 , where each compartment may have none
or any number of objects.
We can think of n objects being placed in a row and partitioned by the (r 1)
vertical lines into r compartments. This is equivalent to permutations of
(n + r 1) objects out of which n are of one type and (r 1) of another type.
The required number of permutations are
(n + r 1)

(b)

Cn or

( n + r 1)

( n + r - 1)! , which is equal to

n !( r - 1)!

C(r 1) .

The total number of ways of putting n identical objects into r compartments is

( n r )+ (r 1)

C(r 1) or

(n 1)

C(r 1) , where each compartment must have at least one

object.

(c)

In order that each compartment must have at least one object, we first put
one object in each of the r compartments. Then the remaining (n r) objects
can be placed as in (a) above.
The formula, given in (b) above, can be generalised. If each compartment is
supposed to have at least k objects, the total number of ways is
where k = 0, 1, 2, .... etc. such that k < n .
r

( n kr ) + (r 1)

C(r 1) ,

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Example 17: 4 couples occupy eight seats in a row at random. What is the probability
that all the ladies are sitting next to each other?
Solution: Eight persons can be seated in a row in 8! ways.
We can treat 4 ladies as one person. Then, five persons can be seated in a row in 5!
ways. Further, 4 ladies can be seated among themselves in 4! ways.
\ The required probability =

5!4! 1
=
8! 14

Example 18: 12 persons are seated at random (i) in a row, (ii) in a ring. Find the
probabilities that three particular persons are sitting together.
Solution:
(i)

The required probability =

(ii) The required probability =

10!3! 1
=
12! 22
9!3!
11!

3
55

Example 19: 5 red and 2 black balls, each of different sizes, are randomly laid down in
a row. Find the probability that
(i)

the two end balls are black,

(ii)

there are three red balls between two black balls and

(iii) the two black balls are placed side by side.

Solution: The seven balls can be placed in a row in 7! ways.
(i)

The black can be placed at the ends in 2! ways and, in-between them, 5 red balls
can be placed in 5! ways.
\ The required probability =

2!5! 1
= .
7! 21

(ii) We can treat BRRRB as one ball. Therefore, this ball along with the remaining two
balls can be arranged in 3! ways. The sequence BRRRB can be arranged in 2! 3!
ways and the three red balls of the sequence can be obtained from 5 balls in
5

C3 ways.

\ The required probability =

3!2!3! 5
1
C3 = .
7!
7

(iii) The 2 black balls can be treated as one and, therefore, this ball along with 5 red
balls can be arranged in 6! ways. Further, 2 black ball can be arranged in 2! ways.
\ The required probability =

6!2! 2
=
7! 7

Example 20: Each of the two players, A and B, get 26 cards at random. Find the
probability that each player has an equal number of red and black cards.
Solution: Each player can get 26 cards at random in 52 C26 ways.
In order that a player gets an equal number of red and black cards, he should have 13
cards of each colour, note that there are 26 red cards and 26 black cards in
a pack of playing cards. This can be done in
26

308

probability =

C13 26C13
.
52
C26

C13

C13 ways. Hence, the required

Example 21: 8 distinguishable marbles are distributed at random into 3 boxes marked
as 1, 2 and 3. Find the probability that they contain 3, 4 and 1 marbles respectively.

Probability

Solution: Since the first, second .... 8th marble, each, can go to any of the three boxes in
3 ways, the total number of ways of putting 8 distinguishable marbles into three
boxes is 38.
The number of ways of putting the marbles, so that the first box contains 3 marbles,
second contains 4 and the third contains 1, are
\ The required probability =

8!
3!4!1!

8!
1 280
8=
.
3!4!1! 3 6561

Example 22: 12 'one rupee' coins are distributed at random among 5 beggars A, B, C,
D and E. Find the probability that :
(i)

They get 4, 2, 0, 5 and 1 coins respectively.

(ii)

Each beggar gets at least two coins.

(iii) None of them goes empty handed.

Solution: The total number of ways of distributing 12 one rupee coins among 5 beggars
are
(i)

12 +5 -1

C5-1 = 16 C4 = 1820 .
Since the distribution 4, 2, 0, 5, 1 is one way out of 1820 ways, the required probability
=

1
.
1820

(ii) After distributing two coins to each of the five beggars, we are left with two coins,
which can be distributed among five beggars in
\ The required probability =

2 + 5-1

C5-1 = 6 C4 = 15 ways.

15
3
=
1820 364

(iii) No beggar goes empty handed if each gets at least one coin. 7 coins, that are left
after giving one coin to each of the five beggars, can be distributed among five
beggars in

7 +5 -1

C5-1 = 11C4 = 330 ways.

\ The required probability =

330
33
=
1820 182

10.4 STATISTICAL OR EMPIRICAL DEFINITION OF

PROBABILITY
The scope of the classical definition was found to be very limited as it failed to determine
the probabilities of certain events in the following circumstances :
(i)

When n, the exhaustive outcomes of a random experiment is infinite.

(ii)

When actual value of n is not known.

(iii) When various outcomes of a random experiment are not equally likely.
(iv) This definition doesn't lead to any mathematical treatment of probability.
In view of the above shortcomings of the classical definition, an attempt was made to
establish a correspondence between relative frequency and the probability of an event
when the total number of trials become su1fficiently large.

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Definition (R. Von Mises)

If an experiment is repeated n times, under essentially the identical
conditions and, if, out of these trials, an event A occurs m times, then the probability that
A occurs is given by P(A) = lim m , provided the limit exists.
x n
This definition of probability is also termed as the empirical definition because the probability
of an event is obtained by actual experimentation.
Although, it is seldom possible to obtain the limit of the relative frequency,
the ratio

m
can be regarded as a good approximation of the probability of an event for
n

large values of n.

This definition also suffers from the following shortcomings :

(i)

The conditions of the experiment may not remain identical, particularly when the
number of trials is sufficiently large.

(ii) The relative frequency, m , may not attain a unique value no matter how large is the
total number of trials.

(iii) It may not be possible to repeat an experiment a large number of times.

(iv) Like the classical definition, this definition doesn't lead to any mathematical treatment
of probability.

10.5 AXIOMATIC OR MODERN APPROACH TO

PROBABILITY
This approach was introduced by the Russian mathematician, A. Kolmogorov in 1930s.
In his book, 'Foundations of Probability' published in 1933, he introduced probability as a
function of the outcomes of an experiment, under certain restrictions. These restrictions
are known as Postulates or Axioms of probability theory. Before discussing the above
approach to probability, we shall explain certain concepts that are necessary for its
understanding.
Sample Space
It is the set of all possible outcomes of a random experiment. Each element of the set is
called a sample point or a simple event or an elementary event. The sample space of
a random experiment is denoted by S and its element are denoted by ei, where i = 1, 2,
...... n. Thus, a sample space having n elements can be written as :
S = {e1, e2, ......, en}.
If a random experiment consists of rolling a six faced die, the corresponding sample
space consists of 6 elementary events. Thus, S = {1, 2, 3, 4, 5, 6}.
Similarly, in the toss of a coin S = {H, T}.
The elements of S can either be single elements or ordered pairs. For example, if two
coins are tossed, each element of the sample space would consist of the set of ordered
pairs, as shown below :
S = {(H, H), (H, T), (T, H), (T, T)}
Finite and Infinite Sample Space

310

A sample space consisting of finite number of elements is called a finite sample space,
while if the number of elements is infinite, it is called an infinite sample space. The
sample spaces discussed so far are examples of finite sample spaces. As an example of
infinite sample space, consider repeated toss of a coin till a head appears. Various elements
of the sample space would be :
S = {(H), (T, H), (T, T, H), ...... }.

Discrete and Continuous Sample Space

Probability

A discrete sample space consists of finite or countably infinite number of elements. The
sample spaces, discussed so far, are some examples of discrete sample spaces. Contrary
to this, a continuous sample space consists of an uncountable number of elements. This
type of sample space is obtained when the result of an experiment is a measurement on
continuous scale like measurements of weight, height, area, volume, time, etc.
Event
An event is any subset of a sample space. In the experiment of roll of a die, the sample
space is S = {1, 2, 3, 4, 5, 6}. It is possible to define various events on this sample space,
as shown below :
Let A be the event that an odd number appears on the die. Then A = {1, 3, 5} is a subset
of S. Further, let B be the event of getting a number greater than 4. Then B = {5, 6} is
another subset of S. Similarly, if C denotes an event of getting a number 3 on the die,
then C = {3}.
It should be noted here that the events A and B are composite while C is a
simple or elementary event.
Occurrence of an Event
An event is said to have occurred whenever the outcome of the experiment is an element
of its set. For example, if we throw a die and obtain 5, then both the events A and B,
defined above, are said to have occurred.
It should be noted here that the sample space is certain to occur since the outcome of the
experiment must always be one of its elements.
Definition of Probability (Modern Approach)
Let S be a sample space of an experiment and A be any event of this sample space. The
probability of A, denoted by P(A), is defined as a real value set function which associates
a real value corresponding to a subset A of the sample space S. In order that P(A)
denotes a probability function, the following rules, popularly known as axioms or postulates
of probability, must be satisfied.
Axiom I :

For any event A in sample space S, we have 0 P(A) 1.

Axiom II :

P(S) = 1.

Axiom III :
If A1, A2, ...... Ak are k mutually exclusive events (i.e., Ai I A j = ,
i j
where f denotes a null set) of the sample space S, then

b g

P A1 U A2 ...... U Ak = P Ai
i =1

The first axiom implies that the probability of an event is a non-negative

number less than or equal to unity. The second axiom implies that the probability of an
event that is certain to occur must be equal to unity. Axiom III gives a basic rule of
addition of probabilities when events are mutually exclusive.
The above axioms provide a set of basic rules that can be used to find the probability of
any event of a sample space.
Probability of an Event
Let there be a sample space consisting of n elements, i.e., S = {e1, e2, ...... en}. Since the
elementary events e1, e2, ...... en are mutually exclusive, we have, according to axiom
n

III, P ( S ) = P (ei ) . Similarly, if A = {e1, e2, ...... em} is any subset of S consisting of m
i =1

elements, where m n, then P ( A) = P ( ei ) .Thus, the probability of a sample space

i =1

or an event is equal to the sum of probabilities of its elementary events.

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It is obvious from the above that the probability of an event can be determined if the
probabilities of elementary events, belonging to it, are known.
The Assignment of Probabilities to various Elementary Events
The assignment of probabilities to various elementary events of a sample space can be
done in any one of the following three ways :
1.

Using Classical Definition: We know that various elementary events of a random

experiment, under the classical definition, are equally likely and, therefore, can be
assigned equal probabilities. Thus, if there are n elementary events in the sample
n

space of an experiment and in view of the fact that P ( S ) = P (ei ) = 1 (from

i =1

axiom II), we can assign a probability equal to 1 to every elementary event or,
n
1
for i = 1, 2, .... n.
using symbols, we can write P ei
n

c h

Further, if there are m elementary events in an event A, we have,

a f

P A

1
n

......

1
n

a m timesf

bg
bg

m = n A , i. e., number of elements in A

n n S , i. e., number of elements in S

We note that the above expression is similar to the formula obtained under classical
definition.
2.

Using Statistical Definition: Using this definition, the assignment of probabilities

to various elementary events of a sample space can be done by repeating an
experiment a large number of times or by using the past records.

Subjective Assignment: The assignment of probabilities on the basis of the statistical

and the classical definitions is objective. Contrary to this, it is also possible to have
subjective assignment of probabilities. Under the subjective assignment, the
probabilities to various elementary events are assigned on the basis of the
expectations or the degree of belief of the statistician. These probabilities, also
known as personal probabilities, are very useful in the analysis of various business
and economic problems.
It is obvious from the above that the Modern Definition of probability is a general
one which includes the classical and the statistical definitions as its particular cases.
Besides this, it provides a set of mathematical rules that are useful for further
mathematical treatment of the subject of probability.
Check Your Progress 10.1

Explain Exhaustive outcomes with examples.

What are combinational methods?

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

__________________________________________________________________

Probability

10.6 THEOREMS ON PROBABILITY - I

Theorem 1: P( f ) = 0, where f is a null set.
Proof: For a sample space S of an experiment, we can write S U = S .

g bg

Taking probability of both sides, we have P S U = P S .

Since S and are mutually exclusive, using axiom III, we can write P(S) + P( f ) =

P(S). Hence, P ( ) = 0 .

d i

a f

1 P A , where A is compliment of A.

Theorem 2: P A

Proof: Let A be any event in the sample space S. We can write

A U A = S or P A U A = P ( S )
Since A and A are mutually exclusive, we can write

( )

P ( A) + P A = P ( S ) = 1. Hence, P A = 1 - P ( A) .
Theorem 3: For any two events A and B in a sample space S

P A I B = P ( B) - P ( A I B)
Proof: From the Venn diagram, we can write

B = A I B U ( A I B ) or

P ( B ) = P A I B U ( A I B )

Since A I B and A I B
mutually exclusive, we have

are

bg d i b g
P d A I B i = P b B g Pb A I B g .
P B = P A I B + P AI B

Similarly, it can be shown that

Figure. 10.2

i bg b

P AI B = P A P AI B

Theorem 4: (Addition of Probabilities):

g bg bg b

P AU B = P A + P B P AI B

Proof: From the Venn diagram, given above, we can write

A U B = A U A I B or P A U B = P A U A I B

Since A and A I B are mutually exclusive, we can write

g bg d

P AU B = P A + P A I B

Substituting the value of P A I B from theorem 3, we get

g bg bg b

P AU B = P A + P B P AI B

Remarks :
1.

If A and B are mutually exclusive, i.e., A I B = , then according to theorem 1, we

g bg bg

have P A I B = 0 . The addition rule, in this case, becomes P A U B = P A + P B ,

which is in conformity with axiom III.

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The event A U B denotes the occurrence of either A or B or both. Alternatively, it

implies the occurrence of at least one of the two events.

The event A I B is a compound event that denotes the simultaneous occurrence of

the two events.

Alternatively, the event A U B is also denoted by A + B and the event A I B by

AB.

Corollaries:

From the Venn diagram, we can write P A U B = 1 P A I B , where P A I B is

the probability that none of the events A and B occur simultaneously.

P exactly one of A and B occurs = P A I B U A I B

d i d i
= Pb Ag Pb A I Bg + Pb Bg Pb A I Bg
= Pb A U B g Pb A I B g

Since A I B U A I B =

= P AI B + P A I B

(using theorem 3)
(using theorem 4)

The addition theorem can be generalised for more than two events. If A, B and C
are three events of a sample space S, then the probability of occurrence of at least
one of them is given by

bg b g
b
= P b Ag + P b B U C g P b A I B g U b A I C g

P AU B UC = P AU B UC

= P A + P BUC P AI BUC

Applying theorem 4 on the second and third term, we get

bg bg bg b

g b

= P A + P B + P C P AI B P AIC P BIC + P AI BIC

.... (1)

Alternatively, the probability of occurrence of at least one of the three events can
also be written as

P AU B U C = 1 P A I B I C

.... (2)

If A, B and C are mutually exclusive, then equation (1) can be written as

g bg bg bg

P AU B UC = P A + P B + P C

.... (3)

If A1, A2, ...... An are n events of a sample space S, the respective equations (1),
(2) and (3) can be modified as

b g
d
i
b g b
g
Pb A U A U ... U A g = 1 Pd A I A I ... I A i
Pb A U A U ... U A g = Pb A g

P A1 U A2 ... U An = P Ai P Ai I A j + P Ai I A j I Ak
n
+ 1 P A1 I A2 I ... I An ( i j k , etc. )
1

.... (4)
.... (5)

i =1

.... (6)

(if the events are mutually exclusive)

The probability of occurrence of at least two of the three events can be written as

g b

g b g
3Pb A I B I C g + Pb A I B I C g
= Pb A I Bg + Pb B I C g + Pb A I C g 2 Pb A I B I Cg

P AI B U BIC U AIC = P AI B + P B IC + P AIC

314

The probability of occurrence of exactly two of the three events can be written as

Probability

id
id
i b gb gb g
Pb A I B I Cg (using corollary 2)
= Pb A I Bg + Pb B I C g + Pb A I C g 3 Pb A I B I C g (using corollary 4)
d

P AI B IC U AI B IC U A I BIC = P AI B U B IC U AIC

The probability of occurrence of exactly one of the three events can be written as

P AI B IC U A I B IC U A I B IC

= P(at least one of the three events occur)

- P(at least two of the three events occur).

bg bg bg

= P A + P B + P C 2 P A I B 3P B I C 2 P A I C + 3 P A I B I C .

Example 23: In a group of 1,000 persons, there are 650 who can speak Hindi, 400 can
speak English and 150 can speak both Hindi and English. If a person is selected at
random, what is the probability that he speaks (i) Hindi only, (ii) English only, (iii) only one
of the two languages, (iv) at least one of the two languages?
Solution: Let A denote the event that a person selected at random speaks Hindi and B
denotes the event that he speaks English.

Thus, we have n(A) = 650, n(B) = 400, n A I B = 150 and n(S) = 1000, where
n(A), n(B), etc. denote the number of persons belonging to the respective event.
(i)

The probability that a person selected at random speaks Hindi only, is given by
650 150 1

=
i nnbbSAgg nbnAbIS gBg = 1000
1000 2

P AI B =

(ii)

The probability that a person selected at random speaks English only, is given

400 150 1

=
i nnbbBS gg nbnAbIS gBg = 1000
1000 4

by P A I B =

(iii) The probability that a person selected at random speaks only one of the languages,
is given by

bg bg

P AI B U A I B = P A + P B 2P AI B

bg bg b
nb S g

n A + n B 2n A I B

(see corollary 2)

g = 650 + 400 300 = 3

1000

(iv) The probability that a person selected at random speaks at least one of the languages,
is given by

P AU B =

650 + 400 150 9

=
1000
10

Alternative Method: The above probabilities can easily be computed by the following
nine-square table :
A
A
Total

B
150
250
400

B
500
100
600

Total
650
350
1000

From the above table, we can write

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500 1
=
1000 2

250 1
=
1000 4

(i)

P AI B =

(ii)

P AIB =

(iii)

P AI B U A I B =

(iv)

P AU B =

500 + 250 3
=
1000
4

150 + 500 + 250 9

=
1000
10

This can, alternatively, be written as P A U B = 1 P A I B = 1

100
9
=
.
1000 10

Example 24: What is the probability of drawing a black card or a king from a wellshuffled pack of playing cards?
Solution: There are 52 cards in a pack, \ n(S) = 52.
Let A be the event that the drawn card is black and B be the event that it is a king.
We have to find P A U B .

Since there are 26 black cards, 4 kings and two black kings in a pack, we have

n(A) = 26, n(B) = 4 and n A U B = 2 Thus, P A U B = 26 + 4 2 = 7

Alternative Method: The given information can be written in the form of the following
table:
B
B
Total
A
A
Total

2
2
4

24
24
48

26
26
52

From the above, we can write

P AU B = 1 P A I B = 1

24 7
=
52 13

Example 25: A pair of unbiased dice is thrown. Find the probability that (i) the sum of
spots is either 5 or 10, (ii) either there is a doublet or a sum less than 6.
Solution: Since the first die can be thrown in 6 ways and the second also in 6 ways,
therefore, both can be thrown in 36 ways (fundamental principle of counting). Since both
the dice are given to be unbiased, 36 elementary outcomes are equally likely.
(i)

Let A be the event that the sum of spots is 5 and B be the event that their sum is
10. Thus, we can write
A = {(1, 4), (2, 3), (3, 2), (4, 1)} and B = {(4, 6), (5, 5), (6, 4)}

We note that A I B = , i.e. A and B are mutually exclusive.

(ii)

g bg bg

P AU B = P A + P B =

\ By addition theorem, we have

4
3
7
+
=
.
36 36 36

Let C be the event that there is a doublet and D be the event that the sum is less
than 6. Thus, we can write
C = {(1, 1), (2, 2), (3, 3), (4, 4), (5, 5), (6, 6)} and
D = {(1, 1), (1, 2), (1, 3), (1, 4), (2, 1), (2, 2), (2, 3), (3, 1), (3, 2), (4, 1)}

Further, C I D = {(1, 1), (2, 2)}

By addition theorem, we have P C U D = 6 + 10 2 = 7 .

316

Probability

Alternative Methods:
(i)

It is given that n(A) = 4, n(B) = 3 and n(S) = 36. Also n A I B = 0 . Thus, the
corresponding nine-square table can be written as follows :
B B Total
0 4 4
3 29 32
3 33 36

A
A
Total

From the above table, we have P A U B = 1 29 = 7 .

(ii)

Here n(C) = 6, n(D) = 10, n C I D = 2 and n(S) = 36. Thus, we have

C C
2 8
4 22
6 30

D
D
Total

Total
10
26
36

Thus, P C U D = 1 P C I D = 1 22 = 7 .
36

Example 26: Two unbiased coins are tossed. Let A1 be the event that the first coin
shows a tail and A2 be the event that the second coin shows a head. Are A1 and A2

mutually exclusive? Obtain P A1 I A2 and P A1 U A2 . Further, let A1 be the event that

both coins show heads and A2 be the event that both show tails. Are A1 and A2 mutually

exclusive? Find P A1 I A2 and P A1 U A2 .

Solution: The sample space of the experiment is S = {(H, H), (H, T), (T, H), (T, T)}
(i)

A1 = {(T, H), (T, T)} and A2 = {(H, H), (T, H)}

Also A1 I A2 = {(T, H)}, Since A1n A2 , A1 and A2 are not mutually exclusive.
Further, the coins are given to be unbiased, therefore, all the elementary events are
equally likely.

b g

\ P A1 =

b g

2 1
2 1
1
= , P A2 = = , P A1 I A2 =
4 2
4 2
4

Thus, P A1 U A2 = 1 + 1 1 = 3 .
2

(ii) When both the coins show heads; A1 = {(H, H)}

When both the coins show tails; A2 = {(T, T)}
Here A1 I A 2 = , A1 and A 2 are mutually exclusive.

Thus, P A1 U A2 = 1 + 1 = 1 .
4

Alternatively, the problem can also be attempted by making the following ninesquare tables for the two cases :
(i)
A1
A1
Total

A2
1
1
2

A2 Total
1
2
1
2
2
4

(ii)

A2
0
1
1

A2 Total
1
1
2
3
3
4

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Theorem 5: Multiplication or Compound Probability Theorem: A compound event

is the result of the simultaneous occurrence of two or more events. For convenience, we
assume that there are two events, however, the results can be easily generalised. The
probability of the compound event would depend upon whether the events are independent
or not. Thus, we shall discuss two theorems; (a) Conditional Probability Theorem, and
(b) Multiplicative Theorem for Independent Events.
(a) Conditional Probability Theorem: For any two events A and B in a sample space
S, the probability of their simultaneous occurrence, is given by

P ( A I B ) = P ( A) P ( B / A)
or equivalently

=P(B)P(A/B)

Here, P(B/A) is the conditional probability of B given that A has already occurred.
Similar interpretation can be given to the term P(A/B).
Proof: Let all the outcomes of the random experiment be equally likely. Therefore,
of elements in b A I Bg
g nbnAbIS gBg = no.no.of elements
in sample space

P AI B =

For the event B/A, the sample space is the set of elements in A and out of these the

number of cases favourable to B is given by n A I B .

g nbnAb IAgBg .

\ P B/ A =

If we multiply the numerator and denominator of the above expression by

g nbnAb IAgBg nnbbSS gg = PbPAb IAgBg

Pb A I Bg = Pb Ag. Pb B / Ag .

P B/ A =

n(S), we get

The other result can also be shown in a similar way.

Note: To avoid mathematical complications, we have assumed that the elementary events
are equally likely. However, the above results will hold true even for the cases where the
elementary events are not equally likely.
(b) Multiplicative Theorem for Independent Events: If A and B are independent, the

g bg bg

probability of their simultaneous occurrence is given by P A I B = P A . P B .

b gd i
Since b A I Bg and d A I B i are mutually exclusive, we have
Pb Ag = Pb A I B g + Pd A I B i (by axiom III)

Proof: We can write A = A I B U A I B .

= P ( B ) .P ( A / B ) + P ( B ) .P ( A / B )
If A and B are independent, then proportion of A's in B is equal to proportion of A's in

B s, i.e., P A / B

f Pd A / B i .

Thus, the above equation can be written as

n (B) =
318

600 30 400 5
+
= 200
100
100

Substituting this value in the formula of conditional probability theorem, we get

g bg bg

Probability

P AI B = P A . P B .

Corollaries:
1.

(i)

If A and B are mutually exclusive and P(A).P(B) > 0, then they cannot be

independent since P A I B = 0 .
(ii) If A and B are independent and P(A).P(B) > 0, then they cannot be mutually

exclusive since P A I B > 0 .

Generalisation of Multiplicative Theorem :

If A, B and C are three events, then

g bg b

P AI B IC = P A . P B / A . P C / AI B

Similarly, for n events A1, A2, ...... An, we can write

g b g b

P A1 I A2 I ... I An = P A1 . P A2 / A1 . P A3 / A1 I A2
... P An / A1 I A2 I ... I An 1

Further, if A1, A2, ...... An are independent, we have

g b g b g

b g

P A1 I A2 I ... I An = P A1 . P A2 .... P An .

If A and B are independent, then A and B , A and B, A and B are also

independent.

We can write P A I B = P ( A) - P ( A I B ) (by theorem 3)

a f Pa A f. PaBf Pa Af 1 PaBf

P A

a f di

P A . P B , which shows that A and B are

independent. The other results can also be shown in a similar way.

The probability of occurrence of at least one of the events A1, A2, ...... An, is given

by P ( A1 U A2 U .... U An ) = 1 - P A1 I A2 I .... I An .
If A1, A2, ...... An are independent then their compliments will also be independent,
therefore, the above result can be modified as

( ) ( )

( )

P ( A1 U A2 U .... U An ) = 1 - P A1 .P A2 .... P An .
Pair-wise and Mutual Independence

Three events A, B and C are said to be mutually independent if the following conditions
are simultaneously satisfied :

P ( A I B ) = P ( A) .P ( B ) , P ( B I C ) = P ( B ) .P (C ) , P ( A I C ) = P ( A) .P (C )
and P ( A I B I C ) = P ( A) .P ( B ) .P (C ) .
If the last condition is not satisfied, the events are said to be pair-wise independent.
From the above we note that mutually independent events will always be pair-wise
independent but not vice-versa.
Example 27: Among 1,000 applicants for admission to M.A. economics course in a
University, 600 were economics graduates and 400 were non-economics graduates;
30% of economics graduate applicants and 5% of non-economics graduate applicants
obtained admission. If an applicant selected at random is found to have been given
admission, what is the probability that he/she is an economics graduate?

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Solution: Let A be the event that the applicant selected at random is an economics
graduate and B be the event that he/she is given admission.

( )

We are given n(S) = 1000, n(A) = 600, n A = 400

Also, n ( B) = 600 30 + 400 5 = 200 and n ( A I B ) =
100
100
Thus, the required probability is given by P ( A / B ) =

600 30
= 180
100

n ( A I B ) 180 9
=
=
n (B)
200 10

Alternative Method: Writing the given information in a nine-square table, we have :

B B Total
180 420 600
20 380 400
200 800 1000

A
A
Total

From the above table we can write P ( A / B ) =

180 9
=
200 10

Example 28: A bag contains 2 black and 3 white balls. Two balls are drawn at random
one after the other without replacement. Obtain the probability that (a) Second ball is
black given that the first is white, (b) First ball is white given that the second is black.
Solution: First ball can be drawn in any one of the 5 ways and then a second ball can be
drawn in any one of the 4 ways. Therefore, two balls can be drawn in 5 4 = 20 ways.
Thus, n(S) = 20.
(a)

Let A1 be the event that first ball is white and A2 be the event that second is black.
We want to find P A2 / A1 .

First white ball can be drawn in any of the 3 ways and then a second ball can be
drawn in any of the 4 ways, \ n(A1) = 3 4 = 12.
Further, first white ball can be drawn in any of the 3 ways and then a black ball can

be drawn in any of the 2 ways, \ n A1 I A2 = 3 2 = 6 .

Thus, P ( A2 / A1 ) =
(b)

n ( A1 I A2 )
n ( A1 )

6 1
= .
12 2

Here we have to find P A1 / A2 .

The second black ball can be drawn in the following two mutually exclusive ways:
(i)

First ball is white and second is black or

(ii)

both the balls are black.

Thus, n(A2) = 3 2 + 2 1 = 8, P ( A1 / A2 ) =

n ( A1 I A2 )
n ( A2 )

6 3
= .
8 4

Alternative Method: The given problem can be summarised into the following ninesquare table:
A
A
Total
320

B B Total
6 6 12
2
6 8
8 12 20

The required probabilities can be directly written from the above table.

Example 29: Two unbiased dice are tossed. Let w denote the number on the first die
and r denote the number on the second die. Let A be the event that w + r 4 and B be
the event that w + r 3. Are A and B independent?

Probability

Solution: The sample space of this experiment consists of 36 elements, i.e., n(S) = 36.
Also, A = {(1, 1), (1, 2), (1, 3), (2, 1), (2, 2), (3, 1)} and B = {(1, 1), (1, 2), (2, 1)}.
From the above, we can write

P ( A) =

6 1
3
1
= , P ( B) =
=
36 6
36 12

Also ( A I B ) = {(1,1),(1, 2),(2,1)} \ P ( A I B ) =

3
1
=
36 12

g bgbg

Since P A I B P A P B , A and B are not independent.

Example 30: It is known that 40% of the students in a certain college are girls and 50%
of the students are above the median height. If 2/3 of the boys are above median height,
what is the probability that a randomly selected student who is below the median height
is a girl?
Solution: Let A be the event that a randomly selected student is a girl and B be the
event that he/she is above median height. The given information can be summarised into
the following table :
A
A
Total

B
10
40
50

B
30
20
50

From the above table, we can write P ( A / B ) =

Total
40
60
100

30
= 0.6 .
50

Example 31: A problem in statistics is given to three students A, B and C, whose

chances of solving it independently are

1 1
1
, and
respectively. Find the probability
2 3
4

that
(a)

the problem is solved.

(b)

at least two of them are able to solve the problem.

(c)

exactly two of them are able to solve the problem.

(d)

exactly one of them is able to solve the problem.

Solution: Let A be the event that student A solves the problem. Similarly, we can define
the events B and C. Further, A, B and C are given to be independent.
(a) The problem is solved if at least one of them is able to solve it. This probability is

( )

given by P ( A U B U C ) = 1 - P A .P ( B ) .P C = 1 (b)

1 2 3 3
=
2 3 4 4

Here we have to find P ( A I B) U ( B I C ) U ( A I C )

bgbg bgbg bgbg

bgbgbg

P AI B U B IC U AIC = P A P B + P B P C + P A P C
2P A P B P C

1 1 1 1 1 1
1 1 1 7
+ + - 2. =
2 3 3 4 2 4
2 3 4 24

321

Quantitative Techniques
for Management

(c)

The required probability is given by P A I B I C U A I B I C U A I B I C

= P ( A).P ( B ) + P ( B ).P (C ) + P ( A).P (C ) - 3P ( A) .P ( B ).P (C )

=
(d)

1 1 1 1
1
+ + - = .
6 12 8 8
4

The required probability is given by P A I B I C U A I B I C U A I B I C

= P(A) + P(B) + P(C) 2P(A).P(B) 2P(B).P(C) 2P(A). P(C)

+ 3 P(A).P(B).P(C)

1 1 1 1 1 1 1 11
+ + + =
.
2 3 4 3 6 4 8 24
Note that the formulae used in (a), (b), (c) and (d) above are the modified forms of
corollaries (following theorem 4) 3, 4, 5 and 6 respectively.
=

Example 32: A bag contains 2 red and 1 black ball and another bag contains 2 red and
2 black balls. One ball is selected at random from each bag. Find the probability of
drawing (a) at least a red ball, (b) a black ball from the second bag given that ball from
the first is red; (c) show that the event of drawing a red ball from the first bag and the
event of drawing a red ball from the second bag are independent.
Solution: Let A1 be the event of drawing a red ball from the first bag and A2 be the
event of drawing a red ball from the second bag. Thus, we can write:
nd A I A i = 2 2 = 4,
b
g
nd A I A i = 1 2 = 2, nd A I A i = 1 2 = 2
Also, nb S g = nb A I A g + nd A I A i + nd A I A i + nd A I A i = 12
n A1 I A2 = 2 2 = 4,
1

Writing the given information in the form of a nine-square table, we get

A2 A2 Total
A1
4 4 8
2 2 4
A1
6 6 12
Total
(a)

The probability of drawing at least a red ball is given by

P A1 U A2 = 1

(b)

n A IA
i d nb A g i = 48 = 21

g b g b g

A1 and A2 will be independent if P A1 I A2 = P A1 . P A2

g nb AnbIS gA g = 124 = 13

Now P A1 I A2 =

P ( A1 ) .P ( A2 ) =
322

i = 1 2 = 5

We have to find P A2 / A1
P A2 / A1 =

(c)

n A1 I A2

n ( A1 ) n ( A2 ) 8
6 1
.
= =
n ( S ) n ( S ) 12 12 3

Hence, A1 and A2 are independent.

Example 33: An urn contains 3 red and 2 white balls. 2 balls are drawn at random. Find
the probability that either both of them are red or both are white.

Probability

Solution: Let A be the event that both the balls are red and B be the event that both the
balls are white. Thus, we can write

n S = 5C2 = 10, n A = 3C2 = 3, n B = 2 C2 = 1, also n A I B = 0

g nb Angb+Sng b Bg = 310+ 1 = 25

\ The required probability is P A U B =

Example 34: A bag contains 10 red and 8 black balls. Two balls are drawn at random.
Find the probability that (a) both of them are red, (b) one is red and the other is black.
Solution: Let A be the event that both the balls are red and B be the event that one is red
and the other is black.
Two balls can be drawn from 18 balls in 18 C2 equally likely ways.

n ( S ) = 18C2 =
(a)

Two red balls can be drawn from 10 red balls in

n ( A) = 10C2 =
Thus, P ( A) =

(b)

18!
= 153
2!16!
10

C2 ways.

10!
= 45
2!8!

n ( A) 45
5
=
=
n ( S ) 153 17

One red ball can be drawn in 10 C1 ways and one black ball can be drawn in 8C1 ways.

n ( B) =

C1 8C1 = 10 8 = 80 Thus, P ( B ) =

80
153

Example 35: Five cards are drawn in succession and without replacement from an
ordinary deck of 52 well-shuffled cards :
(a)

What is the probability that there will be no ace among the five cards?

(b)

What is the probability that first three cards are aces and the last two cards are
kings?

(c)

What is the probability that only first three cards are aces?

(d)

What is the probability that an ace will appear only on the fifth draw?

Solution:

48 47 46 45 44
= 0.66
52 51 50 49 48

(a)

P ( there is no ace ) =

(b)

first three card are aces and

43243
P
=
= 0.0000009

the last two are kings 52 51 50 49 48

(c)

P (only first three card are aces) =

(d)

an ace appears only 48 47 46 45 4

P
=
= 0.059
on the fifth draw 52 51 50 49 48

4 3 2 48 47
= 0.00017
52 51 50 49 48

323

Quantitative Techniques
for Management

Example 36: Two cards are drawn in succession from a pack of 52 well-shuffled
cards. Find the probability that :
(a)

Only first card is a king.

(b)

First card is jack of diamond or a king.

(c)

At least one card is a picture card.

(d)

Not more than one card is a picture card.

(e)

Cards are not of the same suit.

(f)

Second card is not a spade.

(g)

Second card is not a spade given that first is a spade.

(h)

The cards are aces or diamonds or both.

Solution:

(a) P (only first card is a king ) =

4 48
16
=
.
52 51 221

first card is a jack of 5 51

5
(b) P
=
= .

diamond or a king 52 51 52
at least one card is
40 39 7
(c) P
= 1
= .

52 51 17
a picture card
not more than one card 40 39 12 40 40 12 210
(d) P
=
+
+
=
.
is a picture card 52 51 52 51 52 51 221

(e) P (cards are not of the same suit ) =

(f) P (second card is not a spade ) =

52 39 13
= .
52 51 17

13 39 39 38 3
+
= .
52 51 52 51 4

second card is not a spade 39 13

(g) P
=
= .
given that first is spade 51 17
the cards are aces or 16 15 20
(h) P
=
=
.
diamonds or both 52 51 221

Example 37: The odds are 9 : 7 against a person A, who is now 35 years of age, living
till he is 65 and 3 : 2 against a person B, now 45 years of age, living till he is 75. Find the
chance that at least one of these persons will be alive 30 years hence.
Solution:
Note: If a is the number of cases favourable to an event A and a is the number of cases
favourable to its compliment event (a + a = n), then odds in favour of A are a : a and
odds against A are a : a.

a .
a
and P A =
a+a
a+a
Let A be the event that person A will be alive 30 years hence and B be the event that
person B will be alive 30 years hence.
7
7
2
2
P ( A) =
=
=
and P ( B) =
9 + 7 16
3+2 5

( )

Obviously P ( A) =

We have to find P A U B . Note that A and B are independent.

324

\ P A U B = 7 + 2 7 2 = 53
16

Probability

Alternative Method:

P AU B = 1

9 3 53
=
16 5 80

2
3

Example 38: If A and B are two events such that P A = , P A I B =

i d

1
and
6

1
P A I B = , find P(B), P A U B , P(A/B), P(B/A), P A U B , P A I B
3

i and Pd B i .

Also examine whether the events A and B are : (a) Equally likely, (b) Exhaustive, (c)
Mutually exclusive and (d) Independent.
Solution: The probabilities of various events are obtained as follows :

bg d

i b

P B = P A I B + P AI B =

P AU B =

1 1 1
+ =
6 3 2

2 1 1 5
+ =
3 2 3 6

g PbPAbIBgBg = 13 21 = 23
Pb A I B g 1 3 1
Pb B / Ag =
= =
Pb Ag
3 2 2
b

P A/ B =

i d i bg d

P AUB = P A + P B P AIB =

P A I B = 1 P AU B = 1

P ( B ) = 1 P ( B) = 1

1 1 1 2
+ =
3 2 6 3

5 1
=
6 6

1 1
=
2 2

(a)

Since P(A) P(B), A and B are not equally likely events.

(b)

Since P A U B 1 , A and B are not exhaustive events.

b g
Since Pb A I Bg 0 , A and B are not mutually exclusive.
Since Pb Ag Pb Bg = Pb A I Bg , A and B are independent events.

Example 39: Two players A and B toss an unbiased die alternatively. He who first
throws a six wins the game. If A begins, what is the probability that B wins the game?
Solution: Let Ai and Bi be the respective events that A and B throw a six in Ith toss, i =
1, 2, .... . B will win the game if any one of the following mutually exclusive events
occur: A1 B1 or A1 B1 A2 B2 or A1 B1 A2 B2 A3 B3 , etc.
Thus, P ( B wins) =

5 1 5 5 5 1 5 5 5 5 5 1
+ + + ......
6 6 6 6 6 6 6 6 6 6 6 6

2
4
5
5 5
1
5
5
=

=
1 + + + ...... =
2
6
36 6
11
5
36
1
6

325

Quantitative Techniques
for Management

Example 40: A bag contains 5 red and 3 black balls and second bag contains 4 red and
5 black balls.
(a)

If one ball is selected at random from each bag, what is the probability that both of
them are of same colour?

(b)

If a bag is selected at random and two balls are drawn from it, what is the probability
that they are of (i) same colour, (ii) different colours?

Solution:
(a)

Probability that ball Probability that balls

Required Probability = from both bags are red + from both bags are black

5 4 3 5 35
+ =
8 9 8 9 72
Let A be the event that first bag is drawn so that A denotes the event that second
bag is drawn. Since the two events are equally likely, mutually exclusive and
=

(b)

( )

exhaustive, we have P ( A) = P A =
(i)

1
.
2

Let R be the event that two drawn balls are red and B be the event that they
are black. The required probability is given by
= P ( A ) P ( R / A) + P ( B / A) + P ( A ) P ( R / A ) + P ( B / A )

1 5 C2 + 3C2 1 4 C2 + 5C2 1 10 + 3 1 6 + 10 229

+
=
= 2 8C
9
+
=
C2

2
2 28 2 36 504
2
(ii)

Let C denote the event that the drawn balls are of different colours. The
required probability is given by

( ) (

P (C ) = P ( A) P (C / A) + P A P C / A
=

1 5 3 1 4 5 1 15 20 275
+
=

+
=
2 8 C2 2 9 C2 2 28 36 504

Example 41: There are two urns U1 and U2. U1 contains 9 white and 4 red balls and U2
contains 3 white and 6 red balls. Two balls are transferred from U1 to U2 and then a ball
is drawn from U2. What is the probability that it is a white ball?
Solution: Let A be the event that the two transferred balls are white, B be the event that
they are red and C be the event that one is white and the other is red. Further, let W be
the event that a white ball is drawn from U2. The event W can occur with any one of the
mutually exclusive events A, B and C.

P (W ) = P ( A) .P (W / A) + P ( B ) P (W / B ) + P (C ) P (W / C )
9

C2 5 4 C2 3 9 4 4 57
= 13 + 13 + 13 =
C2 11
C2 11
C2 11 143
Example 42: A bag contains tickets numbered as 112, 121, 211 and 222. One ticket is
drawn at random from the bag. Let Ei (i = 1, 2, 3) be the event that i th digit on the ticket
is
326

2. Discuss the independence of E1, E2 and E3.

Solution: The event E1 occurs if the number on the drawn ticket 211 or 222, therefore,

Probability

1 . Similarly
1
1
P ( E2 ) = and P ( E3 ) = .
2
2
2

P ( E1 ) =

d
i 4
Since Pd E I E i = Pb E g Pd E i for i j, therefore E , E and E are pair-wise independent.
Now P Ei I E j = 1 (i, j = 1, 2, 3 and i j).
i

b g b g b g

Further, P E1 I E2 I E 3 = 1 P E1 . P E2 . P E3 , therefore, E 1, E 2 and E3 are not

mutually independent.
Example 43: Probability that an electric bulb will last for 150 days or more is 0.7 and
that it will last at the most 160 days is 0.8. Find the probability that it will last between 150
to 160 days.
Solution: Let A be the event that the bulb will last for 150 days or more and B be the
event that it will last at the most 160 days. It is given that P(A) = 0.7 and P(B) = 0.8.
The event A U B is a certain event because at least one of A or B is bound to occur.

g
Pb A I Bg = Pb Ag + Pb Bg Pb A U Bg = 0.7 + 0.8 10
. = 0.5

Thus, P A U B = 1 . We have to find P A I B . This probability is given by

Example 44: The odds that A speaks the truth are 2 : 3 and the odds that B speaks the
truth are 4 : 5. In what percentage of cases they are likely to contradict each other on an
identical point?
Solution: Let A and B denote the respective events that A and B speak truth. It is given
that P ( A) = 2 and P ( B) = 4 .
5
9

The event that they contradict each other on an identical point is given by A I B U A I B ,

where A I B and A I B are mutually exclusive. Also A and B are independent events.
Thus, we have

i d

i bg d i d i bg

P AI B U A I B = P AI B + P A I B = P A . P B + P A . P B

2 5 3 4 22
+ =
= 0.49
5 9 5 9 45

Hence, A and B are likely to contradict each other in 49% of the cases.
Example 45: The probability that a student A solves a mathematics problem is
the probability that a student B solves it is

2
and
5

2
. What is the probability that (a) the problem
3

is not solved, (b) the problem is solved, (c) Both A and B, working independently of each
other, solve the problem?
Solution: Let A and B be the respective events that students A and B solve the problem.
We note that A and B are independent events.

bag Pd A I B i = Pd A i. Pd B i = 53 13 = 15

327

Quantitative Techniques
for Management

bbg Pb A U Bg = 1 Pd A I B i = 1 15 = 45
bcg Pb A I Bg = Pb Ag Pb Bg = 25 23 = 154
Example 46: A bag contains 8 red and 5 white balls. Two successive drawings of 3
balls each are made such that (i) balls are replaced before the second trial, (ii) balls are
not replaced before the second trial. Find the probability that the first drawing will give 3
white and the second 3 red balls.
Solution: Let A be the event that all the 3 balls obtained at the first draw are white and
B be the event that all the 3 balls obtained at the second draw are red.
(a)

When balls are replaced before the second draw, we have

P ( A) =

8
C3
C3
5
28
=
=
=
P
B
and
(
)
13
13
C3 143
C3 143

The required probability is given by P A I B , where A and B are independent.

Thus, we have

g bg bg

P AI B = P A . P B =

(b)

5
28
140

=
143 143 20449

When the balls are not replaced before the second draw
8

We have P ( B / A) =

g bg b

C3
7
= . Thus, we have
C3 15

P AI B = P A . P B / A =

5
7
7
=
143 15 429

Example 47: Computers A and B are to be marketed. A salesman who is assigned the
job of finding customers for them has 60% and 40% chances respectively of succeeding
in case of computer A and B. The two computers can be sold independently. Given that
the salesman is able to sell at least one computer, what is the probability that computer A
has been sold?
Solution: Let A be the event that the salesman is able to sell computer A and B be the
event that he is able to sell computer B. It is given that P(A) = 0.6 and P(B) = 0.4. The
probability that the salesman is able to sell at least one computer, is given by

g bg bg b

g bg bg bg bg

P AU B = P A + P B P AI B = P A + P B P A . P B

(note that A and B are given to be independent)

= 0.6 + 0.4 0.6 0.4 = 0.76

Now the required probability, the probability that computer A is sold given that the salesman
is able to sell at least one computer, is given by

P A / AU B =

0.60
= 0.789
0.76

Example 48: Two men M1 and M2 and three women W1, W2 and W3, in a big industrial
firm, are trying for promotion to a single post which falls vacant. Those of the same
sex have equal probabilities of getting promotion but each man is twice as likely to get
the promotion as any women.
328

(a)

Find the probability that a woman gets the promotion.

(b)

If M2 and W2 are husband and wife, find the probability that one of them gets the
promotion.

Probability

Solution: Let p be the probability that a woman gets the promotion, therefore 2p will be
the probability that a man gets the promotion. Thus, we can write, P(M1) = P(M2) = 2p
and P(W1) = P(W2) = P(W3) = p, where P(Mi) denotes the probability that i th man gets
the promotion (i = 1, 2) and P(W j) denotes the probability that j th woman gets the
promotion.
Since the post is to be given only to one of the five persons, the events M1, M2 , W1, W2
and W3 are mutually exclusive and exhaustive.

g b g b g b g b g b g

P M1 U M 2 U W1 U W2 U W3 = P M1 + P M 2 + P W1 + P W2 + P W3 = 1

2 p + 2 p + p + p + p = 1 or p =
(a)

1
7

The probability that a woman gets the promotion

g b g b g b g

P W1 U W2 U W3 = P W1 + P W2 + P W3 =

(b)

3
7

The probability that M2 or W2 gets the promotion

g b g b g

P M 2 U W2 = P M 2 + P W2 =

3
7

Example 49: An unbiased die is thrown 8 times. What is the probability of getting a six
in at least one of the throws?
Solution: Let Ai be the event that a six is obtained in the ith throw (i = 1, 2, ...... 8).
Therefore, P ( Ai ) = 1 .
6
The event that a six is obtained in at least one of the throws is represented by

b A U A U .... U A g . Thus, we have

Pb A U A U .... U A g = 1 Pd A I A I .... I A i
1

Since A1, A2, ...... A8 are independent, we can write

d i d i

d i

P A1 U A2 U .... U A8 = 1 P A1 . P A2 . .... P A8 = 1

FG 5 IJ
H 6K

Example 50: Two students X and Y are very weak students of mathematics and their
chances of solving a problem correctly are 0.11 and 0.14 respectively. If the probability
of their making a common mistake is 0.081 and they get the same answer, what is the
chance that their answer is correct?
Solution: Let A be the event that both the students get a correct answer, B be the event
that both get incorrect answer by making a common mistake and C be the event that
both get the same answer. Thus, we have

P ( A I C ) = P ( X gets correct answer ) .P (Y gets correct answer )

= 0.11 0.14 = 0.0154 (note that the two events are independent)

Similarly,

P ( B I C ) = P ( X gets incorrect answer ) P (Y gets incorrect answer )

P ( X and Y make a common mistake )

329

= (1 0.11)(1 0.14 ) 0.081 = 0.062

Quantitative Techniques
for Management

bg b

g b

Further, C = A I C U B I C or P C = P A I C + P B I C , since A I C and B I C

are mutually exclusive. Thus, we have

P (C ) = 0.0154 + 0.0620 = 0.0774

We have to find the probability that the answers of both the students are correct given
that they are same, i.e.,

= 0199
.
g PbPAbCIgCg = 00..0154
0774

P A/C =

Example 51: Given below are the daily wages (in rupees) of six workers of a factory :
77, 105, 91, 100, 90, 83
If two of these workers are selected at random to serve as representatives, what is the
probability that at least one will have a wage lower than the average?
Solution: The average wage X = 77 + 105 + 91 + 100 + 90 + 83 = 91
6
Let A be the event that two workers selected at random have their wages greater than
or equal to average wage.
3

\ P ( A) =

C2 1
=
C2 5

Thus, the probability that at least one of the workers has a wage less than the average

1 4
=
5 5

Example 52: There are two groups of subjects one of which consists of 5 science
subjects and 3 engineering subjects and the other consists of 3 science subjects and 5
engineering subjects. An unbiased die is cast. If the number 3 or 5 turns up, a subject
from the first group is selected at random otherwise a subject is randomly selected from
the second group. Find the probability that an engineering subject is selected ultimately.
Solution: Let A be the event that an engineering subject is selected and B be the event
that 3 or 5 turns on the die. The given information can be summarised into symbols, as
given below :

1
3
P ( A ) = , P ( A / B ) = , and
3
8

P(A / B) =

5
8

To find P(A), we write

bg b

g d

i bg b

g d i d

P A = P AI B + P AI B = P B . P A / B + P B . P A / B

1 3 2 5 13
+ =
3 8 3 8 24

Example 53: Find the probability of obtaining two heads in the toss of two unbiased
coins when (a) at least one of the coins shows a head, (b) second coin shows a head.

