GLOBAL

EDITION

Business Statistics
A First Course
SEVENTH EDITION

David M. Levine • Kathryn A. Szabat • David F. Stephan

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194 ChApTER 4 Basic probability

If a consumer is selected at random, what is the probability that a. What is the probability that a randomly selected executive
he or she identifies Big Data as critical to executing a customer-centric
a. is classified as cautious? program?
b. is classified as optimistic or cautious? b. Given that a randomly selected executive is a senior marketing
c. is a male or is classified as hunkered-down? executive, what is the probability that the executive identifies
d. is a male and is classified as hunkered-down? Big Data as critical to executing a customer-centric program?
e. Given that the consumer selected is a female, what is the prob- c. Given that a randomly selected executive is a senior IT execu-
ability that she is classified as optimistic? tive, what is the probability that the executive identifies Big
Data as critical to executing a customer-centric program?
4.63 Content Marketing Institute provides insights on the content
d. What is the probability that a randomly selected executive
marketing habits of nonprofit professionals representing a broad
identifies that functional silos block aggregation of customer
range of nonprofit agencies and organizations. A survey of non-
data throughout the organization?
profit marketers conducted by the Content Marketing Institute in-
e. Given that a randomly selected executive is a senior market-
dicated that 26% of nonprofit marketers rated themselves highly
ing executive, what is the probability that the executive iden-
in terms of use of content marketing effectiveness. Furthermore,
tifies that functional silos block aggregation of customer data
of the nonprofit marketers who rated themselves highly in terms
throughout the organization?
of use of content marketing effectiveness, 63% reported having a
f. Given that a randomly selected executive is a senior IT execu-
documented content strategy. Of the nonprofit marketers who did
tive, what is the probability that the executive identifies that
not rate themselves highly in terms of use of content marketing
functional silos block aggregation of customer data throughout
effectiveness, 21% reported having a documented content strategy.
the organization?
(Data extracted from 2014 Nonprofit Content Marketing, bit.ly/
g. Comment on the results in (a) through (f).
KrCLvl.)
If a nonprofit marketer is known to have a documented con- 4.65 A 2013 Sage North America survey examined the “finan-
tent strategy, what is the probability that the nonprofit marketer cial literacy” of small business owners. The study found that 23%
rates himself or herself highly in terms of use of content marketing of small business owners indicated concern about income tax
effectiveness? compliance for their business; 41% of small business owners use
accounting software, given that the small business owner indi-
4.64 The CMO Council and SAS set out to better understand the
cated concern about income tax compliance for his or her busi-
key challenges, opportunities, and requirements that both chief
ness. Given that a small business owner did not indicate concern
marketing officers (CMOs) and chief information officers (CIOs)
about income tax compliance for his or her business, 58% of small
were facing in their journey to develop a more customer-centric
business owners use accounting software. (Data extracted from
enterprise. The following findings are from an online audit of 237
“Sage Financial Capability Survey: What Small Business Owners
senior marketers and 210 senior IT executives. (Data extracted
Don’t Understand Could Be holding Them Back,” April 17, 2013,
from “Big Data’s Biggest Role: Aligning the CMO & CIO,”
http://bit.ly/Z3FAqx.)
March 2013, bit.ly/11z7uKW.)
a. Use Bayes’ theorem to find the probability that a small busi-
ness owner uses accounting software, given that the small busi-
BIG DATA IS CRITICAL TO EXECUTING ness owner indicated concern about income tax compliance for
A CUSTOMER-CENTRIC PROGRAM his or her business.
EXECUTIVE GROUP Yes No Total b. Compare the result in (a) to the probability that a small busi-
Marketing 95 142 237 ness owner uses accounting software and comment on whether
IT 107 103 210 small business owners who are concerned about income tax
compliance for their business are generally more likely to use
Total 202 245 447 accounting software than small business owners who are not
concerned about income tax compliance for their business.
FUNCTIONAL SILOS BLOCK AGGREGATION
OF CUSTOMER DATA THROUGHOUT
THE ORGANIZATION
EXECUTIVE GROUP Yes No Total
Marketing 122 115 237
IT 95 115 210
Total 217 230 447
 Cases for Chapter 4 195

cASeS FoR chApteR 4

Digital case
Apply your knowledge about contingency tables and the misleading? how would you calculate and state the prob-
proper application of simple and joint probabilities in this ability of having an annual rate of return not less than
continuing Digital Case from Chapter 3. 15%?
Open EndRunGuide.pdf, the EndRun Financial Services 2. Using the table found under the “Show Me the Winning
“Guide to Investing,” and read the information about the probabilities” subhead, compute the proper probabilities
Guaranteed Investment package (GIp). Read the claims and for the group of investors. What mistake was made in re-
examine the supporting data. Then answer the following porting the 7% probability claim?
questions:
3. Are there any probability calculations that would be
1. how accurate is the claim of the probability of suc- appropriate for rating an investment service? Why or
cess for EndRun’s GIp? In what ways is the claim why not?

