Chapter 4 Introduction to Probability

Few events are certain to happen.

Probability offers a numeric measure of the

likelihood of an event occurring

IS 310 – Business Statistics Slide 1

 Probability as a Numerical Measure
of the Likelihood of Occurrence

Increasing Likelihood of Occurrence

0 .5 1
Probability:

The event The occurrence The event

is very of the event is is almost
unlikely just as likely as certain
to occur. it is unlikely. to occur.

IS 310 – Business Statistics Slide 2

 Probability Concepts

 To understand probability, one needs to understand

the following concepts:

 Experiment
 Experimental outcome
 Sample space
 Sample point

IS 310 – Business Statistics Slide 3

 An Experiment and Its Sample Space

An experiment is any process that generates

well-defined outcomes.

The sample space for an experiment is the set of

all experimental outcomes.

An experimental outcome is also called a sample

point.

IS 310 – Business Statistics Slide 4

 Experiment and Outcomes

 Let’s look at the following experiments and their

outcomes.

 Experiment Outcome

 Tossing a coin Head, tail

 Selecting a part Defective, non-defective
 for inspection
 Playing ball game Win, lose, tie
 Conducting a sales Sale, no sale
 call

IS 310 – Business Statistics Slide 5

 Counting Outcomes

 In order to calculate probability, we must be able to

count the total number of outcomes in an experiment.
In simple experiments, it is easy to know the number
of outcomes. In complex experiments, we need some
rules for counting the number of outcomes.

 There are three rules:

 Rule for multiple-step experiments
 Combination
 Permutation

IS 310 – Business Statistics Slide 6

 A Counting Rule for
Multiple-Step Experiments
 If an experiment consists of a sequence of k steps
in which there are n1 possible results for the first step,
n2 possible results for the second step, and so on,
then the total number of experimental outcomes is
given by (n1)(n2) . . . (nk).
 A helpful graphical representation of a multiple-step
experiment is a tree diagram.

IS 310 – Business Statistics Slide 7

 Counting Rule for Multi-step Experiments

 Let’s take the experiment of tossing two coins. How

many total outcomes are possible in this experiment?

 The first coin has two outcomes (H, T)

 The second coin has also two outcomes (H, T)

 Total outcomes is: (2) (2) = 4

 Often, a tree diagram helps. Look at Figure 4.2 (10-

Page 145; 11-Page 152).

IS 310 – Business Statistics Slide 8

 Counting Rule for Multi-step Experiments

 Let’s take another example.

 Kentucky Power & Light Company is starting an
expansion project. The project consists of two stages:
design and construction.
 Design work can be completed in 2, 3 or 4 months
(three outcomes)
 Construction work can be completed in 6, 7 or 8
months (three outcomes)
 Total number of outcomes in this experiment is:
 (3) (3) = 9
 Look at Table 4.1 and Figure 4.3 (10-Page 146; 11-
Page 153).

IS 310 – Business Statistics Slide 9

 Counting Rule for Combinations

A second useful counting rule enables us to count the

number of experimental outcomes when n objects are to
be selected from a set of N objects.
Number of Combinations of N Objects Taken n at a Time

 N N!
CnN   
 n  n !(N  n )!

where: N! = N(N  1)(N  2) . . . (2)(1)

n! = n(n  1)(n  2) . . . (2)(1)
0! = 1

IS 310 – Business Statistics Slide 10

 Counting Rule for Permutations

A third useful counting rule enables us to count the

number of experimental outcomes when n objects are to
be selected from a set of N objects, where the order of
selection is important.
Number of Permutations of N Objects Taken n at a Time

 N N!
PnN  n !  
 n  (N  n )!

where: N! = N(N  1)(N  2) . . . (2)(1)

n! = n(n  1)(n  2) . . . (2)(1)
0! = 1

IS 310 – Business Statistics Slide 11

 Example Problems

A home builder offers four different floor plans, three

different exterior designs and two types of roof.
How many ways can a home buyer choose his/her
home?