330

Solution: Let A be the event that both coins show heads, B be the event that at least one
coin shows a head and C be the event that second coin shows a head. The sample space
and the three events can be written as :

Probability

S = {(H, H), (H, T), (T, H), (T, T)},

A = {(H, H)},

B = {(H, H), (H, T), (T, H)}

C = {(H, H), (T, H)}.

Further, A I B = H , H

and

gr and A I C = mb H , H gr

Since the coins are given to be unbiased, the elementary events are equally likely, therefore

P A =

(a)

1
,
4

P B =

3
,
4

PC =

1
,
2

g b

P AI B = P AIC =

1
4

We have to determine P (A/B)

g PbPAbIBgBg = 41 43 = 13

P A/ B =

(b)

We have to determine P(A/C)

g PbPAbCIgCg = 41 21 = 21

P A/C =

Exercise with Hints:

What is the probability of drawing two aces at random from a deck of 52 wellshuffled cards?

Hint: Two aces can be drawn from four aces in 4 C2 ways.

Two cards are drawn at random from a deck of 52 well-shuffled cards. What is
the probability that one of them is an ace and the other is a queen?

Hint: Try as in question 1 above.

What is the probability of getting all the four heads in four throws of an unbiased
coin?

Hint: n(S) = 24.

What is the probability of getting 5 on each of the two throws of a six faced
unbiased die?

Hint: Try as in question 3 above.

Four cards are drawn at random without replacement from a pack of 52 cards.
What is the probability that :
(a)

All of them are aces?

(b)

All of them are of different suits?

(c)

All of them are picture cards or spades or both?

Hint: See example 36.

Find the probability of throwing an even number from a single throw of a pair of
unbiased dice.

Hint: An even number is obtained if both dice show either odd or even numbers.
7.

A bag contains 50 balls serially numbered from 1 to 50. One ball is drawn at
random from the bag. What is the probability that the number on it is a multiple of
3 or 4?
Hint: The number of serial numbers that are multiple of 3 or 4 are integral part of
50
.
L.C.M . of 3 and 4

331

Quantitative Techniques
for Management

A bag contains 4 white and 5 red balls. Two balls are drawn in succession at
random. What is the probability that (a) both the balls are white, (b) both are red,
(c) one of them is red and the other is white?

Hint: See example 34.

A bag contains 5 red, 8 white and 3 blue balls. If three balls are drawn at random,
find the probability that (a) all the balls are blue, (b) each ball is of different colour,
(c) the drawn balls are in the order red, white and blue, (d) none of the balls are
white.

Hint: (b) This event is same as that of drawing one ball of each colour.
(c) n(S) = 16 15 14.
10. 4 cards are drawn at random from a pack of 52 well-shuffled cards. Find the
chance that (i) each card is of a different suit, (ii) they consist of a Jack, Queen,
King and an Ace, (iii) they are 4 honours of the same suit.
Hint: Honours of a suit are its Jack, Queen, King and Ace.
11.

In how many ways the letters of the following words can be arranged?
MANAGEMENT, ASSESSMENT, COMMITTEE

Hint: See example 13.

12. How many distinct words can be formed from the letters of the word MEERUT?
How many of these words start at M and end at T?
Hint: Fixing M and T, determine the number of permutations of remaining letters.
13. In a random arrangement of letters of the word DROUGHT, find the probability
that vowels come together.
Hint: See example 15.
14. The letters of the word STUDENT are arranged at random. Find the probability
that the word, so formed;
(a)

starts with S,

(b)

starts with S and ends with T,

(c)

the vowels occupy odd positions only,

(d)

the vowels occupy even positions only.

Hint: See examples 14 and 15.

15. How many triangles can be formed by joining 12 points in a plane, given that 7
points are on one line.
Hint: No. of triangles =

C 3 7C 3 .

16. In a random arrangement of 10 members of a committee, find the probability that

there are exactly 3 members sitting between the president and secretary when the
arrangement is done (i) in a row, (ii) in a ring.
Hint: Considering 5 members as one, there are 6 members. No. of permutations
(i) 2! 8C3 3! 6! , (ii) 2! 8C3 3! 5!
17. A six digit number is formed by the digits 5, 9, 0, 7, 1, 3; no digit being repeated.
Find the probability that the number formed is (i) divisible by 5, (ii) not divisible
by 5.
Hint: 0 cannot come at the sixth place of a six digit number.
18. If 30 blankets are distributed at random among 10 beggars, find the probability that
a particular beggar receives 5 blankets.

332

Hint: A particular beggar can receive 5 blankets in

9 beggars in 925 ways.

C5 ways and the remaining

19. A statistical experiment consists of asking 3 housewives, selected at random, if

they wash their dishes with brand X detergent. List the elements of the sale space
S using the letter Y for 'yes' and N for 'no'. Also list the elements of the event : "The
second woman interviewed uses brand X'. Find the probability of this event if it is
assumed that all the elements of S are equally likely to occur.

Probability

Hint: The sample space would consist of eight 3-tuples of the type (Y,Y,Y), etc.
20. n persons are sitting in a row. If two persons are picked up at random, what is the
probability that they are sitting adjacent to each other?
Hint: Two adjacent persons can be picked up in (n - 1) ways.
21. A committee of 5 persons is to be formed out of 7 Indians and 5 Japanese. Find the
probability that (a) the committee is represented only by the Indians, (b) there are
at least two Japanese on the committee, (c) there are at least two Japanese and
two Indians on the committee.
Hint: See example 16.
22. 4 letters are placed at random in 4 addressed envelopes. Find the probability that all
the letters are not placed in right envelopes.
Hint: The letters can be placed in their respective envelopes in one way.
23. Find the probability that a family with 4 children has (a) 2 boys and 2 girls, (b) no
boy, (c) at the most two boys, (d) at least a girl. Assume equal probability for boys
and girls.
Hint: (a) The event can occur in 4 C2 mutually exclusive ways each with
probability 14 .
2

24. One child is selected at random from each of the three groups of children, namely,
3 girls and 1 boy, 2 girls and 2 boys, 1 girl and 3 boys. Find the probability of
selecting 1 girl and 2 boys.
Hint: The event can occur in any one of the following mutually exclusive ways : BBG,
BGB, GBB.
25. A can hit a target in 3 out of 4 attempts while B can hit it in 2 out of 3 attempts. If
both of them try simultaneously, what is the probability that the target will be hit?
Hint: Find the probability of hitting the target at least once.
26. A and B played 12 chess matches out of which A won 6 matches, B won 4
matches and 2 resulted in draw. If they decide to play 3 more matches, what is the
probability that (a) A wins all the three matches, (b) two matches end in draw, (c)
B wins at least a match, (d) A wins at least a match, (e) A and B wins alternatively?
Hint: (b) P(two matches end in draw) =

2 2 10
3.
12 12 12

27. A and B who are equally perfect players of badminton, stopped playing a match
when their scores were 12 and 13 respectively. If 15 points are needed to win this
match, what are their respective probabilities of winning?
Hint: A can win in following mutually exclusive ways; AAA, BAAA, ABAA, AABA.
28. A problem in accountancy is given to five students. Their chances of solving it are
1 1 1 1
1
, , ,
and respectively. What is the probability that the problem will be
2 3 4 5
6

solved?

d i d i d i d i d i

Hint: P A U B U C U D U E = 1 P A . P B . P C . P D . P E .

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Quantitative Techniques
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29. (a)

A guard of 12 soldiers is to be formed out of n soldiers. Find the probability

that (i) two particular soldiers A and B are together on the guard, (ii) three
particular soldiers C, D and E are together on the guard. (iii) Also find n if A
and B are 3 times as often together on the guard as C, D and E.

(b)

A has 6 shares in a lottery in which there are 3 prizes and 10 blanks. B has 2
shares in a lottery in which there are 4 prizes and 8 blanks. Which of them
has a better chance to win a prize?

Hint: (a) When A and B are on the guard, remaining 10 soldiers can be selected
in

(b)

n 2

C10 ways.

P ( A) = 1

10
13

C6
.
C6

30. It is 8 to 5 against a person, who is now 40 years old, living till he is 70 and 4 to 3
against a person, now 50 years old, living till he is 80. Find the probability that at
least one of them would be alive 30 years hence.
Hint: See example 37.
31. A candidate is selected for interview for 3 posts. There are 3 candidates for the
first, 4 for the second and 2 for the third post. What are the chance of his getting at
least one post?
Hint: Probability that he gets the first post is 1 , etc.
3

32. A bag contains 6 Rupee and 9 Dollar coins. Two drawings of 4 coins each are
made without replacement. What is the probability that first draw will give 4 Rupee
coins and second 4 dollar coins?
Hint: See example 46.
33. Three tokens marked as 1, 2 and 3 are placed in a bag and one is drawn and
replaced. The operation being repeated three times. What is the probability of
obtaining a total of 6?
Hint: A total of 6 can be obtained if different number is obtained in each operation or 2
is obtained in all the three operations. There are 3! ways of obtaining different
numbers.
34. A certain player, say X, is known to win with probability 0.3 if the track is fast and
with probability 0.4 if the track is slow. On Monday, there is a 0.7 probability of a
fast track. What is the probability that X will win on Monday?
Hint: Let A be the event that the track is fast and B be the event that X wins, then

bg b

g d

P B = P AI B + P A I B

35. The probability that a vacuum-cleaner salesman will succeed in persuading a

customer on the first call is 0.4. If he fails, the probability of success on the second
call is 0.2. If he fails on the first two calls, the probability of success on the third
and last call is 0.1. Find the probability that the salesman makes a sale of vacuumcleaner to a customer.
Hint: Try as in exercise 34 above.
36. There are two contractors A and B, for the completion of a project. Contractor A
does the first part of the project and then contractor B, by doing the second part,
completes the project. B cannot start until A has finished. If A finishes on time, B
has 85% chance of completing the project on time. If A doesn't finish on time, then
334

B has only 30% chance of completing the project on time. If A

has 70% chance of finishing his work on time, what is the probability that the
project will be finished on time?

g d

Probability

Hint: Find P A I B + P A I B .
37. The probability that a person stopping at a petrol pump will ask to have his tyres
checked is 0.12, the probability that he will ask to have his oil checked is 0.29 and
the probability that he will ask to have both of them checked is 0.07.
(i)

What is the probability that a person stopping at the petrol pump will have
either tyres or oil checked?

(ii)

What is the probability that a person who has tyres checked will also have oil
checked?

(iii) What is the probability that a person who has oil checked will also have tyres
checked?
Hint: See example 32.
38. There are three brands, say X, Y and Z, of an item available in the market. A
consumer chooses exactly one of them for his use. He never buys two or more
brands simultaneously. The probabilities that he buys brands X, Y and Z are 0.20,
0.16 and 0.45 respectively.
(i)

What is the probability that he doesn't buy any of the brands?

(ii)

Given that the consumer buys some brand, what is the probability that he
buys brand X?

Hint: (i) The required probability = 1 P X U Y U Z , where X , Y and Z are mutually

exclusive.
39. A person applies for the post of manager in two firms A and B. He estimates that
the probability of his being selected on firm A is 0.75, the probability of being
rejected in firm B is 0.45 and the probability of rejection in at least one of the firms
is 0.55. What is the probability that he will be selected in at least one of the firms?

Hint: P A I B = 1 P A U B .
40. (a)

A student is given a true-false examination with 10 questions. If he gets 8 or

more correct answers, he passes the examination. Given that he guesses at
an answer to each question, compute the probability that he passes the
examination.

(b)

In a multiple choice question, there are four alternative answers out of which
one or more are correct. A candidate will get marks in the question only if he
ticks all the correct answers. If he is allowed up to three chances to answer
the question, find the probability that he will get marks in the question.

Hint:(a)
(b)

n(S) = 210. No. of favourable cases is

C8 +

C9 +

C10 .

Total no. of ways in which the student can tick the answers in one attempt
= 24 - 1 (since at least one of the answer is correct, therefore, it is not possible
that he will leave all the answers unticked).
The total no. of ways of selecting three solutions from 15 is 15 C3 . Note that it
will be in the interest of the candidate to select a different solution in each
attempt. Since out of 15 solutions, only one (way of marking the questions) is
correct, therefore, the no. of ways of selecting incorrect solutions is 14 C3 .
14

Hence the required probability is given by 1 -

C3
.
C3

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Quantitative Techniques
for Management

41. 200 students were admitted to an under graduate course through an entrance test
out of which only 150 completed it successfully. On the examination of their
admission data, it was found that 70% of those who passed and 50% of those who
failed had a first division in their senior secondary examination. Find (a) the probability
that a student with first division in the senior secondary examination is successful
in the under graduate course, (b) the probability that a student without first division
in senior secondary examination, is successful in the under graduate course, (c) the
probability that an admitted student is a first divisioner in senior secondary
examination, (d) the probability that an admitted student is unsuccessful in the
under graduate course.
Hint: See example 27.
42. 300 employees of a firm were asked if they would favour increasing their working
day by one hour so that they could have a five day week. The results are given in
the following table :

a f
a f

Men M
Women W

Favour F
102
42

a f

Disfavour D
90
6

a f

Neutral N
48
12

g
(g) PbW I F g , (h) Pb N I M g , (i) PbW I N g , (j) P a F / M f , (k) P aW / F f ,
(l) P a D /W f , (m) P a M / N f , (n) P a N /W f , (o) P b M F g , (p) PbW U Dg ,
(q) Pb M U Dg , (r) Pb F U Dg , (s) Pb M U W g , (t) Pb M U F U Dg .
Find (a) P(M), (b) P(W), (c) P(F), (d) P(D), (e) P(N), (f) P M I F ,

Hint: See example 27.

43. In a bridge game of playing cards, 4 players are distributed one card each by turn
so that each player gets 13 cards. What is the probability that a specified player
gets a black ace and a king?
Hint: No. of favourable cases are 2 C1 4C1

C11 .

44. A bag contains 4 white and 2 black balls. Two balls are drawn successively one
after another without replacement. What is the probability that (a) the first ball is
white and the second is black, (b) the first is black and second is white.
Hint: Use conditional probability theorem.
45. (a)

What is the probability that out of 3 friends, Ram, Shyam and Mohan, at least
two have the same birthday?

(b)

What is the probability that out of a group of 4 persons, all born in the month
of April, at least three have same birthday?

Hint: Suppose that Ram states his birthday, then the probability of Shyam having a
different birthday is 364 and then the probability of Mohan having a different
365

birthday is 363 , etc. The required probability is 1 364 363 .

365
365 365
46. The probability that a man aged 70 years will die in a year is 2 . Find the probability
3

that out of 5 men A1, A2, A3, A4 and A5, each aged 70 years, A1 will die in a year
and will be the first to die.
Hint: P(A1 dies first out of 5 men) = 1 . Multiply this by the probability that at least one
336

of them die in a year.

47. The probability of rain tomorrow is 0.65 and the probability that the temperature
will rise above 35C is 0.8. The probability there is no rain and temperature remaining
below 35C is 0.1.
(a)

What is the probability of rain if temperature rises above 35C?

(b)

What is the probability that temperature remains below 35C, given that there
is no rain?

Probability

Hint: Try as in exercise 38 above.

48. A bag contains 4 red and 2 black balls. Three men X, Y and Z draw a ball in
succession, without replacement, until a black ball is obtained. Find their respective
chances of getting first black ball.
Hint: X can get first black ball in the following two mutually exclusive ways: B or
WWWB, etc.
49. A and B are two candidates for admission to a certain course. The probability that
A is selected is 0.80 and the probability that both A and B are selected is at the
most 0.25. Is it possible that probability of selection of B is 0.50?

Hint: P A U B 1 .
50. Delhi has three independent reserved sources of electric power to use to prevent a
blackout in the event that its regular source fails. The probability that any reserved
source is available when its regular source fails is 0.7. What is the probability of not
having a blackout if the regular source fails?
Hint: The required probability = 1 - the probability that power is not available from any
of the reserved sources.
51. In a locality, out of 5,000 people residing, 1,200 are above 30 years of age and 3,000
are females. Out of 1,200, who are above 30 years, 200 are females. If a person
selected at random is a female, what is the probability that she is above 30 years of
age?
Hint: See example 27.
52. The probability that both the events A and B occur simultaneously is
probability of occurrence of neither of them is

1
and the
5

4
. Find the probabilities P(A) and
15

P(B) on the assumption that the events are independent.

g d

Hint: Let P(A) = x and P(B) = y. Use the equation 1 P A U B = P A I B to find

x + y. Find x y from it by using the equation (x y) = (x + y) 4xy.

53. Two factories A and B manufacture the same machine part. Each part is classified
as having 0, 1, 2 or 3 manufacturing defects. The joint probabilities are as follows:
Number of defects
0
1
2
3
Factory A 0.1250 0.0625 0.1875 0.1250
Factory B 0.0625 0.0625 0.1250 0.2500

(i)

A part is observed to have no defects. What is the probability that it was

produced by factory A?

(ii)

A part is known to have been produced by factory A. What is the probability

that the part has no defects?

(iii) A part is known to have two or more defects. What is the probability that it
was manufacture by factory A?

337

Quantitative Techniques
for Management

(iv) A part is known to have one or more defects. What is the probability that it
was manufactured by factory B?
Hint: See example 30.
54. A man is dealt 4 spade cards from an ordinary pack of 52 cards. If he is given
three more cards, find the probability that at least one of the additional cards is also
a spade.
Hint: The probability that no spade is obtained from the remaining 48 cards
is

55. An unbiased die is thrown three times. Find the probability of (a) throwing 4 on the
first die if the sum of numbers obtained in three throws is 15,
(b) obtaining a sum of 15 when first die shows 4.
Hint:

(a) There are 10 ways of obtaining the sum 15 out of which 2 are favourable,
(b) there are 36 cases in which first die shows 4, out of which only two are
favourable.

56. A committee of 4 has to be formed from among 3 economists, 4 engineers, 2

statisticians and 1 doctor.
(i)

What is the probability that each of the four professions are represented on
the committee?

(ii)

What is the probability that the committee consists of doctor and at least one
economist?

Hint: (ii) The required probability is obtained by finding the probabilities of the following
mutually exclusive events : {1 doc, 1 eco, 2 others}, {1 doc, 2 eco, 1 other} and
{1 doc, 3 eco}.
57. Six persons toss a coin turn by turn. The game is won by the player who first
throws a head. Find the probability of success of the fifth player.
Hint: See example 39.
58. Find the probability that an assessee files his tax return and cheats on it, given that
70% of all the assessee files returns and 20%, of those who file, cheat.
Hint: See example 27.
59. Two persons A and B throw three unbiased dice. If A throws 14, find B's chances
of throwing a higher number.
Hint: The event that A throws 14 is independent of the event that B throws a higher
number.
60. A is one of 6 horses entered for a race and is to be ridden by one of the jockeys B
and C. It is 2 : 1 that B rides A, in which case all the horses are equally likely to
win; if C rides A, his chances are trebled; what are the odds against his winning?
1
Hint: P(A wins given that he is ridden by jockey B) =
6
3
P(A wins given that he is ridden by jockey C) =
6
61. What is the probability that over a two day period the number of requests would
either be 11 or 12 if at a motor garage the records of service requests alongwith
their probabilities are given below?
Daily demand : 5
6
7
Probability : 0. 25 0.65 0.10
338

Hint: 11 requests can occur in 2 ways and 12 requests in 3 ways.

62. The probability that T.V. of a company fails during first month of its use is
0.02. Of those that do not fail during first month, the probability of failure in the
next five months is 0.01. Of those that do not fail during the first six months,
the probability of failure by the end of the first year is 0.001. The company
replaces, free of charge, any set that fails during its warranty period. If 2,000
sets are sold, how many will have to be replaced if the warranty period is (a)
six months, (b) one year?

Probability

Hint: Probability that a set fails during first year = 0.02 + 0.98 0.01 + 0.9902 0.001.
63. A salesman has 60% chances of making sales to each customer. The behaviour of
each successive customer is assumed to be independent. If two customers A and
B enter, what is the probability that the salesman will make sales to A or B?

Hint: P A U B = 1 P A I B .
64. A box contains 24 bulbs out of which 4 are defective. A customer draws a sample
of 3 bulbs at random in succession and rejects the box if the sample contains one or
more defectives. What is the probability that the box is rejected?
Hint: The box will be rejected if the sample contains at least one defective.

10.7 THEOREMS ON PROBABILITY - II

Theorem 5: (Bayes' Theorem or Inverse Probability Rule): The probabilities assigned
to various events on the basis of the conditions of the experiment or by actual
experimentation or past experience or on the basis of personal judgement are called
prior probabilities. One may like to revise these probabilities in the light of certain
additional or new information. This can be done with the help of Bayes' Theorem, which
is based on the concept of conditional probability. The revised probabilities, thus obtained,
are known as posterior or inverse probabilities. Using this theorem it is possible to
revise various business decisions in the light of additional information.
Bayes' Theorem
If an event D can occur only in combination with any of the n mutually exclusive and
exhaustive events A1, A2, ...... An and if, in an actual observation, D is found to have
occurred, then the probability that it was preceded by a particular event Ak is given by

P ( Ak ).P ( D / Ak )

P ( Ak / D ) =

P ( A ).P ( D / A )
i =1

Proof: Since A1, A2, ...... An are n exhaustive events, therefore,

S = A 1 U A 2 ...... U A n .
Since D is another event that can occur in combination with any of the mutually exclusive
and exhaustive events A1, A2, ...... An, we can write

D = A1 I D U A2 I D U ...... U An I D

Taking probability of both sides, we get

bg b g b g
b g
We note that the events b A I Dg, b A I Dg , etc. are mutually exclusive.
P D = P A1 I D + P A2 I D + ...... + P An I D
1

b g

b g b

P D = P Ai I D = P Ai . P D / Ai
i =1

i =1

.... (1)
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Quantitative Techniques
for Management

The conditional probability of an event Ak given that D has already occurred, is given by

g Pb APb DIgDg = Pb A gP. Pb Db Dg / A g

P Ak / D =

.... (2)

Substituting the value of P(D) from (1), we get

P ( Ak / D ) =

P ( Ak ) .P ( D / Ak )
n

P ( A ) .P ( D / A )
i

i =1

.... (3)

Example 54: A manufacturing firm purchases a certain component, for its manufacturing
process, from three sub-contractors A, B and C. These supply 60%, 30% and 10% of
the firm's requirements, respectively. It is known that 2%, 5% and 8% of the items
supplied by the respective suppliers are defective. On a particular day, a normal shipment
arrives from each of the three suppliers and the contents get mixed. A component is
chosen at random from the day's shipment :
(a)

What is the probability that it is defective?

(b)

If this component is found to be defective, what is the probability that it was supplied
by (i) A, (ii) B, (iii) C ?

Solution: Let A be the event that the item is supplied by A. Similarly, B and C denote the
events that the item is supplied by B and C respectively. Further, let D be the event that
the item is defective. It is given that :
P(A) = 0.6, P(B) = 0.3, P(C) = 0.1, P(D/A) = 0.02
P(D/B) = 0.05, P(D/C) = 0.08.
(a)

We have to find P(D)

From equation (1), we can write

P ( D ) = P ( A I D ) + P ( B I D ) + P (C I D )
= P ( A) P ( D / A) + P ( B ) P ( D / B ) + P (C ) P ( D / C )
= 0.6 0.02 + 0.3 0.05 + 0.1 0.08 = 0.035
(b)

(i) We have to find P(A/D)

P ( A / D) =

P ( A ) P ( D / A)
P (D)

Similarly, (ii) P ( B / D ) =
and (iii) P (C / D ) =

0.6 0.02
= 0.343
0.035

P ( B) P ( D / B)
P ( D)

P (C ) P ( D / C )
P (D)

0.3 0.05
= 0.429
0.035

0.1 0.08
= 0.228
0.035

Alternative Method: The above problem can also be attempted by writing various
probabilities in the form of following table :
D
D
340

Total

A
P AI D
= 0.012
P AI D
= 0.588
0.600

b
d

B
P BID
= 0.015
P BID
= 0.285
0.300

g b
i d

C
P CID
= 0.008
P CID
= 0.092
0100
.

g b
i d

g
i

Total
0.035
0.965
1000
.

Thus P A / D =

Probability

0.012
etc.
0.035

Example 55: A box contains 4 identical dice out of which three are fair and the fourth
is loaded in such a way that the face marked as 5 appears in 60% of the tosses. A die is
selected at random from the box and tossed. If it shows 5, what is the probability that it
was a loaded die?
Solution: Let A be the event that a fair die is selected and B be the event that the loaded
die is selected from the box.
Then, we have P ( A) = 3 and P ( B ) = 1 .
4
4
Further, let D be the event that 5 is obtained on the die, then

P ( D / A) =

1
6
and P ( D / B ) =
6
10

Thus, P(D) = P(A).P(D/A) + P(B).P(D/B) =

3 1 1 6 11
+ =
4 6 4 10 40

We want to find P(B/D), which is given by

g PbPBbIDgDg = 41 106 4011 = 116

P B/D =

Example 56: A bag contains 6 red and 4 white balls. Another bag contains 3 red and 5
white balls. A fair die is tossed for the selection of bag. If the die shows 1 or 2, the first
bag is selected otherwise the second bag is selected. A ball is drawn from the selected
bag and is found to be red. What is the probability that the first bag was selected?
Solution: Let A be the event that first bag is selected, B be the event that second bag is
selected and D be the event of drawing a red ball.
Then, we can write

1
2
6
3
P ( A) = , P ( B ) = , P ( D / A) = , P ( D / B ) =
3
3
10
8
Further, P ( D ) = 1 6 + 2 3 = 9 .
3 10 3 8 20

g PbPAbIDgDg = 13 106 209 = 49

P A/ D =

Example 57: In a certain recruitment test there are multiple-choice questions. There
are 4 possible answers to each questio n out of which only one is correct. An intelligent
student knows 90% of the answers while a weak student knows only 20% of the answers.
(i)

An intelligent student gets the correct answer, what is the probability that he was
guessing?

(ii)

A weak student gets the correct answer, what is the probability that he was guessing?

Solution: Let A be the event that an intelligent student knows the answer, B be the
event that the weak student knows the answer and C be the event that the student gets
a correct answer.
(i)

We have to find P A /C . We can write

P A/C =

P AIC
P (C )

( ) ( )
P ( A ) P (C / A ) + P ( A) P (C / A)
P A P C/A

.... (1)
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Quantitative Techniques
for Management

It is given that P(A) = 0.90, P C / A = 1 = 0.25 and P (C / A) = 1.0

( )

From the above, we can also write P A = 0.10

Substituting these values, we get

0.10 0.25
0.025
=
= 0.027
0.10 0.25 + 0.90 1.0 0.925

P( A / C) =
(ii)

We have to find P B /C . Replacing A by B , in equation (1), we can get this

probability.

It is given that P(B) = 0.20, P C / B = 0.25 and P (C / B ) = 1.0

( )

From the above, we can also write P B = 0.80

Thus, we get P ( B / C ) =

0.80 0.25
0.20
=
= 0.50
0.80 0.25 + 0.20 1.0 0.40

Example 58: An electronic manufacturer has two lines A and B assembling identical
electronic units. 5% of the units assembled on line A and 10%of those assembled on line
B are defective. All defective units must be reworked at a significant increase in cost.
During the last eight-hour shift, line A produced 200 units while the line B produced 300
units. One unit is selected at random from the 500 units produced and is found to be
defective. What is the probability that it was assembled (i) on line A, (ii) on line B?
Answer the above questions if the selected unit was found to be non-defective.
Solution: Let A be the event that the unit is assembled on line A, B be the event that it
is assembled on line B and D be the event that it is defective.
Thus, we can write

P ( A) =

2
3
, P ( B ) = , P ( D / A) = 5 and P ( D / B ) = 10
5
5
100
100

Further, we have

P AI D =

2
5
1 and
3 10
3

=
P BID =
=
5 100 50
5 100 50

The required probabilities are computed form the following table:

D
D
Total

A
1
50
19
50
20
50

B Total
3
4
50 50
27 46
50 50
30
1
50

From the above table, we can write

342

P ( A / D) =

1 50 1
3 50 3

= , P ( B / D) =

=
50 4 4
50 4 4

P ( A / D) =

19 50 19
27 50 27

=
, P ( B / D) =
50 46 46
50 46 46

Exercise with Hints:

Probability

An insurance company insured 2,000 scooter drivers, 4,000 car drivers and 6,000
truck drivers. The probability of an accident is 0.01, 0.03 and 0.15 in the respective
category. One of the insured driver meets an accident. What is the probability that
he is a scooter driver?

Hint: Apply Bayes' Rule.

When a machine is set correctly, it produces 25% defectives, otherwise it produces

60% defectives. From the past knowledge and experience, the manufacturer knows
that the chance that the machine is set correctly or wrongly is 50 : 50. The machine
was set before the commencement of production and 1 piece was taken out and
found to be defective. What is the probability of the machine set up being correct?
If the selected piece was found to be non-defective, what is the probability of the
machine set up being wrong?

Hint: Apply Bayes' Rule.

Each of the three identical jewellery boxes has 2 drawers. In each drawer of the
first box there is a gold watch. In each drawer of the second box there is a silver
watch. In one drawer of the third box there is a gold watch while in the other
drawer there is a silver watch. If we select a box at random, open one of the
drawers and find it to contain a silver watch, what is the probability that the other
drawer has a gold watch?

1
Hint: P ( B1 ) = P ( B2 ) = P ( B3 ) = 1 , P ( S / B1 ) = 0, P ( S / B2 ) = 1, P ( S / B3 ) = .
2
3
4. In a factory producing bolts, Machines A, B and C manufacture 25%, 35% and
40% of total output. Of their output, 5%, 4% and 2% are defective respectively. A
bolt is drawn at random from the product and is found to be defective. What is the
probability that it was manufactured by machine A?
Hint: Apply Bayes' Rule.
5.

Consider a population of consumers consisting of two types. The upper class of

consumers comprise 35% of the population and each member has a probability 0.8
of purchasing brand A of a product. Each member of the rest of the population has
a probability 0.3 of purchasing brand A of the product. A consumer, chosen at
random, is found to be buyer of brand A. What is the probability that the buyer
belongs to the middle and lower class of consumers?

Hint: Apply Bayes' Rule.

At an electric plant, it is known from the past experience that the probability is 0.86
that new worker who has attended the company's training programme will meet
his production quota and that the corresponding probability is 0.35 for a new worker
who has not attended the company's training programme. If 80% of the new workers
attend the training programe, what is the probability that new worker will meet his
production quota?

Hint: Apply P ( D ) = P ( A) .P ( D / A) + P ( B ) .P ( D / B )
7.

A talcum powder manufacturing company had launched a new type of

advertisement. The company estimated that a person who comes across the
advertisement will buy their product with a probability of 0.7 and those who does
not see the advertisement will buy the product with a probability of 0.3. If in an
area of 1,000 people, 70% had come across the advertisement, what is the probability
that a person who buys the product (a) has not come across the advertisement (b)
has come across the advertisement?

Hint: Apply Bayes' Rule.

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Quantitative Techniques
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There are two boxes, of identical appearance, each containing 4 sparkplugs. It is

known that box I contains only one defective sparkplug, while all the four sparkplugs
of box II are non-defective. A sparkplug is drawn at random from a box, selected
at random, is found to be non-defective. What is the probability that it came from
box I?

Hint: Apply Bayes' Rule.

A man has 5 one rupee coins and one of them is known to have two heads. He
takes out a coin at random and tosses it 5 times; it always falls head upward. What
is the probability that it is a coin with two heads?

Hint: Apply Bayes' Rule.

Check Your Progress 10.2

Give Statistical or Empirical Definition of Probablity?

Explain Permutation with restrictions.

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

10.8 LET US SUM UP

Probability distributions are a fundamental concept in statistics. They are used both on a
theoretical level and a practical level. Formally, a probability is a bundle of four things: a
universe which is a set of all possible results, a number which is an extension of a
Boolean truth value, a constraint which matches the logical law of the excluded middle
along with the few operations an arithmetical operations correspond to the standard
logical operation of Boolean logic.
At last we can say that a probability is a measure of the likelihood of an event. It can be
elucidate as a decimal or a percentage. Every probability must be between 0 and 1
(100%) inclusive P=0 indicate an impossible event, P=1 or 100% indicates a certainty
1.

(a)

The number of permutations of n objects taking n at a time are n!

(b)

n!
n
The number of permutations of n objects taking r at a time, are Pr = (n r )!

(c)

The number of permutations of n objects in a circular order are (n 1)!

(d)

The number of permutations of n objects out of which n1 are alike, n2 are

344

alike, ...... nk are alike, are n !n ! ... n !

1 2
k

(e)

The number of combinations of n objects taking r at a time are

(a)

Cr =

Probability

n!
r !( n r )!

The probability of occurrence of at least one of the two events A and B is

g bg bg b

given by : P A U B = P A + P B P A I B = 1 P A I B .
(b)

The probability of occurrence of exactly one of the events A or B is given by:

i d

g b

P A I B + P A I B or P A U B P A I B

(a)

(b)
4.

The probability of simultaneous occurrence of the two events A and B is

given by: P A I B = P A . P B / A or = P B . P A / B

g bg b

bg b g
If A and B are independent Pb A I Bg = Pb Ag. Pb Bg .

Bayes' Theorem :

P ( Ak / D ) =

P ( Ak ) .P ( D / Ak )
n

P ( A ) .P ( D / A )
i =1

, (k = 1,2, ...... n)

Here A1, A2, ...... An are n mutually exclusive and exhaustive events.

10.9 LESSON-END ACTIVITY

Apply the concept of probability in predicting the sensex in different stock exchanges
like National Stock Exchange, Delhi Stock Exchange and Bombay Stock Exchange.

10.10 KEYWORDS
Probability
Event
Outcome
Occurrence
Combination
Inverse probability

10.11 QUESTIONS FOR DISCUSSION

Fill in the blank

(a)

The theory of probability is a study of ....................... or .......................

experiments.

(b)

....................... is a arrangement of a given number of objects in a definite

order.

(c)

Counting techniques are often helpful in ....................... of total no. of

outcomes.

(d)

Modern approach was introduced by ....................... mathematical.

(e)

Bayes' Theorem is also called .......................

Distinguish between
(a)

Favourable outcomes and Exhaustive outcomes

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Quantitative Techniques
for Management

(b)

Permutation and Combination

(c)

Prior possibilities or Inverse possibilities

Write True or False against each of the statement:

(a)

It is not possible to predetermine the outcome association with a particular

experimentation.

(b)

The total no. of permutations of n distinct objects is n!

(c)

Each element of the set is called sample point.

(d)

A compound event is simultaneous occurrence of only two events.

(e)

The assignment of probabilities on basis of statistical and classical events is

objective.

10.12 TERMINAL QUESTIONS

Define the term 'probability' by (a) The Classical Approach, (b) The Statistical
Approach. What are the main limitations of these approaches?

Discuss the axiomatic approach to probability. In what way it is an improvement

over classical and statistical approaches?

Distinguish between objective probability and subjective probability. Give one

example of each concept.

State and prove theorem of addition of probabilities for two events when
(a) they are not independent, (b) they are independent.

Explain the meaning of conditional probability. State and prove the multiplication
rule of probability of two events when (a) they are not independent, (b) they are
independent.

Explain the concept of independence and mutually exclusiveness of two events A

and B. If A and B are independent events, then prove that A and B are also
independent.

For two events A and B it is given that P A = 0.4, P B = p, P A U B = 0.6

(i)

Find the value of p so that A and B are independent.

(ii)

Find the value of p so that A and B are mutually exclusive.

Explain the meaning of a statistical experiment and corresponding sample space.

Write down the sample space of an experiment of simultaneous toss of two coins
and a die.

State and prove Bayes' theorem on inverse probability.

What is the probability of getting exactly two heads in three throws of an unbiased
coin?

10. What is the probability of getting a sum of 2 or 8 or 12 in single throw of two

unbiased dice?
11.

Two cards are drawn at random from a pack of 52 cards. What is the probability
that the first is a king and second is a queen?

12. What is the probability of successive drawing of an ace, a king, a queen and a jack
from a pack of 52 well shuffled cards? The drawn cards are not replaced.

346

13. 5 unbiased coins with faces marked as 2 and 3 are tossed. Find the probability of
getting a sum of 12.

14. If 15 chocolates are distributed at random among 5 children, what is the probability
that a particular child receives 8 chocolates?

Probability

15. A and B stand in a ring with 10 other persons. If arrangement of 12 persons is at

random, find the chance that there are exactly three persons between A and B.
16. Two different digits are chosen at random from the set 1, 2, 3, 4, 5, 6, 7, 8. Find the
probability that sum of two digits exceeds 13.
17. From each of the four married couples one of the partner is selected at random.
What is the probability that they are of the same sex?
18. A bag contains 5 red and 4 green balls. Two draws of three balls each are done
with replacement of balls in the first draw. Find the probability that all the three
balls are red in the first draw and green in the second draw.
19. Two die are thrown two times. What is the probability of getting a sum 10 in the
first and 11 in the second throw?
20. 4 cards are drawn successively one after the other without replacement. What is
the probability of getting cards of the same denominations?
21. A bag contains 4 white and 2 black balls. Two balls are drawn one after another
without replacement. What is the probability that first ball is white and second is
black or first is black and second is white?
22. A bag contains 4 white and 3 red balls. Another bag contains 3 white and 5 red
balls. One ball is drawn at random from each bag. What is the probability that (a)
both balls are white, (b) both are red, (c) one of them is white and the other is red?
23. What is the probability of a player getting all the four aces, when playing cards are
uniformly distributed among the four players?
24. A bag contains 10 white and 6 red balls. Two balls are drawn one after another
with replacement. Find the probability that both balls are red.
25. Three persons A, B and C successively draw one card from a pack of 52 cards
with replacement of the card drawn earlier. The first to obtain a card of spade
wins. What are their respective chances of winning?
26. A bag contains 6 red and 4 green balls. A ball is drawn at random and replaced and
a second ball is drawn at random. Find the probability that the two balls drawn are
of different colours.
27. The letters of the word GANESHPURI are arranged at random. Find the probability
that in the word, so formed;
(a)

The letter G always occupies the first place.

(b)

The letter P and I respectively occupy first and last places.

(c)

The vowels are always together.

(d)

The letters E, H, P are never together.

(e)

The vowels always occupy even places (i.e., 2nd, 4th, etc.)

28. 5-letter words are formed from the letters of the word ORDINATES. What is the
probability that the word so formed consists of 2 vowels and 3 consonants?
29. Maximum number of different committees are formed out of 100 teachers, including
principal, of a college such that each committee consists of the same number of
members. What is the probability that principal is a member of any committee?
30. Letters of the word INTERMEDIATE are arranged at random to form different
words. What is the probability that :

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Quantitative Techniques
for Management

(a)

First letter of the word is R?

(b)

First letter is M and last letter is E?

(c)

All the vowels come together?

(d)

The vowels are never together?

Hint: (d) The event will occur if the letters are arranged as VCVCVCVCVCVCV
where V and C denote vowels and consonants respectively. 6 places for vowels
can be chosen in 7 C6 .
31. Five persons entered the lift cabin on the ground floor of an 8-floor building. Suppose
that each of them independently and with equal probability can leave the floor
beginning with first. Find out the probability of all the persons leaving at different
floors.
Hint: There are 7 floors along with ground floor.
32. A team of first eleven players is to be selected at random from a group of 15
players. What is the probability that (a) a particular player is included, (b) a particular
player is excluded?
33. Out of 18 players of a cricket club there are 2 wicket keepers, 5 bowlers and rest
batsmen. What is the probability of selection of a team of 11 players including one
wicket keeper and at least 3 bowlers?
34. Four persons are selected at random from a group consisting of 3 men, 2 women
and 4 children. Find the chance that exactly 2 of them are children.
35. A committee of 6 is chosen from 10 men and 7 women so as to contain at least 3
men and 2 women. Find the probability that 2 particular women don't serve on the
same committee.
36. If n persons are seated around a round table, find the probability that in no two
ways a man has the same neighbours.
37. 6 teachers, of whom 2 are from science, 2 from arts and 2 from commerce, are
seated in a row. What is the probability that the teachers of the same discipline are
sitting together?
38

(a)

If P(A) = 0.5, P(B) = 0.4 and P A U B = 0.7 , find P(A/B) and P A U B ,

where A is compliment of A. State whether A and B are independent.

(b)
(c)

If P ( A) = 1 , P ( B ) = 1 , P ( A / B ) = 1 , find P(B/A) and P B / A .

3
2
6
If A, B and C are three mutually exclusive events, find P(B) if

1
1
P (C ) = P ( A) = P ( B ) .
3
2
39. Let A be the event that a business executive selected at random has stomach ulcer
and B be the event that he has a heart disease. Interpret the following events :

( i) A c U A, ( ii) A c I A, ( iii) A c I B , ( iv) A I B c , ( v) A I B ,

where c stands for compliment.

40. Let A, B and C be three events. Write down the following events in usual set
notations :
348

(i) A and B occur together, (ii) Both A and B occur but not C, (iii) all the three
events occur, (iv) at least one event occur and (v) at least two events occur.

Probability

41. The records of 400 examinees are given below :

Score
Below 50
Between 50 and 60
Above 60
Total

Educational Qualification
Total
B. A. B. Sc. B. Com.
90
20
10
120

30
70
30
130

60
70
20
150

180
160
60
400

If an examinee is selected at random from this group, find

(i)

the probability that he is a commerce graduate,

(ii)

the probability that he is a science graduate, given that his score is above 60
and

(iii) the probability that his score is below 50, given that he is B.A.

42. It is given that P ( A + B) = 5 , P ( AB) = 1 and P ( B ) = 1 , where P B stands for

6
3
2
the probability that event B doesn't happen. Determine P(A) and P(B). Hence,
show that the events A and B are independent.
43. A can solve 75% of the problems in accountancy while B can solve 70% of the
problems. Find the probability that a problem selected at random from an
accountancy book;
(a)

will be solved by both A and B,

(b)

will be solved by A or B,

(c)

will be solved by one of them.

44. (a)
(b)

One card is drawn from each of two ordinary sets of 52 cards. Find the
probability that at least one of them will be the ace of hearts.
Two cards are drawn simultaneously from a set of 52 cards. Find the
probability that at least one of them will be the ace of hearts.

45. An article manufactured by a company consists of two parts X and Y. In the

process of manufacture of part X, 9 out of 104 parts may be defective. Similarly, 5
out of 100 are likely to be defective in the manufacture of part Y. Compute the
probability that the assembled product will not be defective.
46. A salesman has 80% chance of making a sale to each customer. The behaviour of
each customer is independent. If two customers A and enter, what is the probability
that the salesman will make a sale to A or B?
47. A problem in economics is given to 3 students whose chances of solving it are

2
,
3

3
4
and respectively. What is the probability that the problem will be solved?
4
5

48. A man and a woman appear in an interview for two vacancies in the same post.
The probability of man's selection is

1
1
and that of woman's selection is . What is
4
3

the probability that

(a)

both of them will be selected?

(b)

only one of them will be selected?

(c)

none of them will be selected?

(d)

at least one of them will be selected?

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Quantitative Techniques
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49. What is the chance that a non-leap year selected at random will contain 53 Sundays?
50. In a group of equal number of men and women 15% of men and 30% of women
are unemployed. What is the probability that a person selected at random is
employed?
51. An anti-aircraft gun can take a maximum of four shots at enemy plane moving
away from it. The probabilities of hitting the plane at first, second, third and fourth
shot are 0.4, 0.3, 0.2 and 0.1 respectively. What is the probability that the gun hits
the plane?
52. A piece of equipment will function only when all the three components A, B, C are
working. The probability of A failing during one year is 0.15 and that of B failing is
0.05 and of C failing is 0.10. What is the probability that the equipment will fail
before the end of the year?
53. A worker attends three machines each of which operates independently of the
other two. The probabilities of events that machines will not require operator's
intervention during a shift are p1 = 0.4, p2 = 0.3 and p3 = 0.2. Find the probability
that at least one machine will require worker's intervention during a shift.
54. The probability that a contractor will get a plumbing contract is 2/3 and the probability
that he will not get a electric contract is 5/9. If the probability of getting at least one
of the contract is 4/5, what is the probability that he will get both?
55. An M.B.A. applies for job in two firms X and Y. The probability of his being
selected in firm X is 0.7 and being rejected in the firm Y is 0.5. The probability of
at least one of his application being rejected is 0.6. What is the probability that he
will be selected in one of the firms?
56. A researcher has to consult a recently published book. The probability of its being
available is 0.5 for library A and 0.7 for library B. Assuming the two events to be
statistically independent, find the probability of book being available in library A
and not available in library B.
57. An investment consultant predicts that the odds against the price of certain stock
will go up next week are 2:1 and odds in favour of price remaining same are 1:3.
What is the probability that price of the stock will go down during the week?
58. In a random sample of 1,000 residents of a city 700 read newspaper A and 400
read newspaper B. If the habit of reading newspaper A and B is independent,
what is the probability that a person selected at random would be reading
(a) both the papers, (b) exactly one of the papers, (c) at least one of the
papers? Also find the absolute number of persons in each of the cases (a), (b) and
(c).
59. The odds that a book will be reviewed favourably by three independent experts are
5 to 2, 4 to 3 and 3 to 4 respectively. What is the probability that of the three
reviews a majority will be favourable?
60. In a certain city two newspapers, A and B, are published. It is known that 25% of
the city population reads A and 20% reads B while 8% reads both A and B. It is
also known that 30% of those who read A but not B look into advertisements and
40% of those who read B but not A look into advertisements while 50% of those
who read both A and B look into advertisements. What is percentage of population
who reads an advertisement?

350

61. The probability that a new entrant to a college will be a student of economics is
1/3, that he will be a student of political science is 7/10 and that he will not be a
student of economics and political science is 1/5. If one of the new entrants is
selected at random, what is the probability that (a) he will be a student of economics
and political science, (b) he will be a student of economics if he is a student of

political science? Comment upon the independence of two events : a student of

economics and a student of political science.

Probability

62. 20% of all students at a university are graduates and 80% are undergraduates.
The probability that a graduate student is married is 0.5 and the probability that an
undergraduate student is married is 0.1. One student is selected at random.
(a)

What is probability that he is married?

(b)

What is the probability that he is a graduate if he is found to be married?

63. In a city three daily news papers X, Y and Z are published. 40% of the people of
the city read X, 50% read Y, 30% read Z, 20% read both X and Y, 15% read X and
Z, 10% read Y and Z and 24% read all the 3 papers. Calculate the percentage of
people who do not read any of the 3 newspapers.
64. A bag contains 4 red and 3 blue balls. Two drawings of 2 balls are made. Find the
probability of drawing first 2 red balls and the second 2 blue balls
(i)

if the balls are returned to the bag after the first draw,

(ii)

if the balls are not returned after the first draw.

65. A die is loaded in such a way that each odd number is twice as likely to occur as
each even number. Find (i) the probability that the number rolled is a perfect square
and (ii) the probability that the number rolled is a perfect square provided it is
greater than 3.
66. There are 100 students in a college class of which 36 boys are studying statistics
and 13 girls are not studying statistics. If there are 55 girls in all, find the probability
that a boy picked at random is not studying statistics.
67. If a pair of dice is thrown, find the probability that
(i)

the sum is neither 7 nor 11

(ii)

the sum is neither 8 nor 10

(iii) the sum is greater than 12.

68. Three horses A, B and C are in race. A is twice as likely to win as B, and B is
twice as likely to win as C. What are the respective probabilities of winning?
69. A sample of 3 items is selected at random from a box containing 12 items of which
3 are defective. Find the possible number of defective combinations of the said 3
selected items along with their respective probabilities.
70. In an examination 30% of students have failed in mathematics, 20% of the students
have failed in chemistry and 10% have failed in both mathematics and chemistry.
A student is selected at random.
(i)

What is the probability that the student has failed either in mathematics or in
chemistry?

(ii)

What is the probability that the student has failed in mathematics if is known
that he has failed in chemistry?

71. There are two bags. The first contains 2 red and 1 white balls whereas the second
bag contains 1 red and 2 white balls. One ball is taken out at random from the first
bag and is being put in the second. Then, a ball is chosen at random from the
second bag. What is the probability that this ball is red?
72. From the sale force of 150 people, one will be chosen to attend a special meeting.
If 52 are single and 72 are college graduates, and 3/4 of 52 that are single are
college graduates, what is the probability that a sales person, selected at random,
will be neither single nor a college graduate?

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Quantitative Techniques
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73. Data on readership of a certain magazine indicate that the proportion of male
readers over 30 years old is 0.20. The proportion of male readers under 30 is 0.40.
If the proportion of readers under 30 is 0.70, what is the proportion of subscribers
that are male? Also find the probability that a randomly selected male subscriber is
under 30.
74. Two union leaders and 10 directors of a company sit randomly to decide upon the
wage hike as demanded by the union. Find the probability that there will be exactly
three directors between the two union leaders.
75. Suppose a company hires both MBAs and non-MBAs for the same kind of
managerial task. After a period of employment some of each category are promoted
and some are not. Table below gives the proportion of company's managers among
the said classes :

Promotional
Status

Academic Qualification
MBA Non - MBA
(A)

Promoted (B)
Not Promoted(B)
Total

0.42
0.28
0.70

Total

(A)
0.18
0.12
0.30

0.60
0.40
1.00

Calculate P(A/B) andP(B/A), and find out whether A and B are independent events?
76. Each of A, B and C throws with two dice for a prize. The highest throw wins, but
if equal highest throws occur the player with these throw continue. If A throws
10 find his chance of winning.
77. The probability of a man hitting a target is 1/4. How many times must he fire so
that probability of hitting the target at least once is greater than 2/3?
78. Find the probability that an assessee files his tax return and cheats on it, given that
70% of all assessee file returns and 25% of those who file, cheat.
79. The probability of an aircraft engine failure is 0.10. With how many engines should
the aircraft be equipped to be 0.999 sure against an engine failure? Assume that
only one engine is needed for successful operation of the aircraft.
80. A market research firm is interested in surveying certain attitude in small community.
There are 125 house holds broken down according to income, ownership of a
telephone and ownership of a T.V.
Households with

Households with

annual income of

annual income

Rs. 1,00,000 or less

above Rs. 1,00,000

Telephone
subscriber

352

No Telephone

Telephone
subscriber

No Telephone

Own T.V. set

No T.V. set

(a)

If a person is selected at random, what is the probability that he is a T.V.

owner?

