Management Science

(EBM2123)
Probability Concepts & Application

Prepared by: Mohd Uzairi

Probability : Introduction
A probability is a numerical statement about the likelihood
that an event will occur

Activity / Experiment Event / Outcome

Toss a coin Head, tail
Select a part for inspection Defective, non-defective
Conduct a sales call Purchase, no purchase
Roll a dice 1, 2, 3, 4, 5, 6
Play a football game Win, Lose, tie

 Thesample space of an experiment is the set of all possible

outcomes. Example:

Sample space for coin tossing experiment,

Sample space for rolling a dice,
Fundamental Concepts
 Letindicate the i-th experimental outcome, and the sample
space has a total number of k experimental outcome.

1 2
The probability, P of any The sum of
event, or sample point probabilities for all
occurring is greater than possible outcome
or equal to 0, and less of an activity must
than or equal to 1 equal to 1
for all i
Example
 Inthe experiment of rolling a dice, the total number of outcome
is 6. In general, by randomly rolling a dice, the probability of
getting any number, say number 3 is

The sum of probabilities for all possible outcome is

Type of Probability
Classical Method
• When the assumption of equally likely outcomes is used as a basis of assigning
probabilities.
• Also referred as logical method.
• Example: Coin tossing, rolling a dice

Relative Frequency Method

• Probabilities are assigned based on the number of occurrence of an event in relative
to the total number of trials.

• Often used when historical data of occurrence of an event is available.

Subjective Method
• When logic and past history are not appropriate, probabilities can be assessed
subjectively, depending on one’s experience or judgment.
• Example: Opinion polls on probability of winning an election
Example of Relative Frequency
In the past 30 days, salesman A has sold either 8,9,10 or 11 of
product XYZ. It never sold fewer than 8 or more than 11. Assuming
the past is similar to the future, find the probabilities of the
number of product sold if sales were 8 units on 10 days, 9 units on
12 days, 10 units on 6 days and 11 units on 2 day.

Sales No of Days Probability

8 10 10/30 = 0.333
9 12 12/30 = 0.400
10 6 6/30 = 0.200
11 2 2/30 = 0.067
Total 30 1
Relationship of Probability
Mutually exclusive: When only one of the events
can occur on any one trial.
Example

1. All six outcomes in rolling a dice experiment are mutually

exclusive (only one number can occur at one time).

2. All two outcomes in tossing a coin experiment are mutually

exclusive (only one - head or tail - can occur at one time).

3. In drawing a card experiment, drawing “a Heart” and “a Queen” is

not mutually exclusive (we can have a Queen of Heart)
Relationship of Probability (Cont’d)
Venn Diagram

Mutually Exclusive A B

Not Mutually Exclusive A B

Intersection of A and B
Relationship of Probability (Cont’d)
Collectively exhaustive: When the list of outcomes
includes every possible outcomes
Example

1. All six outcomes in rolling a dice experiment are collectively

exhaustive (one of the six numbers must occur)

2. All two outcomes in tossing a coin experiment are collectively

exhaustive (head or tail - must occur).

3. In drawing a card experiment, drawing “a Heart” and “a Queen” is

not collectively exhaustive (there are other cards besides
“Queen” and “Heart” )
Relationship of Probability (Cont’d)
Venn Diagram

Collectively A B A B
Exhaustive

Not
Collectively A B A B

Exhaustive
 Complement of Event
As sum of possibilities of all possible outcome is 1, in collectively
exhaustive,

A   A c 𝑃 ( 𝐴 ) =1− 𝑃 ( 𝐴 𝑐 )
 

  also known as a complement of A

A B A B C A B C D

  𝐵= 𝐴𝑐   𝐵 ∪ 𝐶 =𝐴𝑐 𝐵 ∪ 𝐶 ∪ 𝐷= 𝐴 𝑐
 
Addition Law
The union of two events is when we are interested in
whether one event or a second event will occur, i.e the
event containing all sample points in A, B or both.

