Probability Distribution

Probability distribution is a listing of probability of all possible outcomes from the experiment.

 Probability Distribution Discrete Probability Distribution: It can take only a limited number of values which can be listed Continuous Probability Distribution: It can take any values within a given range, so all possible values can not list Random Variable A variable is random if it takes on different values as a result of the outcomes of a random experiment. If the random variables take on only a limited number of values, which can be listed, is called discrete random variable. If the random variables take any values within a given range it is called continuous random variable.

Example of Probability Distribution

Table. Number of Women Screened Daily During 100 days Number screened (values of random variable) 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 No of Days the value of random variable was observed 1 2 3 5 6 7 9 10 12 11 9 8 6 5 4 2 100 Probability distribution of the random variables 0.01 0.02 0.03 0.05 0.06 0.07 0.09 0.10 0.12 0.11 0.09 0.08 0.06 0.05 0.04 0.02 1.00

Probability distribution for discrete random variable

Expected Value
Expected value (or mean) of a discrete random variable is the sum of the probability of each possible outcome of experiment multiplied by the outcome value. Expected value is a weighted average of the outcomes in future It weights each possible outcomes by the frequency with which it is expected to occurs.

Example of Expected Value

Table 2. The expected value of the discrete random variable "daily number of screened" Number screened (values of random variable) (a) 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 Number of times the random variable was observed (b) 1 2 3 5 6 7 9 10 12 11 9 8 6 5 4 2 100 Probability distribution of the random variable (c) 0.01 0.02 0.03 0.05 0.06 0.07 0.09 0.1 0.12 0.11 0.09 0.08 0.06 0.05 0.04 0.02 1.00 Expected value of the random variables (a) x (c) 1 2.02 3.06 5.15 6.24 7.35 9.54 10.7 12.96 11.99 9.9 8.88 6.72 5.65 4.56 2.3 108.02

Page No. 230. Q. No. 5.11.

Steven T. Opsine, Supervisor of traffic signals for the Fairfax County division of the Virginia State Highway administration must decide whether to install a traffic light at the reportedly dangerous intersection of Dolley Madison Blvd. and Lewinsville Rd. Toward this end; Mr. Opsine has collected data on accidents at the intersection: Number of accidents Year J F M A M J J A S O N D 1995 10 8 10 6 9 12 2 10 10 0 7 10 1996 12 9 7 8 4 3 7 14 8 8 8 4 S.H.A. policy is to install a traffic light at an intersection at which the monthly expected number of accidents is higher than 7. According to this criterion, should Mr. Opsine recommended that a traffic light be installed at this intersection?

Solution: Page No. 230. Q. No. 5.11.

No of Accident (x) 0 2 3 4 6 7 8 9 10 12 14 Frequency 1 1 1 2 1 3 5 2 5 2 1 24 Probability (p) 0.0417 0.0417 0.0417 0.0833 0.0417 0.1250 0.2083 0.0833 0.2083 0.0833 0.0417 1.0000 Expected Accidents (x x p) 0.0000 0.0833 0.1250 0.3333 0.2500 0.8750 1.6667 0.7500 2.0833 1.0000 0.5833 7.75

The expected number of accidents per month is 7.75. Since this is greater than 7, Mr. Opsine should recommend the installment of a traffic light.

Expected Value in Decision Making

Expected Loss is two types:

1.

Obsolescence losses is caused by too much of item in any one day and having to throw it away the next day

2.

Opportunity losses caused by being out of items in any time that customers call for them.