4 x 3 x 2 = 24

IS 310 – Business Statistics Slide 12

 Examples on Combinations and Permutations

Combinations:
How many ways can three Republicans be chosen as members of a
committee from a group of seven Republicans?
7 7!
C = ----------- = 35
3 3! (7 – 3)!

Permutations:
Automobile license plates in a state consists of seven letters of the
alphabets; a letter may not be repeated. How many license plates are
possible?
26 26!
P = --------- = 26 x 25 x 24 x 23 x 22 x 21 x 20
7 (26-7)!

IS 310 – Business Statistics Slide 13

 Examples on Combinations and Permutations

Automobile license plates in a state consist of five letters and two

digits. A letter or a digit may be repeated. How many license
plates are possible?
26 26!
The first position may be filled in P = -------------- = 26
1 (26 – 1)!
26 x 26 x 26 x 26 x 26 x 10 x 10

Automobile license plates in CA consist of any combination of

seven letters and/or digits. A letter or a digit may be repeated
seven times. How many license plates are possible?

36 x 36 x 36 x 36 x 36 x 36 x 36

IS 310 – Business Statistics Slide 14

 Examples on Combinations and Permutations

Ten individuals are interested in serving on a board of directors. There are

three positions available. How many ways can the selection be made?
10 10!
C = -------------- = 120
3 3! (10 – 3)!

In a class of 40 students, there are 25 women and 15 men. A committee is

to be selected with 5 women and three men. How many ways can this
selection be made?
25 15 25! 15!
C x C = -------------- x -------------
5 3 5! (25 – 5)! 3! (15 – 3)!

IS 310 – Business Statistics Slide 15

 Examples on Combinations and Permutations

Five different scholarships are to be awarded to five

students. How many ways can these scholarships be
awarded?
5 5!
P = -------- = 5! = 5 x 4 x 3 x 2 = 120
5 (5 – 5)!

IS 310 – Business Statistics Slide 16

 Assigning Probabilities

Classical Method
Assigning probabilities based on the assumption
of equally likely outcomes

Relative Frequency Method

Assigning probabilities based on experimentation
or historical data

Subjective Method
Assigning probabilities based on judgment

IS 310 – Business Statistics Slide 17

 Classical Method

If an experiment has n possible outcomes, this method

would assign a probability of 1/n to each outcome.

Example
Experiment: Rolling a die
Sample Space: S = {1, 2, 3, 4, 5, 6}
Probabilities: Each sample point has a
1/6 chance of occurring

IS 310 – Business Statistics Slide 18

 Relative Frequency Method

 Assigns probabilities based on relative frequencies.

 Let’s take the example (10-Page 149; 11-Page 156)
 Number of patients waiting for service in the X-ray
department of a hospital:
 Number Waiting Number of Days
 0 2
 1 5
 2 6
 3 4
 4 3
 Total 20

IS 310 – Business Statistics Slide 19

 Relative Frequency Method

 The probability of zero patient waiting for service is:

 2/20 = 0.1
 The probability of one patient waiting for service is:
 5/20 = 0. 25
 The probability of two patients waiting for service is:
 6/20 = 0.30

 And so on.

IS 310 – Business Statistics Slide 20

 Subjective Method

 When economic conditions and a company’s

circumstances change rapidly it might be
inappropriate to assign probabilities based solely on
historical data.
 We can use any data available as well as our
experience and intuition, but ultimately a probability
value should express our degree of belief that the
experimental outcome will occur.
 The best probability estimates often are obtained by
combining the estimates from the classical or relative
frequency approach with the subjective estimate.

IS 310 – Business Statistics Slide 21

 Sample Problems

 Problem # 11 (10-Page 152; 11-Page 159)

a. 858/(858+228) = 858/1,086 = 0.79

b. Yes.

Problem # 12 (10-Page 153; 11-Page 160)

a. 55!/(5!) x (55-5)!
b. 1/[55!/(5!)x(55-50!]
c. 1/[55!/(5!)x(55-5)!] x 1/[42!/(1!)x(42-1)!]

