A PowerPoint Presentation Package to Accompany

Applied Statistics in Business &

Economics, 5th edition

David P. Doane and Lori E. Seward

Prepared by Lloyd R. Jaisingh

McGraw-Hill/Irwin Copyright © 2015 by The McGraw-Hill Companies, Inc. All rights reserved.
 Chapter 6
Discrete Probability Distributions

Chapter Contents

6.1 Discrete Probability Distributions

6.2 Expected Value and Variance
6.3 Uniform Distribution
6.4 Binomial Distribution
6.5 Poisson Distribution
6.6 Hypergeometric Distribution
6.7 Geometric Distribution (Optional)
6.8 Transformations of Random Variables (Optional)

6-2
 Chapter 6
Discrete Probability Distributions

Chapter Learning Objectives (LO’s)

LO6-1: Define a discrete random variable and its probability

distribution.
LO6-2: Solve problems using expected value and variance.
LO6-3: Define and apply the uniform discrete model.
LO6-4: Find binomial probabilities using tables, formulas, or
Excel.
LO6-5: Find Poisson probabilities using tables, formulas, or
Excel.

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 Chapter 6
Discrete Probability Distributions

Chapter Learning Objectives (LO’s)

LO6-6: Use the Poisson approximation to the binomial

(optional).
LO6-7: Find hypergeometric probabilities using Excel
LO6-8: Use the binomial approximation to the hypergeometric
(optional).
LO6-9: Calculate geometric probabilities (optional).
LO6-10: Apply rules for transformations of random variables
(optional).

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 Chapter 6
LO6-1 6.1 Discrete Distributions
LO6-1: Define a discrete random variable and its
probability distribution.
Random Variables
• A random variable is a function or rule that assigns a
numerical value to each outcome in the sample space
of a random experiment.
• Nomenclature:
- Upper case letters are used to represent
random variables (e.g., X, Y).
- Lower case letters are used to represent
values of the random variable (e.g., x, y).
• A discrete random variable has a countable number of
distinct values. 6-5
 Chapter 6
LO6-1 6.1 Discrete Distributions

Probability Distributions
• A discrete probability distribution assigns a probability to
each value of a discrete random variable X.
• To be a valid probability distribution, the following must
be satisfied.

6-6
 Chapter 6
LO6-1 6.1 Discrete Distributions

Example: Coin Flips Table 6.1)

When a coin is flipped 3 times, the sample space will
be S = {HHH, HHT, HTH, THH, HTT, THT, TTH, TTT}.

If X is the number
of heads, then X
is a random
variable whose
probability
distribution is
given in Table
6.1.

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 Chapter 6
LO6-1 6.1 Discrete Distributions

Example: Coin Flips

Note that the values of X need Note also that a discrete probability
not be equally likely. However, distribution is defined only at specific
they must sum to unity. points on the X-axis.

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 Chapter 6
LO6-1 6.1 Discrete Distributions

What is a PDF or CDF?

• A probability distribution function (PDF) is a mathematical function

that shows the probability of each X-value.

• A cumulative distribution function (CDF) is a mathematical function

that shows the cumulative sum of probabilities, adding from the
smallest to the largest X-value, gradually approaching unity.

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 Chapter 6
LO6-1 6.1 Discrete Distributions
What is a PDF or CDF?
Consider the following illustrative histograms:
CDF = P(X ≤ x)
0.25
PDF = P(X = x) 1.00
0.90
0.20 0.80
0.70
Probability

0.15

Probability
0.60
0.50
0.10 0.40
0.30
0.05 0.20
0.10
0.00 0.00
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Value of X Value of X

Illustrative PDF Cumulative CDF

(Probability Density Function) (Cumulative Density Function)

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 Chapter 6
LO6-2 6.2 Expected Value and Variance

LO6-2: Solve problems using expected value and variance.

Expected Value
• The expected value E(X) of a discrete random variable is the
sum of all X-values weighted by their respective probabilities.
• E(X) is a measure of central tendency.
• If there are n distinct values of X, then

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 Chapter 6
LO6-2 6.2 Expected Value and Variance

Example: Service Calls

• The distribution of Sunday emergency service calls by Ace Appliance
Repair is shown in Table 6.2. The probabilities sum to 1, as must be
true for any probability distribution.