Example of Expected Loss

A fruit and vegetable wholesaler sales strawberries. Strawberries has very limited useful life. If not sold on the day of delivery, it is worthless. One case of strawberries costs $20 and the wholesaler receives $50 for it. The wholesaler cannot specify the number of cases customers will call for on any one day, but he analysis the past record has produced the information in table given below. Table 1. Sales of Strawberries during 100 days Daily sales cases 10 11 12 13 Total No of days sold 15 20 40 25 100 Probability of sold 0.15 0.2 0.4 0.25 1

Solution of Expected Loss

Ans: The Obsolescence loss here is $20 per case for spoil strawberries. Similarly an opportunity loss here is $30. Table 2. Conditional Loss Possible Requests for Strawberries 10 11 12 13 10 $0 $30 $60 $90 Possible stock option 11 12 $20 $0 $30 $60 $40 $20 $0 $30 13 $60 $40 $20 $0

Table 3. Expected loss from stocking 10 cases Possible requests 10 11 12 13 Conditional loss 0 30 60 90 Probability of each being sold 0.15 0.2 0.4 0.25 1 Table 4. Expected loss from stocking 11 cases Possible requests 10 11 12 13 Conditional loss 20 0 30 60 Probability of each being sold 0.15 0.2 0.4 0.25 1 Expected loss 3 0 12 15 30 Expected loss 0 6 24 22.5 52.5

Table 5. Expected loss from stocking 12 cases Possible requests 10 11 12 13 Conditional loss 40 20 0 30 Probability of each being sold 0.15 0.2 0.4 0.25 1 Table 6. Expected loss from stocking 13 cases Possible requests 10 11 12 13 Conditional loss 60 40 20 0 Probability of each being sold 0.15 0.2 0.4 0.25 1 Expected loss 9 8 8 0 25 Expected loss 6 4 0 7.5 17.5

Page No. 236. Q. No. 5.15.

Harry Byrd, the director of publications for the Baltimore Orioles, is trying to decide how many programs to print for the teams upcoming three game series with the Oakland As. Each program costs 25 to print and sells for $1.25. Any programs unsold at the end of the series must be discarded. Mr. Byrd Has estimated the following probability distribution for program sales, using data from past program sales: Programs sold 25000 40000 55000 70000 Probability 0.10 0.30 0.45 0.15 Mr. Byrd has decided to print 25, 40, 55, or 70 thousand programs. Which number of programs will minimize the teams expected losses?

Solution Page No. 236. Q. No. 5.15.

Table. Conditional Loss Here Obsolescence loss is $0.25 and an opportunity loss is $1. Probability Program Print/Demand 25000 40000 55000 70000 0.1 25000 0 3750 7500 11250 0.3 40000 15000 0 3750 7500 0.45 55000 30000 15000 0 3750 0.15 70000 45000 30000 15000 0 24750 11625 4125 5062.5 Expected Loss

Ordering 55000 programs will minimize expected losses.

Page No. 236. Q. No. 5.16

Airport Rent-a-Car is a locally operated business in competition with several major firms. ARC is planning a new deal for prospective customers who want to rent a car for only one day and will return it to the airport. For $35, the company will rent a small economy car to a customer, whose only other expense is to fill the car with gas at days end. ARC is planning to buy a number of small cars from the manufacture at a reduced price of $6300. The big question is how many to buy. Company executives have decided on the following distribution of demands per day for the service: No of cars rented 13 14 15 16 17 18 Probability 0.08 0.15 0.22 0.25 0.21 0.09 The company intends to offer the plan 6 days a week (312 days per year) and anticipates that its variable cost per car per day will be $2.50. After the end of one year, the company expects to sell the cars and recapture 50 percent of the original cost. Disregarding the time value of money and any noncash expenses, determine the optimal number of cars for ARC to buy.

Solution Page No. 236. Q. No. 5.16

Cost=6300/2=$3150 per car Revenue=35-2.50=$32.5 per car/day =32.50 x 312 = $10140 per year Opportunity cost per car = 10140-3150 = $6990
Table. Conditional Loss 0.15 0.22 0.25 0.21 15 13980 6990 0 3150 6300 9450 16 20970 13980 6990 0 3150 6300 17 27960 20970 13980 6990 0 3150

Probability 0.08 Car Rent/Demand 13 14 13 0 6690 14 3150 0 15 6300 3150 16 9450 6300 17 12600 9450 18 15750 12600

0.09 18 34950 27960 20970 13980 6990 0

Expected Loss

18383.7 12204.9 7547.1 5120.1 5228.1 7465.5

Optimal number of cars is 16