(b)

If the person selected at random is found to be having income greater than

100,000 and a telephone subscriber, what is the probability that he is a T.V.
owner?

(c)

What is the conditional probability of drawing a household that owns a T.V.,

given that he is a telephone subscriber?

81. An investment firm purchases three stocks for one week trading purposes. It
assesses the probability that the stock will increase in value over the week as 0.8,
0.7 and 0.6 respectively. What is the chance that (a) all the three stocks will increase,
and (b) at least two stocks will increase? (Assume that the movements of these
stocks is independent.)

Probability

82. A company has two plants to manufacture scooters. Plant I manufactures 70% of
the scooters and plant II manufactures 30%. At plant I 80% of the scooters are
rated standard quality and at plant II 90% of the scooters are rated standard quality.
A scooter is picked up at random and is found to be standard quality. What is the
chance that it has been produced by plant I?
83. A person has 4 coins each of a different denomination. How many different sums
of money can be formed?
84. Two sets of candidate avoid touching for the position of Board of Directors of a
company. The probabilities of winning are 0.7 and 0.3 for the two. If the first set
wins, they will introduce a new product with the probability 0.4. Similarly, the
probability that the second set will introduce a new product is 0.8. If the new
product has been introduced, what is the chance that the first set of candidates has
won?
85. By examining the chest X-ray, the probability that T.B. is detected when a person
is actually suffering is 0.99. The probability that the doctor diagnoses incorrectly,
that a person has T.B., on the basis of X-ray is 0.001. In a certain city, 1 in 1000
persons suffers from T.B. A person selected at random is diagnosed to have T.B.
What is the chance that he actually has T.B.?
86. The compressors used in refrigerators are manufactured by XYZ company at
three factories located at Pune, Nasik and Nagpur. It is known that the Pune
factory produces twice as many compressors as Nasik one, which produces the
same number as the Nagpur one (during the same period). Experience also shows
that 0.2% of the compressors produced at Pune and Nasik and 0.4% of those
produced at Nagpur are defective.
A quality control engineer while maintaining a refrigerator finds a defective
compressor. What is the probability that Nasik factory is not to be blamed?
87. A company estimates that the probability of a person buying its product after seeing
the advertisement is 0.7. If 60% of the persons have come across the advertisement,
What is the probability that the person, who buys the product, has not come across
the advertisement?
88. In an automobile factory, certain parts are to be fixed to the chassis in a section
before it moves into another section. On a given day, one of the three persons A, B
or C carries out this task. A has 45%, B has 35% and C has 20% chance of
doing it. The probabilities that A, B or C will take more than the allotted time are
1 1
1
,
and
respectively. If it is found that one of them has taken more time,
16 10
20

what is the probability that A has taken more time?

89. The probabilities of X, Y and Z becoming managers are

4 2
1
, and respectively.
9 9
3

The probabilities that the Bonus Scheme will be introduced if X, Y or Z become

manager are

3 1
4
, and respectively.
10 2
5

(a)

What is the probability that the Bonus Scheme will be introduced?

(b)

What is the probability that X was appointed as manager given that the Bonus
Scheme has been introduced?

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90. There are 3 bags. The first bag contains 5 red and 3 black balls, the second contains
4 red and 5 black balls and the third contains 3 red and 4 black balls. A bag is
selected at random and the two balls drawn, at random, are found to be red. Revise
the probabilities of selection of each bag in the light of this observation.
91. On an average, 20% of the persons going to a handicraft emporium are foreigners
and the remaining 80% are local persons. 75% of foreigners and 50% of local
persons are found to make purchases. If a bundle of purchased items is sent to the
cash counter, what is the probability that the purchaser is a foreigner?
92. The chance that doctor A will diagnose disease B correctly is 60%. The chance
that a patient will die by his treatment after correct diagnosis is 40% and the chance
of death by wrong diagnosis is 70%. A patient of doctor A, who had disease B,
died. What is the chance that his disease was correctly diagnosed?
93. A company has four production sections S1, S2, S3 and S4 which contribute 30%,
20%, 28% and 22%, respectively, to the total output. It was observed that these
sections produced 1%, 2%, 3% and 4% defective units respectively. If a unit is
selected at random and found to be defective, what is the probability that it has
come from either S1 or S4?
94. A factory produces certain type of output by three machines. The respective daily
production figures are : machine A = 3,000 units, machine B = 2,500 units, machine
C = 4,500 units. Past experience shows that 1 % of the output produced by machine
A is defective. The corresponding fractions of defectives for the other two machines
are 1.2 and 2% respectively. An item is selected at random from a day's production
and is found to be defective. What is the probability that it came from the output of
(i) machine A, (ii) machine B, (iii) machine C?
95. It is known that 20% of the males and 5% of the females are unemployed in a
certain town consisting of an equal number of males and females. A person selected
at random is found to be unemployed. What is the probability that he/she is a (i)
male, (ii) female?
96. In a typing-pool, three typists share the total work in the ratio 30%, 35% and 35%
of the total work. The first, second and the third typist spoil the work to the extent
of 3%, 4% and 5% respectively. A completed work is selected at random and
found to be spoiled. What is the probability that the work was done by the third
typist?
97. An organisation dealing with consumer products, wants to introduce a new product
in the market. Based on their past experience, it has a chance of 65% of being
successful and 35% of not being successful. In order to help them to make a
decision on the new product, i.e., whether to introduce the new product or not, it
decides to get additional information on consumers' attitude towards the product.
For this purpose, the organisation decides to conduct a survey. In the past, when
the product of this type were successful, the surveys yielded favourable indications
85% of the times, whereas unsuccessful products received favourable indications
30% of the time. Determine the probability of the product being a success given
the survey information.

354

98. In a class of 75 students, 15 were considered to be very intelligent, 45 as medium

and the rest below average. The probability that a very intelligent student fails in a
viva-voce examination is 0.005; the medium student failing has a probability 0.05;
and the corresponding probability for a below average student is 0.15. If a student
is known to have passed the viva-voce examination, what is the probability that he
is below average?

Probability

99. Comment on the following statements :

(a)

(b)

Since accident statistics show that the probability that a person will be involved
in a road accident is 0.02, the probability that he will be involved in 2 accidents
in that year is 0.0004.
For three mutually exclusive events A, B and C of a sample space S, where

1
3
1
P ( A) = , P ( B ) = and P (C ) = .
3
5
5
(c)

a f

P AI B =

(d)

(e)

5
, P B
6

A and B are two events in a sample space S where P A

2 and
3

2.
5

Four persons are asked the same question by an interviewer. If each has,
independently, probability of 1/6 of answering correctly, the probability that at
least one answers correctly is 4 1 = 2 .
6 3
The probability that A and B, working independently, will solve a problem is
2 and probability that A will solve the problem 1 .
3
3

(f)

For a biased dice the probabilities for different faces to turn up are as given in
the following table:
Number on
the dice

Probability 0.15 0. 30 0.17 0.25 0.08 0.07

(g)

If the probability of A to fail in an examination is 0.15 and that for B is 0.27,

then the probability that either A or B fails in examination is 0.42.

(h)

If the probability that Congress wins from a constituency is 0.40 and that
B.J.P. wins from the same constituency is 0.42, than the probability that either
Congress or B.J.P. wins from that constituency is 0.82.

(i)

The probability of occurrence of event A is 0.6 and the probability of

occurrence of at least one of the four events A, B, C and D is 0.5.

100. Four alternative answers are given to each question. Point put the correct
answer :
(a)

g b

If A and B are any two events of a sample space S, then P A U B + P A I B

equals
(i)

P ( A) + P ( B )

(ii)

1 P A I B

(iii)

d i
1 Pd A U B i

(iv) none of the above.

(b)

If A and B are independent and mutually exclusive events, then

(i)

P ( A) = P ( A / B )

(ii)

P ( B ) = P ( B / A)

355

Quantitative Techniques
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(iii) either P(A) or P(B) or both must be zero.

(iv) none of the above.
(c)

If A and B are independent events, then P A I B equals

(i)

P ( A) + P ( B )

(ii)

P A . P B/ A

(iii)
(iv)

a f a f
P a Bf. P a A / Bf
P a A f. P a B f

(d) If A and B are independent events, then P A U B equals

(i)
(ii)
(iii)

a f a f P a Bf
P a A f. P d B i P a B f
P d A i. P d B i P a A f
P A .P B

(iv) none of the above.

(e) If A and B are two events such that P A U B = 5 , P A I B = 1 , P A = 1 ,

6
3
3
the events are
(i)

dependent

(ii)

independent

( )

(iii) mutually exclusive

(iv) none of the above.
101. Which of the following statements are TRUE or FALSE :
(i)

The probability of an impossible event is always zero.

(ii)

The number of permutations is always greater than the number of combinations.

(iii) If two events are independent, then they will also be mutually exclusive.
(iv) If P(A) and P(B) are non-zero and A and B are independent, then they
cannot be mutually exclusive.
(v)

If P(A) and P(B) are non-zero and A and B are mutually exclusive, then they
may be independent.

(vi) The probability that the roof of a room will fall on the floor can be determined
with the help of Classical definition.
(vii) Personal judgement or experience cannot be used in the assignment of
probabilities.
(viii) Revision of the past probabilities of various events is possible on the basis of
the outcome of the experiment.
(ix) The probability of occurrence of an event cannot be a negative number.
(x)

The probability of occurrence of an event that is sure to occur can be greater

than unity.

102. Objective Type Questions :

(a)
356

The probability of getting a number greater than 4 from the throw of an

unbiased dice is

(i)
(b)

3
5

(ii)

46 62

8
13 51
1
4

5
6

(ii)

(iii)

1
4

(iv) none of these.

3
8

(iii)

5
8

(iv) none of these.

26 62

(iii) 64 26

(iv) none of these.

4
13 51

(iii)

1
13 17

(iv) none of these.

1
2

(iii)

1
3

(iv) none of these.

1
6

(iii)

1
4

(iv) none of these.

4 , then odds against A are

1:4

0.35

(ii)

5:4

(iii) 4 : 5

(iv) none of these.

(ii)

0.75

(iii) 0.15

(iv) none of these.

The probability of getting at least one head in 3 throws of an unbiased coin is

1
8

(ii)

10.13 MODEL
DISCUSSION

2
3

The probability of occurrence of an event A is 0.60 and that of B is 0.25. If A

and B are mutually exclusive events, then the probability of occurrence of
neither of them is

(i)

(ii)

a f

(i)
(j)

(ii)

If P A
(i)

(i)

1
2

Two unbiased dice are rolled. The chance of obtaining a six only on the
second die is
(i)

(h)

(iv) none of these.

Two unbiased dice are rolled. The chance of obtaining an even sum is
(i)

(g)

Probability

1
4

Two cards are drawn successively without replacement from a well-shuffled

pack of 52 cards. The probability that one of them is king and the other is
queen is
(i)

(f)

(iii)

Four dice and six coins are tossed simultaneously. The number of elements in
the sample space are
(i)

(e)

1
3

If odds in favour of an event A are 3 : 5, then the probability of non-occurrence

of A is
(i)

(d)

(ii)

The probability of getting exactly one tail in the toss of two unbiased coins is
(i)

(c)

1
2

7
8

ANSWERS

(iii)

3
8

(a) Statistical, Random

(b) Permutation

(d) Russian

(e) Inverse Probability

(a) True

(b) True

(d) False

(iv) none of these.

QUESTIONS

FOR

10.14 SUGGESTED READINGS

W. Feller, An introduction to probability theory and its applications, Volume 1, John
Willy & Sons.

357

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for Management

I Csiszar, I divergence geometry of probability distributions and minimization

problems, The Annals of probability, Vol 3, No 1, pp. 146-158.
Sheldon M. Ross, A first course in probability, Prentice Hall.
Morris H. Degroot, Mark J, Schervish, "Probability and Statistics," Addison-Wesley,
2001
William Mendenhall, Robert, J. Beaver, Barbara, M. Beaver, Introduction to Probability
and Statistics.

358

LESSON

11
THEORETICAL PROBABILITY DISTRIBUTIONS

CONTENTS
11.0 Aims and Objectives
11.1 Introduction
11.2 Probability Distribution
11.3 Binomial Distribution
11.4 Hypergeometric Distribution
11.5 Pascal Distribution
11.6 Geometrical Distribution
11.7 Uniform Distribution (Discrete Random Variable)
11.8 Poisson Distribution
11.9 Exponential Distribution
11.10 Uniform Distribution (Continuous Variable)
11.11 Normal Distribution
11.12 Let us Sum Up
11.13 Lesson-end Activity
11.14 Keywords
11.15 Questions for Discussion
11.16 Terminal Questions
11.17 Model Answers to Questions for Discussion
11.18 Suggested Readings

11.0 AIMS AND OBJECTIVES

After studying the probability in the previous lesson the next step is the probability
distributions. Probability distributions are fundamental concepts of statistics. It is used
both in theoretical aspects as well as practical aspects.

11.1 INTRODUCTION
Usual manager is forced to make decisions when there is uncertainty as to what will
happen after the decisions are made. In this situation the mathematical theory of probability
furnishes a tool that can be of great help to the decision maker. A probability function is
a rule that assigns probabilities to each element of a set of events that may occur.
Probability distribution can either discrete or continuous. A discrete probability distribution
is sometimes called a probability mass function and a continuous one is called a probability
density function.

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11.2 PROBABILITY DISTRIBUTION

The study of a population can be done either by constructing an observed (or empirical)
frequency distribution, often based on a sample from it, or by using a theoretical distribution.
We have already studied the construction of an observed frequency distribution and its
various summary measures. Now we shall learn a more scientific way to study a
population through the use of theoretical probability distribution of a random variable. It
may be mentioned that a theoretical probability distribution gives us a law according to
which different values of the random variable are distributed with specified probabilities.
It is possible to formulate such laws either on the basis of given conditions (a prior
considerations) or on the basis of the results (a posteriori inferences) of an experiment.
If a random variable satisfies the conditions of a theoretical probability distribution, then
this distribution can be fitted to the observed data.
The knowledge of the theoretical probability distribution is of great use in
the understanding and analysis of a large number of business and economic
situations. For example, with the use of probability distribution, it is possible to test a
hypothesis about a population, to take decision in the face of uncertainty, to make forecast,
etc.
Theoretical probability distributions can be divided into two broad categories, viz. discrete
and continuous probability distributions, depending upon whether the random variable is
discrete or continuous. Although, there are a large number of distributions in each category,
we shall discuss only some of them having important business and economic applications.

11.3 BINOMIAL DISTRIBUTION

Binomial distribution is a theoretical probability distribution which was given by James
Bernoulli. This distribution is applicable to situations with the following characteristics :
1.

An experiment consists of a finite number of repeated trials.

Each trial has only two possible, mutually exclusive, outcomes which are termed as
a 'success' or a 'failure'.

The probability of a success, denoted by p, is known and remains constant from

trial to trial. The probability of a failure, denoted by q, is equal to 1 - p.

Different trials are independent, i.e., outcome of any trial or sequence of trials has
no effect on the outcome of the subsequent trials.
The sequence of trials under the above assumptions is also termed as Bernoulli
Trials.

Probability Function or Probability Mass Function

Let n be the total number of repeated trials, p be the probability of a success in a trial and
q be the probability of its failure so that q = 1 - p.
Let r be a random variable which denotes the number of successes in n trials. The
possible values of r are 0, 1, 2, ...... n. We are interested in finding the probability of r
successes out of n trials, i.e., P(r).
To find this probability, we assume that the first r trials are successes and remaining n r trials are failures. Since different trials are assumed to be independent, the probability
of this sequence is
p.4
p2
. ....
.4
q.2
....
r n-r
1
43p q1
4
3q
r times
b n r g times i.e. p q .

Since out of n trials any r trials can be success, the number of sequences showing any r
trials as success and remaining (n - r) trials as failure is nCr , where the probability of r

360

successes in each trial is prqn-r. Hence, the required probability is P(r)

r = 0, 1, 2, ...... n.

r n r

Cr p q

, where

Theoretical Probability
Distributions

Writing this distribution in a tabular form, we have

r
P( r )

0
C0 p 0 q n

1
C 1 p q n 1

2
C 2 p 2 q n 2

KK
KK

n
Cn p n q 0

Total
1

It should be noted here that the probabilities obtained for various values of r are the
terms in the binomial expansion of (q + p)n and thus, the distribution is termed as Binomial
Distribution. P(r ) = n Cr p r q n - r is termed as the probability function or probability mass
function (p.m.f.) of the distribution.
Summary Measures of Binomial Distribution
(a)

Mean: The mean of a binomial variate r, denoted by , is equal to E(r), i.e.,

r =0

r =1

= E (r ) = rP(r ) = r .n Cr pr q n r (note that the term for r = 0 is 0)

n
n.(n - 1)!
r.n!
. p r q n- r =
. p r q n- r
r
!
n
r
!
r
1
!
n
r
!
)( )
( )
r =1
r =1 (
n

( n 1)!
r =1 (r 1)! ( n r )!
n

= np
(b)

. pr 1q n r = np (q + p )

n 1

Variance: The variance of r, denoted by s

Qq + p = 1

= np

is given by

2 = E r E (r ) = E [r np ] = E r 2 2 npr + n 2 p2
2

( )

= E r 2 2npE ( r ) + n 2 p 2 = E r 2 2n 2 p 2 + n 2 p 2

( )

= E r 2 n2 p 2

.... (1)

Thus, to find 2 , we first determine E(r2).

( )

Now, E r 2 = r 2 .nCr pr q n r = r (r 1) + r nCr pr q n r

r =1

r =2

= r (r 1) Cr pr q n r + r .nCr pr q n r =
n

r =2

r ( r 1) n!
r !( n r )!

. pr q n r + np

n n n 1 . n 2 !
( )(
) . r n r +
n!
. pr q n r + np =
pq
np
r = 2 (r 2 )! ( n r )!
r = 2 (r 2 )! ( n r )!
n

( n 2 )! . r 2 nr +
p q
np
r = 2 (r 2 )! ( n r )!
n

= n ( n 1) p 2

= n ( n 1) p 2 ( q + p)

n 2

+ np = n ( n 1) p 2 + np

Substituting this value in equation (1), we get

2 = n ( n 1) p2 + np n 2 p 2 = np (1 p ) = npq
Or the standard deviation = npq
Remarks: 2 = npq = mean q , which shows that 2 < mean , since 0 < q <1.

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(c)

The values of 3 , 4 , 1 and 2

Proceeding as above, we can obtain

3 = E (r np ) = npq (q p )
3

4 = E (r np ) = 3n2 p2 q 2 + npq (1 6 pq )
4

2 2 2
32 n p q (q p ) (q p )
1 = 3 =
=
n 3 p3 q 3
npq
2
2

Also

The above result shows that the distribution is symmetrical when

p=q=

2 =

1
, negatively skewed if q < p, and positively skewed if q > p
2

2 2 2
(1 6 pq )
4 3n p q + npq (1 6 pq )
=
= 3+
2
2 2 2
2
n p q
npq

The above result shows that the distribution is leptokurtic if 6pq < 1, platykurtic
if 6pq > 1 and mesokurtic if 6pq = 1.
(d)

Mode: Mode is that value of the random variable for which probability is maximum.
If r is mode of a binomial distribution, then we have
P(r 1) P(r) P(r + 1)
Consider the inequality P(r) P(r + 1)
or nCr pr q n r nCr +1 pr +1q n r 1

n!
n!
r n r
r +1 n r 1
or r ! n r ! p q r + 1 ! n r 1 ! p q
( )
( )(
)
1
1
or ( n r ) .q (r + 1) . p or qr + q np pr
Solving the above inequality for r, we get

r ( n + 1) p 1

.... (1)

Similarly, on solving the inequality P(r 1) P(r) for r, we can get

r ( n + 1) p

.... (2)

Combining inequalities (1) and (2), we get

(n + 1) p 1 r ( n + 1) p
Case I: When (n + 1)p is not an integer
When (n + 1)p is not an integer, then (n + 1) p 1 is also not an integer. Therefore, mode
will be an integer between (n + 1)p - 1 and (n + 1)p or mode will be an integral part of
(n + 1)p.
Case II: hen (n + 1)p is an integer
When (n + 1)p is an integer, the distribution will be bimodal and the two modal values
would be (n + 1) p 1 and (n + 1)p.
362

Example 1: An unbiased die is tossed three times. Find the probability of obtaining (a)
no six, (b) one six, (c) at least one six, (d) two sixes and (e) three sixes.

Theoretical Probability
Distributions

Solution: The three tosses of a die can be taken as three repeated trials which are
independent. Let the occurrence of six be termed as a success. Therefore, r will denote
1
the number of six obtained. Further, n = 3 and p = .
6
(a)

Probability of obtaining no six, i.e.,

125
1 5
P ( r = 0) = C0 p q = 1. =
6 6
216
3

(b)

25
1 5
P (r = 1) = C1 p q = 3. =
6 6
72

(c)

Probability of getting at least one six = 1 - P(r = 0) = 1 -

(d)

1 5 5
P ( r = 2) = 3C2 p 2 q1 = 3. =
6 6 72

(e)

1
1
P ( r = 3) = 3C3 p 3 q 0 = 3. =
6
216

1 2

125 91
=
216 216

Example 2: Assuming that it is true that 2 in 10 industrial accidents are due to fatigue,
find the probability that:
(a)

Exactly 2 of 8 industrial accidents will be due to fatigue.

(b)

At least 2 of the 8 industrial accidents will be due to fatigue.

Solution: Eight industrial accidents can be regarded as Bernoulli trials each with probability
of success p = 2 = 1 . The random variable r denotes the number of accidents due to
10 5
fatigue.
2

(a)

1 4
P (r = 2) = 8C2 = 0.294
5 5

(b)

We have to find P(r 2). We can write

P(r 2) = 1 - P(0) - P(1), thus, we first find P(0) and P(1).
0

We have

1 4
P (0) = C0 = 0.168
5 5

and

1 4
P (1) = 8C1 = 0.336
5 5

\ P(r 2) = 1- 0.168 - 0.336 = 0.496

Example 3: The proportion of male and female students in a class is found to be 1 : 2.
What is the probability that out of 4 students selected at random with replacement, 2 or
more will be females?
Solution: Let the selection of a female student be termed as a success. Since the selection
of a student is made with replacement, the selection of 4 students can be taken as 4
2
repeated trials each with probability of success p = .
3
Thus, P(r 2) = P(r = 2) + P(r = 3) +P(r = 4)

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Quantitative Techniques
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8
2 1
2 1
2
= C2 + 4 C3 + 4 C4 =
3 3
3 3
3
9
4

Note that P(r 2) can alternatively be found as 1 P(0) P(1)

Example 4: The probability of a bomb hitting a target is 1/5. Two bombs are enough to
destroy a bridge. If six bombs are aimed at the bridge, find the probability that the bridge
is destroyed.
Solution: Here n = 6 and p =

1
5

The bridge will be destroyed if at least two bomb hit it. Thus, we have to find
P(r 2). This is given by
6

1077
4
1 4
6
P(r 2) = 1 P(0) P(1) = 1 C0 C1 =
5
5 5
3125
6

Example 5: An insurance salesman sells policies to 5 men all of identical age and good
health. According to the actuarial tables, the probability that a man of this particular age
will be alive 30 years hence is 2/3. Find the probability that 30 years hence (i) at least 1
man will be alive, (ii) at least 3 men will be alive.
Solution: Let the event that a man will be alive 30 years hence be termed as a success.
Therefore, n = 5 and p =

2
.
3

FG 2 IJ FG 1IJ
H 3 K H 3K
0

(i)

5
P(r 1) = 1 P(r = 0) = 1 C0

(ii)

P(r 3) = P(r = 3) + P(r = 4) +P(r = 5)

242
243
5

64
2 1
2 1
2
= 5C3 + 5C4 + 5 C5 =
3 3
3 3
3
81

Example 6: Ten percent of items produced on a machine are usually found to be

defective. What is the probability that in a random sample of 12 items (i) none, (ii) one,
(iii) two, (iv) at the most two, (v) at least two items are found to be defective?
Solution: Let the event that an item is found to be defective be termed as a success.
Thus, we are given n = 12 and p = 0.1.
0

(i)

P ( r = 0) = 12C0 (0.1) (0.9) = 0.2824

(ii)

P (r = 1) = 12C1 (0.1) (0.9) = 0.3766

(iii)

P ( r = 2) = 12C2 (0.1) (0.9) = 0.2301

(iv)

P (r 2 ) = P(r = 0) + P(r = 1) +P(r = 2)

(v)

= 0.2824 + 0.3766 + 0.2301 = 0.8891

P(r 2) = 1 P(0) P(1) = 1 0.2824 0.3766 = 0.3410

Example 7: In a large group of students 80% have a recommended statistics book.

Three students are selected at random. Find the probability distribution of the number of
students having the book. Also compute the mean and variance of the distribution.

364

Solution: Let the event that 'a student selected at random has the book' be termed as a
success. Since the group of students is large, 3 trials, i.e., the selection of 3 students, can
be regarded as independent with probability of a success p = 0.8. Thus, the conditions of
the given experiment satisfies the conditions of binomial distribution.

3- r

The probability mass function P ( r ) = 3Cr (0.8) (0.2)

Theoretical Probability
Distributions

where r = 0, 1, 2 and 3
The mean is np = 3 0.8 = 2.4 and Variance is npq = 2.4 0.2 = 0.48
Example 8:
(a)

The mean and variance of a discrete random variable X are 6 and 2 respectively.
Assuming X to be a binomial variate, find P(5 X 7).

(b)

In a binomial distribution consisting of 5 independent trials, the probability of 1 and

2 successes are 0.4096 and 0.2048 respectively. Calculate the mean, variance and
mode of the distribution.

Solution:
(a)

It is given that np = 6 and npq = 2

npq 2 1
1 2
3
= = so that p = 1 - = and n = 6 = 9
np 6 3
3 3
2
Now P(5 X 7) = P(X = 5) + P(X = 6) +P(X = 7)
\ q=

2 1
2 1
2 1
= 9C5 + 9C6 + 9C7
3 3
3 3
3 3

=
(b)

25 9
25
9
9

C
+
C

+
C

=
2
4
5
6
7
39 438
39

Let p be the probability of a success. It is given that

C1 p (1 - p ) = 0.4096 and 5C2 p 2 (1 - p ) = 0.2048

Using these conditions, we can write

5 p (1 - p )

4
3

10 p (1 - p )
2

(1 - p ) = 4
0.4096
1
= 2 or
. This gives p =
0.2048
p
5

1
4
Thus, mean is np = 5 = 1 and npq = 1 = 0.8
5
5
Since (n +1)p, i.e., 6

1
is not an integer, mode is its integral part, i.e., = 1.
5

Example 9: 5 unbiased coins are tossed simultaneously and the occurrence of a head is
termed as a success. Write down various probabilities for the occurrence of 0, 1, 2, 3, 4,
5 successes. Find mean, variance and mode of the distribution.
Solution: Here n = 5 and p = q =

1
.
2
5

1
5
The probability mass function is P ( r ) = Cr , r = 0, 1, 2, 3, 4, 5.
2

The probabilities of various values of r are tabulated below :

P r

0
1
32

1
5
32

2
10
32

3
10
32

4
5
32

5
1
32

Total
1
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for Management

Mean = np = 5
Since (n +1)p = 6

1
1
= 2.5 and variance = 2.5 = 1.25
2
2

1
= 3 is an integer, the distribution is bimodal and the two modes are
2

2 and 3.
Fitting of Binomial Distribution
The fitting of a distribution to given data implies the determination of expected
(or theoretical) frequencies for different values of the random variable on the basis of
this data.
The purpose of fitting a distribution is to examine whether the observed frequency
distribution can be regarded as a sample from a population with a known probability
distribution.
To fit a binomial distribution to the given data, we find its mean. Given the value of n, we
can compute the value of p and, using n and p, the probabilities of various values of the
random variable can be computed. These probabilities are multiplied by total frequency
to give the required expected frequencies. In certain cases, the value of p may be
determined by the given conditions of the experiment.
Example 10: The following data give the number of seeds germinating (X) out of 10 on
damp filter for 80 sets of seed. Fit a binomial distribution to the data.
X : 0 1 2 3 4 5 6 7 8 9 10
f : 6 20 28 12 8 6 0 0 0 0 0

Solution: Here the random variable X denotes the number of seeds germinating out of a
set of 10 seeds. The total number of trials n = 10.
The mean of the given data

0 6 + 1 20 + 2 28 + 3 12 + 4 8 + 5 6 174
=
= 2.175
80
80
Since mean of a binomial distribution is np, \ np = 2.175. Thus, we get .
X=

2.175
= 0.22 (approx.) . Further, q = 1 - 0.22 = 0.78.
10
X

10 - X

Using these values, we can compute P ( X ) =10 C X (0.22 ) (0.78)

and then expected
frequency [= N P(X)] for X = 0, 1, 2, ...... 10. The calculated probabilities and the
respective expected frequencies are shown in the following table:

0.0834

6.67

Approximated
Frequency
6

1
2
3

0.2351
0.2984
0.2244

18.81
23.87
17.96

19
24
18

4
5

0.1108
0.0375

8.86
3.00

9
3

366

P(X )

N P (X )

X
6
7
8
9
10

P(X)

0.0088
0.0014
0.0001
0.0000
0.0000
Total 1.0000

N P (X )
0.71
0.11
0.01
0.00
0.00

Approximated
Frequency
1
0
0
0
0
80

Features of Binomial Distribution

1. It is a discrete probability distribution.
2. It depends upon two parameters n and p. It may be pointed out that a distribution
is known if the values of its parameters are known.
3. The total number of possible values of the random variable are n + 1. The successive
binomial coefficients are nC0 , nC1 , n C2 , .... n Cn . Further, since nCr n Cn r ,
these coefficients are symmetric.

The values of these coefficients, for various values of n, can be obtained directly
by using Pascal's triangle.

Theoretical Probability
Distributions

PASCAL'S TRIANGLE

We can note that it is very easy to write this triangle. In the first row, both the coefficients
will be unity because 1 C0 = 1C1 . To write the second row, we write 1 in the beginning
and the end and the value of the middle coefficients is obtained by adding the coefficients
of the first row. Other rows of the Pascal's triangle can be written in a similar way.
4.

(a)

The shape and location of binomial distribution changes as the value of p

changes for a given value of n. It can be shown that for a given value of n, if
p is increased gradually in the interval (0, 0.5), the distribution changes from
a positively skewed to a symmetrical shape. When p = 0.5, the distribution is
perfectly symmetrical. Further, for larger values of p the distribution tends to
become more and more negatively skewed.

(b)

For a given value of p, which is neither too small nor too large, the distribution
becomes more and more symmetrical as n becomes larger and larger.

Uses of Binomial Distribution

Binomial distribution is often used in various decision-making situations in business.
Acceptance sampling plan, a technique of quality control, is based on this distribution.
With the use of sampling plan, it is possible to accept or reject a lot of items either at the
stage of its manufacture or at the stage of its purchase.

11.4 HYPERGEOMETRIC DISTRIBUTION

The binomial distribution is not applicable when the probability of a success p does not
remain constant from trial to trial. In such a situation the probabilities of the various
values of r are obtained by the use of Hypergeometric distribution.
Let there be a finite population of size N, where each item can be classified as either a
success or a failure. Let there be k successes in the population. If a random sample of
size n is taken from this population, then the probability of r successes is given by

( C )(
P (r ) =
k

N -k

Cn - r

) . Here r is a discrete random variable which can take values

Cn
0, 1, 2, ...... n. Also n k.

It can be shown that the mean of r is np and its variance is

N n
N 1 .npq , where p

k
and q = 1 p.
N

Example 11: A retailer has 10 identical television sets of a company out which 4 are
defective. If 3 televisions are selected at random, construct the probability distribution of
the number of defective television sets.
Solution: Let the random variable r denote the number of defective televisions. In terms
of notations, we can write N = 10, k = 4 and n = 3.

367

Quantitative Techniques
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Thus, we can write P (r ) =

Cr 6C3r
, r = 0,1, 2,3
10
C3

The distribution of r is hypergeometric. This distribution can also be written in a tabular

form as given below :
r

0
5
30

P r

1
15
30

2
9
30

3 Total
1
1
30

Binomial Approximation to Hypergeometric Distribution

In sampling problems, where sample size n (total number of trials) is less than 5% of
population size N, i.e., n < 0.05N, the use of binomial distribution will also
give satisfactory results. The reason for this is that the smaller the sample size
relative to population size, the greater will be the validity of the requirements of independent
trials and the constancy of p.
Example 12: There are 200 identical radios out of which 80 are defective. If 5 radios
are selected at random, construct the probability distribution of the number of defective
radios by using (i) hypergeometric distribution and (ii) binomial distribution.
Solution:
(i)

It is given that N = 200, k = 80 and n = 5.

Let r be a hypergeometric random variable which denotes the number of defective
radios, then
P (r ) =

120

200

C5r

, r = 0,1, 2,3, 4, 5

The probabilities for various values of r are given in the following table :
r
P r

(ii)

0
1
2
3
4
5
Total
0.0752 0.2592 0. 3500 0. 2313 0.0748 0.0095
1

To use binomial distribution, we find p = 80/200 = 0.4.

P r

a f a0.6f

Cr 0. 4

5 r

0,1, 2, 3, 4, 5

The probabilities for various values of r are given in the following table :
r
P r

0
1
2
3
4
5
Total
0.0778 0. 2592 0.3456 0. 2304 0.0768 0.0102
1

We note that these probabilities are in close conformity with the hypergeometric
probabilities.
Check Your Progress 11.1

Write the characterstics of Binomial Distribution.

What is the use of Hypergeometric Distribution?

Notes: (a)
(b)
368

Write your answer in the space given below.

Please go through the lesson sub-head thoroughly you will get your
answers in it.
Contd....

(c)

Theoretical Probability
Distributions

11.5 PASCAL DISTRIBUTION

In binomial distribution, we derived the probability mass function of the number of
successes in n (fixed) Bernoulli trials. We can also derive the probability mass function
of the number of Bernoulli trials needed to get r (fixed) successes. This distribution is
known as Pascal distribution. Here r and p become parameters while n becomes a
random variable.
We may note that r successes can be obtained in r or more trials i.e. possible values of
the random variable are r, (r + 1), (r + 2), ...... etc. Further, if n trials are required to get
r successes, the nth trial must be a success. Thus, we can write the probability mass
function of Pascal distribution as follows :

Probability of ( r - 1) successes Probability of a success

P (n ) =

in nth trial
out of ( n - 1) trials

n -1

Cr -1 p r -1q n - r p =

n -1

Cr -1 p r q n -r , where n = r, (r + 1), (r + 2), ... etc.

It can be shown that the mean and variance of Pascal distribution are

r
rq
and 2
p
p

respectively.
This distribution is also known as Negative Binomial Distribution because various
values of P(n) are given by the terms of the binomial expansion of pr(1 - q)- r.

11.6 GEOMETRICAL DISTRIBUTION

When r = 1, the Pascal distribution can be written as

P (n ) =

C0 pq n1 = pq n1 , where n = 1,2,3,.....

Here n is a random variable which denotes the number of trials required to get a success.
This distribution is known as geometrical distribution. The mean and variance of the
distribution are

q
1
and 2 respectively.
p
p

11.7 UNIFORM DISTRIBUTION (DISCRETE RANDOM

VARIABLE)
A discrete random variable is said to follow a uniform distribution if it takes various
discrete values with equal probabilities.
If a random variable X takes values X1, X2, ...... Xn each with probability
of X is said to be uniform.

1
, the distribution
n

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Quantitative Techniques
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Exercise with Hints

The probability that a secretary will not put the correct postage on a letter is 0.20.
What is the probability that this secretary will not put the correct postage:
(i) On 3 of 9 letters? (ii) On at least 3 of 9 letters? (iii) On at the most 3 of 9 letters?

Hint: Use binomial distribution.

(a)

The mean of a binomial distribution is 4 and its standard deviation is 3 . What

are the values of n, p and q?

(b)

The mean and variance of a binomial distribution are 3 and 2 respectively.

Find the probability that the variate takes values (i) less than or equal to 2 (ii)
greater than or equal to 7.

Hint: Mean = np and Variance = npq.

(a)

The probability of a man hitting a target is

1
. (i) If he fires 7 times, what is
4

the probability of his hitting the target at least twice? (ii) How many times
must he fire so that the probability of his hitting the target at least once is
greater than

2
?
3

(b) How many dice must be thrown so that there is better than even chance of
obtaining at least one six?
n

3
Hint: (a) (ii) Probability of hitting the target at least once in n trials is 1 - .
4

Find n such that this value is greater than

2
. (b) Find n so that
3

1
5
1- > .
6
2

A machine produces an average of 20% defective bolts. A batch is accepted if a

sample of 5 bolts taken from the batch contains no defective and rejected if the
sample contains 3 or more defectives. In other cases, a second sample is taken.
What is the probability that the second sample is required?

Hint: A second sample is required if the first sample is neither rejected nor accepted.
5.

A multiple choice test consists of 8 questions with 3 answers to each question (of
which only one is correct). A student answers each question by throwing a balanced
die and checking the first answer if he gets 1 or 2, the second answer if he gets 3
or 4 and the third answer if he gets 5 or 6. To get a distinction, the student must
secure at least 75% correct answers. If there is no negative marking, what is the
probability that the student secures a distinction?

Hint: He should attempt at least 6 questions.

What is the most probable number of times an ace will appear if a die is tossed (i)
50 times, (ii) 53 times?

Hint: Find mode.

Out of 320 families with 5 children each, what percentage would be expected to
have (i) 2 boys and 3 girls, (ii) at least one boy, (iii) at the most one girl? Assume
equal probability for boys and girls.

Hint: Multiply probability by 100 to obtain percentage.

Fit a binomial distribution to the following data :

X : 0 1 2 3 4
f : 28 62 46 10 4

370

Hint: See example 10.

A question paper contains 6 questions of equal value divided into two sections of
three questions each. If each question poses the same amount of difficulty to Mr.
X, an examinee, and he has only 50% chance of solving it correctly, find the answer
to the following :
(i)

If Mr. X is required to answer only three questions from any one of the two
sections, find the probability that he will solve all the three questions correctly.

(ii)

If Mr. X is given the option to answer the three questions by selecting one
question out of the two standing at serial number one in the two sections, one
question out of the two standing at serial number two in the two sections and
one question out of the two standing at serial number three in the two sections,
find the probability that he will solve all three questions correctly.

Theoretical Probability
Distributions

Hint: (i) A section can be selected in 2 C1 ways and the probability of attempting all the

F I
H 2K
1
C F I
H 2K

1
3
three questions correctly is C3

one question out of two is

. (ii) The probability of attempting correctly,

10. A binomial random variable satisfies the relation 9P(X = 4) = P(X = 2) for n = 6.
Find the value of the parameter p.
Hint: P ( X = 2) = 6C2 p 2 q 4 etc.
11.

Three fair coins are tossed 3,000 times. Find the frequency distributions of the
number of heads and tails and tabulate the results. Also calculate mean and standard
deviation of each distribution.

Hint: See example 9.

12. Take 100 sets of 10 tosses of an unbiased coin. In how many cases do you expect
to get (i) 6 heads and 4 tails and (ii) at least 9 heads?
Hint: Use binomial distribution with n = 10 and p = 0.5.
13. In a binomial distribution consisting of 5 independent trials, the probabilities of 1 and
2 successes are 0.4096 and 0.2048 respectively. Find the probability of success.
Hint: Use the condition P(1) = 2P(2).
14. For a binomial distribution, the mean and variance are respectively 4 and 3. Calculate
the probability of getting a nonzero value of this distribution.
Hint: Find P(r 0).
15. (a)

There are 300, seemingly identical, tyres with a dealer. The probability of a
tyre being defective is 0.3. If 2 tyres are selected at random, find the probability
that there is non defective tyre.

(b)

If instead of 300 tyres the dealer had only 10 tyres out of which 3 are defective,
find the probability that no tyre is defective in a random sample of 2 tyres.

(c)

Write down the probability distribution of the number of defectives in each

case.

Hint: Use (a) binomial (b) hypergeometric distributions.

16. Write down the mean and variance of a binomial distribution with parameters n and
p. If the mean and variance are 4 and 8/3 respectively, find the values of n and p.
State whether it is symmetric for these values?
Hint: Binomial distribution is symmetric when p = 0.5.

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Quantitative Techniques
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17. Evaluate k if f(x) = k, when x = 1, 2, 3, 4, 5, 6 and = 0 elsewhere, is a probability

mass function. Find its mean and standard deviation.
Hint:

f (x ) = 1 .

18. If a die is thrown 6 times, calculate the probability that :

(i)

a score of 3 or less occurs on exactly 2 throws;

(ii)

a score of more than 2 occurs on exactly 3 throws;

(iii) a score of 5 or less occurs at least once;

(iv) a score of 2 or less occurs on at least 5 throws.
Hint: Use binomial distribution with n = 6 and a different value of p in each case.
19. If we take 1,280 sets each of 10 tosses of a fair coins, in how many sets should we
expect to get 7 heads and 3 tails?
Hint: See example 9.
20. If a production unit is made up from 20 identical components and each component
has a probability of 0.25 of being defective, what is the average number of defective
components in a unit? Further, what is the probability that in a unit (i) less than 3
components are defective? (ii) exactly 3 components are defective?
Hint: Take n = 20 and p = 0.25.
21. It is known from the past experience that 80% of the students in a school do their
home work. Find the probability that during a random check of 10 students
(i)

all have done their home work,

(ii)

at the most 2 have not done their home work,

(iii) at least one has not done the home work.

Hint: Take n = 10 and p = 0.8.
22. There are 24 battery cells in a box containing 6 defective cells that are randomly
mixed. A customer buys 3 cells. What is the probability that he gets one defective
cell?
Hint: Use hypergeometric distribution.
23. There are 400 tyres in the stock of a wholesaler among which 40 tyres, having
slight defects, are randomly mixed. A retailer purchases 6 tyres from this stock.
What is the probability that he gets at least 4 non defective tyres?
Hint: n is less than 5% of N.

11.8 POISSON DISTRIBUTION

This distribution was derived by a noted mathematician, Simon D. Poisson, in 1837. He
derived this distribution as a limiting case of binomial distribution, when the number of
trials n tends to become very large and the probability of success in a trial p tends to
become very small such that their product np remains a constant. This distribution is
used as a model to describe the probability distribution of a random variable defined over
a unit of time, length or space. For example, the number of telephone calls received per
hour at a telephone exchange, the number of accidents in a city per week, the number of
defects per meter of cloth, the number of insurance claims per year, the number
breakdowns of machines at a factory per day, the number of arrivals of customers at a
shop per hour, the number of typing errors per page etc.
372

Poisson Process

Theoretical Probability
Distributions

Let us assume that on an average 3 telephone calls are received per 10 minutes at a
telephone exchange desk and we want to find the probability of receiving a telephone
call in the next 10 minutes. In an effort to apply binomial distribution, we can divide the
interval of 10 minutes into 10 intervals of 1 minute each so that the probability of receiving
a telephone call (i.e., a success) in each minute (i.e., trial) becomes 3/10 ( note that p =
m/n, where m denotes mean). Thus, there are 10 trials which are independent, each with
probability of success = 3/10. However, the main difficulty with this formulation is that,
strictly speaking, these trials are not Bernoulli trials. One essential requirement of such
trials, that each trial must result into one of the two possible outcomes, is violated here.
In the above example, a trial, i.e. an interval of one minute, may result into 0, 1, 2, ......
successes depending upon whether the exchange desk receives none, one, two, ......
telephone calls respectively.
One possible way out is to divide the time interval of 10 minutes into a large number of
small intervals so that the probability of receiving two or more telephone calls in an
interval becomes almost zero. This is illustrated by the following table which shows that
the probabilities of receiving two calls decreases sharply as the number of intervals are
increased, keeping the average number of calls, 3 calls in 10 minutes in our example, as
constant.

n
P one call is received
10
0.3
100
0.03
1, 000
0.003
10, 000
0.0003

f Patwo calls are receivedf

0.09
0.0009
0.000009
0.00000009

Using symbols, we may note that as n increases then p automatically declines in such a
way that the mean m (= np) is always equal to a constant. Such a process is termed as
a Poisson Process. The chief characteristics of Poisson process can be summarised as
given below :
1.

The number of occurrences in an interval is independent of the number of

occurrences in another interval.

The expected number of occurrences in an interval is constant.

It is possible to identify a small interval so that the occurrence of more than one
event, in any interval of this size, becomes extremely unlikely.

Probability Mass Function

The probability mass function (p.m.f.) of Poisson distribution can be derived as a limit of
p.m.f. of binomial distribution when n such that m (= np) remains constant. Thus,
we can write
m
P (r ) = lim Cr
n
n
n

m
1
n

= lim
n

1
mr
. lim n ( n 1)( n 2 ) .... ( n r + 1). r
=
r ! n
n

n!
m

r !( n r )! n

.1
n

n r

m
1
n

n 1 2
(r 1) m n
1 1 .... 1
1
n n n
n
n
mr

. lim
=
r

r ! n
m

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Quantitative Techniques
for Management

mr
m
=
lim 1 , since each of the remaining terms will tend to unity as

n
r!
n

n
m

-m

m .e
r!

m m
-m
m
1
lim
lim

= e .
, since n 1 - = n
n

Thus, the probability mass function of Poisson distribution is

P (r ) =

e m .m r
, where r = 0,1,2, ...... .
r!

Here e is a constant with value = 2.71828... . Note that Poisson distribution is a discrete
probability distribution with single parameter m.

m m 2 m3

e m .mr
= e m 1 + +
+
+ ....
r!
r =0
1! 2! 3!

Total probability =

= e- m .em = 1 .

Summary Measures of Poisson Distribution

(a)

Mean: The mean of a Poisson variate r is defined as

E (r ) = r .
r =0

mr
m3 m 4
e m .mr
= e- m
= e- m m + m2 +
+
+ ....
2! 3!
r!

r =1 ( r - 1)!

m 2 m3
= me- m 1 + m +
+
+ .... = me- m e m = m
2! 3!

(b)

Variance: The variance of a Poisson variate is defined as

Var(r) = E(r - m)2 = E(r2) - m2

r =0

Now E r 2 = r 2 P (r ) = r (r 1) + r P (r ) = r (r 1) P (r ) + r P (r )

( )

= r (r 1)
r =2

e m .m r
mr
+ m = e m
+m
r!
r =2 (r 2 )!

m 4 m5
= m + e m m2 + m3 +
+
+ ....
2! 3!

m2 m3
= m + m2e m 1 + m +
+
+ .... = m + m 2
2! 3!

Thus, Var(r) = m + m2 - m2 = m.
Also standard deviation = m .
(c)
374

The values of 3 , 4 , 1 and 2

It can be shown that 3 = m and 4 = m + 3m2.

Theoretical Probability
Distributions

32 m 2 1

=
=
=
\ 1
23 m 3 m
Since m is a positive quantity, therefore, b1 is always positive and hence the Poisson
distribution is always positively skewed. We note that b1 0 as m , therefore
the distribution tends to become more and more symmetrical for large values of m.
Further, 2 =

4 m + 3m 2
1
=
= 3 + 3 as m . This result shows that the
2
2
m
m
2

distribution becomes normal for large values of m.

(d)

Mode: As in binomial distribution, a Poisson variate r will be mode if

P (r 1) P (r ) P (r + 1)
The inequality P (r 1) P (r ) can be written as
e m .m r 1 e m .m r

r!
(r 1)!

m
rm
r

.... (1)

Similarly, the inequality P (r ) P (r + 1) can be shown to imply that

rm-1

.... (2)

Combining (1) and (2), we can write m - 1 r m.

Case I: When m is not an integer
The integral part of m will be mode.
Case II: When m is an integer
The distribution is bimodal with values m and m - 1.
Example 13: The average number of customer arrivals per minute at a super bazaar is
2. Find the probability that during one particular minute (i) exactly 3 customers
will arrive, (ii) at the most two customers will arrive, (iii) at least one customer will
arrive.
Solution: It is given that m = 2. Let the number of arrivals per minute be denoted by the
random variable r. The required probability is given by

e2 .23 0.13534 8
=
= 0.18045
3!
6

(i)

P (r = 3 ) =

(ii)

P (r 2 ) =

(iii)

P (r 1) = 1 P ( r = 0 ) = 1

4
e 2 .2r

= e 2 1 + 2 + = 0.13534 5 = 0.6767.
2
r!

r =0
2

e 2 .20
= 1 0.13534 = 0.86464.
0!

Example 14: An executive makes, on an average, 5 telephone calls per hour at a cost
which may be taken as Rs 2 per call. Determine the probability that in any hour the
telephone calls' cost (i) exceeds Rs 6, (ii) remains less than Rs 10.
Solution: The number of telephone calls per hour is a random variable with mean = 5.
The required probability is given by

375

Quantitative Techniques
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e 5 .5r
r!
r =0
3

(i)

P (r > 3 ) = 1 P (r 3 ) = 1

25 125
236

= 1 e 5 1 + 5 + +
= 1 0.00678
= 0.7349.

2
6
6

25 125 625
e 5 .5r

1569
= e 5 1 + 5 + +
+
= 0.44324.
= 0.00678
!
2
6
24
r

r =0
24
4

(ii)

P (r 4 ) =

Example 15: A company makes electric toys. The probability that an electric toy is
defective is 0.01. What is the probability that a shipment of 300 toys will contain exactly
5 defectives?
Solution: Since n is large and p is small, Poisson distribution is applicable. The random
variable is the number of defective toys with mean m = np = 300 0.01 = 3.
The required probability is given by

P (r = 5 ) =

e 3 .35 0.04979 243

=
= 0.10082.
5!
120

Example 16: In a town, on an average 10 accidents occur in a span of 50 days. Assuming

that the number of accidents per day follow Poisson distribution, find the probability that
there will be three or more accidents in a day.
Solution: The random variable denotes the number accidents per day. Thus, we have .
10
m=
= 0.2 .The required probability is given by
50

P (r 3 ) = 1 P (r 2 ) = 1 e

0.2

0.2 )
(
1 + 0.2 +
= 1 0.8187 1.22 = 0.00119.
2!