IS 310 – Business Statistics Slide 22

 Events and Their Probabilities

An event is a collection of sample points.

The probability of any event is equal to the sum of

the probabilities of the sample points in the event.

If we can identify all the sample points of an

experiment and assign a probability to each, we
can compute the probability of an event.

IS 310 – Business Statistics Slide 23

 Events and Their Probabilities

 Let’s go back to the example of Kentucky Power &

Light Company.
 Suppose, we want to find out the probability of
completing the expansion project in 10 months or
less.
 According to Table 4.3, the following sample points
(2,6), (2,7), (2,8), (3,6), (3,7) and (4,6) provide a
completion time of 10 months or less.
 Thus, the event C that the project can be completed in
10 months or less is:
 P(C) = P(2,6) + P(2,7) + P(2,8) + P(3,6) + P(3,7) + P(4,6)

IS 310 – Business Statistics Slide 24

 Sample Problem

 Problem #20 (10-Page 157; 11-Page 164)

 Given:
 State Number of Companies
 New York 54
 California 52
 Texas 48
 Illinois 33
 Ohio 30

 Find: P(N) = Find: P(T) =

 Find P(B) =

IS 310 – Business Statistics Slide 25

 Some Basic Relationships of Probability

There are some basic probability relationships that

can be used to compute the probability of an event
without knowledge of all the sample point probabilities.

Complement of an Event

Union of Two Events

Intersection of Two Events

Mutually Exclusive Events

IS 310 – Business Statistics Slide 26

 Complement of an Event

The complement of event A is defined to be the event

consisting of all sample points that are not in A.

The complement of A is denoted by Ac.

Sample
Event A Ac Space S

Venn
Diagram

IS 310 – Business Statistics Slide 27

 Union of Two Events

The union of events A and B is the event containing

all sample points that are in A or B or both.

The union of events A and B is denoted by A B

Sample
Event A Event B Space S

IS 310 – Business Statistics Slide 28

 Intersection of Two Events

The intersection of events A and B is the set of all

sample points that are in both A and B.

The intersection of events A and B is denoted by A 

Sample
Event A Event B Space S

Intersection of A and B

IS 310 – Business Statistics Slide 29

 Addition Law

The addition law provides a way to compute the

probability of event A, or B, or both A and B occurring.

The law is written as:

P(A B) = P(A) + P(B)  P(A  B

IS 310 – Business Statistics Slide 30

 Mutually Exclusive Events

Two events are said to be mutually exclusive if the

events have no sample points in common.

Two events are mutually exclusive if, when one event

occurs, the other cannot occur.

Sample
Event A Event B Space S

IS 310 – Business Statistics Slide 31

 Mutually Exclusive Events

If events A and B are mutually exclusive, P(A  B = 0.

The addition law for mutually exclusive events is:

P(A B) = P(A) + P(B)

There is no need to
include “ P(A  B”

IS 310 – Business Statistics Slide 32

 Sample Problem

 Problem #24 (10-Page 162; 11-Page 169)

 a. Let S = Experience surpassed expectation

 N = No response
 M= Met expectation
 F = Fell short of expectation
 P(S) = 1 – P(N) – P(M) – P(F) = 1- 0.04 – 0.65 – 0.26 = 0.05

 b. P(M or S) = P(M) + P(S) = 0.65 + 0.05 = 0.70

IS 310 – Business Statistics Slide 33

 Sample Problem

 Problem # 28 (10-Page 163; 11-Page 170)

 a. P(B or P) = P(B) + P(P) – P(B and P)

 = 0.458 + 0.54 – 0.3 = 0.698

 b. P(neither B nor P) = 1 – P(B or P)

 = 1 – 0.698
 = 0.302

IS 310 – Business Statistics Slide 34

 Conditional Probability

The probability of an event given that another event

has occurred is called a conditional probability.

