Business Statistics (Excersize2)

Submission by – SAHIL JAIN(25_A) HYBRID BATCH

Business application problems of probability

Q1) Arthur Anderson enterprise group /National small business united, Washington

Conducted a national survey of small business owners to determine the challenges for growth for
their businesses. The top challenge selected by 46% of the small business owners was the economy. A
close second was finding qualified workers (37%). Suppose

15% of the small business owners selected both economy and finding qualified workers as challenges
for growth .A small business owner is randomly selected.

Answer. As per the given data let E denote Economy and QW denote Quality Worker

Hence

P (Economy) = 46/100 = 0.46 denoted as P (E)

P (Qualified workers) = 37/100 = 0.37 denoted as P (QW)

P (Economy ∩ Qualified workers) = 15/100 = 0.15 denoted as P (E ∩ QW)

a) What is the probability that the owner believes the economy is a challenge for the growth, if the
owner believes that finding qualified workers is a challenge for growth

It is a conditional probability of the occurrence of Owner believing in Economy when the owner already
believes that qualified workers are a challenge for Growth. It is denoted as P (E|QW)

P (E|QW) = P (E ∩ QW) / P (QW)

= 0.15/0.37 = 0.40

This means that there is a 40% of the owners who believe in Qualified workers as a challenge for
growth also believe Economy as a challenge for growth.

b) What is the probability that the owner believes that finding a qualified worker is a challenge for
growth if the owner believes that economy is a challenge for growth?

It is a conditional probability of the occurrence of Owner believing in Qualified workers when the owner
already believes that Economy is a challenge for Growth. It is denoted as P (QW|E)
P (QW|E) = P (QW ∩ E) / P (E)

= 0.15 / 0.46 = 0.33

This means that there is a 33% of the owners who believe in Economy as a challenge for growth also
believe Qualified worker as a challenge for growth

c) Given that owner does not select the economy as a challenge for growth, what is the probability that
the owner believes that finding qualified workers is a challenge for growth?

It is a conditional probability of the occurrence of Owner believing in Qualified workers as a challenge

when the owner does NOT believe that Economy is a challenge for Growth.

It is denoted as P(QW|not E)

P(QW|not E) = P(QW ∩ not E)/ P(not E)

Please find below the Joint Probability Table

Economy
Yes No
Yes 0.15 0.22 0.37
Qualified Workers
No 0.31 0.32 0.63

0.46 0.54

The first row and second column provides the required occurrence probability (0.22) i.e.

Qualified workers Yes, No Economy

Hence, as per the law of conditional probability

P(QW|not E) = P(QW ∩ not E)/ P(not E)

= 0.22/0.54 = 0.41

This means that there are 41% of Owners believing in Qualified workers as a challenge when those
owner does NOT believe that Economy is a challenge for Growth.

d) What is the probability that owner believes neither that economy is a challenge for growth nor that
finding qualified workers is a challenge for growth?
Ans. The answer to this question could also be found in the second row and second column of the joint
table which says 0.32 as the probability that owner believes neither that economy is a challenge for
growth nor that finding qualified workers is a challenge for growth.

Another way of understanding is that we find the Complement of the union of both the events.

P(Neither E nor QW) = 1 – P(EQW)

P (E  QW) = P (E) + P (QW) – P (E ∩ QW) --- General Law of Addition

= (0.46 + 0.37) – 0.15 = 0.68

P(Neither E nor QW) = 1 – 0.68 = 0.32

32% owner believes neither that economy is a challenge for growth nor that finding qualified workers
is a challenge for growth.

Q2) Suppose 70% of all companies are classified as small companies and the rest as large companies.
Suppose further 82% of the large companies provide training to the employees but only 18% of the
small companies provide training. A company is randomly selected without knowing if it is a small or a
large company; however it is determined that company provides training to the employees.

Answer. As per the given data let Ei denote the outcomes of Small Companies & Large Companies and T
denotes training in the Baye’s Table.

P(Es) – Probability of an employee occurring in the small company

P(EL) - Probability of an employee occurring in the Large company

We use the Baye’s rule and the Bayesian Table for finding the prior and revised probabilities

Bayesian Table
Prior Probability Conditional Probability Joint Probability
Event Revised Probability
P(Ei) P(T|Ei) P(Ei∩T)
Small 0.7 0.18 0.126 0.340540541
Companies
Large 0.3 0.82 0.246 0.664864865
Companies
Total Training - 0.37
1st Column - It includes the 2 events Es & EL.

2nd Column- It shows the prior probabilities for both the events (Small & large) based on Original
information.

3rd Column – It shows the Conditional Probabilities of occurrence of trained employees from small
companies & large companies

4th Column- It shows the Joint Probability of getting an employee that belongs to either company and
is trained. The total gives the total training received in the Small and Large Companies.
P(Ei∩T) = P(Ei)* P(T|Ei)

5th Column- It gives the revised probabilities by dividing the value in Column 4 by the total of
Column 4.

a) What are the prior probabilities that the company is a small or a large company?

Hence the prior probability for the events is

P (Es) = 70/100 = 0.70

P (EL) = 30/100 = 0.30

If an employee is picked at random, there is 70% possibility that he belongs to a small company and 30%
possibility that he belongs to a large company.

b) What are the revised probabilities that company is small or large?

The probabilities have been revised in the light of the new information regarding the training provided
by both the companies.

The revised probability for both the events to occur is as below

P(Es|T) = 0.34

Revised Probability for the event is lower than the prior probability as Small Companies have trained
lesser employees. There is 34% revised possibility instead of the 70% prior possibility that the trained
employee belongs to a small company.

P(EL|T) = 0.66

Revised Probability for the event is higher than the prior probability as Large Companies have trained
more employees. There is 66% revised possibility instead of 30% prior possibility that the trained
employee belongs to a large company.
 c) Based on your analysis what is the total percentage of companies that offer training?

The total percentage of companies including the small and large that are offering training is 37%.