Example 17: A car hire firm has two cars which it hire out every day. The number of
demands for a car on each day is distributed as a Poisson variate with mean 1.5. Calculate
the proportion of days on which neither car is used and the proportion of days on which
some demand is refused. [ e-1.5 = 0.2231]
Solution: When both car are not used, r = 0
\ P ( r = 0) = e -1.5 = 0.2231 . Hence the proportion of days on which neither car is used
is 22.31%.
Further, some demand is refused when more than 2 cars are demanded, i.e., r > 2
r
2

e-1.5 (1.5)
1.5)
(
= 1 - 0.2231 1 + 1.5 +
= 0.1913.
r!
2!
r =0

\ P (r > 2) = 1 - P (r 2) = 1 -

Hence the proportion of days is 19.13%.

Example 18: A firm produces articles of which 0.1 percent are usually defective. It
packs them in cases each containing 500 articles. If a wholesaler purchases 100 such
cases, how many cases are expected to be free of defective items and how many are
expected to contain one defective item?
Solution: The Poisson variate is number of defective items with mean

m=
376

1
500 = 0.5.
1000

Probability that a case is free of defective items

Theoretical Probability
Distributions

P (r = 0 ) = e 0.5 = 0.6065. Hence the number of cases having

no defective items = 0.6065 100 = 60.65
Similarly, P (r = 1) = e0.5 0.5 = 0.6065 0.5 = 0.3033. Hence the number of cases
having one defective item are 30.33.
Example 19: A manager accepts the work submitted by his typist only when there is no
mistake in the work. The typist has to type on an average 20 letters per day of about 200
words each. Find the chance of her making a mistake (i) if less than 1% of the letters
submitted by her are rejected; (ii) if on 90% of days all the work submitted by her is
accepted. [As the probability of making a mistake is small, you may use Poisson
distribution. Take e = 2.72].
Solution: Let p be the probability of making a mistake in typing a word.
(i)

Let the random variable r denote the number of mistakes per letter. Since 20 letters
are typed, r will follow Poisson distribution with mean = 20p.
Since less than 1% of the letters are rejected, it implies that the probability of
making at least one mistake is less than 0.01, i.e.,
P(r 1) 0.01 or 1 - P(r = 0) 0.01
fi 1 - e-20p 0.01 or e-20p 0.99
Taking log of both sides
20p.log 2.72 log 0.99

20 0.4346 p 1.9956
1 2 3
No. of mistakes per page : 0
Frequency
: 211 90 19 5

8.692p - 0.0044 or p
(ii)

0.0044
= 0.00051.
8.692

In this case r is a Poisson variate which denotes the number of mistakes per day.
Since the typist has to type 20 200 = 4000 words per day, the mean number of
mistakes = 4000p.
It is given that there is no mistake on 90% of the days, i.e.,
P(r = 0) = 0.90 or e-4000p = 0.90
Taking log of both sides, we have
- 4000p log 2.72 = log 0.90 or 4000 0.4346 p = 1.9542 = 0.0458

0.0458
= 0.000026.
4000 0.4346

Example 20: A manufacturer of pins knows that on an average 5% of his product is

defective. He sells pins in boxes of 100 and guarantees that not more than 4 pins will be
defective. What is the probability that the box will meet the guaranteed quality?
Solution: The number of defective pins in a box is a Poisson variate with mean equal to
5. A box will meet the guaranteed quality if r 4. Thus, the required probability is given
by

5r
25 125 625

1569
= e5 1 + 5 + +
+
= 0.00678
= 0.44324.

2
6
24

24
r =0 r !
4

P (r 4 ) = e 5

377

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Poisson Approximation to Binomial

When n, the number of trials become large, the computation of probabilities by using the
binomial probability mass function becomes a cumbersome task. Usually, when n 20
and p 0.05, Poisson distribution can be used as an approximation to binomial with
parameter m = np.
Example 21: Find the probability of 4 successes in 30 trials by using (i) binomial distribution
and (ii) Poisson distribution. The probability of success in each trial is given to be 0.02.
Solution:
(i)

Here n = 30 and p = 0.02

\ P (r = 4) = 30C4 (0.02) (0.98) = 27405 0.00000016 0.59 = 0.00259.

(ii)

Here m = np = 30 0.02 = 0.6

\ P (r = 4 ) =

e 0.6 ( 0.6 )

0.5488 0.1296
= 0.00296.
24

Fitting of a Poisson Distribution

To fit a Poisson distribution to a given frequency distribution, we first compute its mean
m. Then the probabilities of various values of the random variable r are computed by
e m .m r
. These probabilities are then multiplied
r!
by N, the total frequency, to get expected frequencies.

using the probability mass function P ( r ) =

Example 22: The following mistakes per page were observed in a book :

No. of mistakes per page:

Frequency

211

Fit a Poisson distribution to find the theoretical frequencies.

Solution: The mean of the given frequency distribution is
m=

0 211 + 1 90 + 2 19 + 3 5 143
=
= 0.44
211 + 90 + 19 + 5
325

Calculation of theoretical (or expected) frequencies

We can write P (r ) =

e-0.44 (0.44)

. Substituting r = 0, 1, 2 and 3, we get the probabilities

r!
for various values of r, as shown in the following table:
r
0
1
2
3
Total

P (r )

N P (r )

Expected Frequencies Approximated

0.6440
0.2834
0.0623
0.0091

209.30
92.10
20.25
2.96

210
92
20
3
325

Features of Poisson Distribution

378

(i)

It is discrete probability distribution.

(ii)

It has only one parameter m.

to the nearest integer

(iii) The range of the random variable is 0 r < .

Theoretical Probability
Distributions

(iv) The Poisson distribution is a positively skewed distribution. The skewness decreases
as m increases.

Uses of Poisson Distribution

(i)

This distribution is applicable to situations where the number of trials is large and
the probability of a success in a trial is very small.

(ii)

It serves as a reasonably good approximation to binomial distribution when n 20

and p 0.05.

Exercise with Hints

If 2% of the electric bulbs manufactured by a company are defective, find the

probability that in a sample of 200 bulbs (i) less than 2 bulbs are defective, (ii) more
than 3 bulbs are defective. (Given e- 4 = 0.0183).

Hint: m =
2.

2
200 = 4.
100

If r is a Poisson variate such that P(r) = P(r + 1), what are the mean and standard
deviation of r?

Hint: Find m by using the given condition.

The number of arrivals of telephone calls at a switch board follows a Poisson

process at an average rate of 8 calls per 10 minutes. The operator leaves for a 5
minutes tea break. Find the probability that (a) at the most two calls go unanswered
and (b) 3 calls go unanswered, while the operator is away.

Hint: m = 4.
4.

What probability model is appropriate to describe a situation where 100 misprints

are distributed randomly throughout the 100 pages of a book? For this model, what
is the probability that a page observed at random will contain (i) no misprint, (ii) at
the most two misprints, (iii) at least three misprints?

Hint: The average number of misprint per page is unity.

If the probability of getting a defective transistor in a consignment is 0.01, find the

mean and standard deviation of the number of defective transistors in a large
consignment of 900 transistors. What is the probability that there is at the most one
defective transistor in the consignment?

Hint: The average number of transistors in a consignment is 900 0.01.

In a certain factory turning out blades, there is a small chance 1/500 for any one
blade to be defective. The blades are supplied in packets of 10. Use Poisson
distribution to compute the approximate number of packets containing no defective,
one defective, two defective, three defective blades respectively in a consignment
of 10,000 packets.

Hint: The random variable is the number of defective blades in a packet of 10 blades.
7.

A manufacturer knows that 0.3% of items produced in his factory are defective.
If the items are supplied in boxes, each containing 250 items, what is the probability
that a box contains (i) no defective, (ii) at the most two defective items?

Hint: m =
8.

0.3
250 = 0.75.
100

A random variable r follows Poisson distribution, where P(r = 2) = P(r = 3). Find (i)
P(r = 0), (ii) P(1 r 3).

Hint: P(1 r 3) = P(r = 1) + P(r = 2) + P(r = 3).

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If X is a Poisson variate such that P(X = 2) = 9P(X = 4) + 90P(X = 6), find the
mean and variance of X.

Hint: mean = Variance.

10. Lots of 400 wall-clocks are purchased by a retailer. The retailer inspects sample of
20 clocks from each lot and returns the lot to the supplier if there are more than
two defectives in the sample. Suppose a lot containing 30 defective clocks is received
by the retailer, what is the probability that it will be returned to the supplier?
Hint: n = 20 and p = 30/400.
11.

An industrial area has power breakdown once in 15 days, on the average. Assuming
that the number of breakdowns follow a Poisson process, what is the probability of
(i) no power breakdown in the next six days, (ii) more than one power breakdown
in the next six days?

Hint: The random variable is the number of power breakdowns in six days.
12. After correcting the proofs of first 50 pages or so of a book, it is found that on the
average there are 3 errors per 5 pages. Use Poisson probabilities and estimate the
number of pages with 0, 1, 2, 3, errors in the whole book of 1,000 pages. [Given
that e- 0.6 = 0.5488].
Hint: Take random variable as the number of errors per page.
13. Between 2 and 4 p.m., the number of phone calls coming into the switch board of
a company is 300. Find the probability that during one particular minute there will
be (i) no phone call at all, (ii) exactly 3 calls, (iii) at least 7 calls. [Given e- 2 =
0.13534 and e-0.5 = 0.60650].
Hint: Random variable is the number of calls per minute.
14. It is known that 0.5% of ball pen refills produced by a factory are defective. These
refills are dispatched in packagings of equal numbers. Using Poisson distribution
determine the number of refills in a packing to be sure that at least 95% of them
contain no defective refills.
Hint: Let n be the number of refills in a package, then m = 0.005n.
15. Records show that the probability is 0.00002 that a car will have a flat tyre while
driving over a certain bridge. Find the probability that out of 20,000 cars driven
over the bridge, not more than one will have a flat tyre.
Hint: The random variable is number of cars driven over the bridge having flat tyre.
16. A radioactive source emits on the average 2.5 particles per second. Calculate the
probability that two or more particles will be emitted in an interval of 4 seconds.
Hint: m = 2.5 4.
17. The number of accidents in a year attributed to taxi drivers in a city follows Poisson
distribution with mean 3. Out of 1,000 taxi drivers, find approximately the number
of drivers with (i) no accident in a year, (ii) more than 3 accidents in a year.
[Given e-1 = 0.3679, e- 2 = 0.1353, e- 3 = 0.0498].
Hint: Number of drivers = probability 1000.
18. A big industrial plant has to be shut down for repairs on an average of 3 times in a
month. When more than 5 shut downs occur for repairs in a month, the production
schedule cannot be attained. Find the probability that production schedule cannot
be attained in a given month, assuming that the number of shut downs are a Poisson
variate.
380

Hint: Find P(r 5).

19. A manager receives an average of 12 telephone calls per 8-hour day. Assuming
that the number of telephone calls received by him follow a Poisson variate, what
is the probability that he will not be interrupted by a call during a meeting lasting
2 hours?

Theoretical Probability
Distributions

Hint: Take m = 3.
20. Assuming that the probability of a fatal accident in a factory during a year is
1/1200, calculate the probability that in a factory employing 300 workers, there will
be at least two fatal accidents in a year. [Given e- 0.25 = 0.7788].
Hint: The average number of accidents per year in the factory = 0.25.
21. If 2% of electric bulbs manufactured by a certain company are defective, find the
probability that in a sample of 200 bulbs (i) less than 2 bulbs are defective (ii) more
than 3 bulbs are defective. [Given e-4 = 0.0183].
Hint: m = 4.
22. If for a Poisson variate X, P(X = 1) = P(X = 2), find P(X = 1 or 2). Also find its
mean and standard deviation.
Hint: Find m from the given condition.
23. If 5% of the families in Calcutta do not use gas as a fuel, what will be the probability
of selecting 10 families in a random sample of 100 families who do not use gas as
a fuel? You may assume Poisson distribution. [Given e-5 = 0.0067].
Hint: m = 5, find P(r = 10).
24. The probability that a Poisson variate X takes a positive value is 1 - e-1.5. Find the
variance and also the probability that X lies between 1.5 and 1.5.
Hint: 1- e-1.5 = P(r > 0). Find P(-1.5 < X < 1.5) = P(X = 0) + P(X = 1).
25. 250 passengers have made reservations for a flight from Delhi to Mumbai. If the
probability that a passenger, who has reservation, will not turn up is 0.016, find the
probability that at the most 3 passengers will not turn up.
Hint: The number of passengers who do not turn up is a Poisson variate.

11.9 EXPONENTIAL DISTRIBUTION

The random variable in case of Poisson distribution is of the type ; the number of arrivals
of customers per unit of time or the number of defects per unit length of cloth, etc.
Alternatively, it is possible to define a random variable, in the context of Poisson Process,
as the length of time between the arrivals of two consecutive customers or the length of
cloth between two consecutive defects, etc. The probability distribution of such a random
variable is termed as Exponential Distribution.
Since the length of time or distance is a continuous random variable, therefore exponential
distribution is a continuous probability distribution.
Probability Density Function
Let t be a random variable which denotes the length of time or distance between the
occurrence of two consecutive events or the occurrence of the first event and m be the
average number of times the event occurs per unit of time or length. Further, let A be the
event that the time of occurrence between two consecutive events or the occurrence of
the first event is less than or equal to t and f(t) and F(t) denote the probability density
function and the distribution (or cumulative density) function of t respectively.

( )

We can write P ( A) + P A = 1 or F (t ) + P A = 1. Note that, by definition,F (t) = P(A)

d i

Further, P A is the probability that the length of time between the occurrence of two
consecutive events or the occurrence of first event is greater than t. This is also equal to

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Quantitative Techniques
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the probability that no event occurs in the time interval t. Since the mean number of
occurrence of events in time t is mt, we have , by Poisson distribution,

( )

P A = P ( r = 0) =

e mt ( mt )
= e mt .
0!
0

Thus, we get F(t) + e-mt = 1

P(0 to t) = F(t) = 1 emt.

.... (1)

To get the probability density function, we differentiate equation (1) with respect to t.
Thus,

f(t) = F'(t) = memt

when t > 0
otherwise.

It can be verified that the total probability is equal to unity

mt
Total Probability = 0 m.e dt = m.

e mt
m

= e mt

= 0 + 1 = 1.

Mean of t
The mean of t is defined as its expected value, given by

1
, where m denotes the average number of
m
occurrence of events per unit of time or distance.
E (t ) = t.m.e mt dt =
0

Example 23: A telephone operator attends on an average 150 telephone calls per hour.
Assuming that the distribution of time between consecutive calls follows an exponential
distribution, find the probability that (i) the time between two consecutive calls is less
than 2 minutes, (ii) the next call will be received only after 3 minutes.
Solution: Here m = the average number of calls per minute =

150
= 2.5.
60

P (t 2 ) = 2.5e2.5t dt = F (2 )
2

(i)

We know that F(t) = 1 - e-mt, \ F(2) = 1 - e-2.5 2 = 0.9933

(ii)

P(t > 3) = 1 P(t 3) = 1 - F(3)

= 1 [1 e2.5 3] = 0.0006

Example 24: The average number of accidents in an industry during a year is estimated
to be 5. If the distribution of time between two consecutive accidents is known to be
exponential, find the probability that there will be no accidents during the next two months.
Solution: Here m denotes the average number of accidents per month =

5
.
12

\ P(t > 2) = 1 F(2) = e122 = e0.833 = 0.4347.

Example 25: The distribution of life, in hours, of a bulb is known to be exponential with
mean life of 600 hours. What is the probability that (i) it will not last more than 500 hours,
(ii) it will last more than 700 hours?
Solution: Since the random variable denote hours, therefore m =

382

(i)

P(t 500) = F(500) = 1 e 600 500 = 1 e 0.833 = 0.5653.

(ii)

P(t > 700) = 1 - F(700) = e 600 = e1.1667 = 0.3114.

700

1
600

11.10 UNIFORM
VARIABLE)

DISTRIBUTION

A continuous random variable X is said to be

(CONTINUOUS

Theoretical Probability
Distributions

p(X)

uniformly distributed in a close interval

(a, b) with probability density function p(X)

1
if p ( X ) = for a X b and = 0
Otherwise The uniform distribution is
alternatively known as rectangular distribution.

Figure 11.1

The diagram of the probability density function is shown in the figure 19.1.
Note that the total area under the curve is unity, i.e. ,

1
1

dX =
X =1

b g

1
Further, E X =

d i

E X2 =

\ Var ( X ) =

z
z

1 X2
X . dX =
2
X 2 . dX =

+
2

g d

3 3 1 2
= + + 2
3
3

( + ) = ( )
1 2
+ + 2
3
4
12

Example 26: The buses on a certain route run after every 20 minutes. If a person
arrives at the bus stop at random, what is the probability that
(a)

he has to wait between 5 to 15 minutes,

(b)

he gets a bus within 10 minutes,

(c)

he has to wait at least 15 minutes.

Solution: Let the random variable X denote the waiting time, which follows a uniform
distribution with p.d.f.
1
f (X ) =
for 0 X 20
20
1 15
1
1
dX = (15 5) =
(a) P (5 X 15) =

20 5
20
2
1
1
(b) P (0 X 10 ) = 10 =
20
2
20 15 1
= .
(c) P (15 X 20 ) =
20
4

11.11 NORMAL DISTRIBUTION

The normal probability distribution occupies a place of central importance in Modern
Statistical Theory. This distribution was first observed as the normal law of errors by
the statisticians of the eighteenth century. They found that each observation X involves
an error term which is affected by a large number of small but independent chance
factors. This implies that an observed value of X is the sum of its true value and the net
effect of a large number of independent errors which may be positive or negative each
with equal probability. The observed distribution of such a random variable was found to
be in close conformity with a continuous curve, which was termed as the normal curve
of errors or simply the normal curve.

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Since Gauss used this curve to describe the theory of accidental errors of measurements
involved in the calculation of orbits of heavenly bodies, it is also called as Gaussian
curve.

The Conditions of Normality

In order that the distribution of a random variable X is normal, the factors affecting its
observations must satisfy the following conditions :
(i)

A large number of chance factors: The factors, affecting the observations of a

random variable, should be numerous and equally probable so that the occurrence
or non-occurrence of any one of them is not predictable.

(ii)

Condition of homogeneity: The factors must be similar over the relevant population
although, their incidence may vary from observation to observation.

(iii) Condition of independence: The factors, affecting observations, must act

independently of each other.
(iv) Condition of symmetry: Various factors operate in such a way that the deviations
of observations above and below mean are balanced with regard to their magnitude
as well as their number.
Random variables observed in many phenomena related to economics, business and
other social as well as physical sciences are often found to be distributed normally. For
example, observations relating to the life of an electrical component, weight of packages,
height of persons, income of the inhabitants of certain area, diameter of wire, etc., are
affected by a large number of factors and hence, tend to follow a pattern that is very
similar to the normal curve. In addition to this, when the number of observations become
large, a number of probability distributions like Binomial, Poisson, etc., can also be
approximated by this distribution.

Probability Density Function

If X is a continuous random variable, distributed normally with mean m and standard
deviation , then its p.d.f. is given by
p(X ) =

1 X

where < X < .

Here p and s are absolute constants with values 3.14159.... and 2.71828.... respectively.
It may be noted here that this distribution is completely known if the values of mean m
and standard deviation s are known. Thus, the distribution has two parameters, viz.
mean and standard deviation.

Shape of Normal Probability Curve

For given values of the parameters, m and s, the shape of the curve corresponding to
normal probability density function p(X) is as shown in Figure. 11.2

384

Figure 11.2

It should be noted here that although we seldom encounter variables that have a range
from - to , as shown by the normal curve, nevertheless the curves generated by the
relative frequency histograms of various variables closely resembles the shape of normal
curve.

Theoretical Probability
Distributions

Properties of Normal Probability Curve

A normal probability curve or normal curve has the following properties :
1.

It is a bell shaped symmetrical curve about the ordinate at X = . The ordinate is

maximum at X = .

It is unimodal curve and its tails extend infinitely in both directions, i.e., the curve is
asymptotic to X axis in both directions.

All the three measures of central tendency coincide, i.e.,

mean = median = mode

The total area under the curve gives the total probability of the random variable
taking values between - to . Mathematically, it can be shown that

P ( < X < ) = p ( X ) dX =

1 X

dX = 1.

Since median = m, the ordinate at X = divides the area under the normal curve
into two equal parts, i.e.,

p ( X ) dX = p ( X ) dX =0.5

The value of p(X) is always non-negative for all values of X, i.e., the whole curve
lies above X axis.

The points of inflexion (the point at which curvature changes) of the curve are
at X = .

The quartiles are equidistant from median, i.e., Md - Q1 = Q3 - Md , by virtue of

symmetry. Also Q1 = - 0.6745 , Q3 = + 0.6745 , quartile deviation =
0.6745 and mean deviation = 0.8 , approximately.

Since the distribution is symmetrical, all odd ordered central moments are zero.

10. The successive even ordered central moments are related according to the following
recurrence formula
2n = (2n - 1) 2 2n - 2 for = 1, 2, 3, ......

11.

The value of moment coefficient of skewness 1 is zero.

12. The coefficient of kurtosis 2 =

4 3 4
=
= 3.
22 4

Note that the above expression makes use of property 10.

13. Additive or reproductive property
If X1, X2, ...... Xn are n independent normal variates with means 1 , 2 , KK n and
variances 12 , 22 , KK n2 , respectively, then their linear combinationa1X1 + a2X2
n

+ ...... + anXn is also a normal variate with mean ai i and variance

i =1

In particular, if a1 = a2 = ...... = an = 1, we have

and variance
a normal variate.
i

2
i

a
i =1

2
i

is a normal variate with mean

. Thus the sum of independent normal variates is also

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Quantitative Techniques
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14. Area property: The area under the normal curve is distributed by its standard
deviation in the following manner :

Figure 11.3

(i)

The area between the ordinates at m s and m + s is 0.6826. This implies

that for a normal distribution about 68% of the observations will lie between
m s and m + s.

(ii)

The area between the ordinates at m 2s and m + 2s is 0.9544. This implies

that for a normal distribution about 95% of the observations will lie between
m 2s and m + 2s.

(iii) The area between the ordinates at m 3s and m + 3s is 0.9974. This implies
that for a normal distribution about 99% of the observations will lie between
m 3s and m + 3s. This result shows that, practically, the range of the
distribution is 6s although, theoretically, the range is from to .

Probability of Normal Variate in an Interval

Let X be a normal variate distributed with mean m and standard deviation s, also written
in abbreviated form as X ~ N(m, s) The probability of X lying in the
interval (X1, X2) is given by
X2

P ( X1 X X 2 ) =

1 X

In terms of figure, this probability is equal to

the area under the normal curve between
the ordinates at X = X 1 and X = X 2
respectively.

Figure 11.4

Note: It may be recalled that the probability that a continuous random variable takes a
particular value is defined to be zero even though the event is not impossible.
It is obvious from the above that, to find P(X1 X X2), we have to evaluate an integral
which might be cumbersome and time consuming task. Fortunately, an alternative
procedure is available for performing this task. To devise this procedure, we define a
new variable z =

X
.

X 1
We note that E ( z ) = E
= E ( X ) = 0

1
X 1
and Var ( z ) = Var
= 2 Var ( X ) = 2 Var ( X ) = 1.

386

Further, from the reproductive property, it follows that the distribution of z is also normal.

Thus, we conclude that if X is a normal variate with mean m and standard deviation

X
is a normal variate with mean zero and standard deviation unity.

Since the parameters of the distribution of z are fixed, it is a known distribution and is
termed as standard normal distribution (s.n.d.). Further, z is termed as a standard
normal variate (s.n.v.).

Theoretical Probability
Distributions

s, then z =

It is obvious from the above that the distribution of any normal variate X can always be
transformed into the distribution of standard normal variate z. This fact can be utilised to
evaluate the integral given above.

X X X 2
We can write P ( X1 X X 2 ) = P 1

= P ( z1 z z2 ) ,where z1 =
z2 =

and

In terms of figure, this probability is equal to

the area under the standard normal curve
between the ordinates at z = z1 and z = z2.
Figure 11.5
Since the distribution of z is fixed, the probabilities of z lying in various intervals are
tabulated. These tables can be used to write down the desired probability.
Example 27: Using the table of areas under the standard normal curve, find the following
probabilities :
(i) P(0 z 1.3)

(ii) P(1 z 0)

(iii) P(1 z 12)

(iv) P( z 1.54)

(v) P(|z| > 2)

(vi) P(|z| < 2)

Solution: The required probability, in each question, is indicated by the shaded are of the
corresponding figure.
(i)

From the table, we can write P(0 z 1.3) = 0.4032.

(ii)

We can write P(1 z 0) = P(0 z 1), because the distribution is symmetrical.

From the table, we can write P(1 z 0) = P(0 z 1) = 0.3413.

(iii) We can write P(1 z 2) = P(1 z 0) + P(0 z 2)
= P(0 z 1) + P(0 z 2) = 0.3413 + 0.4772
= 0.8185.

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Quantitative Techniques
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(iv) We can write

P(z 1.54) = 0.5000 P(0 z 1.54) = 0.5000 0.4382 = 0.0618.
(v)

P(|z| > 2) = P(z > 2) + P(z < 2) = 2P(z > 2) = 2[0.5000 - P(0 z 2)]
= 1 2P(0 z 2) = 1 2 0.4772 = 0.0456.

(vi) P(|z| < 2) = P(- 2 z 0) + P(0 z 2) = 2P(0 z 2) = 2 0.4772 = 0.9544.

Example 28: Determine the value or values of z in each of the following situations:
(a)

Area between 0 and z is 0.4495.

(b)

Area between to z is 0.1401.

(c)

Area between to z is 0.6103.

(d)

Area between 1.65 and z is 0.0173.

(e)

Area between 0.5 and z is 0.5376.

Solution:
(a)

On locating the value of z corresponding to an entry of area 0.4495 in the table of

areas under the normal curve, we have z = 1.64. We note that the same situation
may correspond to a negative value of z. Thus, z can be 1.64 or - 1.64.

(b)

Since the area between to z < 0.5, z will be negative. Further, the area between
z and 0 = 0.5000 0.1401 = 0.3599. On locating the value of z corresponding to this
entry in the table, we get z = 1.08.

(c)

Since the area between to z > 0.5000, z will be positive. Further, the area
between 0 to z = 0.6103 - 0.5000 = 0.1103. On locating the value of z corresponding
to this entry in the table, we get z = 0.28.

(d)

Since the area between 1.65 and z < the area between 1.65 and 0 (which,
from table, is 0.4505), z is negative. Further z can be to the right or to the left of the
value 1.65. Thus, when z lies to the right of 1.65, its value, corresponds to an
area (0.4505 0.0173) = 0.4332, is given by z = 1.5 (from table). Further, when
z lies to the left of - 1.65, its value, corresponds to an area (0.4505 + 0.0173) =
0.4678, is given by z = 1.85 (from table).

(e)

Since the area between 0.5 to z > area between 0.5 to 0 ( which, from table, is
0.1915), z is positive. The value of z, located corresponding to an area (0.5376
0.1915) = 0.3461, is given by 1.02.

Example 29: If X is a random variate which is distributed normally with mean 60 and
standard deviation 5, find the probabilities of the following events :
(i) 60 X 70, (ii) 50 X 65, (iii) X > 45, (iv) X 50.
Solution: It is given that m = 60 and s = 5
(i)

Given X1 = 60 and X2 = 70, we can write

z1 =
388

X 1 - m 60 - 60
X - m 70 - 60
=
= 0 and z2 = 2
=
= 2.
5
5
s
s

\ P(60 X 70) = P(0 z 2) = 0.4772 (from table).

Theoretical Probability
Distributions

(ii)

Here X1 = 50 and X2 = 65, therefore, we can write

z1 =

50 60
65 60
= 2 and z2 =
= 1.
5
5

Hence P(50 X 65) = P(2 z 1) = P(0 z 2) + P(0 z 1)

= 0.4772 + 0.3413 = 0.8185
(iii)

45 60

= P ( z 3)
P ( X > 45 ) = P z
5

= P ( 3 z 0 ) + P ( 0 z ) = P (0 z 3 ) + P ( 0 z )
= 0.4987 + 0.5000 = 0.9987

(iv)

50 60

= P (z 2)
P ( X 50 ) = P z
5

= 0.5000 P ( 2 z 0 ) = 0.5000 P (0 z 2 )
= 0.5000 0.4772 = 0.0228

Example 30: The average monthly sales of 5,000 firms are normally distributed with
mean Rs 36,000 and standard deviation Rs 10,000. Find :
(i)

The number of firms with sales of over Rs 40,000.

(ii)

The percentage of firms with sales between Rs 38,500 and Rs 41,000.

(iii) The number of firms with sales between Rs 30,000 and Rs 40,000.
Solution: Let X be the normal variate which represents the monthly sales of a firm.
Thus X ~ N(36,000, 10,000).
(i)

40000 - 36000

P ( X > 40000) = P z >

= P ( z > 0.4)

10000
= 0.5000 P (0 z 0.4 ) = 0.5000 0.1554 = 0.3446.
Thus, the number of firms having sales over Rs 40,000
= 0.3446 5000 = 1723

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Quantitative Techniques
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(ii)

41000 36000
38500 36000
z
P (38500 X 41000 ) = P

10000
10000

= P (0.25 z 0.5 ) = P (0 z 0.5 ) P (0 z 0.25 )

= 0.1915 0.0987 = 0.0987.
Thus, the required percentage of firms =0.0987 100 = 9.87%.

(iii)

40000 36000
30000 36000
z
P (30000 X 40000 ) = P

10000
10000

= P ( 0.6 z 0.4 ) = P (0 z 0.6 ) + P (0 z 0.4 )

= 0.2258 + 0.1554 = 0.3812.
Thus, the required number of firms = 0.3812 5000 = 1906

Example 31: In a large institution, 2.28% of employees have income below Rs 4,500
and 15.87% of employees have income above Rs. 7,500 per month. Assuming the
distribution of income to be normal, find its mean and standard deviation.
Solution: Let the mean and standard deviation of the given distribution be m and s
respectively.

4500

It is given that P ( X < 4500 ) = 0.0228 or P z <

= 0.0228

On locating the value of z corresponding to an area 0.4772 (0.5000 - 0.0228), we can

write

4500
= 2 or 4500 = 2

.... (1)

Similarly, it is also given that

7500

P ( X > 7500 ) = 0.1587 or P z >

= 0.1587

Locating the value of z corresponding to an area 0.3413 (0.5000 - 0.1587), we can write

7500
= 1 or 7500 =

.... (2)

Solving (1) and (2) simultaneously, we get

m = Rs 6,500 and s = Rs 1,000.
Example 32: Marks in an examination are approximately normally distributed with
mean 75 and standard deviation 5. If the top 5% of the students get grade A and the
bottom 25% get grade F, what mark is the lowest A and what mark is the highest F?
Solution: Let A be the lowest mark in grade A and F be the highest mark in grade F.
From the given information, we can write

FG
H

P X A = 0.05 or P z

IJ
K

A 75
= 0.05
5

On locating the value of z corresponding to an area 0.4500 (0.5000 - 0.0500), we can

write

A 75
= 1.645 A = 83.225
5

Further, it is given that

FG
H

P X F = 0.25 or P z
390

IJ
K

F 75
= 0.25
5

On locating the value of z corresponding to an area 0.2500 (0.5000 0.2500),

we can write

F 75
= 0.675 F = 71.625
5

Theoretical Probability
Distributions

Example 33: The mean inside diameter of a sample of 200 washers produced by a
machine is 5.02 mm and the standard deviation is 0.05 mm. The purpose for which these
washers are intended allows a maximum tolerance in the diameter of 4.96 to 5.08 mm,
otherwise the washers are considered as defective. Determine the percentage of defective
washers produced by the machine on the assumption that diameters are normally
distributed.
Solution: Let X denote the diameter of the washer. Thus, X ~ N (5.02, 0.05).
The probability that a washer is defective = 1 P(4.96 X 5.08)
4.96 5.02
5.08 5.02
= 1 P
z

0.05
0.05

= 1 P ( 1.2 z 1.2 ) = 1 2 P ( 0 z 1.2 ) = 1 2 0.3849 = 0.2302

Thus, the percentage of defective washers = 23.02.
Example 34: The average number of units produced by a manufacturing concern per
day is 355 with a standard deviation of 50. It makes a profit of Rs 1.50 per unit. Determine
the percentage of days when its total profit per day is (i) between Rs 457.50 and
Rs 645.00, (ii) greater than Rs 682.50 (assume the distribution to be normal). The area
between z = 0 to z = 1 is 0.34134, the area between z = 0 to z = 1.5 is 0.43319 and the
area between z = 0 to z = 2 is 0.47725, where z is a standard normal variate.
Solution: Let X denote the profit per day. The mean of X is 355 1.50 = Rs 532.50 and
its S.D. is 50 1.50 = Rs 75. Thus, X ~ N (532.50, 75).
(i)

The probability of profit per day lying between Rs 457.50 and Rs 645.00

645.00 532.50
457.50 532.50
z
P ( 457.50 X 645.00 ) = P

75
75

= P ( 1 z 1.5 ) = P (0 z 1) + P (0 z 1.5 ) = 0.34134 + 0.43319 = 0.77453

Thus, the percentage of days = 77.453
(ii)

682.50 532.50

P ( X 682.50 ) = P z
= P (z 2)
75

= 0.5000 P (0 z 2 ) = 0.5000 0.47725 = 0.02275

Thus, the percentage of days = 2.275

Example 35: The distribution of 1,000 examinees according to marks percentage is

given below :
% Marks
less than 40 40 - 75 75 or more Total
No. of examinees
430
420
150
1000

Assuming the marks percentage to follow a normal distribution, calculate the mean and
standard deviation of marks. If not more than 300 examinees are to fail, what should be
the passing marks?
Solution: Let X denote the percentage of marks and its mean and S.D. be m and s
respectively. From the given table, we can write

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Quantitative Techniques
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P(X < 40) = 0.43 and P(X 75) = 0.15, which can also be written as

40
75

Pz <
= 0.43 and P z
= 0.15

The above equations respectively imply that

and

40
= 0.175 or 40 = 0.175

.... (1)

75
= 1.04 or 75 = 1.04

.... (2)

Solving the above equations simultaneously, we get m = 45.04 and s = 28.81.

Let X1 be the percentage of marks required to pass the examination.

X 1 - 45.04

Then we have P ( X < X 1 ) = 0.3 or P z <

= 0.3
28.81
\

X1 45.04
= 0.525 X1 = 29.91 or 30% (approx.)
28.81

Example 36: In a certain book, the frequency distribution of the number of words per
page may be taken as approximately normal with mean 800 and standard deviation 50. If
three pages are chosen at random, what is the probability that none of them has between
830 and 845 words each?
Solution: Let X be a normal variate which denotes the number of words per page.
It is given that X ~ N(800, 50).
The probability that a page, select at random, does not have number of words between
830 and 845, is given by

845 - 800
830 - 800
<z<
1 - P (830 < X < 845) = 1 - P

50
50
= 1 - P (0.6 < z < 0.9) = 1 - P (0 < z < 0.9) + P (0 < z < 0.6)
= 1- 0.3159 + 0.2257 = 0.9098 0.91
Thus, the probability that none of the three pages, selected at random, have number of
words lying between 830 and 845 = (0.91)3 = 0.7536.
Example 37: At a petrol station, the mean quantity of petrol sold to a vehicle is 20 litres
per day with a standard deviation of 10 litres. If on a particular day, 100 vehicles took 25
or more litres of petrol, estimate the total number of vehicles who took petrol from the
station on that day. Assume that the quantity of petrol taken from the station by a vehicle
is a normal variate.
Solution: Let X denote the quantity of petrol taken by a vehicle. It is given that
X ~ N(20, 10).

25 20

= P ( z 0.5 )
\ P ( X 25 ) = P z
10

= 0.5000 P 0 z 0.5 = 0.5000 01915

.
= 0.3085

Let N be the total number of vehicles taking petrol on that day.

392

\ 0.3085 N = 100 or N = 100/0.3085 = 324 (approx.)

Normal Approximation to Binomial Distribution

Theoretical Probability
Distributions

Normal distribution can be used as an approximation to binomial distribution when n is

large and neither p nor q is very small. If X denotes the number of
successes with probability p of a success in each of the n trials, then X will be distributed
approximately normally with mean np and standard deviation npq .
Further, z =

X - np
npq

N (0,1) .

It may be noted here that as X varies from 0 to n, the standard normal variate z would
vary from - to because

lim
when X = 0,
n

npq

np

=
q

lim n - np
lim nq
lim nq

=
and when X = n ,
n npq n npq
n p
Correction for Continuity

Since the number of successes is a discrete variable, to use normal approximation, we

have make corrections for continuity. For example,

1
1

P(X1 X X2) is to be corrected as P X1 X X 2 + , while using normal

2
2

approximation to binomial since the gap between successive values of a binomial variate
1
1

is unity. Similarly, P(X1 < X < X2) is to be corrected as P X1 + X X 2 ,

2
2

since X1 < X does not include X1 and X < X2 does not include X2.
Note: The normal approximation to binomial probability mass function is good when
n 50 and neither p nor q is less than 0.1.
Example 38: An unbiased die is tossed 600 times. Use normal approximation to binomial
to find the probability obtaining
(i)

more than 125 aces,

(ii)

number of aces between 80 and 110,

(iii) exactly 150 aces.

Solution: Let X denote the number of successes, i.e., the number of aces.
\ = np = 600
(i)

1
1 5
= 100 and = npq = 600 = 9.1
6
6 6

To make correction for continuity, we can write

P(X > 125) = P(X > 125 + 0.5)

125.5 100

Thus, P ( X 125.5 ) = P z
= P ( z 2.80 )
9.1

= 0.5000 P (0 z 2.80 ) = 0.5000 0.4974 = 0.0026.

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Quantitative Techniques
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(ii)

In a similar way, the probability of the number of aces between 80 and 110 is given
by

110.5 100
79.5 100
z
P ( 79.5 X 110.5 ) = P

9.1
9.1

= P ( 2.25 z 1.15 ) = P (0 z 2.25 ) + P (0 z 1.15 )

= 0.4878 + 0.3749 = 0.8627

20.5
19.5
z
(iii) P(X = 120) = P(119.5 X 120.5) = P
9.1
9.1
= P(2.14 z 2.25) = P(0 z 2.25) - P(0 z 2.14)
= 0.4878 - 0.4838 = 0.0040

Normal/ Approximation to Poisson Distribution

Normal distribution can also be used to approximate a Poisson distribution when its
parameter m 10. If X is a Poisson variate with mean m, then, for m 10, the distribution
of X can be taken as approximately normal with mean m and standard deviation m so
X -m
that z =
is a standard normal variate.
m
Example 39: A random variable X follows Poisson distribution with parameter 25.
Use normal approximation to Poisson distribution to find the probability that X is greater
than or equal to 30.
Solution: P(X 30) = P(X 29.5) (after making correction for continuity).

FG
H

= P z

IJ b
K

29.5 25
= P z 0.9
5

= 0.5000 - P(0 z 0.9) = 0.5000 - 0.3159 = 0.1841

Fitting a Normal Curve

A normal curve is fitted to the observed data with the following objectives :
1.

To provide a visual device to judge whether it is a good fit or not.

Use to estimate the characteristics of the population.

The fitting of a normal curve can be done by
(a)

The Method of Ordinates or

(b)

The Method of Areas.

(a) Method of Ordinates: In this method, the ordinate f(X) of the normal curve, for
various values of the random variate X are obtained by using the table of ordinates for a
standard normal variate.
We can write f ( X ) =

1 X

1
z2
2

1
(z )

1 2 z2
X
and (z ) =
e .

2
1

where z =

The expected frequency corresponding to a particular value of X is given by

N
( z ) and therefore, the expected frequency of a class = y h, where

h is the class interval.

y = N . ( X ) =

394

Theoretical Probability
Distributions

Example 40: Fit a normal curve to the following data :

Class Intervals : 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 Total
Frequency : 2
11
24
33
20
8
2
100

Solution: First we compute mean and standard deviation of the given data.
Class
Mid -values
Intervals
(X )

Frequency
X - 45
d=
(f)
10

fd 2

10-20
20-30
30-40
40-50

15
25
35
45

2
11
24
33

-3
-2
-1
0

- 6
- 22
- 24
0

18
44
24
0

50-60
60-70
70-80
Total

55
65
75

20
8
2

1
2
3

20
16
6

20
32
18

- 10

156

100

Note: If the class intervals are not continuous, they should first be made so.
\ = 45 10

= 10

and

FG IJ
H K

156
10

100 100

10
= 44
100

= 10 155
. = 12.4

Table for the fitting of Normal Curve

Class
Mid -values
X
z=

(X)
Intervals
10-20
20-30
30-40
40-50
50-60
60-70
70-80

15
25
35
45
55
65
75

2.34
1.53
0.73
0.08
0.89
1.69
2.50

(z )
( from table)
0.0258
0.1238
0.3056
0.3977
0.2685
0.0957
0.0175

N
(z )

fe *

0.2081
0.9984
2.4645
3.2073
2.1653
0.7718
0.1411

2
10
25
32
22
8
1

(b) Method of Areas: Under this method, the probabilities or the areas of the random
variable lying in various intervals are determined. These probabilities are then multiplied
by N to get the expected frequencies. This procedure is explained below for the data of
the above example.
Class
Intervals

Lower Limit
(X )

10-20
20-30

10
20

30-40
40-50
50-60
60-70
70-80

X - 44
12.4

Area from
0 to z

Area under
the class

fe *

0.4969
0.4738

0.0231
0.1030

2
10

30
40
50
60

- 2.74
- 1.94
- 1.13
- 0.32
0.48
1.29

0.3708
0.1255
0.1844
0.4015

0.2453
0.3099
0.2171
0.0806

25
31
22
8

70
80

2.10
2.90

0.4821
0.4981

0.0160

*Expected frequency approximated to the nearest integer.

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Quantitative Techniques
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Exercise with Hints

In a metropolitan city, there are on the average 10 fatal road accidents in a month
(30 days). What is the probability that (i) there will be no fatal accident tomorrow,
(ii) next fatal accident will occur within a week?

Hint: Take m = 1/3 and apply exponential distribution.

A counter at a super bazaar can entertain on the average 20 customers per hour.
What is the probability that the time taken to serve a particular customer will be
(i) less than 5 minutes, (ii) greater than 8 minutes?

Hint: Use exponential distribution.

The marks obtained in a certain examination follow normal distribution with mean
45 and standard deviation 10. If 1,000 students appeared at the examination, calculate
the number of students scoring (i) less than 40 marks, (ii) more than 60 marks and
(iii) between 40 and 50 marks.

Hint: See example 30.

The ages of workers in a large plant, with a mean of 50 years and standard deviation
of 5 years, are assumed to be normally distributed. If 20% of the workers are
below a certain age, find that age.

Hint: Given P(X < X1) = 0.20, find X1.

The mean and standard deviation of certain measurements computed from a large
sample are 10 and 3 respectively. Use normal distribution approximation to answer
the following:
(i)

About what percentage of the measurements lie between 7 and 13 inclusive?

(ii)

About what percentage of the measurements are greater than 16?

Hint: Apply correction for continuity.

There are 600 business students in the post graduate department of a university
and the probability for any student to need a copy of a particular text book from the
university library on any day is 0.05. How many copies of the book should be kept
in the library so that the probability that none of the students, needing a copy, has to
come back disappointed is greater than 0.90? (Use normal approximation to binomial.)

Hint: If X1 is the required number of copies, P(X X1) 0.90.

The grades on a short quiz in biology were 0, 1, 2, 3, ...... 10 points, depending upon
the number of correct answers out of 10 questions. The mean grade was 6.7 with
standard deviation of 1.2. Assuming the grades to be normally distributed, determine
(i) the percentage of students scoring 6 points, (ii) the maximum grade of the
lowest 10% of the class.

Hint: Apply normal approximation to binomial.

The following rules are followed in a certain examination. "A candidate is awarded
a first division if his aggregate marks are 60% or above, a second division if his
aggregate marks are 45% or above but less than 60% and a third division if the
aggregate marks are 30% or above but less than 45%. A candidate is declared
failed if his aggregate marks are below 30% and awarded a distinction if his
aggregate marks are 80% or above."
At such an examination, it is found that 10% of the candidates have failed, 5%
have obtained distinction. Calculate the percentage of students who were placed in
the second division. Assume that the distribution of marks is normal. The areas
under the standard normal curve from 0 to z are :
z
Area

396

:
:

1. 28
0. 4000

1.64
0. 4500

0. 41
0.1591

0. 47
0.1808

Hint: First find parameters of the distribution on the basis of the given information.

For a certain normal distribution, the first moment about 10 is 40 and the fourth
moment about 50 is 48. What is the mean and standard deviation of the distribution?

Theoretical Probability
Distributions

Hint: Use the condition b2 = 3, for a normal distribution.

10. In a test of clerical ability, a recruiting agency found that the mean and standard
deviation of scores for a group of fresh candidates were 55 and 10 respectively.
For another experienced group, the mean and standard deviation of scores were
found to be 62 and 8 respectively. Assuming a cut-off scores of 70, (i) what
percentage of the experienced group is likely to be rejected, (ii) what percentage
of the fresh group is likely to be selected, (iii) what will be the likely percentage of
fresh candidates in the selected group? Assume that the scores are normally
distributed.
Hint: See example 33.
11.

1,000 light bulbs with mean life of 120 days are installed in a new factory. Their
length of life is normally distributed with standard deviation of 20 days. (i) How
many bulbs will expire in less than 90 days? (ii) If it is decided to replace all the
bulbs together, what interval should be allowed between replacements if not more
than 10 percent bulbs should expire before replacement?

Hint: (ii) P(X X1) = 0.9.

12. The probability density function of a random variable is expressed as

2 2 X 3 2
p ( X ) = e ( ) , ( - < X < )

(i)

Identify the distribution.

(ii)

Determine the mean and standard deviation of the distribution.

(iii) Write down two important properties of the distribution.

Hint: Normal distribution.
13. The weekly wages of 2,000 workers in a factory are normally distributed with a
mean of Rs 200 and a variance of 400. Estimate the lowest weekly wages of the
197 highest paid workers and the highest weekly wages of the 197 lowest paid
workers.
Hint: See example 32.
14. Among 10,000 random digits, in how many cases do we expect that the digit 3
appears at the most 950 times. (The area under the standard normal curve for
z = 1.667 is 0.4525 approximately.)
Hint: m = 10000 0.10 and s2 = 1000 0.9.
15. Marks obtained by certain number of students are assumed to be normally distributed
with mean 65 and variance 25. If three students are taken at random, what is the
probability that exactly two of them will have marks over 70?
Hint: Find the probability (p) that a student
3

gets more than 70 marks.

Then find C2 p q .
16. The wage distribution of workers in a factory is normal with mean Rs 400 and
standard deviation Rs 50. If the wages of 40 workers be less than Rs 350, what is
the total number of workers in the factory? [ given

(t )dt = 0.34 , where t ~ N

(0,1).]
Hint: N Probability that wage is less than 350 = 40.

397

Quantitative Techniques
for Management

17. The probability density function of a continuous random variable X is given by

f(X) = kX(2 - X), 0 < X < 2
=0

elsewhere.

Calculate the value of the constant k and E(X).

Hint: To find k, use the fact that total probability is unity.
18.

f (X ) =

e 25 X , < X < is the probability density function of a normal

distribution with mean zero and variance 1/50. Is the statement true?

Hint: Transform X into standard normal variate z.

19. The income of a group of 10,000 persons was found to be normally distributed with
mean Rs 1,750 p.m. and standard deviation Rs 50. Show that about 95% of the
persons of the group had income exceeding Rs 1,668 and only 5% had income
exceeding Rs 1,832.
Hint: See example 30.
20. A complex television component has 1,000 joints by a machine which is known to
produce on an average one defective in forty. The components are examined and
the faulty soldering corrected by hand. If the components requiring more than 35
corrections are discarded, what proportion of the components will be thrown away?
Hint: Use Poisson approximation to normal distribution.
21. The average number of units produced by a manufacturing concern per day is 355
with a standard deviation of 50. It makes a profit of Rs 150 per unit. Determine the
percentage of days when its total profit per day is (i) between
Rs 457.50 and Rs 645.00, (ii) greater than Rs 628.50.
Hint: Find the probabilities of producing 457.50/150 to 645/150 units etc.
22. A tyre manufacturing company wants 90% of its tyres to have a wear life of at
least 40,000 kms. If the standard deviation of the wear lives is known to be
3,000 kms, find the lowest acceptable average wear life that must be achieved by
the company. Assume that the wear life of tyres is normally distributed.

40000

> z0 = 0.90.
Hint: P
3000

23. The average mileage before the scooter of a certain company needs a major overhaul
is 60,000 kms with a S.D. of 10,000 kms. The manufacturer wishes to warranty
these scooters, offering to make necessary overhaul free of charge if the buyer of
a new scooter has a breakdown before covering certain number of kms. Assuming
that the mileage, before an overhaul is required, is distributed normally, for how
many kms should the manufacturer warranty so that not more than 3% of the new
scooters come for free overhaul?

X - 60000

< z0 = 0.03.
Hint: P
10000

24. After an aeroplane has discharged its passengers, it takes crew A an average of
15 minutes (s = 4 min.) to complete its task of handling baggage and loading food
and other supplies. Crew B fuels the plane and does maintenance checks, taking
an average of 16 minutes (s = 2 min.) to complete its task. Assume that the two
crews work independently and their times, to complete the tasks, are normally
distributed. What is the probability that both crews will complete their tasks soon
enough for the plane to be ready for take off with in 20 minutes?
398

Hint: P(A).P(B) = P(AB).