 𝑃 ( 𝐴 ∨𝐵 )=𝑃 ( 𝐴 )+ 𝑃 (𝐵)
A B
 𝑃 ( 𝐴 ∪ 𝐵 ) =𝑃 ( 𝐴 )+ 𝑃 (𝐵)

 𝑃 ( 𝐴 ∨𝐵 )=𝑃 ( 𝐴 )+ 𝑃 ( 𝐵 ) − 𝑃( 𝐴∧𝐵)
A B
 𝑃 ( 𝐴 ∪ 𝐵 ) =𝑃 ( 𝐴 )+ 𝑃 ( 𝐵 ) − 𝑃( 𝐴 ∩ 𝐵)
Addition Law (Example)
1. In the experiment of drawing a card, find the probability of
drawing a 5 or drawing a diamond.
 

2. Find the probability of drawing a 5 or drawing an ace.

 
Exercise (Q1)
In a college course, from 200 students taking the course, 160 passed
in mid-term exam, 140 passed the final exam, and 124 students
passed both exam. After reviewing the grade, the lecturer decided to
give a passing grade to any student who passed at least one of the
two exams. What is the probability of a student receiving a passing
grade in this?
Independent & Dependent Event
Independent event: When the occurrence of one event has no
effect on the probability of occurrence of the second event.

Dependent event: When the occurrence of one event has effect on

the probability of occurrence of the second event.

Example

1. Draw a jack of heart from full deck & draw a queen of club from full
deck :- Independent

2. Your education level & your income level :- Dependent

3. Flood in Kuching & Earthquake in Taiwan :- Independent

4. Win the UEFA Champions League & Win the UEFA Super Cup:-
Dependent
Marginal, Joint & Conditional Probability

Marginal probability
• Also known as simple probability, it is just the
probability of an event occurring

Joint probability
• A probability of event A and event B (and other events)
occurring together, or one after another.

Conditional probability
• A probability of an event A, given that another event B
has taken place.
Example
A bucket contains 3 black balls and 7 green balls. We draw a
ball from the bucket, replace it, and draw a second ball.
• Probability of drawing a black ball : Marginal probability

• Probability of drawing two green balls : Joint probability

• Probability of drawing a green ball in second draw, given that

the first draw is green : Conditional probability

• Probability of drawing a black ball in second draw if the first

draw was green : Conditional probability
Joint & Conditional Probability in Independent Event

In independent event, joint probability of event A and event B, is

 𝑃 ( 𝐴 ∩𝐵 )=𝑃 (𝐴 )× 𝑃 ( 𝐵 )
*Joint probability of event A and B is same as intersection of event A and B

In independent event, (conditional) probability of event A, given B

has occurred is
 𝑃 ( 𝐴|𝐵 ) =𝑃( 𝐴)

Similarly, (conditional) probability of event B, given A has occurred is

 𝑃 ( 𝐵| 𝐴 ) =𝑃(𝐵)
Example
A bucket contains 3 black balls and 7 green balls. We draw a
ball from the bucket, replace it, and draw a second ball.
 • Probability of drawing a black ball : Marginal probability

• Probability of drawing two green balls : Joint probability

• Probability of drawing a green ball in second draw, given that

the first draw is green : Conditional probability

• Probability of drawing a black ball in second draw if the first

draw was green : Conditional probability
Exercise (Q2)
A purchasing agent placed a rush order for a particular material from two
different suppliers, A and B. If neither order arrives in four days, the production
process must be shut down until at least one of the orders arrives. The
probability of supplier A can deliver in four days is 0.55 and B is 0.35.
 
a. What is the probability that both supplier deliver the material in four days?
 

b. What is the probability that at least one supplier delivers the material in four
days?
  

 c. What is the probability the production process is shut down in four days?
Joint & Conditional Probability in Dependent Event

In dependent event, joint probability of event A and event B, is

 𝑃 ( 𝐴 ∩𝐵 )=𝑃 ( 𝐵| 𝐴 ) × 𝑃 ( 𝐴 )

 𝑃 ( 𝐴 ∩𝐵 )=𝑃 ( 𝐴|𝐵 ) × 𝑃 ( 𝐵 )

In dependent event, (conditional) probability of event A, given B has

occurred is
  𝑃 (𝐴 ∩𝐵)
𝑃 ( 𝐴|𝐵 ) =
𝑃(𝐵)

Similarly, (conditional) probability of event B, given A has occurred is

  𝑃 (𝐴 ∩𝐵)
𝑃 ( 𝐵| 𝐴 ) =
𝑃( 𝐴)
 Example

A bucket contains the following balls.

A D B
a) 4 white and lettered
b) 2 white and numbered 1 2
c) 3 yellow and lettered A B C
d) 1 yellow and numbered 1 C

You randomly draw a ball and see it yellow.