E(X) = μ = 0(.05) + 1(.10) + 2(.30) + 3(.25) + 4(.20) + 5(.10) = 2.75

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 Chapter 6
LO6-2 6.2 Expected Value and Variance

Example: Service Calls

This particular probability

distribution is not
symmetric around the
mean m = 2.75.
However, the mean is
still the balancing point,
or fulcrum.

m = 2.75

E(X) is an average and it does not have to be an observable point.

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 Chapter 6
LO
LO6-2 6.2 Expected Value and Variance
Variance and Standard Deviation
• If there are n distinct values of X, then the variance of a
discrete random variable is:

• The variance is a weighted average of the dispersion

about the mean, denoted either as s2 or V(X). It is a
measure of variability.
• The standard deviation is the square root of the variance
and is denoted s.

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 Chapter 6
LO6-2 6.2 Expected Value and Variance
Example: Bed and Breakfast
• The Bay Street Inn is a seven-room bed-and-breakfast in the sunny California
coastal city of Santa Theresa. Demand for rooms generally is strong during
February, a prime month for tourists. However, experience shows that demand
is quite variable. The probability distribution of room rentals during February is
shown in Table 6.4 where X = the number of rooms rented (X = 0, 1, 2, 3, 4, 5,
6, 7). The worksheet shows the calculation of E(X) and Var(X).

6-15
 Chapter 6
LO6-2 6.2 Expected Value and Variance
Example: Bed and Breakfast
The histogram shows that the distribution is skewed to the
left and bimodal.
0.30

0.25

0.20
The mode is 7 Probability

rooms rented but 0.15

the average is only 0.10

4.71 room rentals. 0.05

0.00
0 1 2 3 4 5 6 7
Number of Rooms Rented

s = 2.06 indicates considerable variation around m.

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 Chapter 6
LO6-3 6.3 Uniform Distribution

LO6-3: Define and apply the uniform discrete model.

Characteristics of the Uniform Discrete Distribution

• The uniform distribution describes a random variable
with a finite number of integer values from a to b (the
only two parameters).
• Each value of the random variable is equally likely to
occur.
• Consider the following characteristics of the uniform
discrete distribution:

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 Chapter 6
LO6-3 6.3 Uniform Distribution

Characteristics of the Uniform Discrete Distribution

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 Chapter 6
LO6-3 6.3 Uniform Distribution

Example: Rolling a Die

• The number of dots on the roll of a die form a uniform random
variable with six equally likely integer values: 1, 2, 3, 4, 5, 6.
• What is the probability of getting any of these on the roll of a die?

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 Chapter 6
LO6-3 6.3 Uniform Distribution

Example: Rolling a Die

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 Chapter 6
LO6-4 6.4 Binomial Distribution
LO6-4: Find binomial probabilities using tables, formulas,
or Excel.
Bernoulli Experiments
• A random experiment with only 2 outcomes is a Bernoulli
experiment.
• One outcome is arbitrarily labeled a “success” (denoted X = 1)
and the other a “failure” (denoted X = 0).
• p is the P(success), 1 – p is the P(failure).
• “Success” is defined as the less likely outcome so that p < .5 for
convenience.
• Note that P(0) + P(1) = (1 – p) + p = 1 and 0 ≤ p ≤ 1.
• The expected value (mean) and variance of a Bernoulli experiment
is calculated as:
• E(X) =  and V(X) = (1 - )
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 Chapter 6
LO6-4 6.4 Binomial Distribution

Characteristics of the Binomial Distribution

• The binomial distribution arises when a Bernoulli

experiment is repeated n times.
• Each trial is independent so the probability of success p
remains constant on each trial.
• In a binomial experiment, we are interested in X = number
of successes in n trials. So .
• The probability of a particular number of successes P(X)
is determined by parameters n and p.

6-22
 Chapter 6
LO6-4 6.4 Binomial Distribution

Characteristics of the Binomial Distribution

6-23
 Chapter 6
LO6-4 6.4 Binomial Distribution

Example: Quick Oil Change Shop

• It is important to quick oil change shops to ensure that a
car’s service time is not considered “late” by the
customer.
• Service times are defined as either late or not late.
• X is the number of cars that are late out of the total
number of cars serviced.
• Assumptions:
- cars are independent of each other
- probability of a late car is consistent

6-24
 Chapter 6
LO6-4 6.4 Binomial Distribution
Example: Quick Oil Change Shop
• What is the probability that exactly 2 of the next n = 12
cars serviced are late (P(X = 2))?
• P(car is late) = p = .10
• P(car is not late) = 1 - p = .90

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 Chapter 6
LO6-4 6.4 Binomial Distribution

Application: Uninsured Patients

• On average, 20% of the emergency room patients at

Greenwood General Hospital lack health insurance.
• In a random sample of 4 patients, what is the probability
that at least 2 will be uninsured?
• X = number of uninsured patients (“success”)
• P(uninsured) = p = 20% = 0.20.
• P(insured) = 1 – p = 1 - .20 = .80.
• n = 4 patients
• The range is X = 0, 1, 2, 3, 4 patients.

