TM1151 - Business Statistics and Software Applications

Chapter 04 – Elements of Probability

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 Learning Outcomes

At the end of this lesson you will be able to,

1. Apply basic probability theory in analyzing business problems.

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Terminologies

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• Experiment
A process leading to a well-defined observations or
outcomes that generates a set of data.

• Trial
Each repetition, if the experiment can be repeated any
number of times under identical conditions

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• Sample Space (S)

The set containing all possible outcomes of an

experiment

1. Finite sample space: Sample space that contains a

finite number of outcomes

2. Continuous Sample space: Sample space that

contains an interval of values

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• Event
A subset of the sample space. Usually denoted in capital
English letters. The class of all events associated with a given
experiment is define to be the event space.

• Simple Event
An event that can be described by a single characteristic

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Probability
• Probability means possibility.

• It is the measure of ‘uncertainty’, randomness or likelihood of

occurrence of events.

• The meaning of probability is basically the extent to which something

is likely to happen.
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 • Following probability calculation method is valid only if

• the sample space is finite, and

• all the outcomes in the sample space are equally likely.

• If the above two conditions are satisfied, the probability of an event E is calculated as

𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒐𝒖𝒕𝒄𝒐𝒎𝒆𝒔 𝒊𝒏 𝑬 𝒏(𝑬)

𝐏 𝐄 = =
𝒕𝒐𝒕𝒂𝒍 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒐𝒖𝒕𝒄𝒐𝒎𝒆𝒔 𝒊𝒏 𝒕𝒉𝒆 𝒔𝒂𝒎𝒑𝒍𝒆 𝒔𝒑𝒂𝒄𝒆 𝒏(𝑺)

• The probability of an event E is usually denoted by Pr(E) or P(E).

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We define Probability of an event A to be to be a successful outcomes

Number of successfuloutcomes( r ) r
P ( A)  
Total number of outcomesn  n
Not
Successful
r nr

Successful
nr n
P ( Not A)   1
n r
P ( A)  P ( Not A)  1
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Example 01

Let event A be the number 1 or 4 turning up in a single throw of a dice.

Find P(A).

Example 02

Let event B be the number of evens turning up in a single throw of a

dice. Find P(B).

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Example 03

An ordinary dice is thrown. What is the probability that the number thrown is,
1. less than 4
2. less than or equal to 5
3. More than 6
4. More than or equal to 6

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Probabilities are representing in many ways.

1.Venn diagram

2. Probability space diagram

3. Tree diagram

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Special Types of Events

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• The null set (∅) of S is called an impossible event.

• The event A ∪ B consists of all outcomes that are in A or in B

or in both.

• The event A ∩ B consists of outcomes that are both in A and

B.

• The event 𝐴𝑐 (the complement of A in S) consists of all

outcomes not in A, but in S.
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• Mutually Exclusive Events

Two events A and B are said to be mutually exclusive or

disjoint if A ∩ B = ∅. They cannot happen together.

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• Collectively exhaustive events

One of the events must occur. The set of events covers

the entire sample space.

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• Independent Events

If the occurrence of one event not affect on the

occurrence of other event then both events are said to be
independent with each other.

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• Joint Events

An outcome from a sample space with two or more

characteristic simultaneously is called a joint event.

Eg:- Drawing a red ace from a deck of cards

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Example 04
In a college, 200 students are randomly selected. 140 like tea, 120 like coffee and 80 like both
tea and coffee.

I. How many students like only tea?

II. How many students like only coffee?

III. How many students like neither tea nor coffee?

IV. How many students like only one of tea or coffee?

V. How many students like at least one of the beverages?

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Example 05
Suppose that in a town, 800 people are selected by random types of sampling methods. 280 go to work
by car only, 220 go to work by bicycle only and 140 use both ways( sometimes go with a car and
sometimes with a bicycle).

I. How many people go to work by car only?

II. How many people go to work by bicycle only?

III. How many people go by neither car nor bicycle?

IV. How many people use at least one of both transportation types?

V. How many people use only one of car or bicycle?

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Example 06
In a survey of 500 students of a college, it was found that 49% liked watching football, 53% liked
watching hockey and 62% liked watching basketball. Also, 27% liked watching football and hockey
both, 29% liked watching basketball and hockey both and 28% liked watching football and basket ball
both. 5% liked watching none of these games.

I. How many students like watching all the three games?

II. Find the ratio of number of students who like watching only football to those who like watching
only hockey.

III. Find the number of students who like watching only one of the three given games.

IV. Find the number of students who like watching at least two of the given games.
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 Laws of the Algebra of Sets
Idempotent Laws
A A  A A A  A
Associative Laws ( A  B)  C  A  ( B  C )
( A  B)  C  A  ( B  C )
Commutative Laws A B  B  A
A B  B  A
Distributive Laws A  ( B  C )  ( A  B)  ( A  C )
A  ( B  C )  ( A  B)  ( A  C )
Complement Laws A  AC  U
( AC ) C  A
De Morgan’s Laws ( A  B ) C  AC  B C
( A  B ) C  AC  B C
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Basic Properties
• Consider two events A and B in S. Then,
Pr(𝐴𝑐 ) = 1 - Pr(A)
Pr(A ∪ B) = Pr(A) + Pr(B) − Pr(A ∩ B).
If A ∩ B = ∅ (A and B are mutually exclusive) then,
Pr(A ∪ B) = Pr(A) + Pr(B)
If A1, A2, ... , Ak are mutually exclusive then,
Pr(A1 ∪ A2 ∪···Ak) = Pr(A1) + Pr(A2) + · · · + Pr(Ak)
If A and B are independent then,
Pr(A ∩ B) = Pr(A) * Pr(B)
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 Joint Probability

• The probability of events A and B occurring together is defined as Joint

probability of A and B.