? What is then the probability that the ball is
lettered?
 Example (Cont’d)

A bucket contains the following balls.

  A D B
a) 4 white and lettered
b) 2 white and numbered 1 2
c) 3 yellow and lettered A B C
d) 1 yellow and numbered 1 C

You randomly draw a ball and see it yellow.

? What is then the probability that the ball is
lettered?
𝑃 ( 𝐿|𝑌 ) =? ? ?
 
Example (Cont’d)

  𝑃 ( 𝐿∩𝑌 )
𝑃 ( 𝐿|𝑌 ) = =? ? ?
𝑃(𝑌 )
 
Exercise (Q3)
Your stockbroker informs you that if the stock market reaches the
12,500 level by year-end, there is 70% probability that share price
of company A will go up in value. Based your own analysis, there is
only 40% chance of the stock market to reach 12,500 level by year-
end. What is the probability that both stock market will reach
12,500 level and share price of company A will go up?
Exercise (Q4)
A class contains 30 students. Ten are female (F) and from Sarawak
(S); 12 are male (M) and from Sarawak; 6 are female and from
West Malaysia (W); 2 are male and from West Malaysia.
 
A name is randomly selected from the class roster and it is female.
What is the probability that the student is a Sarawakian?
Exercise (Q5)
A quality controller of a manufacturing company has sampled 25
items from the production line. An item will pass the test if it has
no defect, but if it is defective, further test will determine whether
it is minor or major defect. Of the 25 sampled items, 4 have minor
defects and 2 have major defects. What is the probability that an
item has major defect, given that it is defective?
 
Posterior Probabilities
Bayes’ theorem is used to incorporate additional information as it
is made available and help create revised or posterior probabilities.

Prior
Probabilities
Posterior
Bayes’ Process
Probabilities
New
Information
 Example of Posterior Probabilities
 A cup contains two identical dices, however one is loaded (biased)
and one is fair (unbiased). The probability of rolling a 3 on the fair dice
is 1/6 or 0.167. For loaded dice, the probability of tossing a 3 however
is 0.60. Mr. Jones has no idea which dice is which. He select one dice
randomly and toss it. The result is 3.

From above, we know that Mr. Jones select dice at random. So,
…(1)
We also know that,
…(2)
From (1) and (2), we can compute
…(3)
…(4)
 Example of Posterior Probabilities (Cont’d)
 From (3) and (4), we can compute the probability of getting a 3.

…(5)
If a 3 does occur, and if we do not know which dice it come from, the
probability of that dice is fair one is

…(6)
And, the probability of the dice is loaded one

…(7)

These two conditional probabilities of (6) and (7) are

call posterior probabilities
 General Form of Bayes’ Theorem
Posterior probabilities can be computed in a more direct way using a
general form of Bayes’ theorem.

  𝑃 ( 𝐵| 𝐴 ) 𝑃 ( 𝐴 )
𝑃 ( 𝐴|𝐵 ) =
𝑃 ( 𝐵| 𝐴 ) 𝑃 ( 𝐴 )+ 𝑃 ( 𝐵| 𝐴 𝑐 ) 𝑃 ( 𝐴 𝑐 )
Example Using Bayes’ Theorem
Using the same example of loaded and fair dices, we replace
A : Fair dice
Ac : Loaded dice
B : Get 3
  𝑃 ( 𝐵| 𝐴 ) 𝑃 ( 𝐴 )
Therefore, 𝑃 ( 𝐴|𝐵 ) =
𝑃 ( 𝐵| 𝐴 ) 𝑃 ( 𝐴 )+ 𝑃 ( 𝐵| 𝐴 𝑐 ) 𝑃 ( 𝐴 𝑐 )
 
Example Using Bayes’ Theorem (Cont’d)
 

Or,
 
Exercise (Q6)
A car manufacturer, purchase a certain part of car accessories from
suppliers A, B and C. Supplier A supply 60% of the parts, B 30% and C
10%. The quality of part varies among the suppliers, with A, B and C
having 0.25%, 1% and 2% defective rates, respectively. The parts are used
in one of the company top selling car, car XYZ.

a. What is the probability that the car XYZ is assembled with a defective
accessories?
 
 
b. When a defective part is found, which supplier is the likely source?