25. An automobile company buys nuts of a specified mean diameters m. A nut is

classified as defective if its diameter differs from m by more than 0.2 mm. The
company requires that not more than 1% of the nuts may be defective. What
should be the maximum variability that the manufacturer can allow in the production
of nuts so as to satisfy the automobile company?

Theoretical Probability
Distributions

Hint: Find S.D.

Check Your Progress 11.2

What are the characteristics of Poisson Distribution?

What are the objectives for fitting a normal curve?

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

11.12 LET US SUM UP

Distribution
(i) Binomial
(ii) Hyper geometric
(iii) Poisson
(iv) Exponential
(v) Normal
(vi) S.Normal

p.m. f ./ p.d . f .
n
Cr p r q n r
k

)(

N k

Cn r

e m .mr
r!
m.e mt
1 X

Range of R.V . Parameters

n and p
0,1,2,....n
0,1,2,....n

n,N and k

0,1,2,....

0<t <

< X <

and

<z<

0 and 1

1
e
2
1 12 z2
e
2

11.13 LESSON-END ACTIVITY

Apply the theoretical probability distribution to check the efficiency of industrial water
treatment.

11.14 KEYWORDS
Binomial Distribution
Random Variable
Poisson Distribution
399

Quantitative Techniques
for Management

Normal Distribution
Exponential Distribution
Functions

11.15 QUESTIONS FOR DISCUSSION

Fill in the blanks:

(a)

Poisson distribution is used where no. of trials are ......................

(b)

Poisson distribution is a ...................... distribution.

(c)

Normal distribution was first identified as ......................

(d)

Normal probability curve is ...................... shaped.

Write True or False against each statement:

(a)

Binomial distribution assumption has Bernoulli Trials.

(b)

Standard deviation is equal to

(c)

Poisson distribution is not used as a model.

(d)

The curve used to describe the accidental errors is Gaussion curve.

npq

Write short notes on:

(a)

Fitting of Binomial Distribution

(b)

Pascal Distribution

(c)

Poisson Distribution

(d)

Geometrical Distribution

(e)

Normal Distribution

11.16 TERMINAL QUESTIONS

400

What do you understand by a theoretical probability distribution? How it is useful in

business decision-making?

Define a binomial distribution. State the conditions under which binomial probability
model is appropriate.

What are the parameters of a binomial distribution? Obtain expressions for mean
and variance of the binomial variate in terms of these parameters.

What is a 'Poisson Process'? Obtain probability mass function of Poisson variate

as a limiting form of the probability mass function of binomial variate.

Obtain mean and standard deviation of a Poisson random variate. Discuss some
business and economic situations where Poisson probability model is appropriate.

How will you use Poisson distribution as an approximation to binomial? Explain

with the help of an example.

Under what conditions will a random variable follow a normal distribution? State
some important features of a normal probability curve.

What is a standard normal distribution? Discuss the importance of normal distribution

in statistical theory.

State clearly the assumptions under which a binomial distribution tends to Poisson
and to normal distribution.

10. Assume that the probability that a bomb dropped from an aeroplane will strike a
target is 1/5. If six bombs are dropped, find the probability that (i) exactly two will
strike the target, (ii) at least two will strike the target.
11.

Theoretical Probability
Distributions

An unbiased coin is tossed 5 times. Find the probability of getting (i) two heads, (ii)
at least two heads.

12. An experiment succeeds twice as many times as it fails. Find the probability that in
6 trials there will be (i) no successes, (ii) at least 5 successes, (iii) at the most
5 successes.
13. In an army battalion 60% of the soldiers are known to be married and
remaining unmarried. If p(r) denotes the probability of getting r married soldiers
from 5 soldiers, calculate p(0), p(1), p(2), p(3), p(4) and p(5). If there are 500 rows
each consisting of 5 soldiers, approximately how many rows are expected to contain
(i) all married soldiers, (ii) all unmarried soldiers?
14. A company has appointed 10 new secretaries out of which 7 are trained. If a
particular executive is to get three secretaries, selected at random, what is the
chance that at least one of them will be untrained?
15. The overall pass rate in a university examination is 70%. Four candidates take up
such examination. What is the probability that (i) at least one of them will pass (ii)
at the most 3 will pass (iii) all of them will pass, the examination?
16. 20% of bolts produced by a machine are defective. Deduce the probability distribution
of the number of defectives in a sample of 5 bolts.
17. 25% employees of a firm are females. If 8 employees are chosen at random, find
the probability that (i) 5 of them are males (ii) more than 4 are males (iii) less than
3 are females.
18. A supposed coffee connoisseur claims that he can distinguish between a cup of
instant coffee and a cup of percolator coffee 75% of the times. It is agreed that his
claim will be accepted if he correctly identifies at least 5 of the 6 cups. Find, (i) his
chance of having the claim accepted if he is in fact only guessing and,
(ii) his chance of having the claim rejected when he does not have the ability he
claims.
19. It is known that 10% of the accounts of a firm contain errors. An auditor selects 5
accounts of the firm at random and finds that 3 of them contain errors. What is the
probability of this result? What do you conclude on the basis of this result?
20. The incidence of an occupational disease in an industry is such that the workers
have a 20% chance of suffering from it. What is the probability that out of 6
workmen, 4 or more will contract the disease?
21. A local politician claims that the assessed value of houses, for house tax purposes
by the Municipal Corporation of Delhi, is not correct in 90% of the cases. Assuming
this claim to be true, what is the probability that out of a sample of 4 houses selected
at random (i) at least one will be found to be correctly assessed (ii) at least one will
be found to be wrongly assessed?
22. There are 64 beds in a garden and 3 seeds of a particular type are sown in each
bed. The probability of a flower being white is 0.25. Find the number of beds with
3, 2, 1 and 0 white flowers.
23. Suppose that half the population of a town are consumers of rice. 100 investigators
are appointed to find out its truth. Each investigator interviews 10 individuals. How
many investigators do you expect to report that three or less of the people interviewed
are consumers of rice?
24. If the probability of a success in a trial is 0.2, find (a) mean, (b) variance, (c)
moment coefficient of skewness and kurtosis of the number of successes in 100
trials.

401

Quantitative Techniques
for Management

25. There are 5 machines in a factory which may require adjustment from time to time
during a day of their use. Two of these machines are of type I, each having a
probability of 1/5 of needing adjustment during a day and 3 are of type II, having
corresponding probability of 1/10.
Assuming that no machine needs adjustment twice on the same day, find the
probability that on a particular day
(i)

Just 2 machines of type II and none of type I need adjustment.

(ii)

If just 2 machines need an adjustment, they are of the same type.

26. Fit a binomial distribution to the following data :

x
f

:
:

0
28

1
62

2
46

3
10

4
4

27. Five coins were tossed 100 times and the outcomes are recorded as given below.
Compute the expected frequencies.
No. of heads
Observed frequency

:
:

0
2

1
10

2
24

3
38

4
18

5
8

28. The administrator of a large airport is interested in the number of aircraft departure
delays that are attributable to inadequate control facilities. A random sample of 10
aircraft take off is to be thoroughly investigated. If the true proportion of such
delays in all departures is 0.40, what is the probability that 4 of the sample departures
are delayed because of control inadequacies? Also find mean, variance and mode
of the random variable.
29. A company makes T.Vs., of which 15% are defective. 15 T.Vs. are shipped to a
dealer. If each T.V. assembled is considered an independent trial, what is the
probability that the shipment of 15 T.Vs. contain (i) no defective (ii) at the most one
defective T.V.?
30. If 2% bulbs manufactured by a company are defective and the random variable
denotes the number of defective bulbs, find mean, variance, measures of moment
coefficient of skewness and kurtosis in a total of 50 bulbs.
31. 4096 families having just 4 children were chosen at random. Assuming the probability
of a male birth equal to 1/2, compute the expected number of families having 0, 1,
2, 3 and 4 male children.
32. If the number of telephone calls an operator receives from 9.00 A.M. to 9.30 A.M.
follows a Poisson distribution with mean, m = 2, what is the probability that the
operator will not receive a phone call in the same interval tomorrow?
33. (a)

Write down the probability mass function of a Poisson distribution with

parameter 3. What are the values of mean and variance of the corresponding
random variable?

(b)

If X is a Poisson variate with parameter 2, find P(3 X 5).

(c)

The standard deviation of a Poisson variate is 2, find P(1 X < 2).

34. Suppose that a telephone switch board handles 240 calls on the average during a
rush hour and that the board can make at the most 10 connections per minute.
Using Poisson distribution, estimate the probability that the board will be over taxed
during a given minute.

402

35. An automatic machine makes paper clips from coils of a wire. On the average, 1 in
400 paper clips is defective. If the paper clips are packed in boxes of 100, what is
the probability that any given box of clips will contain (i) no defective (ii) one or
more defectives, (iii) less than two defectives?

36. Certain mass produced articles, of which 0.5% are defective, are packed in cartons
each containing 100 articles. What proportions of the cartons are expected to be
free from defective articles and what proportion contain, 2 or more defective
articles?

Theoretical Probability
Distributions

37. A certain firm uses large fleet of delivery vehicles. Their records over a long
period of time (during which their fleet size utilisation may be assumed to have
remained constant) show that the average number of vehicles serviced per day is
3. Estimate the probability that on a given day
(i)

no vehicle will be serviceable.

(ii)

at the most 3 vehicles will be serviceable.

(iii) more than 2 vehicles will be unserviceable.

38. Suppose that a local electrical appliances shop has found from experience that the
demand for tube lights is distributed as Poisson variate with a mean of 4 tube lights
per week. If the shop keeps 6 tube lights during a particular week, what is the
probability that the demand will exceed the supply during that week?
39. In a Poisson distribution, the probability of zero success is 15%. Find its mean and
standard deviation.
40. Four unbiased coins are tossed 1,600 times. Using Poisson distribution, find the
approximate probability of getting 4 heads r times.
41. The number of road accidents on a highway during a month follows a Poisson
distribution with mean 6. Find the probability that in a certain month the number of
accidents will be (i) not more than 3, (ii) between 2 and 4.
42. A random variable X follows Poisson law such that P(X = k) = P(X = k + 1).
Find its mean and variance.
43. The probability that a man aged 45 years will die with in a year is 0.012. What is
the probability that of 10 such men at least 9 will reach their 46th birthday?
(Given e- 0.12= 0.88692).
44. During a period, persons arrive at a railway booking counter at the rate of 30 per
hour. What is the probability that two or less persons will arrive in a period of 5
minutes?
45. An insurance company insures 4,000 people against loss of both eyes in a car
accident. Based upon previous data, the rate were computed on the assumption
that on the average 10 persons in 1,00,000 will have car accidents each year with
this type of injury. What is the probability that more than 3 of the insured will collect
on their policy in a given year?
46. A manufacturer, who produces medicine bottles, finds that 0.1% of the bottles are
defective. The bottles are packed in boxes containing 500 bottles. A drug
manufacturer buys 100 boxes from the producer of the bottles. Use Poisson
distribution to find the number of boxes containing (i) no defective bottles (ii) at
least two defective bottles.
47. A factory turning out lenses, supplies them in packets of 1,000. The packet is
considered by the purchaser to be unacceptable if it contains 50 or more defective
lenses. If a purchaser selects 30 lenses at random from a packet and adopts the
criterion of rejecting the packet if it contains 3 or more defectives, what is the
probability that the packet (i) will be accepted, (ii) will not be accepted?
48. 800 employees of a company are covered under the medical group insurance scheme.
Under the terms of coverage, 40 employees are identified as belonging to 'High
Risk' category. If 50 employees are selected at random, what is the probability that

403

Quantitative Techniques
for Management

(i) none of them is in the high risk category, (ii) at the most two are in the high risk
category? (You may use Poisson approximation to Binomial).
49. In Delhi with 100 municipal wards, each having approximately the same population,
the distribution of meningitis cases in 1987 were recorded as follows:
No. of Cases : 0 1 2 3 4
No. of Wards : 63 28 6 2 1

Fit a Poisson distribution to the above data.

50. The following table gives the number of days in 50 day-period during which
automobile accidents occurred in a certain part of the city. Fit a Poisson distribution
to the data.
No. of accidents : 0 1 2 3 4
No. of days
: 19 18 8 4 1

51. A sample of woollen balls has a mean weight of 3.2 oz. and standard deviation of
1 oz. Assuming that the weight of woollen balls is distributed normally,
(i) How many balls are expected to weigh between 2.7 and 3.7 oz., (ii) what is the
probability that weight of a ball is less than 1.5 oz. and (iii) what is the probability
that the weight of the ball will exceed 4.7 oz.?
52. The weekly wages of 2,000 workers are normally distributed. Its mean and standard
deviation are Rs 140 and Rs 10 respectively. Estimate the number of workers with
weekly wages
(i)

Between Rs 120 and Rs 130.

(ii)

More than Rs 170.

(iii) Less than Rs 165.

53. Find the probability that the value of an item drawn at random from a normal
distribution with mean 20 and standard deviation 10 will be between (i) 10 and 15,
(ii) 5 and 10 and (iii) 15 and 25.
54. In a manufacturing organisation the distribution of wages was perfectly normal
and the number of workers employed in the organisation were 5,000. The mean
wages of the workers were calculated as Rs 800 p.m. and the standard
deviation was worked out to be Rs 200. Estimate
(i)

the number of workers getting wages between Rs 700 and Rs 900.

(ii)

the percentage of workers getting wages above Rs 1,000.

(iii) the percentage of workers getting wages below Rs 600.

55. Suppose that the waist measurements W of 800 girls are normally distributed with
mean 66 cms and standard deviation 5 cms. Find the number of girls
with waists;
(i) between 65 and 70 cms. (ii) greater than or equal to 72 cms.

404

56. (a)

A normal distribution has 77.0 as its mean. Find its standard deviation if 20%
of the area under the curve lies to the right of 90.0.

(b)

A random variable has a normal distribution with 10 as its standard deviation.

Find its mean if the probability that the random variable takes on a value less
than 80.5 is 0.3264.

57. In a particular examination an examinee can get marks ranging from 0 to 100. Last
year, 1,00,000 students took this examination. The marks obtained by them followed
a normal distribution. What is the probability that the marks obtained by a student
selected at random would be exactly 63?

58. A collection of human skulls is divided into three classes according to the value of
a 'length breadth index' x. Skulls with x < 75 are classified as 'long', those with
75 < x < 80 as 'medium' and those with x > 80 as 'short'. The percentage of skulls
in the three classes in this collection are respectively 58, 38 and 4. Find, approximately,
the mean and standard deviation of x on the assumption that it is normally distributed.

Theoretical Probability
Distributions

59. A wholesale distributor of a fertiliser product finds that the annual demand for one
type of fertiliser is normally distributed with a mean of 120 tonnes and standard
deviation of 16 tonnes. If he orders only once a year, what quantity should be
ordered to ensure that there is only a 5% chance of running short?
60. A multiple choice quiz has 200 questions, each with 4 possible answers of which
only one is correct. What is the probability (using normal approximation to binomial
distribution) that sheer guess work yields from 25 to 30 correct answers for 80
questions (out of 200 questions) about which the student has no knowledge?
61. In a normal distribution 31% of the items are under 45 and 8% are over 64. Find
the mean and standard deviation of the distribution.
62. The mean life of the bulbs manufactured by a company is estimated to be 2,025
hours. By using normal approximation to Poisson distribution, estimate the
percentage of bulbs that are expected to last for (i) less than 2,100 hours, (ii)
between 1,900 and 2,000 hours and (iii) more than 2,000 hours.
63. Find mean and standard deviation if a score of 51 is 2 standard deviation above
mean and a score of 42 is 1 standard deviation below mean. Assume that the
scores are normally distributed.
64. (a)

A manufacturer requires washers with specification of its inner diameter as

3.30 0.04 mm. If the inner diameters of the washers supplied by some
suppliers are distributed normally with mean m = 3.31 mm. and s = 0.02 mm.,
what percentage of the washers, supplied in the a lot, are expected to meet
the required specification?

(b)

A cylinder making machine has = 0.5 mm. At what value of m should the
machine be set to ensure that 2.5% of the cylinders have diameters of
25.48 mm. or more?

65. The mean life of a pair of shoes manufactured by a company is estimated to be

2.59 years with a standard deviation of 3 months. What should be fixed as guarantee
period so that the company has not to replace more than 5% of the pairs?
66. In a large group of men, it is found that 5% are under 60 inches and 40% are
between 60 and 65 inches in height. Assuming the distribution to be exactly normal,
find the mean and standard deviation of the height. The values of z for area equal
to 0.45 and 0.05 between 0 to z are 1.645 and 0.125 respectively.
67. Packets of a certain washing powder are filled with an automatic machine with an
average weight of 5 kg. and a standard deviation of 50 gm. If the weights of
packets are normally distributed, find the percentage of packets having weight
above 5.10 kg.
68. For a normal distribution with mean 3 and variance 16, find the value of y such that
the probability of the variate lying in the interval (3, y) is 0.4772.
69. The mean income of people working in an industrial city is approximated by a
normal distribution with a mean of Rs 24,000 and a standard deviation of
Rs 3,000. What percentage of the people in this city have income exceeding
Rs 28,500? In a random sample of 50 employed persons of this city, about how
many can be expected to have income less than Rs 19,500?
405

Quantitative Techniques
for Management

70. The burning time of an experimental rocket is a random variable which has normal
distribution with = 4.36 seconds and s = 0.04 seconds. What are the probabilities
that this kind of rocket will burn for
(i) less than 4.5 seconds, (ii) more than 4.40 seconds, (iii) between 4.30 to 4.42
seconds.
71. A company manufactures batteries and guarantees them for a life of 24 months.
(i)

If the average life has been found in tests to be 33 months with a standard
deviation of 4 months, how many batteries will have to be replaced under
guarantee if the life of the batteries follows a normal distribution?

(ii)

If annual sales are 10,000 batteries at a profit of Rs 50 each and each

replacement costs the company Rs 100, find the net profit.

(iii) Would it be worth its while to extend the guarantee to 27 months if the sales
were to be increased by this extra offer to 12,000 batteries?
72. The distribution of total time a light bulb will last from the moment it is first put into
service is known to be exponential with mean time between failure of the bulbs
equal to 1,000 hours. What is the probability that the bulb will last for more than
1,000 hours?
73. An editor of a publishing company calculates that it requires 11 months on an
average to complete the publication process from the manuscript to finished book
with a standard deviation of 2.4 months. He believes that the distribution of
publication time is well described by a normal distribution. Determine, out of 190
books that he will handle this year, how many will complete the process in less than
a year?
74. The I.Q.'s of army volunteers in a given year are normally distributed with
mean = 110 and standard deviation = 10. The army wants to give advanced training
to 20% of those recruits with the highest scores. What is the lowest I.Q. score
acceptable for the advanced training?
75. If 60% of the voters in a constituency favour a particular candidate, find the probability
that in a sample of 300 voters, more than 170 voters would favour the candidate.
Use normal approximation to the binomial.
76. From the past experience, a committee for admission to certain course consisting
of 200 seats, has estimated that 5% of those granted admission do not turn up.
If 208 letters of intimation of admission are issued, what is the probability that seat
is available for all those who turn up? Use normal approximation to the binomial.
77. The number of customer arrivals at a bank is a Poisson process with average of 6
customers per 10 minutes. (a) What is the probability that the next customer will
arrive within 3 minutes? (b) What is the probability that the time until the next
customer arrives will be from 2 to 3 minutes? (c) What is the probability that the
next customer will arrive after more than 4 minutes?
78. Comment on the following statements :
(i)

The mean of a normal distribution is 10 and the third order central moment
is 1.5.

(ii)

The mean of a Poisson variate is 4 and standard deviation is

(iii) The mean of a binomial variate is 10 and standard deviation is 4.

(iv) The probability that a discrete random variable X takes a value X = a is equal
to P(X = a), where P(X) is probability mass function of the random variable.
(v)
406

The probability that a continuous random variable X takes a value X = a is

equal to f(X = a), where f(X) is probability density function of the random
variable.

(vi) The second raw moment of a Poisson distribution is 2. The probability

P(X = 0) = e-1.
(vii) The variance of a binomial distribution cannot exceed

Theoretical Probability
Distributions

n
.
4

(viii) If for a Poisson variate X, P(X = 1) = P(X = 2), then E(X) = 2.

(ix) If for a Poisson variate X, P(X = 0) = P(X = 1), then P(X > 0) = e-1.
(x)

b1 = 0 and b2 = 3 for a normal distribution.

79. State whether the following statements are True/False :

(i)

Mean of a binomial variate is always greater than its variance.

(ii)

Mean of a Poisson variate may or may not be equal to its variance.

(iii) Time required for the arrival of two telephone calls at a desk is a Poisson
variate.
(iv) A normal distribution is always symmetrical.
(v)

A binomial distribution with p = q is always symmetrical.

(vi) The probability function of a continuous random variable is called a probability

mass function.
(vii) The parameters of a distribution completely determine the distribution.
(viii) Any normal variate with given mean and standard deviation can be transformed
into a standard normal variate.
(ix) The number of suicide cases in a given year is a binomial variate.
(x)

Since the probability that a continuous random variable takes a particular

value is zero, the event is said to be impossible.

80. Fill in the blanks :

(i)

If three balls are drawn, successively with replacement, from a bag containing
4 red and 3 black balls, the number of red balls is a ...... random variable.

(ii)

A standard normal variate has mean equal to ...... and standard deviation
equal to ...... .

(iii) When 1 - p > p, the binomial distribution is ...... skewed.

(iv) The ...... of a binomial variate with mean = 4 and standard deviation = 3 are
16 and
(v)

1
.
4

A normal variate obtained by subtracting its mean and dividing by its standard
deviation is known as ...... variate.

(vi) If the expected value of a Poisson variate is 9, its ...... is 3.

(vii) The number of defects per unit of length of a wire is a ...... variate.
(viii) The time of occurrence of an event is an ...... variate.
(ix) The number of trials needed to get a given number of successes is a ......
variate.
(x)

Normal distribution is also known as the normal law of ...... .

407

Quantitative Techniques
for Management

11.17 MODEL
DISCUSSION

ANSWERS

QUESTIONS

(a) large

(b) discrete (c) law of errors

(d) Bell

(a) True

(b) True

(d) True

FOR

11.18 SUGGESTED READINGS

Peyton Z. Pebbles, Jr., Probability Random Variables and Random Signal Principles.
Harold Crames, Random variables and probability distributions, Cambridge Univ.
Press.
M.A. Kon, Probability Distributions in Quartum Statistical Mechanics. Springes
Verlag (Jan. 1966)
Charles F. Manski, Probability Identification of Probability Distribution, Springes
Verlag (May 2003)
P.C. Counsul, Femix Farieye Legrargian, Probability Distributions, Birkhauses,
Jan. 2006.

408

LESSON

12
PROBABILITY DISTRIBUTION OF A RANDOM
VARIABLE

CONTENTS
12.0

Aims and Objectives

12.1

Introduction

12.2

Probability Distribution of a Random Variable

12.2.1 Discrete and Continuous Probability Distributions
12.2.2 Cumulative Probability Function or Distribution Function

12.3

Mean and Variance of a Random Variable

12.4

Theorems on Expectation

12.5

Joint Probability Distribution

12.5.1 Marginal Probability Distribution
12.5.2 Conditional Probability Distribution
12.5.3 Expectation of the Sum or Product of two Random Variables
12.5.4 Expectation of a Function of Random Variables

12.6

Decision Analysis under Certainty

12.7

Decision-making under Uncertainty

12.8

Decision-making under Risk

12.9

Expected Value with Perfect Information (EVPI)

12.10 Use of Subjective Probabilities in Decision-making

12.11 Use of Posterior Probabilities in Decision-making
12.12 Let us Sum Up
12.13 Lesson-end Activity
12.14 Keywords
12.15 Questions for Discussion
12.16 Terminal Questions
12.17 Model Answers to Questions for Discussion
12.18 Suggested Readings

12.0 AIMS AND OBJECTIVES

In the previous two lessons we had talked about the probability theory and various
distributions. But the most important aspect is to have a flavour of random variable so
that it may be attributed to a function defined on a state space.

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12.1 INTRODUCTION
A random variable X is a real valued function of the elements of sample space S, i.e.,
different values of the random variable are obtained by associating a real number with
each element of the sample space. A random variable is also known as a stochastic or
chance variable.
Mathematically, we can write X = F(e), where e S and X is a real number. We can note
here that the domain of this function is the set S and the range is a set or subset of real
numbers.
Example 1: Three coins are tossed simultaneously. Write down the sample space of the
random experiment. What are the possible values of the random variable X, if it denotes
the number of heads obtained?
Solution: The sample space of the experiment can be written as
S = {(H,H,H), (H,H,T), (H,T,H), (T,H,H), (H,T,T), (T,H,T), (T,T,H), (T,T,T)}
We note that the first element of the sample space denotes 3 heads, therefore, the
corresponding value of the random variable will be 3. Similarly, the value of the random
variable corresponding to each of the second, third and fourth element
will be 2 and it will be 1 for each of the fifth, sixth and seventh element and 0 for the last
element. Thus, the random variable X, defined above can take four possible values, i.e.,
0, 1, 2 and 3.
It may be pointed out here that it is possible to define another random variable on the
above sample space.

12.2 PROBABILITY DISTRIBUTION OF A RANDOM

VARIABLE
Given any random variable, corresponding to a sample space, it is possible to associate
probabilities to each of its possible values. For example, in the toss of 3 coins, assuming
that they are unbiased, the probabilities of various values of the random variable X,
defined in example 1 above, can be written as :

1
3
3
1
P ( X = 0 ) = , P ( X = 1) = , P ( X = 2 ) = and P ( X = 3) = .
8
8
8
8
The set of all possible values of the random variable X alongwith their respective
probabilities is termed as Probability Distribution of X. The probability distribution of X,
defined in example 1 above, can be written in a tabular form as given below:
X
p X

a f

:
:

0
1
8

1
3
8

2
3
8

3
1
8

Total
1

Note that the total probability is equal to unity.

In general, the set of n possible values of a random variable X, i.e.,
{X1, X2, ...... Xn} along with their respective probabilities p(X1), p(X2), ...... p(Xn), where
n

p ( X ) = 1 , is called a probability distribution of X. The expression p(X) is called the

i =1

probability function of X.

12.2.1 Discrete and Continuous Probability Distributions

410

Like any other variable, a random variable X can be discrete or continuous. If X can
take only finite or countably infinite set of values, it is termed as a discrete random
variable. On the other hand, if X can take an uncountable set of infinite values, it is called
a continuous random variable.

The random variable defined in example 1 is a discrete random variable. However, if X

denotes the measurement of heights of persons or the time interval of arrival of a specified
number of calls at a telephone desk, etc., it would be termed as a continuous random
variable.

Probability Distribution
of a Random Variable

The distribution of a discrete random variable is called the Discrete

Probability Distribution and the corresponding probability function p(X) is called a
Probability Mass Function. In order that any discrete function p(X) may serve as probability
function of a discrete random variable X, the following conditions must be satisfied :
(i)

p(Xi) 0 i = 1, 2, ...... n and

(ii)

p(X ) = 1
i

i =1

In a similar way, the distribution of a continuous random variable is called a Continuous

Probability Distribution and the corresponding probability function
p(X) is termed as the Probability Density Function. The conditions for any function of
a continuous variable to serve as a probability density function are :
(i)

p(X) 0 real values of X, and

(ii)

p ( X ) dX = 1

Remarks:
1.

When X is a continuous random variable, there are an infinite number of points in

the sample space and thus, the probability that X takes a particular value is always
defined to be zero even though the event is not regarded as impossible. Hence, we
always talk of the probability of a continuous random variable lying in an interval.

The concept of a probability distribution is not new. In fact it is another way of

representing a frequency distribution. Using statistical definition, we can treat the
relative frequencies of various values of the random variable as the probabilities.

Example 2: Two unbiased die are thrown. Let the random variable X denote the sum of
points obtained. Construct the probability distribution of X.
Solution: The possible values of the random variable are :
2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12
The probabilities of various values of X are shown in the following table :
Probability Distribution of X

a f

p X

2 3 4 5 6 7 8 9 10 11 12 Total
1 2 3 4 5 6 5 4 3 2 1
1
36 36 36 36 36 36 36 36 36 36 36

Example 3: Three marbles are drawn at random from a bag containing 4 red and 2
white marbles. If the random variable X denotes the number of red marbles drawn,
construct the probability distribution of X.
Solution: The given random variable can take 3 possible values, i.e., 1, 2 and 3. Thus,
we can compute the probabilities of various values of the random variable as given
below :
P(X = 1, i.e., 1R and 2 W marbles are drawn) =

C1 2C2
4
=
6
C3
20

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P(X = 2, i.e., 2R and 1W marbles are drawn) =

P(X = 3, i.e., 3R marbles are drawn) =

4
6

C2 2C1 12
=
6
C3
20

C3
4
=
C3 20

Note: In the event of white balls being greater than 2, the possible values of the random
variable would have been 0, 1, 2 and 3.

12.2.2 Cumulative Probability Function or Distribution Function

This concept is similar to the concept of cumulative frequency. The distribution function
is denoted by F(x).
For a discrete random variable X, the distribution function or the cumulative probability
function is given by F(x) = P(X x).
If X is a random variable that can take values, say 0, 1, 2, ......, then
F(1) = P(X = 0) + P(X =1), F(2) = P(X = 0) + P(X =1) +P(X = 2), etc.
Similarly, if X is a continuous random variable, the distribution function or cumulative
probability density function is given by

F ( x ) = P ( X x ) = p( X )dX
x

12.3 MEAN AND VARIANCE OF A RANDOM VARIABLE

The mean and variance of a random variable can be computed in a manner similar to the
computation of mean and variance of the variable of a frequency distribution.
Mean: If X is a discrete random variable which can take values X1, X2, ..... Xn, with
respective probabilities as p(X1), p(X2), ...... p(Xn), then its mean, also known as the
Mathematical Expectation or Expected Value of X, is given by :
n

E(X) = X1p(X1) + X2p(X2) + ...... + Xnp(Xn) = X i p( X i ) .

i =1

The mean of a random variable or its probability distribution is often denoted by , i.e.,
E(X) = .
Remarks: The mean of a frequency distribution can be written as

X1.

f1
f
f
+ X 2 . 2 + ...... + X n . n , which is identical to the expression for expected value.
N
N
N

Variance: The concept of variance of a random variable or its probability distribution is

also similar to the concept of the variance of a frequency distribution.
The variance of a frequency distribution is given by

2 =

2
2 f
1
fi ( X i X ) = ( X i X ) . i = Mean of Xi X

N
N

values.

The expression for variance of a probability distribution with mean m can be written in a
similar way, as given below :
n

2 = E ( X ) = ( Xi ) p ( Xi ) , where X is a discrete random variable.

i =1

412

Remarks: If X is a continuous random variable with probability density function p(X),

then

Probability Distribution
of a Random Variable

E ( X ) = X . p( X )dX

2 = E (X ) =
2

(X )

. p( X ) dX

Moments
The rth moment of a discrete random variable about its mean is defined as:
n

r = E ( X ) = ( X i ) p( X i )
r

i =1

Similarly, the rth moment about any arbitrary value A, can be written as
n

r = E ( X A ) = ( Xi A ) p( X i )
r

i =1

The expressions for the central and the raw moments, when X is a continuous random
variable, can be written as

r = E ( X ) =

r = E ( X A ) =

and

(X )

. p( X )dX

(X A)

. p( X )dX respectively.

12.4 THEOREMS ON EXPECTATION

Theorem 1: Expected value of a constant is the constant itself, i.e., E(b) = b, where b is
a constant.
Proof: The given situation can be regarded as a probability distribution in which the
random variable takes a value b with probability 1 and takes some other real value, say
a, with probability 0.
Thus, we can write E(b) = b 1 + a 0 = b
Theorem 2: E(aX) = aE(X), where X is a random variable and a is constant.
Proof: For a discrete random variablze X with probability function p(X), we have :
E(aX) = aX1.p(X1) + aX2.p(X2) + ...... + aXn.p(Xn)
n

= a X i . p ( X i ) = aE ( X )
i =1

Combining the results of theorems 1 and 2, we can write

E(aX + b) = aE(X) + b
Remarks : Using the above result, we can write an alternative expression for the variance
of X, as given below :
s2 = E(X - m)2 = E(X2 - 2mX + m2)
= E(X2) - 2mE(X) + m2 = E(X2) - 2m2 + m2
= E(X2) - m2 = E(X2) - [E(X)]2
= Mean of Squares - Square of the Mean
We note that the above expression is identical to the expression for the variance of a
frequency distribution.

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Theorems on Variance
Theorem 1: The variance of a constant is zero.
Proof: Let b be the given constant. We can write the expression for the variance of b as:
Var(b) = E[b - E(b)]2 = E[b - b]2 = 0.
Theorem 2: Var(X + b) = Var(X).
Proof: We can write Var(X + b) = E[X + b - E(X + b)]2 = E[X + b - E(X) - b]2
= E[X - E(X)]2 = Var(X)
Similarly, it can be shown that Var(X - b) = Var(X)
Remarks: The above theorem shows that variance is independent of change of origin.
Theorem 3: Var(aX) = a2Var(X)
Proof:

We can write Var(aX) = E[aX - E(aX)]2 = E[aX - aE(X)]2

= a2E[X - E(X)]2 = a2Var(X).

Combining the results of theorems 2 and 3, we can write

Var(aX + b) = a2Var(X).
This result shows that the variance is independent of change origin but not of change of
scale.
Remarks:
1.

On the basis of the theorems on expectation and variance, we can say that if X is
a random variable, then its linear combination, aX + b, is also a random variable
with mean aE(X) + b and Variance equal to a2Var(X).

The above theorems can also be proved for a continuous random variable.

Example 4: Compute mean and variance of the probability distributions obtained in

examples 1, 2 and 3.
Solution:
(a)

The probability distribution of X in example 1 was obtained as

p X

1
8

3
8

1
8

a f

From the above distribution, we can write

1
3
3
1
E ( X ) = 0 + 1 + 2 + 3 = 1.5
8
8
8
8
To find variance of X, we write

( )

Var(X) = E(X2) - [E(X)]2, where E X 2 = X 2 p( X ) .

( )

1
3
3
1
Now, E X 2 = 0 + 1 + 4 + 9 = 3
8
8
8
8
Thus, Var(X) = 3 - (1.5)2 = 0.75
(b)

The probability distribution of X in example 2 was obtained as

414

a f

p X

2 3 4 5 6 7 8 9 10 11 12 Total
1 2 3 4 5 6 5 4 3 2 1
1
36 36 36 36 36 36 36 36 36 36 36

E( X ) = 2

1
2
3
4
5
6
+ 3 + 4 + 5 + 6 + 7
36
36
36
36
36
36

Probability Distribution
of a Random Variable

5
4
3
2
1 252
+ 9 + 10 + 11 + 12
=
=7
36
36
36
36
36 36

2
Further, E ( X ) = 4

+ 64

1
2
3
4
5
6
+ 9 + 16 + 25 + 36 + 49
36
36
36
36
36
36

5
4
3
2
1 1974
+ 81 + 100 + 121 + 144
=
= 54.8
36
36
36
36
36
36

Thus, Var(X) = 54.8 - 49 = 5.8

(c)

The probability distribution of X in example 3 was obtained as

1
4
20

X
p( X )

2
12
20

3
4
20

From the above, we can write

4
12
4
+ 2
+ 3
=2
20
20
20
4
12
4
2
= 4.4
and E ( X ) = 1 + 4 + 9
20
20
20
\ Var(X) = 4.4 - 4 = 0.4
E( X ) = 1

Expected Monetary Value (EMV)

When a random variable is expressed in monetary units, its expected value is often
termed as expected monetary value and symbolised by EMV.
Example 5: If it rains, an umbrella salesman earns Rs 100 per day. If it is fair, he loses
Rs 15 per day. What is his expectation if the probability of rain is 0.3?
Solution: Here the random variable X takes only two values, X1 = 100 with probability
0.3 and X2 = 15 with probability 0.7.
Thus, the expectation of the umbrella salesman
= 100 0.3 15 0.7 = 19.5
The above result implies that his average earning in the long run would be
Rs 19.5 per day.
Example 6: A person plays a game of throwing an unbiased die under the condition that
he could get as many rupees as the number of points obtained on the die. Find the
expectation and variance of his winning. How much should he pay to play in order that
it is a fair game?
Solution: The probability distribution of the number of rupees won by the person is given
below :
X( Rs)
p( X )

1
1
6

2
1
6

3
1
6

4
1
6

5
1
6

6
1
6

1
1
1
1
1
7
1
+ 2 + 3 + 4 + 5 + 6 = Rs
6
6
6
6
6
6
2

Thus,

E(X ) = 1

and

1
1
1
1
1
1 91
E ( X 2 ) = 1 + 4 + 9 + 16 + 25 + 36 =
6
6
6
6
6
6 6
2

2 =

91 7 35

=
= 2.82 . Note that the unit of s2 will be (Rs)2.
6 2 12

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Since E(X) is positive, the player would win Rs 3.5 per game in the long run. Such a
game is said to be favourable to the player. In order that the game is fair, the expectation
of the player should be zero. Thus, he should pay Rs 3.5 before the start of the game so
that the possible values of the random variable become 1 - 3.5 = - 2.5, 2 - 3.5 = - 1.5,
3 - 3.5 = - 0.5, 4 - 3.5 = 0.5, etc. and their expected value is zero.
Example 7: Two persons A and B throw, alternatively, a six faced die for a prize of
Rs 55 which is to be won by the person who first throws 6. If A has the first throw, what
are their respective expectations?
Solution: Let A be the event that A gets a 6 and B be the event that B gets a 6. Thus,
1
1
P( A) = and P( B) = .
6
6
If A starts the game, the probability of his winning is given by :

P( A wins) = P( A) + P( A).P( B ).P( A) + P( A).P( B ).P( A).P( B ).P( A) + ....

1
5 5 1
5 5 5 5 1
+ + + ......
6
6 6 6
6 6 6 6 6

2
4
1 1 1 36 6
1 5 5
= 1 + + + ...... =
=
=
6 6 6
6 1 25 6 11 11
36

Similarly, P( B wins) = P( A).P( B) + P( A).P( B ).P( A).P( B) + ....

5 1
5
5
5 1

+

+ ......
6
6
6
6
6
6

2
4
5 1 36 5
5 1 5 5
= 1 + + + ...... =
=
6 6 6 6
6 6 11 11

Expectation of A and B for the prize of Rs 55

6
, therefore, the random variable takes a value 55
11
6
5
and value 0 with probability .Hence, E( A) = 55 6 + 0 5 = Rs 30
with probability
11
11
11
11

Since the probability that A wins is

Similarly, the expectation of B is given by E ( B) = 55

6
5
+ 0 = Rs.30
11
11

Example 8: An unbiased die is thrown until a four is obtained. Find the expected value
and variance of the number of throws.
Solution: Let X denote the number of throws required to get a four. Thus, X will take
values 1, 2, 3, 4, ...... with respective probabilities.
2

1 5 1 5 1 5 1
,
...... etc.
, ,
6 6 6 6 6 6 6
2

1
5 1
5 1
5 1
E ( X ) = 1. + 2. . + 3. . + 4. . ......
6
6 6
6
6

6 6
2
3

1
5
5
5
= 1 + 2. + 3. + 4. + ......
6
6
6
6

416

Let

5
5
5
S = 1 + 2. + 3. + 4. + ......

6
6
6

Probability Distribution
of a Random Variable

Multiplying both sides by 5 , we get

6
2

5
5
5
5
5
+ 2. + 3. + 4. + ......
S=

6
6
6
6
6
2

5
5
5
5
S S = 1 + (2 1) + (3 2) + (4 3) + ......
6
6
6
6
2

1
5 5 5
1
S = 1 + + + + ...... =
=6
5
6
6 6 6
16

Thus, S = 36 and hence E(X) =

.... (1)

1
36 = 6.
6

Further, to find variance, we first find E(X2)

1
5 1
5 1
5 1
E ( X 2 ) = 1. + 22. . + 32. . + 42. . ......
6 6
6 6
6
6 6
2
3

1
2 5
2 5
2 5
= 1 + 2 . + 3 . + 4 . + ......
6
6
6
6

Let

5
5
5
S = 1 + 22. + 32. + 42. + ......
6
6
6

Multiply both sides by

5
and subtract from S, to get
6
2

1
5
5
5
S = 1 + 22 - 1 + 32 - 22 + 42 - 32 + ......
6
6
6
6

5
5
5
= 1 + 3 + 5 + 7 + ......
6
6
6

Further, multiply both sides by

5
and subtract
6
2

1
5
5
5
5
SS = 1 + (3 - 1) + (5 - 3) + (7 - 5) + ......

6
6
36
6
6
2

1
5
5 5 5
S = 1 + 2 1 + + + ...... = 1 + 6 = 11
6 6 6
36
3

\ S = 36 11 and E(X2) =

.... (2)

1
36 11 = 66
6

Hence, Variance = E(X2) - [E(X)]2 = 66 - 36 = 30

Generalisation: Let p be the probability of getting 4, then from equation (1) we can
write

pS =

1
1
1
=
or S = 2 Therefore, E ( X ) =
p
1- q p

1 1
p 2 =
p p

Similarly, equation (2) can be written as

p2S = 1 +

2q
p

or S =

p + 2q
1 2q
+ 3 =
2
p
p
p3

p + 2q p + 2q
p + 2q 1
q
2
- 2 = 2
=
Therefore, E X = p.
and Var(X) =
2
3
2

p
p
p
p
p

( )

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12.5 JOINT PROBABILITY DISTRIBUTION

When two or more random variables X and Y are studied simultaneously on a sample
space, we get a joint probability distribution. Consider the experiment of throwing two
unbiased dice. If X denotes the number on the first and Y denotes
the number on the second die, then X and Y are random variables having a joint probability
distribution. When the number of random variables is two, it is called a bi-variate
probability distribution and if the number of random variables become more than two,
the distribution is termed as a multivariate probability distribution.
Let the random variable X take values X 1 , X 2 , ...... X m and Y take values
Y1, Y2, ...... Yn. Further, let pij be the joint probability that X takes the value Xi and Y
takes the value Yj, i.e., P[X = Xi and Y = Yj] = pij (i = 1 to m and j = 1 to n). This bivariate probability distribution can be written in a tabular form as follows :
Y1

... ... Yn

Marginal
Probabilities
of X

p21

p22

... ... p1n

... ... p2 n

... ... .

pm1

pm 2

... ... .
... ... pmn

p11

Marginal
Probabilities
of Y

p12

P1 P2 ... ... Pn

P1
P2

Pm
1

12.5.1 Marginal Probability Distribution

In the above table, the probabilities given in each row are added and shown in the last
column. Similarly, the sum of probabilities of each column are shown in the last row of
the table. These probabilities are termed as marginal probabilities. The last column of the
table gives the marginal probabilities for various values of random variable X. The set
of all possible values of the random variable X along with their respective marginal
probabilities is termed as the marginal probability distribution of X. Similarly, the marginal
probabilities of the random variable Y are given in the last row of the above table.
Remarks: If X and Y are independent random variables, then by multiplication theorem
of probability we have
P(X = Xi and Y = Yi) = P(X = Xi).P(Y = Yi) i and j
Using notations, we can write pij = Pi .Pj
The above relation is similar to the relation between the relative frequencies of independent
attributes.

12.5.2 Conditional Probability Distribution

Each column of the above table gives the probabilities for various values of the random
variable X for a given value of Y, represented by it. For example, column 1 of the table
represents that P(X1,Y1) = p11, P(X2,Y1) = p21, ...... P(Xm,Y1) = pm1, where P(Xi,Y1) =
pi1 denote the probability of the event that X = Xi (i = 1 to m) and Y = Y1. From the
conditional probability theorem, we can write

P ( X = X i / Y = Y1 ) =
418

Joint probability of X i and Y1 pij

(for i = 1, 2, ...... m).
=
Marginal probability of Y1
Pj

This gives us a conditional probability distribution of X given that Y = Y1. This distribution
can be written in a tabular form as shown below :
X

... ...

Total Probability

Probability

p11
P1

p21
P1

... ...

pm1
P1

Probability Distribution
of a Random Variable

The conditional distribution of X given some other value of Y can be constructed in a

similar way. Further, we can construct the conditional distributions of Y for various given
values of X.
Remarks: It can be shown that if the conditional distribution of a random variable is
same as its marginal distribution, the two random variables are independent. Thus, if for

pi1
= Pi for i, then X and Y are
P1

the conditional distribution of X given Y1 we have

independent. It should be noted here that if one conditional distribution satisfies the condition
of independence of the random variables, then all the conditional distributions would also
satisfy this condition.
Example 9: Let two unbiased dice be tossed. Let a random variable X take the value 1
if first die shows 1 or 2, value 2 if first die shows 3 or 4 and value 3 if first die shows 5
or 6. Further, Let Y be a random variable which denotes the number obtained on the
second die. Construct a joint probability distribution of X and Y. Also determine their
marginal probability distributions and find E(X) and E(Y) respectively. Determine the
conditional distribution of X given Y = 5 and of Y given X = 2. Find the expected values
of these conditional distributions. Determine whether X and Y are independent?
Solution: For the given random experiment, the random variable X takes values 1, 2 and
3 and the random variable Y takes values 1, 2, 3, 4, 5 and 6. Their joint probability
distribution is shown in the following table :

XX \YY
1
2
3
Marginal
Dist. of Y

1
18
1
18
1
18
1
6

Marginal
Dist. of X
1
3
1
3
1
3
1

From the above table, we can write the marginal distribution of X as given below :
X

1
1
3

2
1
3

3
1
3

Total
1

1
1
1
Thus, the expected value of X is E ( X ) = 1. + 2. + 3. = 2
3
3
3
Similarly, the probability distribution of Y is
1
1
Pj
6
Y

2
1
6

3
1
6

4
1
6

5
1
6

6 Total
1
1
6

1
1
1
1
1
1 21
= 3.5
and E (Y ) = 1. + 2. + 3. + 4. + 5. + 6. =
6
6
6
6
6
6 6

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Quantitative Techniques
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The conditional distribution of X when Y = 5 is

1
2
3
Total
1 6 1 1 6 1 1 6 1
1
=
=
=
Pi / Y = 5
18 1 3 18 1 3 18 1 3
X

1
(1 + 2 + 3) = 2
3
The conditional distribution of Y when X = 2 is
\ E ( X / Y = 5) =

1
1
6

Y
Pj / X = 2

2
1
6

\ E (Y / X = 2) =

3
1
6

4
1
6

5
1
6

6 Total
1
1
6

1
(1 + 2 + 3 + 4 + 5 + 6) = 3.5
6

Since the conditional distribution of X is same as its marginal distribution (or equivalently
the conditional distribution of Y is same as its marginal distribution), X and Y are independent
random variables.
Example 10: Two unbiased coins are tossed. Let X be a random variable which denotes
the total number of heads obtained on a toss and Y be a random variable which takes a
value 1 if head occurs on first coin and takes a value 0 if tail occurs on it. Construct the
joint probability distribution of X and Y. Find the conditional distribution of X when Y = 0.
Are X and Y independent random variables?
Solution: There are 4 elements in the sample space of the random experiment. The
possible values that X can take are 0, 1 and 2 and the possible values of Y are 0 and 1.
The joint probability distribution of X and Y can be written in a tabular form as follows :

X \Y 0
1
0
4
1
1
4
2

Total

2
4

1 Total
1
0
4
1
2
4
4
1
1
4
4
2
1
4

The conditional distribution of X when Y = 0, is given by

0
1
2

P ( X / Y = 0)

1
1
2

2 Total
0

Also, the marginal distribution of X, is given by

420

1
4

1
2

2 Total
1
1
4

Since the conditional and the marginal distributions are different, X and Y are not
independent random variables.

12.5.3 Expectation of the Sum or Product of two Random Variables

Probability Distribution
of a Random Variable

Theorem 1: If X and Y are two random variables, then E(X + Y) = E(X) + E(Y).
Proof: Let the random variable X takes values X1, X2, ...... Xm and the random variable
Y takes values Y1, Y2, ...... Yn such that P(X = Xi and Y = Yj) = pij (i = 1 to m,
j = 1 to n).
By definition of expectation, we can write

E ( X + Y ) = ( X i + Y j ) pij = X i pij + Y j pij

i =1 j =1

i =1

j =1

i =1

j =1

i =1 j =1

Xi pij + Yj pij

Here

= X i Pi + Y j Pj
i =1

j =1

p
J =1

= Pi and

p
i =1

= Pj

= E ( X ) + E (Y )
The above result can be generalised. If there are k random variables X1, X2, ...... Xk,
then E(X1 + X2 + ...... + Xk) = E(X1) + E(X2) + ...... E(Xk).
Remarks: The above result holds irrespective of whether X1, X2, ...... Xk are independent
or not.
Theorem 2: If X and Y are two independent random variables, then
E(X.Y) = E(X).E(Y)
Proof: Let the random variable X takes values X1, X2, ...... Xm and the random variable
Y takes values Y1, Y 2, ...... Y n such that P(X = Xi and Y = Y j) = pij (i = 1 to
m, j = 1 to n).
m

By definition E ( XY ) = X i Y j pij
i =1 j =1

Since X and Y are independent, we have pij = Pi .Pj

X i Y j Pi . Pj = X i Pi Y j Pj
\ E ( XY ) = i
=1 j =1
i =1
j =1

= E(X).E(Y).
The above result can be generalised. If there are k independent random variables X1, X2,
...... Xk, then
E(X1. X2. ...... Xk) = E(X1).E(X2). ...... E(Xk)

12.5.4 Expectation of a Function of Random Variables

Let ( X , Y ) be a function of two random variables X and Y. Then we can write

E ( X , Y ) = ( Xi , Y j ) pij
m

i =1 j =1

I. Expression for Covariance

As a particular case, assume that ( X i , Y j ) = ( X i X ) (Y j Y ) , where
E ( X ) = X and E (Y ) = Y

Thus, E ( X X )(Y Y ) = ( Xi X ) (Y j Y ) pij

i =1 j =1

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Quantitative Techniques
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The above expression, which is the mean of the product of deviations of values from
their respective means, is known as the Covariance of X and Y denoted as Cov(X, Y) or
XY . Thus, we can write

Cov ( X , Y ) = E ( X X )(Y Y )
An alternative expression of Cov(X, Y)

Cov( X , Y ) = E {X E ( X )}{Y E (Y )}
= E X .{Y E (Y )} E ( X ).{Y E (Y )}
= E [ X .Y X .E (Y ) ] = E ( X .Y ) E ( X ).E (Y )

Note that E[{Y - E(Y)}] = 0, the sum of deviations of values from their arithmetic mean.
Remarks: If X and Y are independent random variables, the right hand side of the
above equation will be zero. Thus, covariance between independent variables is always
equal to zero.
II. Mean and Variance of a Linear Combination
Let Z = ( X , Y ) = aX + bY be a linear combination of the two random variables X and
Y, then using the theorem of addition of expectation, we can write

Z = E ( Z ) = E (aX + bY ) = aE ( X ) + bE (Y ) = a X + b Y
Further, the variance of Z is given by
Z2 = E [ Z E ( Z )] = E [aX + bY a X b Y ] = E a ( X X ) + b (Y Y )
2

= a2 E ( X X ) + b2 E (Y Y ) + 2abE ( X X )(Y Y )
2

= a2 X2 + b2 Y2 + 2ab XY
Remarks:
1.