• The probability of a joint event, A and B [Pr(A ∩ B)]:

𝑷𝒓 (𝑨 𝒂𝒏𝒅 𝑩) = 𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒐𝒖𝒕𝒄𝒐𝒎𝒆𝒔 𝒔𝒂𝒕𝒊𝒔𝒇𝒚𝒊𝒏𝒈 𝑨 𝒂𝒏𝒅 𝑩

𝑻𝒐𝒕𝒂𝒍 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒐𝒖𝒕𝒄𝒐𝒎𝒆𝒔 𝒊𝒏 S

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Example 07
Find the probability that you will get a Black-Ace from a playing deck of
cards, if a card is drawn at random.

Example 08
Find the probability that you will get a Red-Jack from a playing deck of
cards, if a card is drawn at random.

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Marginal Probability

• The probability of a single event occurring (Pr(A)), without the

interference of another event (not conditioned on another event) is
known as marginal probability.

• This can be thought of as an unconditional probability

• Contingency Tables and Tree Diagrams can be used to visualize events

and make calculations easier.

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Example 09
Find the probability that you will get a King from a playing deck of
cards, if a card is drawn at random.

Example 10
Find the probability that you will get a Black card from a playing deck of
cards, if a card is drawn at random.

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Conditional Probability

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Where P(A ∩ B) = Joint probability of A and B
P(A) = Marginal probability of A
P(B) = Marginal probability of B

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Example 11
From a used car lot, 70% have air conditioning and 40% have a CD
player. 20% of the cars have both. What is the probability that a
car has a CD player, given that it has AC ?

Example 12
If two balanced dice are tossed, find the probability that the sum of
the face values is 8, if the face value of the first one is 3.

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Example 13
D and E are two events such that
P( D)  0.3 , P( E )  0.5, and P( D | E )  0.25

find, P( D  E ) , P( D  E ) , P ( D | E ) and P( D | E ) .

Example 14
What is the probability that the total of two dice will be greater than
9, given that the first die is a 5?

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The Law of Total Probability
For a given probability space (S), if B1 , B2 ,...., Bn be a partition of S
where, they are mutually exclusive and exhaustive events.
P( Bi )  0 for all i  1,2,..., n then

n
P ( A)   P ( A | Bi )P ( Bi ) B1
i 1
B3
A
B2 32
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Example 15
The members of a consulting firm rent cars from three rental agencies.
60% from agency 1, 30% from agency 2 and 10% from agency 3. If 9%
of the cars from agency 1 need tune up, 20% of the cars from agency 2
need tune up and 6% of the cars from agency 3 need tune up, what is
the probability that a rental car delivered to the firm will need tune up?

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 Bayes’ Theorem
• Let 𝐵1 , 𝐵2 , … , 𝐵𝑛 be mutually exclusive and exhaustive events, and
A be any event. Then for 𝑖 = 1,2, … , 𝑛,
𝑷(𝑩𝒊 ∩𝑨)
𝑷 𝑩𝒊 |𝑨 =
𝑷(𝑨)

𝑷 𝑨|𝑩𝒊 𝑷 𝑩𝒊
B1 𝑷 𝑩𝒊 |𝑨 =
B3 𝑷(𝑨)

B2 A 34
Example 16
I. In a factory, three machines, A, B and C make 30%, 45% and 25% of the products
respectively. It is known from past experience that 2%, 3% and 2% of products made by
each machine respectively are defective. Now, suppose that a finished product is
randomly selected. What is the probability that it is defective?

II. Suppose that one item is selected at random and it is found to be defective, find the
probability that the item was produce by machine
a). A
b). B
c). C
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Example 17
A company has 4 web developers. The probability that a project is assigned to each developer is equally
likely. If developer 1 completed the project, the customer is satisfied 75% of the time. If developer 2
completed the project, the customer is satisfied 90% of the time. If developer 3 completed the project, the
customer is satisfied 85% of the time. If developer 4 completed the project, the customer is satisfied 95% of
the time. A customer is chosen at random.

(i) Calculate the probability that customer is satisfied.

(ii) Calculate the probability that customer is not satisfied.
(iii) Calculate the probability that developer 2 finished the job given that customer is satisfied.
(iv) Calculate the probability that developer 3 finished the job given that customer is not satisfied.

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In Next Chapter…
• Distribution Theory will be discussed

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Thank You

Rajika Gunarathne

Department of Management of Technology

Faculty of Business
University of Moratuwa

Email: rajikag@uom.lk
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