cardiogood Fitness
1. For each CardioGood Fitness treadmill product line (see 2. For each table you construct, compute all conditional and
the cardioGoodFitness file), construct two-way contin- marginal probabilities.
gency tables of gender, education in years, relationship
3. Write a report detailing your findings to be presented to
status, and self-rated fitness. (There will be a total of six
the management of CardioGood Fitness.
tables for each treadmill product.)

the choice Is yours Follow-up

1. Follow up the “Using Statistics: The Choice Is Yours, 2. For each table you construct, compute all conditional and
Revisited” on page 93 by constructing contingency tables marginal probabilities.
of market cap and type, market cap and risk, market cap
3. Write a report summarizing your conclusions.
and rating, type and risk, type and rating, and risk and
rating for the sample of 316 retirement funds stored in
Retirement Funds .

clear Mountain State Student Surveys

The Student News Service at Clear Mountain State Univer- 2. The CMSU Dean of Students has learned about the un-
sity (CMSU) has decided to gather data about the under- dergraduate survey and has decided to undertake a simi-
graduate students that attend CMSU. CMSU creates and lar survey for graduate students at Clear Mountain State.
distributes a survey of 14 questions and receive responses She creates and distributes a survey of 14 questions and
from 62 undergraduates (stored in UndergradSurvey ). receives responses from 44 graduate students (stored in
GradSurvey ). Construct contingency tables of gender and
1. For these data, construct contingency tables of gender
graduate major, gender and undergraduate major, gender
and major, gender and graduate school intention, gender
and employment status, gender and computer preference,
and employment status, gender and computer preference,
graduate major and undergraduate major, graduate ma-
class and graduate school intention, class and employ-
jor and employment status, and graduate major and com-
ment status, major and graduate school intention, major
puter preference.
and employment status, and major and computer prefer-
ence. a. For each of these contingency tables, compute all the
conditional and marginal probabilities.
a. For each of these contingency tables, compute all the
b. Write a report summarizing your conclusions.
conditional and marginal probabilities.
b. Write a report summarizing your conclusions.
196 ChApTER 4 Basic probability

chApteR 4 exceL guiDe

eG4.1 BASIc PRoBABIlITy concePTS The worksheet (shown below) already contains the probabilities
for the Section 4.3 example. For other problems, change those
Simple Probability, Joint Probability, and the probabilities in the cell range B5:C6.
General Addition Rule
Key Technique Use Excel arithmetic formulas.

Example Compute simple and joint probabilities for the Table

4.1 purchase behavior data on page 167.

PhStat2 Use Simple & Joint Probabilities.

For the example, select PHStat ➔ Probability & Prob.
Distributions ➔ Simple & Joint Probabilities. In the new tem-
plate, similar to the worksheet shown below, fill in the Sample
Space area with the data. Open to the COMPUTE_FORMULAS worksheet to exam-
ine the arithmetic formulas that compute the probabilities, which
In-Depth excel Use the COMPUTE worksheet of the Prob- are also shown as an inset to the worksheet.
abilities workbook as a template.
The worksheet (shown below) already contains the Table 4.1 pur-
chase behavior data. For other problems, change the sample space
eG4.4 coUnTInG RUleS
table entries in the cell ranges C3:D4 and A5:D6. counting Rule 1
In-Depth excel Use the POWER(k, n) worksheet function in
a cell formula to compute the number of outcomes given k events
and n trials.
For example, the formula =POWER(6, 2) computes the answer
for Example 4.11 on page 188.

counting Rule 2
In-Depth excel Use a formula that takes the product of succes-
sive POWER(k, n) functions to solve problems related to count-
ing rule 2.
For example, the formula =POWER(26, 3) * POWER(10, 3)
computes the answer for the state motor vehicle department example
on page 188.

counting Rule 3
In-Depth excel Use the FACT(n) worksheet function in a cell
formula to compute how many ways n items can be arranged.
For example, the formula =FACT(6) computes 6!
Read the Short Takes for Chapter 4 for an explanation of
the formulas found in the COMpUTE worksheet (shown in the
COMPUTE_FORMULAS worksheet). counting Rule 4
In-Depth excel Use the PERMUT(n, x) worksheet function
eG4.2 conDITIonAl PRoBABIlITy in a cell formula to compute the number of ways of arranging x
There is no Excel material for this section. objects selected from n objects in order.
For example, the formula = PERMUT(6, 4) computes the an-
eG4.3 BAyeS’ TheoReM swer for Example 4.14 on page 190.