The above results indicate that any function of random variables is also a random
variable.

If X and Y are independent, then s

If Z = aX - bY, then we can write Z2 = a2 X2 + b2 Y2 2ab XY . However,

0 , Z2 = a2 X2 + b2 Y2

Z2 = a2 X2 + b2 Y2 , if X and Y are independent.

The above results can be generalised. If X1, X2, ...... Xk are k independent random
variables with means 1 , 2 , ...... k and variances 12 , 22 , ...... k2 respectively,
then

E ( X1 X 2 .... X k ) = 1 2 .... k
and

Var ( X1 X 2 .... X k ) = 12 + 22 + .... + k2

Notes:

422

The general result on expectation of the sum or difference will hold even if the
random variables are not independent.

The above result can also be proved for continuous random variables.

Example 11: A random variable X has the following probability distribution :

Probability

2
1
6

0
1
4

(i)

Find the value of p.

(ii)

Calculate E(X + 2) and E(2X2 + 3X + 5).

1
p

Probability Distribution
of a Random Variable

2
1
6

Solution: Since the total probability under a probability distribution is equal to unity, the
value of p should be such that

1
1
1
+ p + + p + =1.
6
4
6

This condition gives p =

5
24

1
5
1
5
1
Further, E ( X ) = - 2. - 1. + 0. + 1. + 2. = 0 ,
6
24
4
24
6
1
5
1
5
1 7
E ( X 2 ) = 4. + 1. + 0. + 1. + 4. = ,
6
24
4
24
6 4
E ( X + 2) = E ( X ) + 2 = 0 + 2 = 2
and

7
E (2 X 2 + 3 X + 5) = 2 E ( X 2 ) + 3E ( X ) + 5 = 2. + 0 + 5 = 8.5
4

Example 12: A dealer of ceiling fans has estimated the following probability distribution
of the price of a ceiling fan in the next summer season :
Price ( P)
Probability ( p)

:
:

800
0.15

825
0. 25

850
0. 30

875
0. 20

900
0.10

If the demand (x) of his ceiling fans follows a linear relation x = 6000 - 4P, find expected
demand of fans and expected total revenue of the dealer.
Solution: Since P is a random variable, therefore, x = 6000 - 4P, is also a random variable.
Further, Total Revenue TR = P.x = 6000P - 4P2 is also a random variable.
From the given probability distribution, we have
E(P) = 800 0.15 + 825 0.25 + 850 0.30 + 875 0.20 + 900 0.10
=Rs 846.25 and
E(P2) = (800)2 0.15 + (825)2 0.25 + (850)2 0.30 + (875)2 0.20 +
(900)2 0.10 = 717031.25
Thus, E(X) = 6000 - 4E(P) = 6000 - 4 846.25 = 2615 fans.
And E(TR) = 6000E(P) - 4E(P2)
= 6000 846.25 - 4 717031.25 = Rs 22,09,375.00
Example 13: A person applies for equity shares of Rs 10 each to be issued at a premium
of Rs 6 per share; Rs 8 per share being payable along with the application and the
balance at the time of allotment. The issuing company may issue 50 or 100 shares to
those who apply for 200 shares, the probability of issuing 50 shares being 0.4 and that of
issuing 100 shares is 0.6. In either case, the probability of an application being selected
for allotment of any shares is 0.2 The allotment usually takes three months and the
market price per share is expected to be Rs 25 at the time of allotment. Find the expected
rate of return of the person per month.
Solution: Let A be the event that the application of the person is considered for allotment,
B1 be the event that he is allotted 50 shares and B2 be the event that he is allotted 100
shares. Further, let R1 denote the rate of return (per month) when 50 shares are allotted,
R2 be the rate of return when 100 shares are allotted and R = R1 + R2 be the combined
rate of return.

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Quantitative Techniques
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We are given that P(A) = 0.2, P(B1/A) = 0.4 and P(B2/A) = 0.6.
(a)

When 50 shares are allotted

The return on investment in 3 months = (25 - 16)50 = 450
450
= 150
\ Monthly rate of return =
3
The probability that he is allotted 50 shares

g bg b

= P A I B1 = P A . P B1 / A = 0.2 0.4 = 0.08

Thus, the random variable R1 takes a value 150 with probability 0.08 and it takes a
value 0 with probability 1 - 0.08 = 0.92
\ E(R1) = 150 0.08 + 0 = 12.00
(b)

When 100 shares are allotted

The return on investment in 3 months = (25 - 16).100 = 900
900
= 300
\ Monthly rate of return =
3
The probability that he is allotted 100 shares

g bg b

.
= P A I B2 = P A . P B2 / A = 0.2 0.6 = 012

Thus, the random variable R2 takes a value 300 with probability 0.12 and it takes a
value 0 with probability 1 - 0.12 = 0.88
\ E(R2) = 300 0.12 + 0 = 36
Hence,
E(R) = E(R1 + R2) = E(R1) + E(R2) = 12 + 36 = 48
Example 14: What is the mathematical expectation of the sum of points on n unbiased
dice?
Solution: Let Xi denote the number obtained on the i th die. Therefore, the sum of points
on n dice is S = X1 + X2 + ...... + Xn and
E(S) = E(X1) + E(X2) + ...... + E(Xn).
Further, the number on the i th die, i.e., Xi follows the following distribution :
Xi

p( X i )

1
1
6

2
1
6

3
1
6

4
1
6

5
1
6

6
1
6

1
7
(1 + 2 + 3 + 4 + 5 + 6) = (i = 1, 2, .... n)
6
2
7 7
7
7n
Thus, E ( S ) = + + .... + (n times) =
2 2
2
2

\ E (Xi ) =

Example 15: If X and Y are two independent random variables with means 50 and 120
and variances 10 and 12 respectively, find the mean and variance of Z = 4X + 3Y.
Solution: E(Z) = E(4X + 3Y) = 4E(X) + 3E(Y) = 4 50 + 3 120 = 560
Since X and Y are independent, we can write
Var(Z) = Var(4X + 3Y) = 16Var(X) + 9Var(Y) = 16 10 + 9 12 = 268
Example 16: It costs Rs 600 to test a machine. If a defective machine is installed, it
costs Rs 12,000 to repair the damage resulting to the machine. Is it more profitable to
install the machine without testing if it is known that 3% of all the machines produced are
defective? Show by calculations.
Solution: Here X is a random variable which takes a value 12,000 with probability 0.03
and a value 0 with probability 0.97.
\ E(X) = 12000 0.03 + 0 0.97 = Rs 360.
424

Since E(X) is less than Rs 600, the cost of testing the machine, hence, it is more profitable
to install the machine without testing.

Probability Distribution
of a Random Variable

Exercise with Hints

A man draws two balls at random from a bag containing three white and five black
balls. If he is to receive Rs 14 for every white ball that he draws and
Rs 7 for every black ball, what should be his expectation of earning in the game?

Hint: Random variable takes 3 values 14, 21 and 28.

ABC company estimates the net profit on a new product, that it is launching, to be
Rs 30,00,000 if it is successful, Rs 10,00,000 if it is moderately successful and a
loss of Rs 10,00,000 if it is unsuccessful. The firm assigns the following probabilities
to the different possibilities : Successful 0.15, moderately successful 0.25 and
unsuccessful 0.60. Find the expected value and variance of the net profits.

Hint: See example 5.

There are 4 different choices available to a customer who wants to buy a transistor
set. The first type costs Rs 800, the second type Rs 680, the third type Rs 880 and
the fourth type Rs 760. The probabilities that the customer will buy these types are

1 1 1
1
, , and respectively. The retailer of these sets gets a commission @ 20%,
3 6 4
4
12%, 25% and 15% on the respective sets. What is the expected commission of
the retailer?
Hint: Take commission as random variable.
4.

Three cards are drawn at random successively, with replacement, from a well
shuffled pack of cards. Getting a card of diamond is termed as a success. Tabulate
the probability distribution of the number successes (X). Find the mean and variance
of X.

Hint: The random variable takes values 0, 1, 2 and 3.

A discrete random variable can take all possible integral values from 1 to k each
with probability

( )

Hint: E X 2 =
6.

1
. Find the mean and variance of the distribution.
k

1 2
1 k (k + 1)(2k + 1)
1 + 22 + .... + k 2 =
.
k
k
6

An insurance company charges, from a man aged 50, an annual premium of Rs 15

on a policy of Rs 1,000. If the death rate is 6 per thousand per year for this age
group, what is the expected gain for the insurance company?

Hint: Random variable takes values 15 and - 985.

On buying a ticket, a player is allowed to toss three fair coins. He is paid number of
rupees equal to the number of heads appearing. What is the maximum amount the
player should be willing to pay for the ticket.

Hint: The maximum amount is equal to expected value.

The following is the probability distribution of the monthly demand of calculators :

Demand (x) : 15 16 17 18 19 20
Probability p(x) : 0.10 0.15 0. 35 0. 25 0.08 0.07

Calculate the expected demand for calculators. If the cost c of producing x calculators
is given by the relation c = 4x2 - 15x + 200, find expected cost.
Hint: See example 12.

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Quantitative Techniques
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Firm A wishes to bid for the supply of 800 chairs to an educational institution at the
rate of Rs 500 per chair. The firm, which has two competitors B and C, has estimated
that the probability that firm B will bid less than Rs 500 per chair is 0.4 and that the
firm C will bid less than Rs 500 per chair is 0.6. If the lowest bidder gets business
and the firms bid independently, what is the expected value of the contract to
firm A?

Hint: The random variable takes value 0 with probability 0.4 0.6 and it takes value
500 800 with probability 1 - 0.4 0.6.
10. A game is played by throwing a six faced die for which the incomplete probability
distribution of the number obtained is given below :
2 3 4 5
6
X : 1
p(X) : 0.09 0. 30 m n 0.28 0.09

The conditions of the game are : If the die shows an even number, the player gets
rupees equal to the number obtained; if the die shows 3 or 5, he loses rupees equal
to the number obtained, while if 1 is obtained the player neither gains or loses.
Complete the probability distribution if the game is given to be fair.
Hint: E(X) = 0 for a fair game.
11.

There are three bags which contain 4 red and 3 black, 6 red and 4 black and 8 red
and 2 black balls respectively. One ball is drawn from each urn. What is the expected
number of red balls obtained?

Hint: Find the expected number of red balls from each urn and add.
12. A survey conducted over last 25 years indicated that in 10 years the winter was
mild, in 8 years it was cold and in the remaining 7 years it was very cold. A
company sells 1,000 woollen coats in mild cold year, 1,300 in a cold year and 2,000
in a very cold year.
You are required to find the yearly expected profit of the company if a woollen
coat costs Rs 173 and is sold to stores for Rs 248.
Hint: The random variable can take 3 possible values.
13. You have been offered the chance to play a dice game in which you will
receive Rs 20 each time the point total of a toss of two dice is 6. If it costs you
Rs 2.50 per toss to participate, should you play or not? Will it make any difference
in your decision if it costs Rs 3.00 per toss instead of Rs 2.50?
Hint: Compare the cost of participation with the expected value of the receipt.
14. The probability that a house of a certain type will be on fire in a year is 0.005.
An insurance company offers to sell the owner of such a house Rs 1,00,000 one
year term insurance policy for a premium of Rs 600. What is the expected
gain of the company?
Hint: See exercise 6.
15. Three persons A, B and C in that order draw a ball, without replacement, from a
bag containing 2 red and 3 white balls till someone is able to draw a red ball. One
who draws a red ball wins Rs 400. Determine their expectations.
Hint: A wins if he gets a red ball on the first draw or all the three get white ball in their
respective first draws, etc.
16. A coin is tossed until a head appears. What is the expected number and standard
deviation of tosses?

426

Hint: The random variable takes values 1, 2, 3, .... with respective probabilities p,
(1 - p)p, (1 - p)2p, etc., where p is the probability of getting a head.

17. A box contains 8 tickets. 3 of the tickets carry a prize of Rs 5 each and the remaining
5 a prize of Rs 2 each.
(i)

If one ticket is drawn at random, what is the expected value of the prize?

(ii)

If two tickets are drawn at random, what is the expected value of the prize?

Probability Distribution
of a Random Variable

Hint: (i) The random variable can take values 5 or 2, (ii) It can take values 4, 7 or 10.
18. 4 unbiased coins are tossed 256 times. Find the frequency distribution of heads and
tabulate the result. Calculate the mean and standard deviation of the number of
heads.
Hint: the random variable takes values 0, 1, 2, 3 and 4.
19. Throwing two unbiased coins simultaneously, Mr X bets with Mrs X that he will
receive Rs 4 from her if he gets 2 heads and he will give Rs 4 to her
otherwise. Find Mr X's expectation.
Hint: The random variable takes values 4 and 4.
20. A man runs an ice cream parlor in a holiday resort. If the summer is mild, he can
sell 2,500 cups of ice cream; if it is hot, he can sell 4,000 cups; if it is very hot, he
can sell 5,000 cups. It is known that for any year the probability of the summer to
be mild is

1
4
and to be hot is
. A cup of ice cream costs Rs 2 and sold
7
7

for Rs 3.50. What is his expected profit?

Hint: See example 5.
21. Comment on the validity of the following statement :
For a random variable X,

( )

E X2 E (X ).

Hint: s2 = E(X2) - [E(X)]2.

Check Your Progress 12.1

What is Stochastic variable?

How bi-variate probability is different from multi variable probability distribution?

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

This Check Your Progress will help you to understand the lesson
better. Try to write answers for them, but do not submit your answers
to the university for assessment. These are for your practice only.

Quantitative Techniques
for Management

12.6 DECISION ANALYSIS UNDER CERTAINTY

Decision-making is needed whenever an individual or an organisation (private or public)
is faced with a situation of selecting an optimal (or best in view of certain objectives)
course of action from among several available alternatives. For example, an individual
may have to decide whether to build a house or to purchase a flat or live in a rented
accommodation; whether to join a service or to start own business; which company's
car should be purchased, etc. Similarly, a business firm may have to decide the type of
technique to be used in production, what is the most appropriate method of advertising its
product, etc.
The decision analysis provides certain criteria for the selection of a course of action
such that the objective of the decision-maker is satisfied. The course of action selected
on the basis of such criteria is termed as the optimal course of action.
Every decision problem has four basic features, mentioned below:
1.

Alternative Courses of Action or Acts: Every decision-maker is faced with a set

of several alternative courses of action A1, A2, ...... Am and he has to select one of
them in view of the objectives to be fulfilled.

States of Nature: The consequences of selection of a course of action are dependent

upon certain factors that are beyond the control of the decision-maker. These
factors are known as states of nature or events. It is assumed that the decisionmaker is aware of the whole list of events S1, S2, ...... Sn and exactly one of them
is bound to occur. In other words, the events S1, S2, ...... Sn are assumed to be
mutually exclusive and collective exhaustive.

Consequences: The results or outcomes of selection of a particular course of

action are termed as its consequences. The consequence, measured in quantitative
or value terms, is called payoff of a course of action. It is assumed that the payoffs
of various courses of action are known to the decision-maker.

Decision Criterion: Given the payoffs of various combinations of courses of action

and the states of nature, the decision-maker has to select an optimal course of
action. The criterion for such a selection, however, depends upon the attitude of
the decision-maker.
If Xij denotes the payoff corresponding to a combination of a course of action and
a state of nature, i.e., (Ai, Sj), i = 1 to m and j = 1 to n, the above elements of a
decision problem can be presented in a matrix form, popularly known as the Payoff
Matrix.
Payoff Matrix

Events
Actions
A1
A2
M
Ai
M
Am

428

...

X 11
X 21
M
X i1
M
X m1

X 12
X 22
M
X i2
M
X m2

...
...

X1 j
X2 j
M
... X ij
M
... X mj

...

...
...

X 1n
X 2n
M
... X in
M
... X mn

Given the payoff matrix for a decision problem, the process of decision-making depends
upon the situation under which the decision is being made. These situations can be
classified into three broad categories : (a) Decision-making under certainty, (b) Decision
-making under uncertainty and (c) Decision-making under risk.

Probability Distribution
of a Random Variable

Decision-making under Certainty

The conditions of certainty are very rare particularly when significant decisions are
involved. Under conditions of certainty, the decision-maker knows which particular state
of nature will occur or equivalently, he is aware of the consequences of each course of
action with certainty. Under such a situation, the decision-maker should focus on the
corresponding column in the payoff table and choose a course of action with optimal
payoff.

12.7 DECISION-MAKING UNDER UNCERTAINTY

A situation of uncertainty arises when there can be more than one possible consequences
of selecting any course of action. In terms of the payoff matrix, if the decision-maker
selects A1, his payoff can be X11, X12, X13, etc., depending upon which state of nature
S1, S2, S3, etc., is going to occur. A decision problem, where a decision-maker is aware
of various possible states of nature but has insufficient information to assign any
probabilities of occurrence to them, is termed as decision-making under uncertainty.
There are a variety of criteria that have been proposed for the selection of an optimal
course of action under the environment of uncertainty. Each of these criteria make an
assumption about the attitude of the decision-maker.
1.

Maximin Criterion: This criterion, also known as the criterion of pessimism, is

used when the decision-maker is pessimistic about future. Maximin implies the
maximisation of minimum payoff. The pessimistic decision-maker locates the
minimum payoff for each possible course of action. The maximum of these minimum
payoffs is identified and the corresponding course of action is selected. This is
explained in the following example :

Example 17: Let there be a situation in which a decision-maker has three possible
alternatives A1, A2 and A3, where the outcome of each of them can be affected by the
occurrence of any one of the four possible events S1, S2, S3 and S4. The monetary
payoffs of each combination of Ai and Sj are given in the following table :
Payoff Matrix

Events
Actions
A1
A2
A3

Min. Payoff

Max. Payoff

27 12 14 26

45 17 35 20
52 36 29 15

17
15

45
52

Solution: Since 17 is maximum out of the minimum payoffs, the optimal action is A2.
2.

Maximax Criterion: This criterion, also known as the criterion of optimism, is

used when the decision-maker is optimistic about future. Maximax implies the
maximisation of maximum payoff. The optimistic decision-maker locates the
maximum payoff for each possible course of action. The maximum of these payoffs
is identified and the corresponding course of action is selected. The optimal course
of action in the above example, based on this criterion, is A3.

Regret Criterion: This criterion focuses upon the regret that the decision-maker
might have from selecting a particular course of action. Regret is defined as the
difference between the best payoff we could have realised, had we known which
state of nature was going to occur and the realised payoff. This difference, which
measures the magnitude of the loss incurred by not selecting the best alternative, is
also known as opportunity loss or the opportunity cost.

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Quantitative Techniques
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From the payoff matrix (given in 12.6), the payoffs corresponding to the actions
A1, A2, ...... An under the state of nature Sj are X1i, X2j, ...... Xnj respectively. Of
these assume that X2j is maximum. Then the regret in selecting Ai, to be denoted
by Rij is given by X2j - Xij, i = 1 to m. We note that the regret in selecting A2 is zero.
The regrets for various actions under different states of nature can also be computed
in a similar way.
The regret criterion is based upon the minimax principle, i.e., the decision-maker
tries to minimise the maximum regret. Thus, the decision-maker selects the
maximum regret for each of the actions and out of these the action which
corresponds to the minimum regret is regarded as optimal.
The regret matrix of example 17 can be written as given below:
Regret Matrix

Events
S1 S2 S 3 S 4
Actions
A1
25 24 21 0
A2
7 19 0 6
A3
0 0 6 11

Max. Regret
25
19
11

From the maximum regret column, we find that the regret corresponding to the
course of action is A3 is minimum. Hence, A3 is optimal.
4.

Hurwicz Criterion: The maximax and the maximin criteria, discussed above,
assumes that the decision-maker is either optimistic or pessimistic. A more realistic
approach would, however, be to take into account the degree or index of optimism
or pessimism of the decision-maker in the process of decision-making. If a, a
constant lying between 0 and 1, denotes the degree of optimism, then the degree of
pessimism will be 1 - a. Then a weighted average of the maximum and minimum
payoffs of an action, with a and 1 - a as respective weights, is computed. The
action with highest average is regarded as optimal.
We note that a nearer to unity indicates that the decision-maker is optimistic while
a value nearer to zero indicates that he is pessimistic. If a = 0.5, the decisionmaker is said to be neutralist.
We apply this criterion to the payoff matrix of example 17. Assume that the index
of optimism a = 0.7.

Action Max. Payoff

Min. Payoff

Weighted Average
27 0.7 + 12 0.3 = 22.5
45 0.7 + 17 0.3 = 36.6
52 0.7 + 15 0.3 = 40.9

A1
A2

27
45

12
17

Since the average for A3 is maximum, it is optimal.

430

Laplace Criterion: In the absence of any knowledge about the probabilities of

occurrence of various states of nature, one possible way out is to assume that all of
them are equally likely to occur. Thus, if there are n states of nature, each can be
assigned a probability of occurrence = 1/n. Using these probabilities, we compute
the expected payoff for each course of action and the action with maximum expected
value is regarded as optimal.

Probability Distribution
of a Random Variable

12.8 DECISION-MAKING UNDER RISK

In case of decision-making under uncertainty the probabilities of occurrence of various
states of nature are not known. When these probabilities are known or can be estimated,
the choice of an optimal action, based on these probabilities, is termed as decisionmaking under risk.
The choice of an optimal action is based on The Bayesian Decision Criterion according
to which an action with maximum Expected Monetary Value (EMV) or minimum
Expected Opportunity Loss (EOL) or Regret is regarded as optimal.
Example 18: The payoffs (in Rs) of three Acts A1, A2 and A3 and the possible states
of nature S1, S2 and S3 are given below :

Acts
States of Nature
S1

S2
S3

200
400

50
100
600

200
50
300

The probabilities of the states of nature are 0.3, 0.4 and 0.3 respectively. Determine the
optimal act using the Bayesian Criterion.
Solution:
Computation of Expected Monetary Value

P (S )

0.3

0.4

0.3

200

400 20 0.3 + 200 0.4 + 400 0.3 = 194

50 100

600

EMV
50 0.3 100 0.4 + 600 0.3 = 125

A3
200 50 300
200 0.3 50 0.4 + 300 0.3 = 130
From the above table, we find that the act A1 is optimal.

The problem can alternatively be attempted by finding minimum EOL, as shown below:
Computation of Expected Opportunity Loss

P (S )

0.3

0.4

0.3

220

250 300

EOL

200 220 0.3 + 0 0.4 + 200 0.3 = 126

250 0.3 + 300 0.4 + 0 0.3 = 195

250 300 0 0.3 + 250 0.4 + 300 0.3 = 190

This indicates that the optimal act is again A1.

12.9 EXPECTED VALUE WITH PERFECT INFORMATION

(EVPI)
The expected value with perfect information is the amount of profit foregone due to
uncertain conditions affecting the selection of a course of action.
Given the perfect information, a decision-maker is supposed to know which particular
state of nature will be in effect. Thus, the procedure for the selection of an optimal
course of action, for the decision problem given in example 18, will be as follows :
If the decision-maker is certain that the state of nature S1 will be in effect, he would
select the course of action A3, having maximum payoff equal to Rs 200.

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Similarly, if the decision-maker is certain that the state of nature S2 will be in effect, his
course of action would be A1 and if he is certain that the state of nature S3 will be in
effect, his course of action would be A 2. The maximum payoffs associated with the
actions are Rs 200 and Rs 600 respectively.
The weighted average of these payoffs with weights equal to the probabilities of respective
states of nature is termed as Expected Payoff under Certainty (EPC).
Thus, EPC = 200 0.3 + 200 0.4 + 600 0.3 = 320
The difference between EPC and EMV of optimal action is the amount of profit foregone
due to uncertainty and is equal to EVPI.
Thus, EVPI = EPC - EMV of optimal action = 320 - 194 = 126
It is interesting to note that EVPI is also equal to EOL of the optimal action.
Cost of Uncertainty
This concept is similar to the concept of EVPI. Cost of uncertainty is the difference
between the EOL of optimal action and the EOL under perfect information.
Given the perfect information, the decision-maker would select an action with minimum
opportunity loss under each state of nature. Since minimum opportunity loss under each
state of nature is zero, therefore,
EOL under certainty = 0 0.3 + 0 0.4 + 0 0.3 = 0 .
Thus, the cost of uncertainty = EOL of optimal action = EVPI
Example 19: A group of students raise money each year by selling souvenirs outside
the stadium of a cricket match between teams A and B. They can buy any of three
different types of souvenirs from a supplier. Their sales are mostly dependent on which
team wins the match. A conditional payoff (in Rs.) table is as under :
Type of Souvenir

Team A wins

III

1200 800

Team B wins

250

300

700 1100

(i)

Construct the opportunity loss table.

(ii)

Which type of souvenir should the students buy if the probability of team A's winning
is 0.6?

(iii) Compute the cost of uncertainty.

Solution:
(i)

The Opportunity Loss Table

Actions
Events

Team A wins

Team B wins
(ii)

Type of Souvenir bought

III

400 900

850 400

EOL of buying type I Souvenir = 0 0.6 + 850 0.4 = 340

EOL of buying type II Souvenir = 400 0.6 + 400 0.4 = 400.
EOL of buying type III Souvenir = 900 0.6 + 0 0.4 = 540.
Since the EOL of buying Type I Souvenir is minimum, the optimal decision is to buy
Type I Souvenir.

432

(iii) Cost of uncertainty = EOL of optimal action = Rs. 340

Probability Distribution
of a Random Variable

Example 20: The following is the information concerning a product X :

(i)

Per unit profit is Rs 3.

(ii)

Salvage loss per unit is Rs 2.

(iii) Demand recorded over 300 days is as under :

Units demanded : 5 6 7 8 9
No. of days
: 30 60 90 75 45
Find :

(i)

EMV of optimal order.

(ii)

Expected profit presuming certainty of demand.

Solution:
(i)

The given data can be rewritten in terms of relative frequencies, as shown below:
Units demanded : 5
6
7
8
9
No. of days
: 0.1 0.2 0.3 0.25 0.15

From the above probability distribution, it is obvious that the optimum order would
lie between and including 5 to 9.
Let A denote the number of units ordered and D denote the number of units
demanded per day.
If D A, profit per day = 3A, and if D < A, profit per day = 3D 2(A D)
= 5D 2A.
Thus, the profit matrix can be written as

Units Demanded
Probability
Action (units ordered )
5
6
7
8
9

0.10 0.20 0.30 0.25 0.15 EMV

15
13
11
9
7

15
18
16
14
12

15
18
21
19
17

15
18
21
24
22

15
18
21
24
27

15.00
17.50
19.00
19.00
17.75

From the above table, we note that the maximum EMV = 19.00, which corresponds
to the order of 7 or 8 units. Since the order of the 8th unit adds nothing to the EMV,
i.e., marginal EMV is zero, therefore, order of 8 units per day is optimal.
(ii)

Expected profit under certainty

= 5 0.10 + 6 0.20 + 7 0.30 + 8 0.25 + 9 0.15 3 = Rs 21.45

Alternative Method: The work of computations of EMV's, in the above example, can
be reduced considerably by the use of the concept of expected marginal profit. Let p be
the marginal profit and l be the marginal loss of ordering an additional unit of the
product. Then, the expected marginal profit of ordering the Ath unit, is givenby

= .P ( D A ) .P ( D < A ) = .P ( D A ) . 1 P ( D A )
= ( + ) .P ( D A )

.... (1)
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The computations of EMV, for alternative possible values of A, are shown in the following
table :
In our example, = 3 and = 2
Thus, the expression for the expected marginal profit of the Ath unit

= (3 + 2 ) P ( D A ) 2 = 5P ( D A ) 2.
Table for Computations

Action( A) P ( D A ) * EMP = 5P ( D A ) 2
5
6

1.00
0.90

7
8
9

0.70
0.40
0.15

Total profit or
EMV

5 1.00 2 = 3.00
5 0.90 2 = 2.50
5 0.70 2 = 1.50

5 3.00 = 15.00
15.00 + 2.50 = 17.50
17.50 + 1.50 = 19.00

5 0.40 2 = 0.00
5 0.15 2 = 1.25

19.00 + 0.00 = 19.00

19.00 1.25 = 17.75

* This column represents the 'more than type' cumulative probabilities.

Since the expected marginal profit (EMP) of the 8th unit is zero, therefore, optimal order
is 8 units.

Marginal Analysis
Marginal analysis is used when the number of states of nature is considerably large.
Using this analysis, it is possible to locate the optimal course of action without the
computation of EMV's of various actions.
An order of A units is said to be optimal if the expected marginal profit of the Ath unit is
non-negative and the expected marginal profit of the (A + 1)th unit is negative. Using
equation (1), we can write

( + ) P ( D A ) 0

and

( + ) P ( D A + 1) < 0

.... (2)
.... (3)

From equation (2), we get

P (D A)

or 1 P ( D < A )
+
+

P (D < A ) 1

or P ( D A 1)
+
+

.... (4)

[P(D A - 1) = P(D < A), since A is an integer]

Further, equation (3) gives

P ( D A + 1) <

or 1 P ( D < A + 1) <
+
+

P (D < A + 1) > 1

or P ( D A ) >
+
+

Combining (4) and (5), we get

P ( D A 1)
434

< P (D A) .
+

.... (5)

Writing the probability distribution, given in example 20, in the form of less than type
cumulative probabilities which is also known as the distribution function F(D), we get

Probability Distribution
of a Random Variable

Units demanded(D) : 5
6
7
8
9
F(D)
: 0.1 0. 3 0.6 0.85 1.00

We are given p = 3 and l = 2 , \

p
3
= = 0.6
p +l 5

Since the next cumulative probability, i.e., 0.85, corresponds to 8 units, hence, the optimal
order is 8 units.

12.10 USE OF SUBJECTIVE

DECISION-MAKING

PROBABILITIES

When the objective probabilities of the occurrence of various states of nature are not
known, the same can be assigned on the basis of the expectations or the degree of belief
of the decision-maker. Such probabilities are known as subjective or personal probabilities.
It may be pointed out that different individuals may assign different probability values to
given states of nature.
This indicates that a decision problem under uncertainty can always be converted into a
decision problem under risk by the use of subjective probabilities. Such an approach is
also termed as Subjectivists' Approach.
Example 21: The conditional payoff (in Rs) for each action-event combination are as
under:
Action
Event
A
B
C
D
E

4
0
5
3
6

2
6
9
1
6

7
3
2
4
3

8
5
3
5
2

(i)

Which is the best action in accordance with the Maximin Criterion?

(ii)

Which is the best action in accordance with the EMV Criterion, assuming that all
the events are equally likely?

Solution:
(i) The minimum payoffs for various actions are :
Action 1 = 5
Action 2 = 2
Action 3 = 2
Action 4 = 3
Since the payoff for action 3 is maximum, therefore, A3 is optimal on the basis of
maximin criterion.
(ii)

Since there are 5 equally likely events, the probability of each of them would be
Thus, the EMV of action 1, i.e., EMV1 =

1
.
5

4+0-5+3+6 8
= = 1.6
5
5

19
17
Similarly, EMV2 = 20 = 4.0 , EMV3 =
= 3.8 and EMV4 =
= 3.4
5
5
5
Thus, action 2 is optimal.

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12.11 USE OF POSTERIOR

DECISION-MAKING

PROBABILITIES

The probability values of various states of nature, discussed so far, were prior probabilities.
Such probabilities are either computed from the past data or assigned subjectively. It is
possible to revise these probabilities in the light of current information available by using
the Bayes' Theorem. The revised probabilities are known as posterior probabilities.
Example 22: A manufacturer of detergent soap must determine whether or not to
expand his productive capacity. His profit per month, however, depend upon the potential
demand for his product which may turn out to be high or low. His payoff matrix is given
below:
Do not Expand Expand
High Demand
Rs 5,000
Rs 7,500
Low Demand
Rs 5,000
Rs 2,100

On the basis of past experience, he has estimated the probability that demand for his
product being high in future is only 0.4
Before taking a decision, he also conducts a market survey. From the past experience he
knows that when the demand has been high, such a survey had predicted it correctly
only 60% of the times and when the demand has been low, the survey predicted it
correctly only 80% of the times.
If the current survey predicts that the demand of his product is going to be high in future,
determine whether the manufacturer should increase his production capacity or not?
What would have been his decision in the absence of survey?
Solution: Let H be the event that the demand will be high. Therefore,

P( H ) = 0.4 and P( H ) = 0.6

Note that H and H are the only two states of nature.
Let D be the event that the survey predicts high demand. Therefore,

P( D / H ) = 0.60 and P( D / H ) = 0.80

We have to find P(H / D) and P(H / D) . For this, we make the following table:
H
D
D
Total

0.4 0.6
= 0.24
0.16
0.40

Total

0.12

0.36

0.6 0.8
0.64
= 0.48
0.60
1.00

From the above table, we can write

0.24 2
0.12 1
P( H / D) =
=
and P( H / D) =
=
0.36 3
0.36 3
2
3

The EMV of the act 'don't expand' = 5000 + 5000

2
3

and the EMV of the act 'expand' = 7500 + 2100

1
= Rs 5,000
3

1
= Rs 5,700
3

Since the EMV of the act 'expand' > the EMV of the act 'don't expand', the manufacturer
should expand his production capacity.

436

It can be shown that, in the absence of survey the EMV of the act 'don't expand' is Rs
5,000 and the EMV of the act expand is Rs 4,260. Hence, the optimal act is 'don't
expand'.

Decision Tree Approach

Probability Distribution
of a Random Variable

The decision tree diagrams are often used to understand and solve a decision problem.
Using such diagrams, it is possible to describe the sequence of actions and chance
events. A decision node is represented by a square and various action branches stem
from it. Similarly, a chance node is represented by a circle and various event branches
stem from it. Various steps in the construction of a decision tree can be summarised as
follows :
(i)

Show the appropriate action-event sequence beginning from left to right of the
page.

(ii)

Write the probabilities of various events along their respective branches stemming
from each chance node.

(iii) Write the payoffs at the end of each of the right-most branch.
(iv) Moving backward, from right to left, compute EMV of each chance node, wherever
encountered. Enter this EMV in the chance node. When a decision node is
encountered, choose the action branch having the highest EMV. Enter this EMV in
the decision node and cutoff the other action branches.
Following this approach, we can describe the decision problem of the above example as
given below:
Case I: When the survey predicts that the demand is going to be high

Thus, the optimal act to expand capacity.

Case II: In the absence of survey

Thus, the optimal act is not to expand capacity.

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Exercise with Hints

The probability of the demand for lorries for hire on any day in a given district is as
follows :

No.of lorries demanded : 0

1
2
3
4
Probability
: 0.1 0. 2 0. 3 0.2 0. 2
Lorries have a fixed cost of Rs 90 each day to keep and the daily hire charge (net
of variable costs of running) is 200. If the lorry-hire company owns 4 lorries, what
is its daily expectations? If the lorry-hire company is about to go into business and
currently has no lorries, how many lorries should it buy?
Hint: Take = 110 and = 90.
2.

A management is faced with the problem of choosing one of the products for
manufacturing. The potential demand for each product may turn out to be good,
moderate or poor. The probabilities for each of the states of nature were estimated
as follows :
Nature of Demand
Good
Product
0.70
X
Y
Z

0.50
0.40

Moderate Poor
0.20

0.10

0.30
0.50

0.20
0.10

The profit or loss (in Rs) under the three states is estimated as
X 30,000
20,000 10,000
Y 60,000
30,000
20,000
Z 40,000
10,000 15,000
Prepare the expected value table and advise the management about the choice of
product.
Hint: Compute expected profit for each commodity.
3.

A pig breeder can either produce 20 or 30 pigs. The total production of his
competitors can be either 5,000 or 10,000 pigs. If they produce 5,000 pigs, his profit
per pig is Rs 60; if they produce 10,000 pigs, his profit per pig is Rs 45 only.
Construct a payoff table and also state what should the pig breeder decide?

Hint: This is a decision problem under uncertainty where the courses of actions are to
produce 20 or 30 pigs while the states of nature are the production of 5,000 or
10,000 pigs by his competitors.
4.

Mr X quite often flies from town A to town B. He can use the airport bus which
costs Rs 13 but if he takes it, there is a 0.08 chance that he will miss the flight. A
hotel limousine costs Rs. 27 with a 0.96 chance of being on time for the flight. For
Rs 50 he can use a taxi which will make 99 of 100 flights. If Mr X catches the flight
on time, he will conclude a business transaction which will produce a profit of Rs
1,000; otherwise he will lose it. Which mode of transportation should Mr X use?
Answer on the basis of EMV criterion.

Hint: EMV of using airport bus = (1000 13) 0.92 13 0.08, etc.
5.

A distributor of a certain product incurs holding cost of Rs 100 per unit per week
and a shortage cost of Rs 300 per unit. The data on the sales of the product are
given below :
Weekly Sales : 0 1 2 3 4 5 6 7 8
No. of Weeks : 0 0 5 10 15 15 5 0 0
Find his optimal stock.

438

Hint: Take p = 300 and l = 100.

Check Your Progress 12.2

Distinguish between Hurwicz Criterion is different from Laplace Criterion.

What is the use of subjective and posterior probabilities in decision-making?

Notes: (a)

Probability Distribution
of a Random Variable

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

12.12 LET US SUM UP

In this chapter you would be able to understand probability distribution of a random
variable and also mean and variance. In this various theorems on expectation to find out
expected value. And taking decisions on the basis of various probabilistic distribution.
n

Mean of a discrete random variable is E ( X ) = X i . p( X i )

i =1

Var(X) = E[X - E(X)]2 = E(X2) - [E(X)]2

E(b) = b, where b is a constant

E(aX + b) = aE(X) + b

Var(aX + b) = a2Var(X)

E(X + Y) = E(X) + E(Y)

E(X.Y) = E(X).E(Y), if X and Y are independent.

Bayesian Decision Criterion : An action with maximum EMV or minimum

EOL is said to be optimal.

12.13 LESSON-END ACTIVITY

Use the probability distribution in a laboratory for experiments.

12.14 KEYWORDS
Variable
Decision Analysis
Variance
Theorems
Marginal Analysis
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12.15 QUESTIONS FOR DISCUSSION

Fill in the blanks:

(a)

Random variable expressed in monetary units, its expected value is

......................

(b)

Simultaneously studying two or more random variables is called ......................

probability distribution.

(c)

If X and Y are two random variables, then ...................... = (X) + (Y)

(d)

A situation of uncertainty arises when there can be more than one

...................... consequence of any course of action.

(e)

...................... is the amount of profit foregone due to uncertainty.

Write True or False against each statement:

(a)

Cost of uncertainty is the difference between EOL of optimal and perfect

information.

(b)

In the toss of B coins assuming that they are unbiased the probability is 1/8.

(c)

Marginal Analysis is used when no. of states of nature is small.

(d)

Subjective and personal probabilities are same.

(e)

Decision tree is used to solve decision problem.

Write short notes on:

(a)

Pay-off Matrix

(b)

Theorems on Expectation

(c)

Decision Analysis

(d)

Joint Probability Distribution

(e)

Action and Event

Distinguish Between:
(a)

Action and Event

(b)

Discrete and Continuous Probability Distribution

(c)

Bivariate and Multivariate Probability Distribution

(d)

Joint and Marginal Probability

(e)

EMV and EOL

12.16 TERMINAL QUESTIONS

Explain the concept of random variable and its probability distribution by using a
simple example.

What is mathematical expectation of a random variable? If Y = aX + b, where X is

a random variable, show that E(Y) = aE(X) + b.

If X and Y are two independent random variables, show that

(a) E(X + Y) = E(X) + E(Y)

440

(b) E(X.Y) = E(X).E(Y)

A bag contains 3 rupee coins, 6 fifty paise coins and 4 twenty-five paise coins. A
man draws a coin at random. What is the expectation of his draw?

A box contains five tickets; two of which carry a prize of Rs 8 each and the other
three of Rs 3 each. If two tickets are drawn at random, find the expected value of
the prize.

Obtain the probability distribution of the number of aces in simultaneous throws of

two unbiased dice.

You are told that the time to service a car at a service station is uncertain with
following probability density function:

Probability Distribution
of a Random Variable

f(x) = 3x - 2x2 + 1 for 0 x 2

= 0 otherwise.
Examine whether this is a valid probability density function?
8.

Find mean and variance of the following probability distribution :

p(X) :

20
3
10

10 30
1
1
5 2

An urn contains 4 white and 3 black balls. 3 balls are drawn at random. Write down
the probability distribution of the number of white balls. Find mean and variance of
the distribution.

10. A consignment is offered to two firms A and B for Rs 50,000. The following table
shows the probability at which the firm will be able to sell it at different prices :
SellingPrice(in Rs) 40,000 45,000 55,000 70,000
Prob. of A
0.3
0.4
0.2
0.1
Prob. of B
0.1
0.2
0.4
03

Which of the two firms will be more inclined towards the offer?
11.

If the probability that the value of a certain stock will remain same is 0.46, the
probabilities that its value will increase by Re. 0.50 or Re. 1.00 per share are
respectively 0.17 and 0.23 and the probability that its value will decrease by Re.
0.25 per share is 0.14, what is the expected gain per share?

12. In a college fete a stall is run where on buying a ticket a person is allowed one
throw of two dice. If this gives a double six, 10 times the ticket money is refunded
and in other cases nothing is refunded. Will it be profitable to run such a stall? What
is the expectation of the player? State clearly the assumptions if any, for your
answer.
13. The proprietor of a food stall has introduced a new item of food. The cost of
making it is Rs 4 per piece and because of its novelty, it would be sold for
Rs 8 per piece. It is, however, perishable and pieces remaining unsold at the end of
the day are a dead loss. He expects the daily demand to be variable and has drawn
up the following probability distribution expressing his estimates:

No. of pieces demanded : 50

51
52
53
54
55
Probability
: 0.05 0.07 0.20 0. 35 0. 25 0.08
Compute his expected profit or loss if he prepares 53 pieces on a particular day.
14. The probability that there is at least one error in an accounts statement prepared by
A is 0.2 and for B and C are 0.25 and 0.4 respectively. A, B and C prepare 10, 16
and 20 statements respectively. Find the expected number of correct statements in
all.
15. Three coins whose faces are marked as 1 and 2 are tossed. What is the expectation
of the total value of numbers on their faces?
16. A person has the choice of running hot snack stall or an ice cream and cold drink
shop at a certain holiday resort during the coming summer season. If the weather
during the season is cool and rainy, he can expect to make a profit of Rs 15,000 and
if it is warm, he can expect to make a profit of Rs 3,000 only, by running a hot
snack stall. On the other hand, if his choice is to run an ice cream and cold drink

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shop, he can expect to make a profit of Rs 18,000 if the weather is warm and only
Rs 3,000 if the weather is cool and rainy. The meteorological authorities predict
that there is 40% chance of the weather being warm during the coming season.
You are to advise him as to the choice between the two types of stalls. Base your
argument on the expectation of the result of the two courses of action and show
the result in a tabular form.
17. Show that the expectation of the number of failures preceding the first success in
an infinite series of independent trials is q/p, where p is the probability of success in
a single trial and q = 1 - p.
18. If X is a random variable with expected value 50 and standard deviation 4, find the
values of a and b such that the expected value of Y = aX + b is zero and standard
deviation is 6.
19. A discrete random variable X has the following probability distribution:

X
: 0 1 2 3 4 5
p( X ) : k 2 k 3k 5k 4 k 3k
5
Find (a) the value of k, (b) P(X 3), (c) the value of m such that P( X m) =
6
and (d) write the distribution function of X.
20. A company introduces a new product in the market and expects to make a profit of
Rs 2.5 lacs during first year if the demand is 'good', Rs 1.5 lacs if the demand is
'moderate' and a loss of Rs 1 lac if the demand is 'poor'. Market research studies
indicate that the probabilities for the demand to be good and moderate are 0.2 and
0.5 respectively. Find the company's expected profit and standard deviation.
21. If it rains, a taxi driver can earn Rs 100 per day. If it is fair, he can lose Rs 10 per
day. What is his expectation if the probability of rain is 0.4?
22. A player tosses 3 fair coins. He wins Rs 10 if three heads appear, Rs 6 if two
heads appear, Rs 2 if one head appears and loses Rs 25 if no head appears. Find
the expected gain of the player.
23. A player tosses 3 fair coins. He wins Rs 12 if three tails occur, Rs 7 if two tails
occur and Rs 2 if only one tail occur. How much should he win or lose in case of
occurrence of no tail if the game is given to be fair?
24. A firm plans to bid Rs 300 per tonne for a contract to supply 1,000 tonnes of a
metal. It has two competitors A and B and it assumes that the probability that A
will bid less than Rs 300 per tonne is 0.3 and that B will bid less than
Rs 300 per tonne is 0.7. If the lowest bidder gets all the business and the firms bid
independently, what is the expected value of the contract to the firm?
25. A certain production process produces items that are 10 percent defective. Each
item is inspected before being supplied to customers but the inspector incorrectly
classifies an item 10 percent of the times. Only items classified as good are supplied.
If 820 items in all have been supplied, how many of these are expected to be
defective?
Hint: Let A be the event that an item is supplied. P(A) = 0.10 0.10 + 0.90 0.90 =
0.82. Let B be the event that a defective item is supplied. P(B) = 0.10 0.10 =
0.01. Therefore P(B/A) = 0.01/0.82.
26. You are given the following payoffs of three acts A1, A2 and A3 and the states of
nature S1, S2 and S3 :

442

States of Nature A1
25
S1
400
S2
650
S3

Acts
A2
10
440
740

A3
125
400
750

The probabilities of the three states of nature are 0.1, 0.7 and 0.2 respectively.
Compute and tabulate the EMV and determine the optimal act.

Probability Distribution
of a Random Variable

27. Given is the following payoff (in Rs) matrix :

State of Nature
High Demand
Medium Demand
Low Demand

Probability
0.4
0.4
0.2

Do not
Expand
2500
2500
2500

Decision
Expand
Expand
200 units 400 units
3500
5000
3500
2500
1500
1000

What should be the decision if we use (i) EMV criterion, (ii) The minimax criterion
and (iii) the maximin criterion?
28. The proprietor of a food stall has invented a new food delicacy which he calls
WHIM. He has calculated that the cost of manufacture is Re 1 per piece and
because of its novelty, it can be sold for Rs 3 per piece, It is, however, perishable
and the goods unsold at the end of the day are a dead loss. He expects the demand
to be variable and has drawn up the following probability distribution of his estimate:
11
12
13
14
15
No. of pieces demanded : 10
Probability
: 0.07 0.10 0. 23 0. 38 0.12 0.10

(i)

Find an expression for his net profit or loss if he manufacture m pieces and
only n are demanded. Consider separately the two cases n m and n > m.

(ii)

Assume that he manufactures 12 pieces. Using the results in (i) above, find
his net profit or loss for each level of demand.

(iii) Using the probability distribution, calculate his expected net profit or loss if he
manufactures 12 pieces.
(iv) Calculate the expected profit or loss for each of the levels of manufacture
(10 m 15).
(v)

How many pieces should be manufactured so that his expected profit is

maximum?

29. A physician purchases a particular vaccine on Monday of each week. The vaccine
must be used in the current week, otherwise it becomes worthless. The vaccine
costs Rs 2 per dose and the physician charges Rs 4 per dose. In the past 50 weeks,
the physician has administered the vaccine in the following quantities :
Doses per week : 20 25 40 60
No. of weeks : 5 15 25 5

Determine the number of doses the physician should buy every week.
30. The marketing staff of a certain industrial organisation has submitted the following
payoff table, giving profits in million rupees, concerning a proposal depending upon
the rate of technological advance in the next three years :
Reject
Technological Accept
advance
Proposal Proposal
Much
2
3
Little
5
2
None
1
4

The probabilities are 0.2, 0.5 and 0.3 for Much, Little and None technological
advance respectively. What decision should be taken?

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Quantitative Techniques
for Management

31. A newspaper distributor assigns probabilities to the demand for a magazine as

follows:
2
3
4
Copies Demanded : 1
Probability
: 0. 4 0. 3 0.2 0.1

A copy of magazine sells for Rs 7 and costs Rs 6. What can be the maximum
possible expected monetary value (EMV) if the distributor can return the unsold
copies for Rs 5 each? Also find EVPI.
32. A management is faced with the problem of choosing one of the three products for
manufacturing. The potential demand for each product may turn out to be good,
fair or poor. The probabilities for each type of demand were estimated as follows:

Demand
Product
A
B
C

Good

Fair

Poor

0.75
0.60

0.15
0.30

0.10
0.10

0.50

0.30

0.20

The estimated profit or loss (in Rs) under the three states of demand in respect of
each product may be taken as :
A 35, 000 15, 000
B 50, 000 20, 000
C 60, 000 30, 000

5, 000
3, 000
20, 000

Prepare the expected value table and advise the management about the choice of
the product.
33. The payoffs of three acts A, B and C and the states of nature P, Q and R are given
as :
States of Nature
P
Q
R

Payoffs (in Rs)

A
B
C
35
120 100
250 350
200
550
650
700

The probabilities of the states of nature are 0.5, 0.1 and 0.4 respectively. Tabulate
the Expected Monetary Values for the above data and state which can be chosen
as the best act? Calculate expected value of perfect information also.
34.

