CH 05

Business Statistics
For Contemporary Decision Making

9th Edition
Ken Black
Chapter 5
Discrete
Distributions
Copyright2016
Copyright 2016John
JohnWiley
Wiley&&Sons,
Sons,Inc.
Inc. 1
Learning Objectives
1. Define a random variable in order to differentiate between a

discrete distribution and a continuous distribution.
2. Determine the mean, variance, and standard deviation of a

discrete distribution.
3. Solve problems involving the binomial distribution using the

binomial formula and the binomial table.
4. Solve problems involving the Poisson distribution using the

Poisson formula and the Poisson table.
5. Solve problems involving the hypergeometric distribution

using the hypergeometric formula
Copyright 2016 John Wiley & Sons, Inc. 2

5.1 Discrete Versus Continuous Distributions
A random variable is a variable that contains the
outcomes of a chance experiment.
• A random variable is discrete if the set of all possible values is at

most a finite or a countably infinite number of possible values.
Examples:
1. Randomly selecting 25 people who consume soft drinks and
determining how many people prefer diet soft drinks
2. Determining the number of defective items in a batch of 50
items
3. Counting the number of people who arrive at a store during a
five-minute period
4. Sampling 100 registered voters and determining how many
voted for the president in the last election
• Discrete distributions have outcomes that generally take on

whole number values; you cannot have half a person who
prefers diet soft drinks.
5.1 Discrete Versus Continuous Distributions
• A random variable is continuous if it can take on values at every

point over a given interval.
Examples:
1. Sampling the volume of liquid nitrogen in a storage tank
2. Measuring the time between customer arrivals at a retail outlet
3. Measuring the lengths of newly designed automobiles
4. Measuring the weight of grain in a grain elevator at different
points of time
• Discrete distributions (binomial, Poisson, hypergeometric) are

constructed from discrete random variables.
• Continuous distributions (uniform, normal, exponential, and

others) are constructed from discrete random variables.

5.2 Describing a Discrete Distribution
• A histogram is the most common graphical way of describing a
discrete distribution.
• An executive is considering out-of-town business travel for a given
Friday. She recognizes that at least one crisis could occur on the day
that she is gone and she is concerned about that possibility. Table 5.2
shows a discrete distribution that contains the number of crises that
could occur during the day that she is gone and the probability that
each number will occur.

Variance, and Standard Deviation of Discrete
•Mean,
Distributions
• The mean or expected value of a discrete distribution is the

long run average of occurrences.
where
long-run average
an outcome
probability of that outcome
• In the long run, the mean or expected number of

crises on a given Friday for this executive is 1.15
crises.
• However, there will never be exactly 1.15 crises.


•Variance, and Standard Deviation of a Discrete Distribution
• The variance of a discrete distribution has the following formula:
• The standard deviation is then calculated by taking the square

root of the variance:
where
an outcome
probability of a given outcome
mean of the distribution

Variance, and Standard Deviation of a Discrete Distribution

5.3 Binomial Distribution
Assumptions of the Binomial Distribution
• The experiment involves n identical trials.
• Each trial has only two possible outcomes denoted as success or
as failure.
• Each trial is independent of the previous trials.
• The terms p and q remain constant throughout the experiment,
where the term p is the probability of getting a success on any
one trial and the term q = (1 − p) is the probability of getting a
failure on any one trial.
• There are many binomial distributions, each characterized by the

parameters n (the sample size) and p (the probability of success).
• Examples:
• Flipping a coin 10 times; probability of heads = .5.
• With a known defective rate of 9%, checking 15 products for quality.

Solving a Binomial Problem
A survey of relocation administrators by Runzheimer International

revealed several reasons why workers reject relocation offers.
Included in the list were family considerations, financial reasons, and
others.
• 4% of the respondents said they rejected relocation offers
because they received too little relocation help.
• Suppose five workers who just rejected relocation offers are
randomly selected and interviewed.
• Assuming the 4% figure holds for all workers rejecting relocation,
what is the probability that exactly one of the workers rejected
the offer because of too little relocation help?