Key Technique Use Excel arithmetic formulas. counting Rule 5

Example Apply Bayes’ theorem to the television marketing ex- In-Depth excel Use the COMBIN(n, x) worksheet function
ample in Section 4.3. in a cell formula to compute the number of ways of arranging x
objects selected from n objects, irrespective of order.
In-Depth excel Use the COMPUTE worksheet of the Bayes For example, the formula =COMBIN(6, 4) computes the answer
workbook as a template. for Example 4.15 on page 190.
 Chapter 4 MINITAB Guide 197

c h A p t e R 4 M i n i tA b g u i D e
MG4.1 BASIc PRoBABIlITy concePTS counting Rule 1
There is no Minitab material for this section. Enter an expression that uses the exponential operator **. For ex-
ample, the expression 6 ** 2 computes the answer for Example
MG4.2 conDITIonAl PRoBABIlITy 4.11 on page 187.

There is no Minitab material for this section. counting Rule 2

MG4.3 BAyeS’ TheoReM Enter an expression that uses the exponential operator **. For ex-
ample, the expression 26 ** 3 * 10 ** 3 computes the answer for
There is no Minitab material for this section. the state motor vehicle department example on page 187.

MG4.4 coUnTInG RUleS counting Rule 3

Use Calculator to apply the counting rules. Select Calc ➔ Calcu- Enter an expression that uses the FACTORIAL(n) function to
lator. In the Calculator dialog box (shown below): compute how many ways n items can be arranged. For example,
1. Enter the column name of an empty column in the Store the expression FACTORIAL(6) computes 6!
result in variable box and then press Tab.
2. Build the appropriate expression (as discussed later in this counting Rule 4
section) in the Expression box. To apply counting rules 3 Enter an expression that uses the PERMUTATIONS(n, x) func-
through 5, select Arithmetic from the Functions drop-down tion to compute the number of ways of arranging x objects selected
list to facilitate the function selection. from n objects in order. For example, the expression PERMUTA-
3. Click OK. TIONS(6, 4) computes the answer for Example 4.14 on page 189.

counting Rule 5
Enter an expression that uses the COMBINATIONS(n, x) func-
tion to compute the number of ways of arranging x objects selected
from n objects, irrespective of order. For example, the expression
COMBINATIONS(6, 4) computes the answer for Example 4.15
on page 189.

If you have previously used the Calculator during your Minitab

session, you may have to clear the contents of the Expression box
by selecting the contents and pressing Del before you begin step 2.
 Chapter
Discrete Probability
5 Distributions

CONTENTS u S i n g S tAt i S t i c S
5.1 The Probability Distribution
for a Discrete Variable Events of Interest at Ricknel Home Centers
5.2 Binomial Distribution
Like most other large businesses, Ricknel home Centers, LLC, a regional home
5.3 Poisson Distribution
improvement chain, uses an accounting information system (AIS) to manage its
uSing StAtiSticS: events of
accounting and financial data. The Ricknel AIS collects, organizes, stores, ana-
interest at Ricknel home centers,
Revisited lyzes, and distributes financial information to decision makers both inside and
outside the firm.
chApteR 5 exceL guiDe
One important function of the Ricknel AIS is to continuously audit account-
chApteR 5 MinitAb guiDe ing information, looking for errors or incomplete or improbable information.
For example, when customers submit orders online, the Ricknel AIS reviews the
orders for possible mistakes. Any questionable invoices are tagged and included
OBJECTIVES
in a daily exceptions report. Recent data collected by the company show that the
Learn the properties of a likelihood is 0.10 that an order form will be tagged.
probability distribution
As a member of the AIS team, you have been asked by Ricknel manage-
Compute the expected value
ment to determine the likelihood of finding a certain number of tagged forms in
and variance of a probability
distribution a sample of a specific size. For example, what would be the likelihood that none
of the order forms are tagged in a sample of four forms? That one of the order
Compute probabilities from
the binomial and Poisson, forms is tagged?
distributions how could you determine the solution to this type of probability problem?
Use the binomial and Poisson,
distributions to solve business
problems

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