A manufacturing company is faced with the problem of choosing from four products
to manufacture. The potential demand for each product may turn out to be good,
satisfactory or poor. The probabilities estimated of each type of demand are given
below :
Product
A
B
C
D

Probabilities of type of demand

Good Satisfactory Poor
0.60
0. 20
0.20
0.75
0.15
0.10
0.60
0. 25
0.15
0. 50
0. 20
0. 30

The estimated profit (in Rs) under different states of demand in respect of each
product may be taken as :
A
B
C
D
444

40, 000
40, 000
50, 000
40, 000

10, 000
20, 000
15, 000
18, 000

1,100
7, 000
8, 000
15, 000

Prepare the expected value table and advise the company about the choice of
product to manufacture.

35. A shopkeeper at a local stadium must determine whether to sell ice cream or
coffee at today's game. The shopkeeper believes that the profit will depend upon
the weather. The payoff table is as follows :
Event
Cool Weather
Warm Weather

Probability Distribution
of a Random Variable

Action
Sell Coffee Sell Ice cream
Rs 40
Rs 20
Rs 55
Rs 80

Based upon his past experience at this time of the year, the shopkeeper estimates
the probability of warm weather as 0.60. Prior to making his decision, the shopkeeper
decides to hear forecast of the local weatherman. In the past, when it has been
cool, the weatherman has forecast cool weather 80% times. When it has been
warm, the weatherman has forecast warm weather 70% times. If today's forecast
is for cool weather, using Bayesian decision theory and EMV criterion, determine
whether the shopkeeper should sell ice cream or coffee?
36. A producer of boats has estimated the following distribution of demand for a particular
kind of boat :
0
1
2
3
4
5
6
Demand :
Probability : 0.14 0.27 0.27 0.18 0.09 0.04 0.01

Each boat costs him Rs 7,000 and he sells them for Rs 10,000 each. Any boats that
are left unsold at the end of the season must be disposed off for Rs 6,000 each.
How many boats should be kept in stock to maximise his expected profit?
37. A retailer purchases berries every morning at Rs 5 a case and sells for Rs 8
a case. Any case remaining unsold at the end of the day can be disposed of the
next day at a salvage value of Rs 2 per case (thereafter they have no
value). Past sales have ranged from 15 to 18 cases per day. The following is the
record of sales for the past 120 days :

No. of cases sold : 15 16 17 18

No. of days
: 12 24 48 36
Find how many cases the retailer should purchase per day to maximise his profit?
38. State whether the following statements are True or False :
(i)

A random variable takes a value corresponding to every element of the sample

space.

(ii)

The probability of a given value of the discrete random variable is obtained by

its probability density function.

(iii) Distribution function is another name of cumulative probability function.

(iv) Any function of a random variable is also a random variable.
(v)

The expected value of the sum of two or more random variables is equal to
the sum of their expected values only if the are independent.

(vi) In the process of decision-making, the decision-maker can also assign

probabilities to various states of nature based upon his degree of belief.
39. Fill in blanks :
(i)

The probability that a ........ random variable takes a particular value is always
zero.

(ii)

The mean of a random variable is also termed as its ........ value.

(iii) Any function of random variable is also a ........ .

445

Quantitative Techniques
for Management

(iv) If the conditional distribution of X given Y is same as the marginal distribution

of X, then X and Y are ........ random variables.
(v)

The selection of a particular decision criterion depends upon the ........ of the
decision-maker.

(vi) An action with maximum EMV or minimum EOL is regarded as ....... .

12.17 MODEL
DISCUSSION
1.

ANSWERS

(a) Expected Monetary Value (EMV)

TO
(b) Joint

QUESTIONS

FOR

(d) Possible (e) Expected Value with Perfect Information (EVPI)

(a) True

(b) True

(d) True

(e) True

12.18 SUGGESTED READINGS

Lerry Gonick and Woollcott Smith, The Cartoon Guide to Statistics, Harpercollins,
New York 1994.
Bernard W. Lindgren, Statistical Theory, Macmillan, third edition 1976.
Siegrried Graf, Harold Luschgy, Foundations of quantizations for probability
distributions, Springes Motorola Univ. Pr (April 1993)
Edger H. Callaway, David A. Hill, Jerome V. Scholle, Probability Distribution, Motorola
Univ. April 1993
Gejza Wimmes, Gabriel Altmann, Thesaurus of Universe Discrete Probability
Distribution, Stany, Jan. 1999

446

Unit-V

LESSON

13
INVENTORY MODEL

CONTENTS
13.0 Aims and Objectives
13.1 Introduction
13.2 Need of Inventory Control
13.3 Advantages of Material Controls
13.4 Essential Factors of Material Control
13.5 ABC Analysis Technique
13.6 Process of Inventory Control
13.7 Minimum Stock Level
13.8 Maximum Stock Level
13.9 Ordering Level or Re-order Level
13.10 Average Stock level
13.11 Danger Level
13.12 Let us Sum Up
13.13 Lesson-end Activities
13.14 Keywords
13.15 Questions for Discussion
13.16 Terminal Questions
13.17 Model Answers to Questions for Discussion
13.18 Suggested Readings

13.0 AIMS AND OBJECTIVES

In this lesson we are going to talk about the inventory control and how to minimised the
total cost of inventory. The inventory control system offers comprehensive report
capabilities to keep you on top of inventory status. It can facilitate in bringing about the
creating of new or improved purchasing policies, save policies, pricing modelling and
even enhanced customer service.

13.1 INTRODUCTION
The inventory means a physical stocks of good which is kept in hand for smooth and
efficient running of future affairs of an organisation at the minimum costs of funds blocked
in inventories. In a manufacturing organisation, inventory control plays a significant role
because the total investment in inventories of various kinds is quite substantious. In this
chapter we are going to discuss the meaning of inventory, need to control inventory,
advantage of material control, essential factor, of material control, the ABC analysis
techniques, process of inventory control.

Quantitative Techniques
for Management

Inventory can be defined as the stock of goods, commodities or other resources that are
stored at any given period for future production. In real, inventory control is a process
itself, with the help of which, the demand of items, scheduling, purchase receiving,
inspection, storage and despatch are arranged in such a manner that at minimum cost
and in minimum time, the goods can be despatched to production department. Inventory
control makes use of available capital in a most effective way and ensures adequate
supply of goods for production.

13.2 NEED OF INVENTORY CONTROL

The main objectives of Inventory Control are as follows:
1.

For Effective Cost Accounting System: Cost accounting system is useful only
when there is a tight control over cost and inventory cost is a major part of total
production cost.

To Check Waste and Wastage: Inventory control not just only ensures uninterrupted
material supply to production department but also ensures the control from purchasing
to supply of finished goods to customers. So in this way it checks waste and wastage
whether it is about time, money or material.

To Check Embezzlement and Theft: Inventory control is to maintain necessary

records for protecting theft and embezzlement.

For the Success of Business: Customers satisfaction is very much important for
the success of business and customers satisfaction is directly related to the goods
supplied to them. If the goods supplied to customers are low in cost with good
quality at right time, it ensures the success of business. Inventory Control helps in
achieving this goal.

For the Life of the Business: In absence of Inventory Control there are many
risks of losses.

To Check National Wastage: Inventory control checks the wastage of nations

resources such as raw minerals, ores, etc.

13.3 ADVANTAGES OF MATERIAL CONTROLS

They are as follows:
1.

It helps to minimise loss by obsolescence, deterioration damage etc.

It helps to protect against thefts, wastages, etc.

It helps managers in decision making.

To minimise capital investment in inventory.

To minimise cost of material purchasing.

To increase the storing capacity.

To maintain reasonable stocks of materials.

To facilitates regular and timely supply to customers.

To ensures smooth production operations.

10. To check national wastage.

13.4 ESSENTIAL FACTORS OF MATERIAL CONTROL

For the success of material control following factors should be kept in mind.
1.
450

Proper Co-ordination: There should be a proper co-ordination between all the

departments who uses materials, such as purchase department, store department
inspection department, accounts department, production department and sales
department, so that there is neither a scarcity of material nor excess of material.

Centralisation of Purchasing: The important requirement of a successful inventory

control system is the appointment of intelligent and experienced personnel in
purchase department, these personnel should be expert in their field and negotiating
the deals.

Proper Scheduling: All the requisitions made by production department should be

scheduled, so material could be issued them by time and production should not be
stopped.

Proper Classification: Classification and identification of inventories by allotting

proper code number to each item and group should be done, to facilitate prompt
recordings, locating and dealing.

Use of Standard Forms: Standards forms should be used so that any information
can be send to all department within no time.

Internal Check System: Audit should be done by an independent party to check

effectiveness of inventory control system.

Proper Storing System: Adequate and well organised warehouse facilities with
well-equipped proper handling facilities must be there. Such facilities will reduce
the wastage due to leakage, wear and tear, sustained dust and mishandling of
materials. Store location should be in between the purchase department and
production department, so that cost of internal transportation can be minimised.

Proper Store Accounting: An efficient inventory control necessitates maintenance

of proper inventory records. Any typical information regarding any particular item
of inventory may be taken from such records.

Proper Issuing System: There should be a well organised issuing system of material
so that production process do not suffer.

Inventory Model

10. Perpetual Inventory System: Daily stock position should be taken in this system.
11.

Fixing of Various Stock Levels: Minimum stock level, maximum stock level, reorder
point, safety level etc, should be pre-determined to ensure the continuity of smooth
production.

12. Determination of Economic Order Quantity: Economic order quantity should

be determined to minimised the cost of inventory.
13. Regular Reporting System: The information regarding the stock position, materials
quantity etc, should be available to management regularly.

13.5 ABC ANALYSIS TECHNIQUE

Where there are a large number of items in the inventory, it becomes essential to have
an efficient control over all items of stores. However comparatively, great care should
be given to items of higher value. The movements of certain manufacturing concerns
may consist of a small number of items representing a major portion of inventory value
and a large number of items may represent a minor portion of inventory value. In such
cases, a selective approach for inventory control should be followed.
The most modern technique for controlling the inventory is a value item analysis popularly
known as ABC analysis which attempts to relate, how the inventory value is concentrated
among the individual item. This analysis is based on Paretos law. Paretos law states
that a fewer items of higher usage having high investment value should be paid more
attention than a bulk of items having low usage value and having a low investment in
capital. Under this analysis, all items of stores are divided into three main categories
A, B and C. Category A includes the most important items which represent about 60 to
70 per cent of the value of stores but constitute only 10 to 15 percent items. These items
are recognised for special attention category B includes lesser important items representing
an investment value of 20 to 25 percent and constitute a similar percentage of items of
stores. Category C consists of the least important items of stores and constituted 60 to
70 percent of stores items representing only a capital investment between 10 to 15
percent. Close attention is paid to items falling in category A and the best items of
category C. This classification of items into A, B and C categories is based upon value,
usage, rate and criticality of items and these variables are given due weightage in
categorising the items the term ABC implies Always Better Control.

451

Quantitative Techniques
for Management

Steps in ABC Analysis

Though no definite procedure can be laid down for classifying the inventories into A, B
and C categories as this will depend upon a number of factors such as nature and
varieties of items specific requirements of the business place of items in the production
etc. These factors vary from business to business to business and items to item. However,
following procedure can be followed:
(i)

First, the quality of each material expected to be used in a given period should be
estimated.

(ii) Secondly, the money value of the items of materials, so chosen should be calculated
by multiplying the quantity of each item with the price.
(iii) Thirdly, the items should be rearranged in the descending order of their value
irrespective of their quantities.
(iv) Fourthly, a running total of all the values and items will then be taken and then the
figure so obtained should be converted into percentage of the gross total.
(v)

Fifthly and lastly, it will be found that a small number of a first few items may
amount to a large percentage of the total value of the items. the management, then,
will have to take a decision as to percentage of the total value or the total number
of items which have to be covered by A, B and C categories.

Advantages of ABC Analysis

These are as follows:
1.

Increase in Profitability: ABC analysis ensures a close control over the items of
A, B and C categories and due to control over A category items, the capital
investment over inventory reduces.

Other Uses: The technique of ABC analysis is based on the principle of

management by exception and can be used in areas like, distribution, sales, etc.

13.6 PROCESS OF INVENTORY CONTROL

For the convenience to understand the topic, the inventory control system may be divided
into three parts:
(i)

Process of Purchasing of Materials.

(ii)

Inventory Storing Procedure.

(iii)

Process of Issue of Materials.

Process of Purchasing of Materials

Its steps are as follows:
1.

Establishment of Purchase Department: A different department should be

established for purchase of materials. This department not only ensure the availability
of raw material but also, machines, stationary etc. are purchased by this department.
Purchase of materials should be centralised. All purchase should be under a single
department. Control centralised purchase is generally possible only in these industries,
which are located at a single place only and nature of production is of same type.
But if an industry has different production centre at different places, then it becomes
compulsory to follow decentralised purchase system. Thus it is compulsory to have
a complete knowledge about he nature of production, capacity of locality etc.

Preparation of Purchasing Budge: First of all the production target of the company
should be determined, on the basis of which the budget for purchasing of material
is prepared.
Following points should be kept in mind while preparing purchase budget:

452

(i)

System to receive the materials.

(ii)

The quantity and quality of the material according to the production

requirements.

Inventory Model

(iii) Source of supply.

(iv) Present balance of materials and predictions to receive the materials ordered.
(v)

Available cash for debtors.

(vi) On which date the indent is made by concerned department.

(vii) The conditions regarding the value of the material and rebate or discount on
it.
3.

Preparation of Purchase Requisition Slip: The initiations of purchase begins

with the formal request from the various sections or departments to the purchase
department to order goods. The request is made in a prescribed form to the purchase
department by the departments needing the goods, authorising the purchase
department for procuring the goods as per the specifications given in the slip by the
date mentioned on it.
Specimen of a PRS

No. Pr .............................

Date: .............................

Cost Centre .............................

Katech Corporation Ltd
Purchase Requisition Slip
Pealse purchase for ............................. department
Item No.

Code No.

Description

Required by ........................
........................

Checked by ........................

For use of department issuing

this requisition
Item No. Quantity
in stock

Quantity Required

Remark

Approved by

For use of Purchased department

Consumption Quantity
per day/month required

Purchase
order no.

Supplier Delivery
Date

Store keeper ........................

The requisitions are generally prepared in triplicate the original copy is sent to the
purchase department, the second copy is retained by the store or the department
initiating the purchase requisition and third are is sent to the costing department.
4.

Obtaining the Tender: After the decision for purchase tenders are invited from
the prospective suppliers on studying the terms of supply and the quantity and
quality of the goods. Vendor is selected out of the tenderers for the comparative
study of tenderers. Following type of table may be used:
Type of Specimen of Tenderer Table
Katech Corporation Ltd.
Schedule of Quotations

Material ........................
Name of Quantity Rate/Unit
the party offered

Store keeper ........................

Date ........................
Terms

Time of
delivery

S.No ........................
Mode of
delivery

Remarks

Date ........................

453

Quantitative Techniques
for Management

Sending Purchase Order: After comparing the difference tenderers, the best
vendor is decided and the order of required material quotation is placed to him.
Purchase order is prepared in prescribed form by the purchase department and
sent to the vendor authorising him to supply a specified quantity and quality of the
materials at the stipulated terms at the time and place mentioned therein. Generally
purchase order has the following information:
(i)

Name of the purchaser, serial no. and date of order.

(ii)

Name of vendor and address.

(iii) Full details of materials quantity etc.

(iv) Value, rebate and terms of payment etc.
(v)

Time and place of delivery.

(vi) Directions regarding packing and despatching.

(vii) Signature of purchaser.
(viii) Method of follow-up.
Specimen of a Purchase Order
Katech Corporation Ltd.
Cable ........................

S. No. ........................

To,

Telephone ........................
M/s ........................

Date ........................

........................

Reg. No. ........................

........................

Our Ref. ........................

Please supply the following items in accordance with the terms and conditions
mentioned herein ........................
Item
No.

Description Quantity

Price

Unit

Amount

Remarks

Terms and conditions:

Delivery at ........................

Sales Tax ........................

Discount ........................

Freight ........................

Excise Duty ........................

Terms of Payment .................

For Katech Corporation Ltd.
(Signature)

Acknowledgement
Kindly acknowledge the receipt of this order:
Received on ........................
Date of Delivery ........................
454

Challan ........................ Date ........................

Invoice No. ........................ Date ........................

Inventory Model

Specimen of Goods Received Note

Katech Corporation Ltd.
Goods Received Note
From
M/s (Supplier) ........................
........................

No. VRN ........................

Date ........................

........................
Goods

Quantity

No. of
Packets etc.

Order
No.

Delivery
Note No.

Demanded
by
department

Remarks

Descrip- Code
tion

Carrier

Inspection

Qty.
Reason
rejected

Received by

Store A
ledger

A/c & Inspectors signature

ref.

Receiving and Inspection of Materials: When goods arrive they are taken delivery
of and parcels or packet unpacked and the contents of the packages are checked
by the receiving clerk with the order placed by the purchasing department to the
vendor. After proper checking goods should be delivered to the laboratory or
inspection department. Goods received note is prepared here.

Returning the Materials: On checking if any discrepancy is found as regards to

quality and quantity. It should immediately be referred to the purchasing department
so that the discrepancy may be adjusted or steps may be taken to return the defective
or damaged goods in exchange of proper quality material on credit note.

Payment of Purchased Material: After required inspection etc. final report is

sent to purchase officer, who sent it to payment officer after placing required
entries in the report. After checking the ledger, payment officer authorise accounts
clerk for payment.

Process of Issue of Materials

To control the issue of materials following procedure is followed:
1.

Issue of Materials: When a foreman of any production department needs materials

from store, he prepares three copies of goods requisition slip. If the material is
costly and important then factory manager also sign these copies. One copy of
requisition slip is kept by foreman itself and other two copies are given to stores.
According to the requisition slip the store-keeper issues the materials to foreman.
Foreman signs the two copy of stores requisition slips to verify that he has received
the materials. then storekeeper makes the required entries in the bin card. After
signing both the copies of requisition slip storekeeper sent one copy to accountant
of store. After recording the issue of materials, store accountant sent this copy to
costing department.
Sigma Corporation Ltd.
Material Requisition Slip
To

..........................

No ..........................

..........................

Date ..........................

Deliver following material to .......................... Fore order No. ..........................

and Job No. ..........................

455

Quantitative Techniques
for Management

Quantity

Unit

Authorised
by .

Description

Code No.

Store
Ledger
No..

Office use only

Rate
Issued by
Amount
.

Remarks

Issued
by

Cost office Ref.

No
Price by

Received
by .

Sigma Corporation Ltd.

Materials Requisition Slip
Job No. .......................

Material Requisition Slip No. .......................

Department .......................

Date .......................

Please send the following materials.

Quantity

Code or Symbol

Description of Materials

Rate*

Foreman ....................

Bin No. ....................

Store Ledger Folio ....................

Returned ....................

Storekeeper ....................

Cost Clerk ....................

Amount*

* Both these entries are to be done by cost clerk.

Inter Departmental Transfer of Materials: (For details see Inventory Storing

Procedure)
ABC Co. Ltd.
Materials Transfer Slips
Issuing Department ....................

Serial No. ....................

Receiving Department ....................

Date ....................

Please receive the following materials.

Quantity

Code or
Symbol

Description
of Materials

Rate*

Amount

Reason for
Transfer

....................

Foreman Transfer

Foreman Transferee

Cost Clerk

* To be filled by Cost Clerk.

To Prepare Material Abstract: (For details see Inventory Storing System).

Sigma Corporation Ltd.
Material Abstract

Week ending on ....................

Materials Requisition
Slips
Slip No.
Amount
Total
456

Job Numbers
N1

Periodical Checking of Materials: To control the issue of materials this is very

much necessary that bin cards, store control records and store ledgers are checked
regularly and if any discrepancy is found, proper corrective actions should be taken.

Physical Stock Checking of Materials: Physical stock checking in stores should

be done to prevent materials loss, material damage and theft. This checking can be
done weekly, monthly etc. Physical stock checking means the verification of actual
quantity in stores. This checking should be done surprisingly or at random basis. If
any discrepancy is found and corrective actions should be taken to reduce or eliminate
them the possible reasons may be wear and tear of materials, absorption of moisture,
evaporation, waste, breakage, theft or wrong recordings. This is assumed to be the
best method of inventory control.

Inventory Model

Inventory Storing Procedure

Inventory storing procedure is an important part of inventory control management or
materials management. Following procedure is followed in inventory storing:
1.

Receipt of Material in Store: The storekeeper receives the material alongwith

the goods received note from the receiving section. The material are then classified
according to the nature of the material. The material should be arranged in bins
especially meant for the materials. A bin card is attached with each bin or rack
displaying the identification mark or code, minimum, maximum and ordering levels
of materials and receipts, issues and balance of materials in hand, so that the exact
position may be known at any time whenever desired.
Specimen of Bin Card
ABC Co. Ltd.
BIN CARD
Description .........................

Maximum Level .........................

Material code .........................

Minimum Level .........................

Location code .........................

Danger Level .........................

Bin No. .........................

Ordering Level .........................

Store Ledger Folio No. .........................

Re-order Quantity .........................

Date

Receipts
G.R.N.
No.

Qty.

Date

Issues
Rege.

Qty.

Balance
Qty.

Audit
Date
Initial

Issue of Material from Store: The store undertakes the responsibility of issuing
the material to the using departments. In order to prevent malpractices, the materials
must be issued only against the properly authorised requisition slips. These requisition
must be properly checked and scrutinised to avoid overissue of materials. All
requisition received must be posted immediately or daily on the bin cards and on
the stock control cards. Generally three copies of requisition slips are prepared
first two copies are given to the stores and third copy kept with the demanding
department. Store incharge keeps one copy of requisition slip for himself and other
copy he sent to accounts department.

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Quantitative Techniques
for Management

Return of Material to Store: If a department uses less material to its demand then
it return the material to stores. Goods return slips are sent along with the materials.
The same specifications and details of materials are given in goods return slips as
they were mentioned in requisition slips. Three copies of goods return slips are
prepared. First two copies are sent to stores department and third copy is kept by
the goods returning department itself. Store keeper sent one copy to accounts
department. The colour of both requisition slip and return slips are kept different to
identify them easily.

Transfer of Material: The transfer of materials from one department to another

department is generally not appreciated, because it creates problems in material
control process. But sometime when there is emergency, the transfer of material
from one department to other department is allowed. The department transferring
the materials makes four copies of material transfer slips. First copy is sent to the
needy department along with material. Second and third copies are sent to stores
department and accounts department for their information.

Material Abstract: In big industries where the large quality of materials are received,
issued and transferred daily, material abstract is prepared weekly or fortnightly
to control the inventory. A physical verification of quantity in stores and other
departments is done by material abstract.
It any discrepancy is found in physical verification of quantity in store or other
department. It is brought into the notice of top management this type of check
plays a very important role in inventory control. Thus material abstract is a summary
of materials received, issued and transferred, for a given time period.
Check Your Progress 13.1

What are the main objectives of having Inventory Control?

Discuss ABC analysis techniques.

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson suxb-head thoroughly you will get your
answers in it.

(c)

13.7 MINIMUM STOCK LEVEL

The minimum stock level represents the lowest quantitative balance of materials in hand
which must be maintained in hand at all times so that the assembly time may not be
stopped on accounts of non-availability of materials.
The minimum stock level may be calculated by the use of the following formula:
458

Minimum Stock Level = Re-ordered level (Average rate of consumption Lead time)

Factors Affecting Minimum Stock Level

Inventory Model

These are as follows:

Lead Time: This is the time lag required to obtain the delivery of fresh supplies. If
this time is more than the minimum inventory level will be high.

Inland or Importable Inventory: If the material is to be import then the lead time
will be more implying minimum inventory level is to be kept high.

Availability of Inventory: If the material is not easily available then the minimum
stock level to be kept high.

Possibility of Interruption in Production: If the production process is smooth

then it is easy to determine the minimum stock level, but, if production is not smooth
due to some reasons such as strike, power, etc. Then it is not easy to find out exact
level of minimum stock.

Nature of the Material: Materials that are regularly stored must maintain a minimum
level. If on customers order a special item of material is to be purchased, no
minimum level is required to be fixed for that.

The Maximum Time Required from the Date of Order to the Date of Actual
Delivery: It is known as the Lead Time. The longer the lead time the lower is the
minimum level, provided the reorder point remains constant.

Rate of Consumption of the Material: The minimum rate, the maximum rate and
the normal rate of consumption are to be taken into consideration.

13.8 MAXIMUM STOCK LEVEL

Maximum stock level represents the maximum quantity of inventory which can be kept
in store at any time. This quantity is fixed keeping in view of disadvantages of overstocking.
Computation of Maximum Stock Level: The following formula is used:
Maximum Level = Re- order level + Re-order quantity Minimum consumption
Minimum Re-order period
Or
= Re-order level + Re-order Quantity (Average rate of usage Lead Time)
Factors Affecting the Maximum Stock Level
These are as follows:
1.

Rate of consumption of the material.

The lead time.

The maximum requirement of the material at any point of time.

Nature of the Material: The materials which deteriorate quickly are stored as
minimum as possible.

Storage space available for the material.

Price Economy: Seasonal materials are cheap during the harvesting reasons. So
maximum purchase is made during that season and as a result the maximum level
is high.

Cost of storage and insurance.

Cost of the material and the finance available. When the material is costly the
maximum level is likely to be relatively low. If the price is likely to go up maximum
level should be high.

459

Quantitative Techniques
for Management

Inventory Turnover: In case of slow moving materials the maximum level is low
and in case of quick moving material it is high.

10. Nature of Supply: If the supply is uncertain the maximum level should be as high
as possible.
11.

Economic Order Quantity (EOQ): Maximum level largely depends in economic

order quantity, because unless otherwise contra indicated the economic order
quantity decides the quantity ordered and hence decides the maximum level.

13.9 ORDERING LEVEL OR RE-ORDER LEVEL

This is the fixed point between the maximum stock level and minimum stock levels at
which time the order for next supply of materials from vendor is to be done.
This is mainly depends upon two factors:
1.

Rate of Maximum usage.

Maximum Re-order period or Maximum Delivery Time.

Computation of Ordering Level or Re-order Level. The formula is as follows:

Ordering level or Re-order level
= Maximum usage per day Maximum Re-order period or Maximum Delivery Time
Or
= Maximum Level + (Normal usage of Average rate of consumption Average
Re-order period or Average Delivery Time)

Assumptions of Re-order point

The time of delivery remains fixed.

Load time remains fixed.

The average rate of consumption of materials does not changes.

13.10 AVERAGE STOCK LEVEL

Average stock level is the average quantity of stock for a given time of period.
Computation of Average Stock Level. The formula is as follows:
Average stock level =

1
[Minimum Level + Maximum level]
2

Average stock level = Minimum level +

Average stock level =

1
[Re-order Quantity]
2

2(Minimum level) + Re- order quantity

13.11 DANGER LEVEL

In addition to the minimum, the maximum and recording levels there is another level
called Danger Level. This level is below the minimum level and when the actual stock
reaches this level immediate measure is to be taken to replenish stock. When the normal
lead time is not available, the purchase quantity cannot be accurately determined. So, it
is fixed in such a way that the actual stock does not fall below danger level by the actual
lead time. This means, that the minimum level contains a cushion to cover contingencies.
460

Some concerns fix danger level below the re-ordering level but above the minimum
level. If action for purchase is taken as soon as the stock reaches the re-ordering level,
the danger level bears no importance except that, when the stock reaches the danger
level (but not yet the minimum level) a reference may be made to the purchase department
to ensure that delivery is received before the actual stock reaches the minimum level.

Inventory Model

When the danger level is fixed below the minimum, it being reaches by the actual stock,
the defect in the system is identified and corrective measure becomes necessary. When
the danger level is fixed above the minimum, it being reached by the actual stock, preventive
measure is to be taken so that the stock may not go below the minimum level.
It is the point or level of stock which the material stock should never be allowed to
reduce. It is generally a level below the minimum level. As soon as the stock of material
reaches this point, urgent action is needed for replenishment of stock.
Determination of Danger Level. This done as follows:
Danger Level = Two days of normal consumption
Re-order Quantity: The quantity which is ordered at re-order point is called re-order
quantity. This is determined on the basis of minimum stock level and maximum stock
level. This is normally used in notation of economic order quantity.
Check Your Progress 13.2

Differentiate:
(a) Minimum stock level and Maximum stock level
(b) Average Stock level and Danger Stock level

What is Re-order level? Write assumptions for ascertaining Re-order point.

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

Numerical Solved Examples

Example 1: Calculate (i) Re-order Level; (ii) Minimum Level; and (iii) Maximum Level
for each Component A and from the following information:
Normal Usage

50 Units per week each

Minimum Usage

25 Units per week each

Maximum Usage

75 Units per week each

Re-order Quantity

A: 300 Units; B : 500 Units

Re-order Period

A : 4 to 6 weeks; B : 2 to 4 weeks

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Quantitative Techniques
for Management

Solution:
(i)

Re-order Level = Maximum Usage Maximum Re-order Period

For Component A = 75 6 = 450 Units
For Component B = 75 4 = 300 Units

(ii)

Minimum Level = Re-order Level (Normal Usage Average Re-order Period)

For Component A = 450 (50 5) = 200 Units
For Component B = 300 (50 3) = 150 Units
Note: Average Re-order Period for Component A =
Average Re-order Period for Component B =

4+6
=5
2

2+4
=3
2

(iii) Maximum Level = (Re-order Level + Re-order Quantity (Minimum Usage

Minimum Re-order Period)
For Component A = (450 + 300) (25 4)
= 650 Units
For Component B = (300 + 500) (25 2)
= 750 Units
Example 2: From the following particulars, calculate: (a) Re-order Level (b) Minimum
Level, (c) Maximum Level, (d) Average Level:
Normal Usage

100 units per day

Minimum Usage

60 units per day

Maximum Usage

130 units per day

Economic Order Qunatity

5,000 units

Re-order Period

25 to 30 days

Solution:
(a)

Re-order Level = Maximum Usage Maximum Re-order Period

= 130 30 = 3,900 units

(b)

Minimum Level = Re-order Level (Normal Usage Average Re-order Period)

= 3,900 (100 27.5) = 1.150 units
Note: Average Re-order Period =

(c)

Maximum Level

25 + 30
= 27.5 days
2

= (Re-order Level + Re-order Quantity Or EOQ)

(Minimum Usage Minimum Re-order Period)
= (3,900 + 5,000) 60 25)
= 7,400 Units

(d)

Average Level =
=

462

Minimum Level + Maximum Level

= 27.5
2
1,150 + 7,400
= 4, 275 Units
2

Example 3: A manufacturer buys costing equipment from out side suppliers Rs. 30 per
unit. Total annual needs are 800 units. The following data is available:

Inventory Model

Annual Return on Investment 10%

Rent, Insurance etc. per unit per year Re. 1
Cost of Placing an order Rs. 100
Determine Economic Order Quantity.
Solution:
EOQ =

2 R Cp
CH

Where, EOQ = Economic Order Qunatity

R = Annual Requirement of Inventory
Cp = Cost of placing an order
CH = Annual holding Or Carrying cost per unit per year.
Given : R = 800 units, Cp = Rs. 100, CH = Rs. 4
EOQ =

2 800 100
= 40,000 = 200 Equipments
4

= 10 % of Rs. 30 + Re 1 = Rs. 3 + Re. 1 = Rs. 4.

Example 4: Fair Deal Limited uses Rs. 1,00,000 materials per year. The administration
cost per purchase in Rs. 100 and the carrying cost is 20% of the average inventory. The
company has a purchase policy on the basis of economic order quantity but has been
offered a discount of 0.5% in the case of purchase five times per year. Advise the
company whether it should accept new offer or not?
Solution: Given: R(in Rs.) = 1,00,000, Cp = Rs. 100, P = Re. 1.00,
CH = 1.00 20% = Re. 0.20
E.O.Q. (in Rs.) =

2 R Cp
CH
2 1,00,000 100
0.20

= 10,00,00,000
= Rs. 10,000
Total Inventory Cost in case of each order is placed of Rs. 10,000:
(i)

Cost of Materials

Rs. 1,00,000

(ii)

Ordering Cost = q C P = 10,000 100

(iii) Carrying Cost =

Total Cost

1,00,000

q0
10,000
CH =
0 .2
2
2

Rs. 1,000

Rs. 1,000
Rs, 1,02,000

463

Quantitative Techniques
for Management

Total Cost in case of each order is placed or Rs. 19,900 i.e., Rs. 20,000 0.5% discount:
(i)

Cost of Materials (19,900 5)

(ii)

Ordering Cost

R
= q C p

(iii) Carrying Cost

Rs. 99,500.00

99,500
100
19,900

500.00

0
= 2 CH

19,900
0.199
2

1,980.05

Total Inventory Cost

1,01,980.05

[Note: Here P = Re. 1, 0.5% or Re. 1 = Re. 1 = Re. 0.95, CH = 0.95 20% = Re. 0.199]
On the basis of above analysis the offer should be accepted as it will save
Rs. 1,02,000 1,01,980.05 = Rs. 19.95.
Example 5: A pharmaceutical factory consumes annually 6,000 kgms. of a chemical
costing Rs. 5 per kgm. Placing each order costs Rs. 25 and the carrying cost is 6% per
year per kgm. of average inventory. Find the Economic Order Quantity and the total
inventory cost.
The factory works for days in a year. If the procurement time is 15 days and safety
stock 200 kgms., find the re-order point and maximum and average inventories levels.
If the supplier offers a discount of 5% on the cost price for a single order of annual
requirement, should the factory accept it?
Solution: Given: R = 6,000 kgms.; P = Rs. 5 per kgm. Cp = Rs. 25; CH = 6% per kgm.
per year of average inventory; No. of working days in a year = 300; Procurement time
= 15 days; Safety Stock = 200 kgms.
E.O.Q. =

2 R Cp
CH
2 60,000 25
=
.30

3,00,000
.30

= 10,00,000 = 1,000 kgms.

CH = 6% of Average inventory i.e.,
R

5 6
= Re. 30
100

0
T.I.C = (R P) + q C H + 2 C H

6,000

1,000

= (6,000 5) + 1,000 25 + 2 .30

= 30,000 + 150 + 140 = Rs. 30,000

464

R
Re-order Point = No. of Working days Procurement time + Safety Stock

Inventory Model

6,000 15
+ 200
=
300
1
= 300 + 200 = 500 kgms.
Maximum Stock Level = (Re-order Point + Re-order Quantity or EOQ)
(Minimum Usage Minimum Re-order Period)
= (500 + 1,000) (20 15)
= 1,500 300 = 1,200 kgms.
or

Maximum Stock Level = q0 + Safety Stock

= 1,000 + 200 = 1,200 kgms.

Minimum Stock Level = Re-order Level (Normal usage Average Re-order period)
= 500 (20* 15)
= 500 300 = 200 kgms.
* Normal Usage =
=

R
No. of Working days
6,000
= 20 kgms.
300

Minimum Stock Level + Maximum Stock Level

Average Stock Level =

=
Or

Average Stock Level=

200 + 1,200 1,400

=
= 700 kgms.
2
2

q0
+ Safety Stock
2

1,000
+ 200 = 700 kgms.
2

TIC if a single order of 6,000 kgms is placed:

Given: P = Rs. 5 5% of Rs. 5 i.e., 5 .25 = Rs. 4.75
CH = 6% of Average Inventory i.e., 4.75

6
= Re. 285;
100

Cp = Rs. 25; R = 6,000 kgms; q0 = 6,000 kgms.

0
TIC = (R P) + q C p + 2 C H

6,000

= (6,000 4.75) + 6,000 25 + 2 .25

= 28,500 + 25 + 855 = Rs. 29,380.

The company should accept the offer of 5% discount in purchase price by placing a
single order of 6,000 kgms. because the total inventory cost in this case is less by Rs.
30,300 Rs. 29,380 = Rs. 920 as compared to total inventory cost without discount
offer.

465

Quantitative Techniques
for Management

Example 6: A trading company expects to sell 15,000 mixers during the coming year.
The cost per mixer is Rs. 200. The cost of storing a mixer for 1 year is Rs. 5 and the
ordering cost is Rs. 540 per order. Find the Economic Order Quantity. Would it be
profitable to the company to accept a discount offer of 30% on a single order per year.
The storing cost continuing to be Rs. 5 per mixer per year.
Solution:
2 R CP
CH

E.O.Q =

Given R = 15,000 units, CP = 540, CH = Rs.

E.O.Q =

2 15,000 540
5

= 32,40,000 = 1,800 units

Total Inventory Cost if q0 = 1,800 units:
q

0
T.I.C = (R P) + q C P + 2 C H

1,800

15,000

= (15,000 200) + 1,800 540 + 2 5

= 30,00,000 + 4,500 + 4,500

= Rs. 30,09,000
T.I.C. if a single order is placed at 30% discount in price:
R

0
T.I.C = (R P) + q C P + 2 C H

15,000

15,000
5

= (15,000 140) + 15,000 540 +

= 21,00,000 + 540 + 37,500

= Rs. 21,38,040
The company should accept the offer of 30% discount as it will save Rs. 30,09,000
21,38,040 = Rs. 8,70,960.
Example 7: A manufacturer requires 1,000 units of a raw material, per month. The
ordering cost is Rs. 15 per order. The carrying cost in addition to Rs. 2 per unit, is
estimated to be 15% of average inventory per unit per year. The purchase price of the
raw material is Rs. 10 per unit. Find the Economic Lot Size and the total cost.
The manufacturer is offered as 5% discount in purchase price for order for 2,000 units
or more but less than 5,000 units. A further 2% discount is available for order of 5,000 or
more units. Which of the three ways of purchase he should adopt?
Solution:
Given: R = 1,000 units per month or 12,000 units per annum;
C p = Rs. 15 per order;
466

P = (i)

Rs. 10 per unit in case of order for less than 2,000 units.

(ii)

Rs. 10 5% of Rs. 10 i.e., Rs. 9.50 in case of order for 2,000 or more
units but less than 5,000 units.

(iii)

Rs. 10 7% of Rs. 10 i.e., Rs. 9.30 in case of order for 5,000 or more
units.

C H = (i)

Rs. 2 + 15% of Rs. 2 of Average inventory i.e., Rs. 2 + 1.50 = Rs. 3.50
per unit per annum in case of order for less than 2,000 units.

(ii)

Rs. 2 + 15% of Rs. 9.50 = Rs. 2 + 1.425 = Rs. 3.425 per unit per
annum in case of order for 2,000 units or more but less than 5,000 units.

(iii)

Rs. 2 + 15% of Rs. 9.70 = Rs. 2 + 1.395 = Rs. 3.395 per unit per
annum in case of order for 5,000 or more units.

Inventory Model

Alternative I: In case of order for less than 2,000 units:

E.O.Q. (q0) =

2 R CP
CH

2 12,000 15
=
3.50

3,60,000
3.50

= 1,02,857 = 320.7 or 321 units

0
T.I.C. = (R P) + q C P + 2 C H

12,000

321

= (12,000 10) + 321 15 + 2 3.50

= 1,20,000 + 561 + 562

= Rs. 1,21,123 (nearest to Rupee)
Alternative II: In case of order for 2,000 or more units but less than 5,000 units:
E.O.Q. (q0) =

2 R CP
CH

2 12,000 15
3,60,000
=
3,425
3,425

= 1,05,109.45 = 324 units

As the Economic Lot size (324 units) is less than minimum ordering quantity (2,000
units), the company should order at least 2,000 units to get 5% discount in purchase price
Thus, T.I.C. if q0 = 2000 units:
R

12,000

2,000

0
T.I.C. = (R P) + q C P + 2 C H

= (12,000 9.50) + 2,000 15 + 2 3.425

= 1,14,000 + 90 + 3,425 = Rs. 1,17,515.
467

Quantitative Techniques
for Management

Alternative III: In case of orders of 5,000 or more units:

2 R CP
CH

Economic Lot size (q0) =

2 12,000 15
=
3.395

3,60,000
3.395

= 1,06,038.29 = 325.6
Or

= 326 units

As the Economic Lot Size (326 units) is less than the minimum ordering quantity 5,000
units, the company should order at least 5,000 units to get 7% discount in purchase price.
Thus T.I.C. if q0 = 5,000 units:
R

0
T.I.C. = (R P) + q C P + 2 C H

12,000

5,000

= (12,000 9.30) + 5,000 15 + 2 3.395

= 1,11,600 + 36 + 8,487.50 = 1,20,123.50
On the basis of above analysis we find that the T.I.C. is minimum (Rs. 1,17,515) in
second alternative. Hence the company should adopt this alternative.

13.12 LET US SUM UP

In this chapter the more emphasis is given on the role of inventory control. The certain
technique such as ABC Analysis have been illustrated with the help of specimen format
and illustration.

13.13 LESSON-END ACTIVITIES

Successful well-organised business relies heavily on the inventory control to make

certain they have adequate inventory levels to satisfy their customers. As we know
that inventory control offers comprehensive reporting capabilities to keep you on
top of inventory status. Take any manufacturing company like Pepsi or Coca-Cola
which can help to bring about the creation of new or improved purchasing policies,
sales policies, pricing methods and even enhanced customer service.

Take a case of a automobile industry where the inventory control had played a vital
role like quickly locate parts, product lines, purchase orders, account payable vendor
and general ledger account.

13.14 KEYWORDS
Lead Time

468

Time between ordering & receiving the good.

Inventory Control System :

Is a technique to maintain inventory at a desired level.

Maximum Level

Level of inventory beyond which inventory is not

allowed.

Minimum Level

Level of inventory beyond which inventory is allowed.

Opportunity Cost

The next best alternative cost.

Reorder Level

The stock level which is sufficient for the lead time

consumption.

Inventory Model

13.15 QUESTIONS FOR DISCUSSION

Write True or False against each statement:

(a)

Inventory can be defined as the state of goods.

(b)

ABC analysis ensure the close control over the items of A, B and C categories.

(c)

Head line represent the maximum quantity of inventory.

(d)

Material control help to minimise loose by obsolescence.

Write short notes on following:

(a)

Re-order level

(b)

Minimum stock level

(c)

Maximum stock level

(d)

Danger level

(e)

Average stock level

(f)

EOQ

Briefly comment on the following statements:

(a)

Modem technique be controlling the inventory in a value item analysis known

on ABC.

(b)

When the material is costly the maximum level is likely to be relatively low?

(c)

Danger level is fixed above the minimum.

(d)

There should be well organised issuing system of material.

13.16 TERMINAL QUESTIONS

What do you understand by inventory control?

Discuss the objectives of inventory control.

Discuss the various factors which determine the level of inventory control.

What is an ABC analysis? What are the steps in ABC analysis?

Explain the process of inventory control with example.

In manufacturing a commodity two components X and Y are used as follows:

Normal usage

100 units per week each

Minimum usage

50 units per week each

Maximum usage

150 units per week each

Ordering Quantities

X : 600 units; Y : 1,000 units

Delivery Period

X : 4 to 6 weeks
Y : 2 to 4 weeks

From the following information determine the Re-order point, Minimum Stock Level
and Maximum Stock Level:
(a)

Minimum consumption 500 units per day

(b)

Maximum consumption 875 units per day

469

Quantitative Techniques
for Management

(c)

Normal consumption 625 units per day

(d)

Re-order Quantity 8,800 units

(e)

Minimum period for receiving goods 7 days

(f)

Maximum period for receiving goods 15 days

(g)

Normal period for receiving goods 10 days

A manufacturers requirement for raw materials is 12,800 kgms. per annum. The
purchase price of it is Rs. 50 per kgm. Ordering cost is Rs. 100 per order and
carrying cost is 8% of average inventory. The manufacturer can procure its annual
requirement of raw material higher in one single lot or by ordering of 400, 800, 1600
or 3,200 kgms. quantity. Find which of these order quantities is the Economic Order
Quantity using tabular method.

The annual requirement of a product in a firm is 1,000 units. The purchase price
per unit is Rs. 50; ordering cost is Rs. 150 per order and the carrying cost per unit
of average of inventory is 15%. The firm can procure its annual requirement either
in one single lot or in various alternative losts of 100, 200, 250 or 500 units. Determine
the Economic Order Quantity by Graphical method and with the help of the three
curves, show at EOQ level ordering and carrying costs are equal and total cost is
minimum.

10. Calculate Economic Order Quantity from the following information by using Tabular
method, Graphical method and mathematical method:

11.

Annual usage

10,000 units

Buying cost per order

Rs. 10

Cost per unit

Rs. 50

Cost of carrying inventory

10% of Average Inventory

A company requires annually 12,000 lbs. of a chemical which costs Rs. 250 per lb.
Placing each order costs the company Rs. 22.50, and the carrying cost is 15% of
the cost of average inventory per annum.
(i)

Find Economic Order Quantity and total expenses on the chemical.

(ii)

If in addition, the company decides to maintain a stock of 300 lbs. find the
maximum as well as average inventory.

12. Calculate the Economic Order Quantity from the following information. Also state
what will be the number of orders during the whole year:
Requirement of material per annum

1,250 units

Cost of material per unit

Rs. 200

Cost of placing per order

Rs. 100

Holding cost per unit per annum 8% of average inventory.

13. A manufacturers requirement for a raw material is 2,000 units per year. The
ordering costs are Rs. 10 per order while carrying costs are 16 paise per year per
unit of a average inventory. The purchase price of raw material is Re. 1 per unit.
(a)

Find the Economic Order quantity and the total inventory cost.

(b)

If a discount of 5% is available for orders of 1,000 units, should the

manufacturer accepts this offer?

(The carrying cost per unit per annum remains unchanged.)

470

14. A business unit expect to sell 60,500 units of a commodity during the coming year.
The ordering cost per order is Rs. 840 and the cost per unit of the commodity is Rs.

200. The carrying cost per unit per annum is 0.5% of the average inventory. Find
out Economic Order Quantity. Would it be profitable to the business unit to accepts
a discount offer of 1% on a single order per year. In this case the storing cost per
unit per year will increase to 0.75% of the average inventory.

Inventory Model

15. A manufacturer requires 2,500 units of a raw material per month. The ordering
cost is Rs. 20 per order. The carrying cost in addition to Rs. 3 per unit, is estimated
to be 10% of average inventory per unit per year. The purchase price of the raw
material is Rs. 4 per unit. Find the Economic Lot Size and the Total Inventory Cost.
The manufacturer is offered a discount in purchase price for order of 1,000 units or
more but less than 2,000 units. A further discount is available for orders of 2,000 or
more units. Which of the three ways of purchase he should adopt?

13.17 MODEL
DISCUSSION
3.

(a) True

ANSWERS

(b) True

QUESTIONS

FOR

(d) True

13.18 SUGGESTED READINGS

M.P. Gupta & J.K. Sharma, Operation Research for Management, National Publishing
House.
Mustafi C.K., Operation Research Methods & Practice, Wiley Eastern Ltd.
Peterson & E.A. Silver, Decision System for Inventory Management Production
Planning, Wiley New York.
Stan M.K.D.W. Miller, Inventory Control Theory & Practices, Prentice Hall of India.
Tana H.A., Operation Research Introduction, Macmillan Publishing Company.

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LESSON

14
GAME THEORY

CONTENTS
14.0

Aims and Objectives

14.1

Introduction

14.2

Two-person Zero-sum Game

14.3

Pure Strategies: Game with Saddle Point

14.4

Mixed Strategies: Games without Saddle Point

14.5

Dominance Property

14.6

Solving Problem on the Computer with TORA

14.7

Solving LP Model Games Graphically using Computer

14.8

Let us Sum Up

14.9

Lesson-end Activity

14.10 Keywords
14.11 Questions for Discussion
14.12 Terminal Questions
14.13 Model Answers to Questions for Discussion
14.14 Suggested Readings

14.0 AIMS AND OBJECTIVES

In this lesson we are going to discuss about the various strategies of players. This is done
through games theory. A game refers to the situation in which two three players are
competing.

14.1 INTRODUCTION
Game theory applies to those competitive situations which are technically known as
competitive games or in general known an games. As the game is a competition involving
two or more decisions makers each of whom is keen to win. The basic aim of this
chapter is to study about how the optimal strategies are formulated in the conflict. Thus
we can say that game theory is not related with finding an optimum or winning strategy
for a particular conflict situation. Afterwards we can say that the theory of game is
simply the logic of rational decisions. After reading this unit, you should be able to know
how to take decision under the cut-throat competition and know that outcome of our
business enterprise depends on what the competitor will do.
472

In todays business world, decisions about many practical problems are made in a
competitive situation, where two or more opponents are involved under the conditions of

competition and conflict situations. The outcome does not depend on the decision alone
but also the interaction between the decision-maker and the competitor.

Game Theory

The objective, in theory, of games is to determine the rules of rational behaviour in game
situations, in which the outcomes are dependent on the actions of the interdependent
players. A game refers to a situation in which two or more players are competing. A
player may be an individual, a group or an organization. Game Theory has formulated
mathematical models that can be useful in decision-making in competitive situations. To
get a better insight of the concept, we consider an example of a simple game.
Let us assume that there are only two car manufacturers, company A and company B.
The two companies have market shares for their product. Company A is planning to
increase their market share for the next financial year. The vice-president of company
A has come up with two strategies. One strategy is to modify the outer shape of the car
and to advertise on TV. Company B, knowing that if these strategies are adopted by
company A, it may lead to decrease in its market share, develops similar strategies to
modify the shape of their car and to advertise on TV. Table 14.1 below, gives the pay off
if both the companies adopt these strategies.
Table 14.1: The Pay Off if Both Companies Modify Shape & Advertise on TV
Company B

Company A

Modify shape

Advertise

Modify shape

Advertise

The pay off given is with respect to company A and represents company A. Company
Bs pay off is the opposite of each element. For example, it means that for modification
strategy, Company A wins 4 and company B loses 4.
In a game, each player has a set of strategies available. A strategy of a player is the list
of all possible actions (course of action) that are taken for every pay-off (outcome). The
players also know the outcome in advance. The players in the game strive for optimal
strategies. An optimal strategy is the one, which provides the best situation (maximum
pay-off) to the players.
Payoff Matrix: Company A has strategies A1, A2,, Am, and Company B has strategies
B1,B2,.,Bn. The number of pay-offs or outcomes is m n. The pay-off amn represents
company As gains from Company B, if company A selects strategy m and company B
selects strategy n. At the same time, it is a loss for company B (amn). The pay-off
matrix is given (Table 14.2) with respect to company A.
The game is zero-sum because the gain of one player is equal to the loss of other and
vice-versa.
Table 14.2: Pay-off Matrix
Company B Strategies
B1

a11

a12

a13

a1n

a21

a22

a23

a2n

Company A

a31

a32

a33

a3n

Strategies

am1

am2

am3

amn

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14.2 TWO-PERSON ZERO-SUM GAME

In a game with two players, if the gain of one player is equal to the loss of another player,
then the game is a two person zero-sum game.
A game in a competitive situation possesses the following properties:
i.