The conditional probability of A given B is denoted

by P(A|B).

A conditional probability is computed as follows :

P( A  B )
P( A|B) 
P( B)

IS 310 – Business Statistics Slide 35

 Sample Problem

 Problem #33 (10-Page 169-170; 11-Page 176-177)

 Reason
 Quality Cost/Conv Other Total
 FT 0.22 0.20 0.04 0.46
 PT 0.21 0.31 0.02 0.54
 _________________________________________
 0.43 0.51 0.06 1.00
 b. School cost/convenience followed by quality
 c. P(Q given FT) = 0.22/0.46 = 0.47
 d. P(Q given PT) = 0.21/0.54 = 0.39
 e. P(A) = 0.46 P(B) = 0.43 P(A and B) = 0.22
 Since P(A and B) not equal to P(A) * P(B), the events are
 NOT independent

IS 310 – Business Statistics Slide 36

 Multiplication Law

The multiplication law provides a way to compute the

probability of the intersection of two events.

The law is written as:

P(A B) = P(B)P(A|B)

IS 310 – Business Statistics Slide 37

 Independent Events

If the probability of event A is not changed by the

existence of event B, we would say that events A
and B are independent.

Two events A and B are independent if:

P(A|B) = P(A) or P(B|A) = P(B)

IS 310 – Business Statistics Slide 38

 Multiplication Law
for Independent Events

The multiplication law also can be used as a test to see

if two events are independent.

The law is written as:

P(A B) = P(A)P(B)

IS 310 – Business Statistics Slide 39

 Miscellaneous Problems

Problem # 50 (10-Page 180; 11-Page 187)

Rating Frequency
Poor 4
Below Average 8
Average 11
Above Average 14
Excellent 13
a. What is the probability that a randomly selected viewer will rate the
new show as average or better?
(11 + 14 + 13) / 50 = 0.76

b. What is the probability that a viewer will rate the show as below
average or worse?
(8 + 4) / 50 = 0.24

IS 310 – Business Statistics Slide 40

 Miscellaneous Problems

Problem # 57 (10-Page 183; 11-Page 189)

Given: six percent employees suffered lost-time

accidents last year. Fifteen percent who had lost-time
accidents last year will experience the same this year.

a. What percent employees will experience lost-time

accidents in both years?
(0.06) (0.15) = 0.009

b. (0.06) + (0.15) = 0.21

IS 310 – Business Statistics Slide 41

 Miscellaneous Problems

A box contains 20 units of a product of which four are defective and 16 are
good. Four units are selected at random. Calculate the following
probabilities:
a. All four units are defective
P(4D) = P(D) . P(D). P(D). P(D) = (4/20) (3/19) (2/18) (1/17) = 1/4845

b. Two units are defective and two units are good

Two defective units must come Two good units must come from
from the four defective units: the sixteen good units:
4 16
C = 6 ways C = 120 ways
2 2

IS 310 – Business Statistics Slide 42

 Miscellaneous Problems Continued

Four units can be selected from the original 20 units in

20
C = 4845 ways
4
(6) (120)
P(2D and 2G) = ----------- = 144/969
4845

IS 310 – Business Statistics Slide 43

 Miscellaneous Problems Continued

c. At least three units are defective

P(at least 3D) means P(3D or 4D) = P(3D) + P(4D)

4 16 4
C .C C
3 1 4
P(3D) = ----------------- P(4D) = ------------------
20 20
C C
4 4

IS 310 – Business Statistics Slide 44

 Miscellaneous Problems

In how many ways can a television director schedule six different

commercials during the six time slots allocated to commercials during
the telecast of the first quarter of a football game?
6
P = 6! = 720
6

Seven wooden dowels of varying lengths are arranged in a row. What is

the probability that the dowels will be arranged in order of size?
2
P(arranged in order of size) = -----------------
7!

IS 310 – Business Statistics Slide 45

 End of Chapter 4

IS 310 – Business Statistics Slide 46