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 Chapter 6
LO6-4 6.4 Binomial Distribution

Compound Events
• Individual probabilities can be added to obtain any
desired event probability.
• For example, the probability that the sample of 4
patients will contain at least 2 uninsured patients is
(HINT: What inequality means “at least?”).
• P(X  2) = P(2) + P(3) + P(4)
• = .1536 + .0256 + .0016 = .1808

6-27
 Chapter 6
LO6-4 6.4 Binomial Distribution

Compound Events
• What is the probability that fewer than 2 patients have
insurance? HINT: What inequality means “fewer than?”
• P(X < 2) = P(0) + P(1) = .4096 + .4096 = .8192.
• What is the probability that no more than 2 patients have
insurance? HINT: What inequality means “no more than?”
• P(X  2) = P(0) + P(1) + P(2) = .4096 + .4096 + .1536
= .9728

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 Chapter 6
LO6-4 6.4 Binomial Distribution

Compound Events
It is helpful to sketch a diagram:

6-29
 Chapter 6
LO6-5 6.5 Poisson Distribution
LO6-5: Find Poisson probabilities using tables, formulas,
or Excel.
• The Poisson distribution describes the number of occurrences
within a randomly chosen unit of time (e.g., minute, hour) or space
(square foot, linear mile).
• The events occur randomly and independently over a continuum of
time or space.
• We will call the continuum “time” since the most common Poisson
application is modeling arrivals per unit of time.

Each dot (•) is an occurrence of the event of interest.

6-30
 Chapter 6
LO6-5 6.5 Poisson Distribution
• Let X = the number of events per unit of time.
• X is a random variable that depends on when the unit of time is
observed.
• For example, we could get X = 3 or X = 1 or
X = 5 events, depending on where the randomly chosen unit of time
happens to fall.

• The Poisson model’s only parameter is l (Greek letter

“lambda”) where l represents the mean number of events per
unit of time or space.
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 Chapter 6
LO6-5 6.5 Poisson Distribution
Characteristics of the Poisson Distribution

6-32
 Chapter 6
LO6-5 6.5 Poisson Distribution
Example: Credit Union Customers
• On Thursday morning between 9 a.m. and 10 a.m. customers arrive
and enter the queue at the Oxnard University Credit Union at a
mean rate of 1.7 customers per minute. Using the Poisson
formulas with  = 1.7, find the PDF, mean and standard deviation:
• Note the unit for the mean and standard deviation is
customers/minute

6-33
 Chapter 6
LO6-5 6.5 Poisson Distribution

Compound Events

• Cumulative probabilities can be evaluated by summing

individual X probabilities.
• What is the probability that two or fewer customers will
arrive in a given minute?
• P(X  2) = P(0) + P(1) + P(2) = .1827 + .3106 + .2640
= .7573.
• What is the probability of at least three customers (the
complimentary event)?
• P(X  3) = 1 - P(X  2) = 1 - .7573 =.2427

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 Chapter 6
LO6-6 6.5 Poisson Distribution
LO6-6: Use the Poisson approximation to the binomial
(optional).
• The Poisson distribution may be used to approximate a binomial by
setting  = n. This approximation is helpful when the binomial
calculation is difficult (e.g., when n is large).

• The general rule for a good approximation is that n should be “large”

and should be “small.” A common rule of thumb says the
approximation is that n should be “large” and  should be “small.”

• A common rule of thumb says the approximation is adequate if n  20

and   .05.

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 Chapter 6
LO6-7 6.6 Hypergeometric Distribution

LO6-7: Find hypergeometric probabilities using Excel.

Characteristics of the Hypergeometric Distribution

• The hypergeometric distribution is similar to the binomial
distribution.
• However, unlike the binomial, sampling is without
replacement from a finite population of N items.
• The hypergeometric distribution may be skewed right or
left and is symmetric only if the proportion of successes
in the population is 50%.

