BSAFC4_PPT_ch05.ppt

Chapter 5 Some Important Discrete Probability Distributions Learning Objectives In this chapter, you learn: The properties of a probability distribution To calculate the expected value, variance, and standard deviation of a probability distribution To calculate probabilities from binomial and Poisson distributions How to use the binomial and Poisson distributions to solve business problems Introduction to Probability Distributions Random Variable Represents a possible numerical value from an uncertain event Discrete Random Variables Can only assume a countable number of values Examples: Roll a die twice Let X be the number of times 4 comes up (then X could be 0, 1, or 2 times) Toss a coin 5 times. Let X be the number of heads (then X = 0, 1, 2, 3, 4, or 5) Discrete Probability Distribution X Value Probability 0 1/4 = 0.25 1 2/4 = 0.50 2 1/4 = 0.25 Discrete Random Variable Summary Measures Expected Value (or mean) of a discrete distribution (Weighted Average) Example: Toss 2 coins, X = # of heads, compute expected value of X: E(X) = (0 x 0.25) + (1 x 0.50) + (2 x 0.25) = 1.0 Discrete Random Variable Summary Measures Variance of a discrete random variable Standard Deviation of a discrete random variable where: E(X) = Expected value of the discrete random variable X Xi = the ith outcome of X P(Xi) = Probability of the ith occurrence of X Discrete Random Variable Summary Measures Example: Toss 2 coins, X = # heads, compute standard deviation (recall E(X) = 1) Binomial Probability Distribution Binomial Probability Distribution Possible Binomial Distribution Settings A manufacturing plant labels items as either defective or acceptable A firm bidding for contracts will either get a contract or not A marketing research firm receives survey responses of “yes I will buy” or “no