Solving a Binomial Problem
A survey of relocation administrators by Runzheimer International

revealed several reasons why workers reject relocation offers.
Included in the list were family considerations, financial reasons, and
others.
• 4% of the respondents said they rejected relocation offers
because they received too little relocation help.
• Suppose five workers who just rejected relocation offers are
randomly selected and interviewed.
• Assuming the 4% figure holds for all workers rejecting relocation,
what is the probability that exactly one of the workers rejected
the offer because of too little relocation help?

Solving a Binomial Problem, continued
One way to solve this problem would be to figure out all the possible
sequences such that there was exactly one worker who rejected the
offer due to lack of relocation help (R).
• Let T stand for all other reasons.
• There are five ways to get a sequence such that there is only one
worker who rejects for this reason.
• Then, using the special multiplication rule for independent
events, the probability of the first sequence is:
(.04)(.96)(.96)(.96)(.96) = .03397
Five ways to get only

one worker.
Probability of each
sequence.

•Solving a Binomial Problem, continued
With five sequences with identical probability, the probability of

getting one worker will be
A simpler way to determine the number of sequences is to use the

combination rule introduced in Chapter 4.
• Multiplying the combinations by the probability of each, , gives

the binomial formula.


•Example: A Gallup survey found that 65% of all financial consumers
were very satisfied with their primary financial institution. Suppose
that 25 financial consumers are sampled.
• If the Gallup survey result still holds true today, what is the
probability that exactly 19 are very satisfied with their primary
financial institution?
• On average, how many very satisfied customers would you

expect to get in a sample of 25?
• Calculate the mean, (25)(.65) = 16.25.

• The average number of very satisfied customers is about 16.

Using the Binomial Table
Binomial distributions are described by their sample size and

probability, and can be summarized in a table.
• Suppose that with n=20 and p=.6, a researcher wants to know
the probability of less than 10 successes?
Excerpt from the n= 20

table:
Look for correct
n and p.
P(x<10) = .127, found by
adding the probability of
each number less than
10.

Using the Computer to Produce a Binomial Distribution
Both Minitab and Excel will print binomial table values or find a
binomial probability.
• A study of bank customers stated that 64% of all financial
consumers believe banks are more competitive today than they
were five years ago. Suppose 23 financial consumers are selected
randomly. What is the probability that ten or fewer believe this?
The Minitab (or Excel) output can

give the answer directly, or could
be used to generate a table for
this sample size and probability.

and Standard Deviation of a Binomial Distribution
•Mean
For a binomial distribution:
• Example: If 40% of all graduate business students at a large

university are women and if random samples of 10 graduate
business students are selected many times, how many would
you expect to be women?
• Calculating the mean, (10)(.4), the expectation is that, on average,

four of the 10 students would be women.
• The standard deviation would be

Graphing Binomial Distributions
• A binomial distribution can be graphed by using all possible x
values and their associated probabilities:
Peak and skew of the

distribution change with the
value of p, the probability of
success.

5.4 Poisson Distribution
Assumptions of the Poisson Distribution
• It is a discrete distribution.
• It describes rare events.
• Each occurrence is independent of the other occurrences.
• It describes discrete occurrences over a continuum or interval.
• The occurrences in each interval can range from zero to infinity.
• The expected number of occurrences must hold constant
throughout the experiment.
• The Poisson distribution describes the occurrence of rare events.
• Examples:
• Number of telephone calls per minute at a small business
• Number of hazardous waste sites per county in the United States

•If a Poisson-distributed phenomenon is studied over a long period of
time, a long-run average can be determined, λ.
where 0, 1, 2, 3,…
long-run average occurrences
2.718282
• The λ value must hold constant throughout a Poisson experiment.

• The researcher must be careful not to apply a given lambda to
intervals for which lambda changes.
• For example, the average number of customers arriving at a Macy’s
store during a one-minute interval will vary from hour to hour, day
to day, and month to month.