The number of players is finite.

ii.

Each player has finite list of courses of action or strategy.

iii.

A game is played when each player chooses a course of action (strategy) out of
the available strategies. No player is aware of his opponents choice until he decides
his own.

iv.

The outcome of the play depends on every combination of courses of action. Each
outcome determines the gain or loss of each player.

14.3 PURE STRATEGIES: GAME WITH SADDLE POINT

The aim of the game is to determine how the players must select their respective
strategies such that the pay-off is optimized. This decision-making is referred to as the
minimax-maximin principle to obtain the best possible selection of a strategy for the
players.
In a pay-off matrix, the minimum value in each row represents the minimum gain for
player A. Player A will select the strategy that gives him the maximum gain among the
row minimum values. The selection of strategy by player A is based on maximin principle.
Similarly, the same pay-off is a loss for player B. The maximum value in each column
represents the maximum loss for Player B. Player B will select the strategy that gives
him the minimum loss among the column maximum values. The selection of strategy by
player B is based on minimax principle. If the maximin value is equal to minimax value,
the game has a saddle point (i.e., equilibrium point). Thus the strategy selected by player
A and player B are optimal.
Example 1: Consider the example to solve the game whose pay-off matrix is given in
Table 14.3 as follows:
Table 14.3: Game Problem

Player B

Player A

The game is worked out using minimax procedure. Find the smallest value in each row
and select the largest value of these values. Next, find the largest value in each column
and select the smallest of these numbers. The procedure is shown in Table 14.4.
Table 14.4: Minimax Procedure

Player B
1

Row Min

Player A

474

Col Max

If Maximum value in row is equal to the minimum value in column, then saddle point
exists.

Game Theory

Max Min = Min Max

1=1
Therefore, there is a saddle point.
The strategies are,
Player A plays Strategy A1, (A

A1).

Player B plays Strategy B1, (B

B1).

Value of game = 1.
Example 2: Solve the game with the pay-off matrix for player A as given in
Table 14.5.
Table 14.5: Game Problem

Player B
B1
A1
Player A A2
A3

Solution: Find the smallest element in rows and largest elements in columns as shown in
Table 14.6.
Table 14.6: Minimax Procedure

Player B
B1

Row min

Column Max

Player A

Select the largest element in row and smallest element in column. Check for the minimax
criterion,
Max Min = Min Max
1=1
Therefore, there is a saddle point and it is a pure strategy.
Optimum Strategy:
Player A

A2 Strategy

Player B

B1 Strategy

The value of the game is 1.

Example 3: Check whether the following game is given in Table 14.7, determinable and
fair.

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Table 14.7: Game Problem

Player B
1
2
1

Player A

Solution: The game is solved using maximin criteria as shown in Table 14.8.
Table 14.8: Maximin Procedure

Player B
2 Row Min

1
1

0
7

8
8

Player A
Column Max

Max Min Min Max

i.e.,

The game is strictly neither determinable nor fair.

Example 4: Identify the optimal strategies for player A and player B for the game,
given below in Table 14.9. Also find if the game is strictly determinable and fair.
Table 14.9: Game Problem

Player B
1

1
4

2
0

Row Min
0

1
4

3
0

Player A
2
Col Max

Max Min = Min Max

0=0
The game is strictly determinable and fair. The saddle point exists and the game has a
pure strategy. The optimal strategies are given in Table 14.10 (a, b).
Table 14.10: Optimal Strategies

1
p1

2
p2

(a) S A

and
1

476

(b)

1
q1

2
q2

Example 5 : Solve the game with the pay off matrix given in Table 14.11 and determine
the best strategies for the companies A and B and find the value of the game for them.

Game Theory

Table 14.11: Game Problem

Company B

Company A

Solution: The matrix is solved using maximin criteria, as shown in Table 14.12 below.
Table 14.12: Maximin Procedure

1
2
3

Company A
Column Max

1
2
1
2

Company B
2
3 Row Min
4
2
2
5
4
5
6
2
2

Max Min = Min Max

2=2
Therefore, there is a saddle point.
Optimum strategy for company A is A1 and
Optimum strategy for company B is B1 or B3.
Check Your Progress 14.1

Discuss two-person zero-sum game.

What is minimax-minimin principle?

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

14.4 MIXED STRATEGIES: GAMES WITHOUT SADDLE

POINT
For any given pay off matrix without saddle point the optimum mixed strategies are
shown in Table 14.13.

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Table 14.13: Mixed Strategies

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Player B
B1
B2
a11
a12

a21

Player A
a22

Let p1 and p2 be the probability for Player A.

Let q1 and q2 be the probability for Player B.
Let the optimal strategy be SA for player A and SB for player B.
Then the optimal strategies are given in Tables 14.14 a & b.
Table 14.14 (a), (b): Optimum Strategies

(a) SA =

and
p1

(b) SB =

p1 and p2 are determined by using the formulae,

p1 =

a 22 a 21
(a11 + a 22 ) (a12 + a 21 )

and p2 = 1 p1

q1 =

a 22 a12
(a11 + a 22 ) (a12 + a 21 )

and q2 = 1- q1

and the value of the game w.r.t. player A is given by,

a11 a22 a12a21
Value of the game, v =
(a11+a22) (a12+a21)
Example 6: Solve the pay-off given Table 14.15 matrix and determine the optimal
strategies and the value of game.
Table 14.15: Game Problem

Player B
1

Player A

Solution: Let the optimal strategies of SA and SB be as shown in Tables 14.16 (a, b).
Table 14.16(a) and (b): Optimal Strategies

(a) SA =

and
p1

478

(b) SB =

The given pay-off matrix is shown below in Table 14.17.

Game Theory

Table 14.17: Pay-off Matrix or Maximin Procedure

Player B
1

Row Min

1 5

Player A

Column Max

Max Min Min Max

34
Therefore, there is no saddle point and hence it has a mixed strategy.
Applying the probability formula,

p1 =

=
p2
q1 =

a 22 a 21
(a11 + a 22 ) (a12 + a 21 )
43
1
1
=
=
(5 + 4 ) (2 + 3 ) 9 5 4
=

1 p1 = 1 =

a 22 a12
(a11 + a 22 ) (a12 + a 21 )
42
2
2 1
=
= =
(5 + 4) (2 + 3) 9 5 4 2
=

1 q1 = 1

1
1
=
2
2

a11a 22 a12 a 21
Value of the game, v = a + a a + a
( 11 22 ) ( 12 21 )

( 5 4 ) (2 3 )
(5 + 4 ) (2 + 3 )

The optimum mixed strategies are shown in Table 14.18 (a, b) below.
Table 14.18(a) and (b): Optimum Mixed Strategies

(a) SA =

and (b) SB =

Value of the game = 3.5

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14.5 DOMINANCE PROPERTY

In case of pay-off matrices larger than 2 2 size, the dominance property can be used
to reduce the size of the pay-off matrix by eliminating the strategies that would never be
selected. Such a property is called a dominance property.
Example 7: Solve the game given below in Table 14.19 after reducing it to 2 2 game:
Table 14.19: Game Problem

Player B

Player A

Solution: Reduce the matrix by using the dominance property. In the given matrix for
player A, all the elements in Row 3 are less than the adjacent elements of Row 2.
Strategy 3 will not be selected by player A, because it gives less profit for player A. Row
3 is dominated by Row 2. Hence delete Row 3, as shown in Table 14.20.
Table 14.20: Reduced the Matrix by Using Dominance Property

Player B

Player A

For Player B, Column 3 is dominated by column 1 (Here the dominance is opposite

because Player B selects the minimum loss). Hence delete Column 3. We get the reduced
2 2 matrix as shown below in Table 14.21.
Table 14.21: Reduced 2 2 Matrix

Player B
1

Player A
Now, solve the 2 2 matrix, using the maximin criteria as shown below in Table 14.22.
Table 14.22: Maximin Procedure

Player B
1

Row Min

Player A
Column Max

Max Min Min Max

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Game Theory

Therefore, there is no saddle point and the game has a mixed strategy.
Applying the probability formula,
p1

26
(1+ 2) (7 + 6)

4
4
2
=
=
3 13 10 5
2 3
=
5 5

= 1

= 1 q1 = 1
=

Value of the game, v

27
5
5
1
=
=
=
(1+ 2) (7 + 6) 3 13 10 2
1 1
=
2 2

(1 2) (7 6) 2 42
=
(1+ 2) (7 + 6) 3 13

40
=4
10

The optimum strategies are shown in Table 14.23 (a, b)

Table14.23 (a, b): Optimum Strategies

A1
(a)

SA =

and (b) SB =
2

Value of the game, v = 4

Example 8: Is the following two-person zero-sum game stable? Solve the game given
below in Table 14.24.
Table 14.24: Two-person Zero-sum Game Problem

Player B

Player A

1
2
3
4

1
5
6
8
3

2
10
7
7
4

3
9
8
15
1

4
0
1
1
4

Solution: Solve the given matrix using the maximin criteria as shown in Table 14.25.
Table 14.25: Maximin Procedure

1
Player A 2
3
4
Column Max

1
5
6
8
3
8

Player B
2
3
10
9
7
8
7
15
4
1
7
15

4
0
1
1
4
4

Row Min
10
1
1
1
481

Max Min Min Max

Quantitative Techniques
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31
Therefore, there is no saddle point and hence it has a mixed strategy.
The pay-off matrix is reduced to 22 size using dominance property. Compare the rows
to find the row which dominates other row. Here for Player A, Row 1 is dominated by
Row 3 (or row 1 gives the minimum profit for Player A), hence delete Row 1. The
matrix is reduced as shown in Table 14.26.
Table 14.26: Use Dominance Property to Reduce Matrix (Deleted Row 1)

Player B
1

Player A

-1

When comparing column wise, column 2 is dominated by column 4. For Player B, the
minimum profit column is column 2, hence delete column 2. The matrix is further reduced
as shown in Table 14.27.
Table 14.27: Matrix Further Reduced to 33 (2 Deleted Column)

Player B

Player A

Now, Row 2 is dominated by Row 3, hence delete Row 2, as shown in Table 14.28.
Table 14.28: Reduced Matrix (Row 2 Deleted)

Player B

Player A

Now, as when comparing rows and columns, no column or row dominates the other.
Since there is a tie while comparing the rows or columns, take the average of any two
rows and compare. We have the following three combinations of matrices as shown in
Table 14.29(a) (b) and (c).

482

Game Theory

Table 14.29 (a, b, c): Matrix Combinations

(a) B

(b) B

R1 + R3
R3
2

11.5

R +R
R1 3 4
2

1.5

R1 + R 4
2

4.5

3.5

When comparing column 1 and the average of column 3 and column 4, column 1 is
dominated by the average of column 3 and 4. Hence delete column 1. Finally, we get the
2 2 matrix as shown in Table 14.30.
Table 14.30: 22 Matrix After Deleting Column 1

Player B

Player A

The strategy for the arrived matrix is a mixed strategy; using probability formula, we find
p1, p2 and q1, q2.
p1

4 ( 1)

(15 + 4 ) (1 + ( 1))
5
19

Value of the game, v

5
9

14
9

41 3
=
19
19
3
16
=
19 19

(15 4) (1 ( 1))
(15 + 4) (1+ ( 1))

60 + 1
19

61
19

The optimum mixed strategies are given below in Table 14.31 (a, b)
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Table 14.31(a) and (b): Optimum Mixed Strategies

A1 A2 A3 A4
(a) SA =

and (b) SB =
0

/19

14.6 SOLVING PROBLEM ON THE COMPUTER WITH

TORA
Pure strategy problem
Example 9: is solved using computer with TORA. From Main menu of TORA package
select Zero-sum Games option. Click Go to Input Screen Enter the input values of
the problem as shown in the Figure 14.1.

Figure 14.1: Solving Pure Strategy Problem Using TORA (Input Screen)

Now, go to Solve menu and click. Another screen appears with Solved Problem Select
solve problem and click LP-based. Then select the output format screen and click Go to
Output Screen. The following output screen is displayed, as shown in Figure 14.2.

484

Game Theory

Figure 14.2: Solving Pure Strategy Problem Using TORA (Output Screen)

The results of the problem can be read directly from the output screen.
Value of the Game to Player A = 1.00
Player A optimal strategies:
Strategies:

Probability:

Player B optimal strategies:

Strategies:

Probability:

The output also includes the linear programming formulation for Player A.

Mixed Strategy Problem

Table 14.32

Player B

Player A

The output screen for the problem is shown in Figure 14.3

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Figure 14.3: Solving Mixed Strategy Problems Using TORA (Output Screen)

Here the players play both the strategies in what turns out to be a mixed strategy game.

Player A :

0.25

0.75

B1
Player B :

0.5

B2
0.5

Value of the game, v = 3.50.

Example 10: Solve the following 2 3 game given below in Table 14.33 graphically,
using computer.
Table 14.33: Game Problem

Player B
B1
B2

Solution: The game does not possess any saddle point and hence the solution has mixed
strategies.
As expected payoffs against Bs pure moves are given by
Table 14.34: Mixed Strategies Compared

Bs pure strategy

486

As expected payoffs

p1 + 9 (1 p1) = 8p1 + 9

3p1 + 5 (1 p1) = 2p1 + 5

10p1 + 2 (1 p1) = 8p1 + 2

The expected payoff equations are plotted as functions of p1 which show the payoffs of
each column represented as points on two vertical axis. Strategy B1 is plotted by joining
value 1 on axis 2 with the value 9 on axis 1. Similarly, other equations are drawn. The
output using TORA is given in the Figure 14.4 below:

Game Theory

Figure 14.4: Graphical Solution of Game Using TORA (Output Screen)

Player A always wants to maximize his minimum expected payoff. Consider the highest
point of intersection I on lower envelope of As expected payoff equation. The lines B 2
and B3 passing through I, are the strategies that B needs to play. Therefore the given
matrix is reduced to 22 matrix as shown in Table 14.35.
Table 14.35: Reduced 22 Matrix

A1
A2

3
5

10
2

Solving the 2x2 matrix, the optimal strategies are obtained using the usual method
Table 14.36: Optimal Strategies

A1
(a)

SA =

0.80

0.20

and (b) SB =
0.30

0.70

The value of the game, v = 4.40.

14.7 SOLVING LP MODEL GAMES GRAPHICALLY

USING COMPUTER
Example 11: Solve the following game shown in Table 14.37, by linear programming.
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Table 14.37: Game Problem

Player B

A1
Player A

The linear programming formulation is given by,

For player A,
Maximize, z = v
Subject to the constraints,
v 4x1 + 3x2 < 0

......................(i)

v + x1 - 4x2 < 0

......................(ii)

v + 4x1 + x2 < 0

......................(iii)

x1 + x 2 = 1

......................(iv)

where,

x1, x2 > 0
v is unrestricted.

For Player B,
Minimize, z = v
Subject to constraints,

where,

v 4y1 + y2 + 4y3 > 0

......................(v)

v + 3y1 4y2 + y3 > 0

......................(vi)

y1 + y2 + y3 = 1

......................(vii)

y1, y2, y3 > 0

v is unrestricted.

The problem can be solved by using linear programming. This can also be solved by
using two-person zero-sum game. The output result is given in Figure 14.5 below:

488

Figure 14.5: Two-person Zero-sum Game, Output Result Using TORA

Game Theory

The optimal strategies are,

Player A :

Player B :

0.11

0.89

0.22

0.78

Value of the game, v = 2.22

Check Your Progress 14.2

Take a type of business problem of your choice in which game theory will be
helpful.
Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

14.8 LET US SUM UP

At the outset, a comprehensive overview of games theory has been applicable to those
competitive situation which are technically known as competitive games. If we
elaborately go into the depth of the word competitions it is a watchword of contemporary
life and competitive situation exists if two or more individually are making decisions in a
circumstances that involves conflicting interests and in which the result is controlled by
the decision of all parties concerned. The initial discussion study with the zero person
game and moves to saddle point further principle of dominance applicable to reduce
the size of matrix and their is a 2n of M2 games which can be solved with the help
of graphical method. In short, the game theory facilitates us to learn how to approves
and comprehend a conflict circumstance and to enhance the decision procedure.

14.9 LESSON-END ACTIVITY

Apply the game theory approach of two television vendor line LG & Samsung for their
advertising strategy.

14.10 KEYWORDS
Two Person Game

: A game that only has two players.

Zero Sum Game

: A game in which one player wins and other player loses.

Dominance

: A process by which the size of the game will be reduced.

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Strategy

: The strategy of a player is the list of all possible actions that

he takes for every pay-off. The strategy is classified into
pure strategy and mixed strategy.

Pure Strategy

: Pure strategy is always selecting a particular course of action

with the probability of 1. For example, in case of two
strategies, probability of selecting the strategies for players
A is p1 = 0 and p2 = 1.

Mixed Strategy

: Mixed strategy is to choose at least two courses of action.

The probability of selecting an individual strategy will be less
than 1, but the sum of the strategies will be 1. For example,
if player A plays a mixed strategy, then the probability of
selection of mixed strategy is p1 = 0.45 and p2 = 0.55. But
the sum of the strategies is 0.45 + 0.55 = 1.

Saddle Point

: Saddle point is a situation where both the players are facing

pure strategies. When there is no saddle point, it indicates
the players will play both the strategies.

Minimax Criterion

: Minimax criterion is selecting the strategies that minimize

the loss for each player. In other words, the player always
anticipates worst possible outcome and chooses the strategy
to get maximum for profit and minimum for loss.

Value of the Game

: The Value of the game is the expected gain of player A if

both players use their best strategies. The best strategy is
arrived at using minimax criterion.

14.11 QUESTIONS FOR DISCUSSION

490

Write True or False against each statement:

(a)

Graphical method can only be used in games with no saddle point.

(b)

Concept of dominance is very useful for expanding the size of the matrix.

(c)

Saddle point in a pay off matrix is one which is smallest value in its row and
the largest value in its column.

(d)

In two-person zero-sum game there will be more than two choices.

Briefly comment on the following:

(a)

Dominance occurs in the pay-off matrix.

(b)

Best strategic are mixed strategies if there is no involvement of saddle point.

(c)

Graphical method is feasible for Small values.

(d)

When the game have no saddle point & also cannot be reduced by dominance.

(e)

In game theory we determine the best strategies for each player.

(f)

A saddle point is an element of the matrix.

Fill in the blank:

(a)

Game theory applies to those _________ situation which are technically

known as competitive game.

(b)

Strategy could be _________ or one.

(c)

A game involving n-players is called a _________ game.

(d)

Every course of action is a _________ strategy.

(e)

In game theory all players act _________.

Game Theory

Write short Notes on following:

(a)

The value of a game

(b)

The sum & non-zero-sum games.

(c)

Maximum & Minimum strategy

(d)

Concept of dominance.

(e)

Pure strategy

(f)

Mixed strategy

(g)

Pay-off matrix

(h)

Saddle point

(i)

Optimum strategies.

14.12 TERMINAL QUESTIONS

What are the properties of Two-person Zero-sum game?

Define Pure strategy and Mixed strategy.

What is meant by the saddle point?

What is meant by a Fair Game?

Explain how games can be solved using the dominance property.

Exercise Problems
1.

Using maximin criteria, identify whether the players play pure strategy or mixed
strategies

(a)

Player B
1

(b)

Player B
1

Solve the game and determine whether it is strictly determinable.

(a)

Player B
B1

Player A

491

Quantitative Techniques
for Management

(b)

Player B

Player A

Determine the optimum strategies of players.

B
1
1
A

10 30

B
3

20 40

20 30

5 10

Solve the game.

Company B
(a)

Company B

B1 B2 B3

(b)

B1 B2 B3

A1 15 25 35
Company A

A2 5

A1 7

10 45

Company A A2 1

A3 65 55 35

A3 4

3 2
3

Consider the payoff matrix of player A and solve.

Player B
1

Player A

Solve the following sequence game using dominance property.

Company A

A
Company B

III

492

Game Theory

Use dominance property to solve the following game.

A1 4

A2 8

A3 10

Solve the following two-person zero-sum game to find the value of the game.

Company B

Company A

-3

Solve the game whose payoff matrix is given for a 2 2 matrix.

(a)

(b)

10. Solve the game graphically.

B
B1

-2

A
11.

Use dominance property to reduce the matrix and solve it graphically

Player B

Player A

12. Formulate a linear programming model for the following game.

Player B

Player A

493

Quantitative Techniques
for Management

14.13 MODEL
DISCUSSION
1.

(a) True

(a) competitive

ANSWERS

(b) False (c) True

QUESTIONS

FOR

(d) False

(b) pure, mixed

(d) pure

(e) intelligently.

14.14 SUGGESTED READINGS

Davis. M, Game Theory: A Nontechnical Introduction, New York; Basic Books, Inc.
Lucas, An Overview of the Mathematical Theory of Game Management Science
Vol. 8, No. 8, Part-II.
Luce R.D. & Raiffa. H, Game & Decisions, New York, John Wiley & Sam.
Rapport, A., Two Person Game Theory, Anne Arbric, Michiger: The University of
Nichigan Press, 1966.
Shubik. M, The Uses & Methods of Game Theory, New York; American Elsevier.
Van Neumain, J. & Morgen Stan. O, Theory of Games & Economic Behaviour.

494

LESSON

15
SIMULATION

CONTENTS
15.0

Aims and Objectives

15.1

Introduction

15.2

Advantages and Disadvantages of Simulation

15.3

Monte Carlo Simulation

15.4

Simulation of Demand Forecasting Problem

15.5

Simulation of Queuing Problems

15.6

Simulation of Inventory Problems

15.7

Let us Sum Up

15.8

Lesson-end Activities

15.9

Keywords

15.10 Questions for Discussion

15.11 Terminal Questions
15.12 Model Answers to Questions for Discussion
15.13 Suggested Readings

15.0 AIMS AND OBJECTIVES

This is the last lesson of the QT which will discuss about the Mathematical analysis and
mathematical technique simulation technique is considered as a valuable tool because
wide area of applications.

15.1 INTRODUCTION
In the previous chapters, we formulated and analyzed various models on real-life problems.
All the models were used with mathematical techniques to have analytical solutions. In
certain cases, it might not be possible to formulate the entire problem or solve it through
mathematical models. In such cases, simulation proves to be the most suitable method,
which offers a near-optimal solution. Simulation is a reflection of a real system,
representing the characteristics and behaviour within a given set of conditions.
In simulation, the problem must be defined first. Secondly, the variables of the model are
introduced with logical relationship among them. Then a suitable model is constructed.
After developing a desired model, each alternative is evaluated by generating a series of
values of the random variable, and the behaviour of the system is observed. Lastly, the
results are examined and the best alternative is selected the whole process has been
summarized and shown with the help of a flow chart in the Figure 90.

Quantitative Techniques
for Management

Simulation technique is considered as a valuable tool because of its wide area of application.
It can be used to solve and analyze large and complex real world problems. Simulation
provides solutions to various problems in functional areas like production, marketing,
finance, human resource, etc., and is useful in policy decisions through corporate planning
models. Simulation experiments generate large amounts of data and information using a
small sample data, which considerably reduces the amount of cost and time involved in
the exercise.
For example, if a study has to be carried out to determine the arrival rate of customers at
a ticket booking counter, the data can be generated within a short span of time can be
used with the help of a computer.
Problem Definition

Introduction of Variables

Construction of Simulation Model

Testing of variables with values

Simulate

Examination of results

Not Acceptable

Acceptable
Selection of best alternative

Figure 15.1: Simulation Process

15.2 ADVANTAGES
SIMULATION

AND

DISADVANTAGES

Advantages
l

Simulation is best suited to analyze complex and large practical problems when it is
not possible to solve them through a mathematical method.

Simulation is flexible, hence changes in the system variables can be made to select
the best solution among the various alternatives.

In simulation, the experiments are carried out with the model without disturbing the
system.

Policy decisions can be made much faster by knowing the options well in advance
and by reducing the risk of experimenting in the real system.

Disadvantages

496

Simulation does not generate optimal solutions.

It may take a long time to develop a good simulation model.

In certain cases simulation models can be very expensive.

The decision-maker must provide all information (depending on the model) about
the constraints and conditions for examination, as simulation does not give the
answers by itself.

Simulation

15.3 MONTE CARLO SIMULATION

In simulation, we have deterministic models and probabilistic models. Deterministic
simulation models have the alternatives clearly known in advance and the choice is
made by considering the various well-defined alternatives. Probabilistic simulation model
is stochastic in nature and all decisions are made under uncertainty. One of the probabilistic
simulation models is the Monte Carlo method. In this method, the decision variables are
represented by a probabilistic distribution and random samples are drawn from probability
distribution using random numbers. The simulation experiment is conducted until the
required number of simulations are generated. Finally, the best course of action is selected
for implementation. The significance of Monte Carlo Simulation is that decision variables
may not explicitly follow any standard probability distribution such as Normal, Poisson,
Exponential, etc. The distribution can be obtained by direct observation or from past
records.
Procedure for Monte Carlo Simulation:
Step 1: Establish a probability distribution for the variables to be analyzed.
Step 2: Find the cumulative probability distribution for each variable.
Step 3: Set Random Number intervals for variables and generate random numbers.
Step 4: Simulate the experiment by selecting random numbers from random numbers
tables until the required number of simulations are generated.
Step 5: Examine the results and validate the model.

15.4 SIMULATION
PROBLEM

DEMAND

FORECASTING

Example 1: An ice-cream parlor's record of previous months sale of a particular variety

of ice cream as follows (see Table 15.1).
Table 15.1: Simulation of Demand Problem
Demand (No. of Ice-creams)

No. of days

Simulate the demand for first 10 days of the month

Solution: Find the probability distribution of demand by expressing the frequencies in
terms of proportion. Divide each value by 30. The demand per day has the following
distribution as shown in Table 15.2.
Table 15.2: Probability Distribution of Demand
Demand
4
5
6
7
8

Probability
0.17
0.33
0.20
0.27
0.03

Find the cumulative probability and assign a set of random number intervals to various
demand levels. The probability figures are in two digits, hence we use two digit random
numbers taken from a random number table. The random numbers are selected from
the table from any row or column, but in a consecutive manner and random intervals are
set using the cumulative probability distribution as shown in Table 15.3.

497

Quantitative Techniques
for Management

Table 15.3: Cumulative Probability Distribution

Demand
4

Probability
0.17

Cumulative Probability
0.17

Random Number Interval

00-16

0.33

0.50

17-49

0.20

0.70

50-69

0.27

0.97

70-96

0.03

1.00

97-99

To simulate the demand for ten days, select ten random numbers from random number
tables. The random numbers selected are,
17, 46, 85, 09, 50, 58, 04, 77, 69 and 74
The first random number selected, 7 lies between the random number interval 17-49
corresponding to a demand of 5 ice-creams per day. Hence, the demand for day one
is 5. Similarly, the demand for the remaining days is simulated as shown in Table 15.4.
Table 15.4: Demand Simulation
Day

Random Number
Demand

Example 2: A dealer sells a particular model of washing machine for which the probability
distribution of daily demand is as given in Table 15.5.
Table 15.5: Probability Distribution of Daily Demand
Demand/day

Demand

0.05

0.25

0.20

0.25

0.10

0.15

Find the average demand of washing machines per day.

Solution: Assign sets of two digit random numbers to demand levels as shown in
Table 15.6.
Table 15.6: Random Numbers Assigned to Demand
Demand
0
1
2
3
4
5

Probability
0.05
0.25
0.20
0.25
0.10
0.15

Cumulative Probability
0.05
0.30
0.50
0.75
0.85
1.00

Random Number Intervals

00-04
05-29
30-49
50-74
75-84
85-99

Ten random numbers that have been selected from random number tables are 68, 47, 92,
76, 86, 46, 16, 28, 35, 54. To find the demand for ten days see the Table 15.7 below.
Table 15.7: Ten Random Numbers Selected

498

Trial No

Random Number

Demand / day

Total Demand

Simulation

Average demand =28/10 =2.8 washing machines per day.

The expected demand /day can be computed as,
n

P X

Expected demand per day =

i =0

i i

.......................(1)

where, pi = probability and xi = demand

= (0.05 0) + (0.25 1) + (0.20 2) + (0.25 3) + (0.1 4) + (0.15 5)
= 2.55 washing machines.
The average demand of 2.8 washing machines using ten-day simulation differs significantly
when compared to the expected daily demand. If the simulation is repeated number of
times, the answer would get closer to the expected daily demand.
Example 3: A farmer has 10 acres of agricultural land and is cultivating tomatoes on
the entire land. Due to fluctuation in water availability, the yield per acre differs. The
probability distribution yields are given below:
a.

The farmer is interested to know the yield for the next 12 months if the same water
availability exists. Simulate the average yield using the following random numbers
50, 28, 68, 36, 90, 62, 27, 50, 18, 36, 61 and 21, given in Table 15.8.
Table 15.8: Simulation Problem

Yield of tomatoes per acre (kg)

Probability

200

0.15

220

0.25

240

0.35

260

0.13

280

0.12

Due to fluctuating market price, the price per kg of tomatoes varies from Rs. 5.00
to Rs. 10.00 per kg. The probability of price variations is given in the Table 216
below. Simulate the price for next 12 months to determine the revenue per acre.
Also find the average revenue per acre. Use the following random numbers 53, 74,
05, 71, 06, 49, 11, 13, 62, 69, 85 and 69.
Table 15.9: Simulation Problem
Price per kg (Rs)

Probability

5.50

0.05

6.50

0.15

7.50

0.30

8.00

0.25

10.00

0.15

Solution:
Table 15.10: Table for Random Number Interval for Yield
Yield of tomatoes
per acre

Probability

Cumulative Probability

Random Number
Interval

200

0.15

00 14

220

0.25

0.40

15 39

240

0.35

0.75

40 74

260

0.13

0.88

75 87

280

0.12

1.00

88 99

499

Quantitative Techniques
for Management

Table 15.11: Table for Random Number Interval for Price

Price Per Kg

Probability

Cumulative Probability

Random Number Interval

5.00

0.05

00 04

6.50

0.15

0.20

05 19

7.50

0.30

0.50

20 49

8.00

0.25

0.75

50 74

10.00

0.25

1.00

75 99

Table 15.12: Simulation for 12 months period

Month
(1)
1
2
3
4
5
6
7
8
9
10
11
12

Yield
(2)
240
220
240
220
250
240
220
240
220
220
240
220

Price
(3)
8.00
8.00
6.50
8.00
6.50
7.50
6.50
6.50
8.00
8.00
10.00
8.00

Revenue / Acre

(4) = 2 3 (Rs)

1960
1760
1560
1760
1820
1800
1430
1560
1760
1760
2400
1760

Average revenue per acre = 21330 / 12

= Rs. 1777.50
Example 4: J.M Bakers has to supply only 200 pizzas every day to their outlet situated
in city bazaar. The production of pizzas varies due to the availability of raw materials and
labor for which the probability distribution of production by observation made is as follows:
Table 15.13: Simulation Problem
Production per day

196

197

198

199

200

201

202

203

204

Probability

0.06

0.09

0.10

0.16

0.20

0.21

0.08

0.07

0.03

Simulate and find the average number of pizzas produced more than the requirement
and the average number of shortage of pizzas supplied to the outlet.
Solution: Assign two digit random numbers to the demand levels as shown in
Table 15.14
Table 15.14: Random Numbers Assigned to the Demand Levels

500

Demand

Probability

Cumulative Probability

No of Pizzas shortage

196

0.06

00-05

197

0.09

0.15

06-14

198

0.10

0.25

15-24

199

0.16

0.41

25-40

200

0.20

0.61

41-60

201

0.21

0.82

61-81

202

0.08

0.90

82-89

203

0.07

0.97

90-96

204

0.03

1.00

97-99

Selecting 15 random numbers from random numbers table and simulate the production
per day as shown in Table 15.15 below.

Simulation

Table 15.15: Simulation of Production Per Day

Trial Number

Random Number

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

26
45
74
77
74
51
92
43
37
29
65
39
45
95
93

Production Per
day
199
200
201
201
201
200
203
200
199
199
201
199
200
203
203
Total

No of Pizzas over
produced
1
1
1
3
1
3
3
12

No of pizzas
shortage
1
1
1
1
4

The average number of pizzas produced more than requirement

= 12/15
= 0.8 per day
The average number of shortage of pizzas supplied
= 4/15
= 0.26 per day
Check Your Progress 15.1

Discuss the role of simulation in demand forecasting.

What is Monte Carlo simulation?

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

15.5 SIMULATION OF QUEUING PROBLEMS

Example 5: Mr. Srinivasan, owner of Citizens restaurant is thinking of introducing
separate coffee shop facility in his restaurant. The manager plans for one service counter
for the coffee shop customers. A market study has projected the inter-arrival times at
the restaurant as given in the Table 15.16. The counter can service the customers at the
following rate:

501

Table 15.16: Simulation of Queuing Problem

Quantitative Techniques
for Management

Interarrival times

Service times

Time between two

consecutive arrivals (minutes)

Probability

Service time
(minutes)

Probability

0.15

0.10

0.25

0.20

0.30

0.25

0.2

0.15

Mr. Srinivasan will implement the plan if the average waiting time of a customers in the
system is less than 5 minutes.
Before implementing the plan, Mr. Srinivasan would like to know the following:
i.

Mean waiting time of customers, before service.

ii.

Average service time.

iii.

Average idle time of service.

iv.

The time spent by the customer in the system.

Simulate the operation of the facility for customer arriving sample of 20 cars when the
restaurant starts at 7.00 pm every day and find whether Mr. Srinivasan will go for the
plan.
Solution: Allot the random numbers to various inter-arrival service times as shown in
Table 15.17.
Table 15.17: Random Numbers Allocated to Various Inter-Arrival Service Times
Sl.
No.

502

Random
Number
(Arrival)

Inter
Arrival
Time
(Min)

Arrival
Time at

7.06

7.09

6
7

Service
Starts at

Random
Number
(service)

Service
Time
(Min)

Service
Ends at

7.06

7.10

7.15

7.19

7.20

7.23

7.25

7.29

Waiting Time
Customer

Service
(Min)

7.10

7.13

7.20

7.22

7.27

7.30

7.36

7.34

7.36

7.42

7.39

7.42

7.45

7.41

7.45

7.49

7.47

7.49

7.51

7.52

7.56

7.55

7.56

7.58

8.00

8.04

8.08

8.10

8.12

8.13

8.15

8.17

8.21

8.20

8.21

8.24

8.23

8.24

8.29

Total

Mean waiting time of customer before service = 20/20 = 1 minute

ii.

Average service idle time = 17/20 = 0.85 minutes

iii.

Time spent by the customer in the system = 3.6 + 1 = 4.6 minutes.

Example 6: Dr. Strong, a dentist schedules all his patients for 30 minute appointments.
Some of the patients take more or less than 30 minutes depending on the type of dental
work to be done. The following Table 15.18 shows the summary of the various categories
of work, their probabilities and the time actually needed to complete the work.

Simulation

Table 15.18: Simulation Problem

Time required (minutes)

Probability of category

Filling

0.40

Crown

0.15

Cleaning

0.15

Extraction

0.10

Check-up

0.20

Simulate the dentists clinic for four hours and determine the average waiting time for
the patients as well as the idleness of the doctor. Assume that all the patients show up at
the clinic exactly at their scheduled arrival time, starting at 8.00 am. Use the following
random numbers for handling the above problem: 40,82,11,34,25,66,17,79.
Solution: Assign the random number intervals to the various categories of work as
shown in Table 15.19.
Table 15.19: Random Number Intervals Assigned to the Various Categories
Category of work

Probability

Cumulative probability

Random Number Interval

Filling

0.40

00-39

Crown

0.15

0.55

40-54

Cleaning

0.15

0.70

55-69

Extraction

0.10

0.80

70-79

Check-up

0.20

1.00

80-99

Assuming the dentist clinic starts at 8.00 am, the arrival pattern and the service category
are shown in Table 15.20.
Table 15.20: Arrival Pattern of the Patients
Patient Number

8.00
8.30
9.00
9.30
10.00
10.30
11.00
11.30

40
82
11
34
25
66
17
79

Service Time

Crown
Check-up
Filling
Filling
Filling
Cleaning
Filling
Extraction

60
15
45
45
45
15
45
45

Table 15.21: The arrival, departure patterns and patients waiting time are tabulated.
Time

Event (Patient Number)

Patient Number (Time to go)

Waiting (Patient Number)

8.00

1 arrives

1 (60)

8.30

2 arrives

1 (30)

9.00

1 departure, 3 arrives

2 (15)

9.15

2 depart

3 (45)

9.30

4 arrive

3 (30)

10.00

3 depart, 5 arrive

4 (45)

10.30

6 arrive

4 (15)

5,6

10.45

4 depart

5 (45)

11.00

7 arrive

5 (30)

6,7

11.30

5 depart, 8 arrive

6 (15)

7,8

11.45

6 depart

7 (45)

12.00

End

7 (30)

8
503

Quantitative Techniques
for Management

The dentist was not idle during the simulation period. The waiting times for the patients
are as given in Table 15.22 below.
Table 15.22: Patient's Waiting Time
Patient
1
2
3
4
5
6
7
8

Arrival Time
8.00
8.30
9.00
9.30
10.00
10.30
11.00
11.30

Service Starts
8.00
9.00
9.15
10.00
10.45
11.30
11.45
12.30
Total

Waiting time (minutes)

0
30
15
30
45
60
45
60
285

The average waiting time of patients = 285/8

= 35.625 minutes.

15.6 SIMULATION OF INVENTORY PROBLEMS

A dealer of electrical appliances has a certain product for which the probability distribution
of demand per day and the probability distribution of the lead-time, developed by past
records are as shown in Table 15.23 and 10.24 respectively
Table 15.23: Probability distribution of lead demand
Demand (Units)

Probability

0.05

0.07

0.09

0.15

0.20

0.21

0.10

0.07

0.06

Table 15.24: Probability distribution of lead time

Lead Time (Days)
Probability

1
0.20

2
0.30

3
0.35

4
0.15

The various costs involved are,

Ordering Cost = Rs. 50 per order
Holding Cost = Rs.1 per unit per day
Shortage Cost = Rs. 20 per unit per day
The dealer is interested in having an inventory policy with two parameters, the reorder
point and the order quantity, i.e., at what level of existing inventory should an order be
placed and the number of units to be ordered. Evaluate a simulation plan for 35 days,
which calls for a reorder quantity of 35 units and a re-order level of 20 units, with a
beginning inventory balance of 45 units.
Solution: Assigning of random number intervals for the demand distribution and leadtime distribution is shown in Tables 15.25 and 15.26 respectively.
Table 15.25: Random Numbers Assigned for Demand Per Day

504

Demand per day

Probability

Cumulative probability

Random Number Interval

0.05

00-04

0.07

0.12

05-11

0.09

0.21

12-20

0.15

0.36

21-35

0.20

0.56

36-55

0.21

0.77

56-76

0.10

0.87

77-86

0.07

0.94

87-93

0.06

1.00

94-99

Simulation

Table 15.26: Random Numbers Assigned for Lead-time

Lead Time (Days)

Probability

Cumulative probability

Random Number Interval

0.20

00-19

0.30

0.50

20-49

0.35

0.85

50-84

0.15

1.00

85-99

Table 15.27: Simulation Work-sheet for Inventory Problem (Case 1)

Reorder Quantity = 35 units, Reorder Level = 20 units, Beginning Inventory = 45 units

Day

Random
Number
(Demand)

Demand

Random
Number
(Lead
Time)

Lead
Time
(Days)

Inventory
at end of
day

Qty.
Received

Ordering
Cost

Holding
Cost

Shortage
Cost

Total

300

768

505

Quantitative Techniques
for Management

Table 15.28: Simulation Work-sheet for Inventory Problem (Case II)

Reorder Quantity = 30 units, Reorder Level = 20 units, Beginning Inventory = 45 units

Random
Random
Lead Inventory
Number
Qty. Ordering Holding Shortage
Day Number Demand
Time at end of
(Lead
Received Cost
Cost
Cost
(Demand)
(Days)
day
Time)

506

Total

300

683

The simulation of 35 days with an inventory policy of reordering quantity of 35 units at

the time of inventory level at the end of day is 20 units, as worked out in Table 10.27. The
table explains the demand inventory level, quantity received, ordering cost, holding cost
and shortage cost for each day.

Completing a 35 day period, the costs are

Simulation

Total ordering cost = (6 50) = Rs 300.00

Total holding cost = Rs. 768.00
Since the demand for each day is satisfied, there is no shortage cost.
Therefore, Total cost = 300 + 768
= Rs. 1068.00
For a different set of parameters, with a re-order quantity of 30 units and the same reorder level of 20 units, if the 35-day simulation is performed, we get the total of various
costs as shown in Table 10.28.
Total ordering cost = 6 50 = Rs. 300.00
Total holding cost = Rs. 683.0
Total shortage cost = Rs. 20.00
Therefore,
Total cost

= 300 + 683 + 20
= Rs. 1003.00

If we analyze the combination of both the parameters, Case II has lesser total cost than
Case I. But at the same time, it does not satisfy the demand on 33rd day, that might cause
customer dissatisfaction which may lead to some cost.
In this type of problems, the approach with various combinations of two parameter
values is simulated a large number of times to find the total cost of each experiment,
compare the total cost and select the optimum alternative, i.e., that one which incurs the
lowest cost.
Check Your Progress 15.2

Explain how computer make ideal aides in simulating complex tasks.

What are the two types of computer programming languages that are available
to facilitate the simulation process?

Why in the computer necessary in conducting a real world simulation.

Do you think the application of simulation will enhance strongly in the coming
10 years.

Draw a flow diagram for the simulation of electric-maintenance by the power

corporation of India Ltd.

Notes: (a)

Write your answer in the space given below.

(b)

Please go through the lesson sub-head thoroughly you will get your
answers in it.

(c)

Quantitative Techniques
for Management

15.7 LET US SUM UP

By going through this lesson it is very true and clear that simulation is a reflection of a
real system representing the characteristics and behaviour within a given set of conditions.
The most important point in simulation is that simulation technique is considered as a
valuable tool because of its wide area of application. The most important approach to
solving simulation is the Monte Carlo Simulation which can be solved with the help of
probabilistic and deterministic model. The deterministic simulation mode, have the
alternatives clearly known in advance where as the probabilistic model is stochastic in
nature and all decisions are made under uncertainty.

15.8 LESSON-END ACTIVITIES

Apply the Monte Carlo Simulation technique weather in forecasting.

In the corporate the top Bosses use to take major decisions apply the Simulation
techniques in designing and performing organisations take an industry like Reliance,
Tata, Infosys to support your answer.

15.9 KEYWORDS
Simulation

: A management science analysis that brings into play a

construction and mathematical model that represents a realworld situation.

Random number

: A number whose digits are selected completely at random.

Flow chart

: A graphical means of representing the logic of a simulation

model.

15.10 QUESTIONS FOR DISCUSSION

508

Write True or False against each statement

(a)

Simulations models are built for management problems and require

management input.

(b)

All simulation models are very expensive.

(c)

Simulation is best suited to analyse complex & large practical problem

(d)

Simulation-generate optimal solution.

(e)

Simulation model can not be very expensive.

Fill in the blank

(a)

Simulation is one of the most widely used ________ analysis book.

(b)

Simulation allow, for the ________ of real world complications.

(c)

System ________ in similar to business gaming.

(d)

Monte Carlo method used ________ number.

(e)

Simulation experiments generate large amount of ________ and information.

Briefly comment on the following

(a)

The problem tackled by simulation may range from very simple to extremely
complex.

(b)

Simulations allows us to study the interactive effect of individual components

or variables in order to determine which one is important.

(c)

Simulation is the valuable technique for analysing various maintenance policies

before actually implementing them,

(d)

Simulations technique in considered as a valuable tool because of its wide

area of application.

(e)

Simulation is nothing more or less them the technique of performing sampling

experiment on the model of the system.

Simulation

15.11 TERMINAL QUESTIONS

What is simulation? Give a few areas of its application.

With the help of a flow chart, briefly explain the simulation process.

What are the advantages and limitations of simulation?

What is Monte Carlo simulation?

Explain the procedure of simulation using random numbers.

Explain how simulation is useful in solving queuing and inventory problems.

Exercise Problem
1.

A sweet stall observed that the demand for item Mysorpa per week in one kilogram
pack is as follows:
Demand / week
(per kilo pack)
Frequency

Generate the demand for the next 10 weeks, and also find the average demand.
2.

At a service station, cars arrive for water-wash daily. The probability of number of
cars that arrive are given in the table below. Simulate the number of cars that will
arrive for the next 10 days. Use the following random numbers: 87, 01, 74, 11, 46,
82, 59, 94, 25 and 34.
Cars arrival per day

Probability

0.2

0.15

0.3

0.25

0.05

A private bank has installed an ATM in the city bazaar area. It was found that the
time between an arrival and completion of transaction varies from one minute to
seven minutes. The arrival and service distribution times are given below. Simulate
the ATM operations for the next 30 arrivals.
Probability
Time (minutes)
Arrival

Service

1-2

0.10

0.05

2-3

0.15

3-4

0.30

4-5

0.25

0.20

5-6

0.10

0.15

6-7

0.10

0.15

Use Monte-Carlo simulation technique and determine:

Waiting time of the customers.

Idle time of the ATM.

509

Quantitative Techniques
for Management

The materials manager of a firm wishes to determine the expected mean demand
for a particular item in stock during the re-order lead time. This information is
needed to determine how far in advance to re-order, before the stock level is
reduced to zero. However, both the lead time, and the demand per day for the item
are random variables, described by the probability distribution.
Lead time (days)
1

Probability
0.45

Demand / day (units)

Probability
0.15

0.30

0.25

0.40

0.20

Manually simulate the problem for 30 re-orders, to estimate the demand during
lead time.
5.

A company has the capacity to produce around 300 bikes per day. Daily production
varies from 295 to 304 depending upon getting the clearance from the final inspection
department. The probability distribution of bikes passed through final inspection
per day is given below:
Production per day

Probability

295

0.03

296

0.04

297

0.10

298

0.20

299

0.25

300

0.15

301

0.09

302

0.07

303

0.05

304

0.02

The finished bikes are transported in a long trailer lorry sufficient to accommodate
300 mopeds. Simulate the process for 10 days and find:

The average number of bikes waiting in the factory yard.

The average empty space in the lorry.

In a single pump petrol station, it was observed that the inter-arrival times and
service times are as given in the table. Using the random numbers given, simulate
the queue behaviour for a period of 30 minutes and estimate the probability of the
pump being idle and the mean time spent by a customer waiting to fill petrol.
Inter-arrival time

Service time

Minutes

Probability

Minutes

Probability

0.10

0.17

0.23

0.35

0.23

0.22

0.15

0.10

Use the following random numbers: 93, 14, 72, 10, 21, 81, 87, 90, 38, 10, 29, 17, 11,
68, 10, 51, 40, 30, 52 & 71.
510

A one-man TV service station receives TV sets for repair. TV sets are repaired on
a first come, first served basis. The observations of the study made over a 100
day period are given below.

Simulation

Service

No. of TV sets requiring service

Frequency of request
1

25
Servicing done

No. of TV sets serviced

Frequency of service
1

Simulate a 10 day period of arrival and service pattern.

ABC company stocks certain products. The following data is available:

No. of Units: 0

Probability:

0.2

0.4

0.3

0.1

The variation of lead time has the following distribution

Lead time (weeks): 1

Probabilities:

0.40

0.30

The company wants to know (a) how much to order? and (b) when to order ?
Assume that the inventory in hand at the start of the experiment is 20 units and 15
units are ordered closed as soon as inventory level falls to 10 units. No back orders
are allowed. Simulate the situation for 25 weeks.
9.

A box contains 100 balls of which 20 percent are white, 30 percent are black and
the remaining are red. Simulate the process for drawing balls at random from the
box, identify and note the colour and then replace. Use the following 10 random
numbers to simulate: 52, 60, 02, 3379, 79, 30, 36, 58 and 43.

10. Rahul, the captain of the cricket team, has the following observations on the number
of runs scored against type of ball. The bowling probability of a bowler for the type
of balls bowled are given below.
Type of bowling

Probability of hitting a boundary

Over pitched

0.1

Short-Pitched

0.3

Outside off stump

0.2

Outside leg stump

0.15

Bouncer

0.20

Attempted Yorker

0.05
511

Quantitative Techniques
for Management

The number of runs scored off each type of ball is shown in the table given below:
Type of bowling

Probability of hitting a boundary

Over pitched

Short-Pitched

Outside off stump

Out side leg stump

Bouncer

Attempted Yorker

Simulate the game for 3 overs (6 balls per over) and calculate the batting average
of Rahul.

15.12 MODEL
DISCUSSION

ANSWERS

(a) True

(b) False

(a) Quantitative (b) Inclusion

QUESTIONS

FOR

(d) False

(e) False

(d) Random

(e) Data

15.13 SUGGESTED READINGS

Ernshoff, J.R. & Sisson, R.L. Computer Simulations Models, New York Macmillan
Company.
Gordon G., System Simulation, Englewood cliffs N.J. Prentice Hall.
Chung, K.H. Computer Simulation of Queuing System Production & Inventory
Management Vol. 10.
Shannon, R. I. Systems Simulation. The act & Science. Englewood Cliffs, N.J. Prentice
Hall.

512

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