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 Chapter 6
LO6-7 6.6 Hypergeometric Distribution

Characteristics of the Hypergeometric Distribution

6-37
 Chapter 6
LO6-7 6.6 Hypergeometric Distribution

Example: Damaged iPods

• In a shipment of 10 iPods, 2 were damaged and 8 are good.
• The receiving department at Best Buy tests a sample of 3 iPods at random
to see if they are defective.
• Let the random variable X be the number of damaged iPods in the sample.

N = 10 (number of iPods in the shipment)

n = 3 (sample size drawn from the shipment)
s = 2 (number of damaged iPods in the
shipment (“successes” in population))
N–s = 8 (number of non-damaged iPods in
the shipment)
x = number of damaged iPods in the sample
(“successes” in sample)
n–x = number of non-damaged iPods in the sample

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 Chapter 6
LO6-7 6.6 Hypergeometric Distribution

Example: Damaged iPods

• This is not a binomial problem because p is not constant.
• What is the probability of getting a damaged iPod on the first draw from the
sample?
• p1 = 2/10
• Now, what is the probability of getting a damaged iPod on the second draw?
• p2 = 1/9 (if the first iPod was damaged) or
= 2/9 (if the first iPod was undamaged)
• What about on the third draw?
• p3 = 0/8 or
= 1/8 or
= 2/8
depending on what happened in the first two draws.

6-39
 Chapter 6
LO6-7 6.6 Hypergeometric Distribution
Using the Hypergeometric Formula
Since there are only 2 damaged iPods in the population, the only possible values of
x are 0, 1, and 2. Here are the probabilities:

6-40
 Chapter 6
LO6-7 6.6 Hypergeometric Distribution
Using Software: Excel
Since the hypergeometric formula and tables are tedious and impractical, use
Excel’s hypergeometric function to find probabilities.

Figure 6.27

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 Chapter 6
LO6-8 6.6 Hypergeometric Distribution
LO6-8: Use the binomial approximation to the
hypergeometric (optional)
Binomial Approximation to the Hypergeometric
• Both the binomial and hypergeometric involve samples
of size n and treat X as the number of successes.
• The binomial samples with replacement while the
hypergeometric samples without replacement.

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 Chapter 6
LO6-9 6.7 Geometric Distribution

LO6-9: Calculate Geometric probabilities (optional).

Characteristics of the Geometric Distribution

• The geometric distribution describes the number of
Bernoulli trials until the first success.
• X is the number of trials until the first success.
• X ranges from {1, 2, . . .} since we must have at least
one trial to obtain the first success. However, the
number of trials is not fixed.
• p is the constant probability of a success on each trial.

6-43
 Chapter 6
LO6-9 6.7 Geometric Distribution
Characteristics of the Geometric Distribution

Example: Telefund Calling

• At Faber University, 15% of the alumni make a donation or pledge
during the annual telefund.
• What is the probability that the first donation will occur on the 7 th
call?
6-44
 Chapter 6
LO6-9 6.7 Geometric Distribution

Example: Telefund Calling

• What is p?  = .15.
• P(x) = p(1– p)x1
• P(7) = .15(1–.15)71 = .15(.85)6 = .0566
• What are the mean and standard deviation of this distribution?

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 Chapter 6
LO6-10 6.8 Transformation of Random Variables

LO6-10: Apply rules for transformations of random

variables (optional).
Linear Transformations
• A linear transformation of a random variable X is performed by
adding a constant or multiplying by a constant.
• Consider the random variable aX + b, where a and b are any
constants (a  0). Then,

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 Chapter 6
LO6-10 6.8 Transformation of Random Variables

LO6-10: Apply rules for transformations of random

variables (optional).
Sums of Random Variables
• If we consider the sum of two independent random variables X and Y,
given as X + Y, Then,

• Note: This can be extended to the sum of any independent random

variables.

6-47
 Chapter 6
LO6-10 6.8 Transformation of Random Variables

LO6-10: Apply rules for transformations of random

variables (optional).
Covariance
• If X and Y are not independent (i.e., if X and Y are correlated), then
we cannot use Rule 4 to find the standard deviation of their sum.
• The covariance of two random variables, denoted by Cov(X,Y) or ,
describes how the variables vary in relation to each other.
• Cov(X,Y) > 0, indicates that the two variables tend to move in the
same direction while Cov(X,Y) < 0 indicates that the two variables
move in opposite direction.

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