Probability

1-What are some conditions under which business decisions are made using subjective probability concepts? Provide at least two examples of subjective probability

• 2-This is an excellent equation for all to take a look at. The equation for P(H/D) is known as Bayes’ theorem.
  •  
  • P(H/D)= P(H) x P(D/H
  • P(H) x P(D/H) + P(H) x P(D/H)

See if you can explain it in your own language.

First of all, what does P(H) mean?

How about the other P’s?

What, in plain English, does this equation say?

What can it be used for?

If you can answer those types of questions for any equation with which you are faced, you will take a huge step towards understanding Statistics!

• 3- From a student:

“Probability trees are a new concept to me.  I find calculating probability to be a challenge and using the probability tree seems like a great too to figure out what I need to do.  I asked my manager about the diagrams and she referenced flipping a coin.  There if a 50% or .5 probability of heads and the same for tails.  Then if you want to calculate the probability that you flip the same thing twice, you extend your tree.  So the probability of me flipping a coin and getting heads twice is 0.5 x 0.5 which is 0.25.  You would do this for each possibility, Heads and heads, Heads and Tails, Tails and Heads, or Tails and Tails.  The total should result in “1”.

Any comments?

• 4-A construction firm bids on a contract. It anticipates

a profit of +50,000 if it gets the contract for the full

project, and it estimates its profit to be +20,000 on

a shared project. The firm estimates there’s a 20%

chance it will get the full contract and a 75%

chance it will get the shared contract; otherwise, it

gets nothing.

(a) Define a random variable to model the outcome

of the bid for this firm.

(b) What is the expected profit earned on these

contracts? Report units with your answer.

(c) What is the standard deviation of the profits?

• 5-What are the characteristics of standard normal distribution? The HR department of an organization collects data on employees: age, salary, level of education, gender, and ethnicity. Which data do you think is more likely to follow normal distribution? Explain why

• 6-M&M’s weigh 0.86 grams on average with

SD = 0.04 grams, so the coefficient of variation

is 0.04/0.86 0.047. Suppose that we decide to

label packages by count rather than weight. The

system adds candy to a package until the weight

of the package exceeds a threshold. How large

would we have to set the threshold weight to be

99.5% sure that a package has 60 pieces?

 

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