•Working Poisson Problems by Formula
Example: Suppose bank customers arrive randomly on weekday

afternoons at an average of 3.2 customers every 4 minutes. What is
the probability of exactly 5 customers arriving in a 4-minute interval
on a weekday afternoon?
• The lambda for this problem is 3.2 customers per 4 minutes.
• The value of x is 5 customers per 4 minutes.
• The probability of 5 customers randomly arriving during a 4-minute

interval when the long-run average has been 3.2 customers per 4-
minute interval is .1140.

to Do When Intervals Are Different
•What
• Lambda and x intervals must be the same.
Example: Suppose that on Saturday mornings, a specialty clothing

store averages 2.4 customer arrivals every 10 minutes. What is the
probability that, on a given Saturday morning, 2 customers will arrive
at the store in a 6-minute interval?
• λ = 2.4 customers/10 minutes
• x = 2 customers/6 minutes
• Must change the λ interval, NOT the x interval.

• 0.6(2.4 customers) = 1.44 customers, and 0.6(10 minutes) = 6 minutes.
• New λ = 1.44 customers/6 minutes
• P(x=2) = = .2456

Using the Poisson Tables
• For every value of λ, there is a different Poisson distribution, but
the distribution is the same for every λ regardless of the interval,
so tables can be used.
Example: Suppose that
during the noon hour in
the holiday season, a UPS
store averages 2.3
customers every minute
and that arrivals at such a
store are Poisson
distributed. During such a
season and time, what is
the probability that more
than four customers will
arrive in a given minute?

and Standard Deviation of a Poisson Distribution
•Mean
• The mean of a Poisson distribution is λ, the long-run average of
occurrences.
• The variance is also λ, so the standard deviation is .
Graphing the Poisson Distribution
• The height and skew of the distribution are determined by λ.
λ = 1.6 λ = 6.5

Using the Computer to Generate Poisson Distributions
• Both Minitab and Excel can generate Poisson tables for any value
of λ.
Example: One study by the

National Center for Health
Statistics claims that, on average,
an American has 1.9 acute
illnesses or injuries per year. If
these cases are Poisson
distributed, lambda is 1.9 per
year.
What does the Poisson

probability distribution for this
lambda look like?


•Approximating Binomial Problems by the Poisson
Distribution
• Binomial problems with large sample sizes and small values of p

can be approximated by the Poisson distribution.
• If n > 20 and np < 7, the approximation can be used.
• Example: The following binomial distribution problem can be

worked by using the Poisson distribution: n = 50 and p = .03.
What is the probability that x = 4?
• First find the mean of the binomial distribution, np, which will be
used for the λ value.
• λ = (50)(.03) = 1.5
• P(x=4) = = .0471

Approximating Binomial Problems by the Poisson
Distribution, continued.
• The Poisson approximation gave a probability of .0471

• Using the binomial formula would give a probability of .0459
Binomial Poisson approximation

5.5 Hypergeometric Distribution
• Like the binomial distribution, the hypergeometric distribution
has two outcomes, success or failure.
• Unlike the binomial distribution, the researcher must know the
size of the population and the probability of success in the
population.
Characteristics of the Hypergeometric Distribution:
• Each outcome consists of either a success or a failure.
• Sampling is done without replacement.
• The population, N, is finite and known.
• The number of successes in the population, A, is known.

• Like the binomial distribution, the hypergeometric distribution
has two outcomes, success or failure.
• Unlike the binomial distribution, the researcher must know the
size of the population and the probability of success in the
population.
• Should be used instead of binomial when sampling is done
without replacement and the sample is greater than or equal to
5% of the population.
Characteristics of the Hypergeometric Distribution:

• Each outcome consists of either a success or a failure.
• Sampling is done without replacement.
• The population, N, is finite and known.
• The number of successes in the population, A, is known.

•
• Hypergeometric formula
where N = population size, n = sample size, A = number of successes in the

population, and x is the number of successes in the sample.
• Hypergeometric distributions are characterized by three parameters, N,

A, and n, so creating tables is nearly impossible.
Example: Twenty-four people, of whom eight are women, apply for a job.
If five of the applicants are sampled randomly, what is the probability that
exactly three of those sampled are women?
• Small, finite population
• Sample size is 21% of the population
• Hypergeometric is the appropriate distribution

•
• Example, continued. Twenty-four people, of whom eight are women,
apply for a job. If five of the applicants are sampled randomly, what is
the probability that exactly three of those sampled are women?
• A, the number of occurrences in the population, is 8.
• After evaluating each counting rule in the formula,
• In a sample of 5, there is a 15.81% chance that three will be women.

Using the Computer to Generate Hypergeometric

Distribution Probabilities
• Both Excel and Minitab can find hypergeometric probabilities for given
values of N, A, n, and x.
• For the previous example problem, Excel and Minitab gave the following
outputs:

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Business Statistics

For Contemporary Decision Making

1. Define a random variable in order to differentiate between a

2. Determine the mean, variance, and standard deviation of a

3. Solve problems involving the binomial distribution using the

4. Solve problems involving the Poisson distribution using the

5. Solve problems involving the hypergeometric distribution

Copyright 2016 John Wiley & Sons, Inc. 2

• A random variable is discrete if the set of all possible values is at

• Discrete distributions have outcomes that generally take on

• A random variable is continuous if it can take on values at every

• Discrete distributions (binomial, Poisson, hypergeometric) are

• Continuous distributions (uniform, normal, exponential, and

Copyright 2016 John Wiley & Sons, Inc. 4

Copyright 2016 John Wiley & Sons, Inc. 5

• The mean or expected value of a discrete distribution is the

• In the long run, the mean or expected number of

Copyright 2016 John Wiley & Sons, Inc. 6

• The variance of a discrete distribution has the following formula:

• The standard deviation is then calculated by taking the square

Copyright 2016 John Wiley & Sons, Inc. 7

Copyright 2016 John Wiley & Sons, Inc. 8

• There are many binomial distributions, each characterized by the

Copyright 2016 John Wiley & Sons, Inc. 9

A survey of relocation administrators by Runzheimer International

Copyright 2016 John Wiley & Sons, Inc. 10

A survey of relocation administrators by Runzheimer International

Copyright 2016 John Wiley & Sons, Inc. 11

Five ways to get only

With five sequences with identical probability, the probability of

A simpler way to determine the number of sequences is to use the

• Multiplying the combinations by the probability of each, , gives

Copyright 2016 John Wiley & Sons, Inc. 13

• On average, how many very satisfied customers would you

• Calculate the mean, (25)(.65) = 16.25.

Copyright 2016 John Wiley & Sons, Inc. 14

Binomial distributions are described by their sample size and

Excerpt from the n= 20

Copyright 2016 John Wiley & Sons, Inc. 15

The Minitab (or Excel) output can

Copyright 2016 John Wiley & Sons, Inc. 16

For a binomial distribution:

• Example: If 40% of all graduate business students at a large

• Calculating the mean, (10)(.4), the expectation is that, on average,

Copyright 2016 John Wiley & Sons, Inc. 17

Peak and skew of the

Copyright 2016 John Wiley & Sons, Inc. 18

• The Poisson distribution describes the occurrence of rare events.

Copyright 2016 John Wiley & Sons, Inc. 19

• The λ value must hold constant throughout a Poisson experiment.

Copyright 2016 John Wiley & Sons, Inc. 20

Example: Suppose bank customers arrive randomly on weekday

• The probability of 5 customers randomly arriving during a 4-minute

Copyright 2016 John Wiley & Sons, Inc. 21

• Lambda and x intervals must be the same.

Example: Suppose that on Saturday mornings, a specialty clothing

• Must change the λ interval, NOT the x interval.

Copyright 2016 John Wiley & Sons, Inc. 22

Copyright 2016 John Wiley & Sons, Inc. 23