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Quantative Studies For MGMT
Quantative Studies For MGMT
1
n
i
i
X
X
n
Short-cut Method: This method is used when the magnitude of individual observations
is large. The use of short-cut method is helpful in the simplification of calculation work.
Let A be any assumed mean. We subtract A from every observation. The difference
between an observation and A, i.e., X
i
- A is called the deviation of i th observation from
A and is denoted by d
i
. Thus, we can write ; d
1
= X
1
- A, d
2
= X
2
- A, ..... d
n
= X
n
- A. On
adding these deviations and dividing by n we get
( )
= = =
i i i i
d X A X nA X
A
n n n n
or = =
(Where )
i
d
d X A d
n
On rearranging, we get = + = +
i
d
X A d A
n
This result can be used for the calculation of X.
Remarks: Theoretically we can select any value as assumed mean. However, for the
purpose of simplification of calculation work, the selected value should be as nearer to
the value of X as possible.
27
Measures of Central Tendency
Example 1: The following figures relate to monthly output of cloth of a factory in a
given year:
Months Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Output
in metres
:
:
( ' )
80 88 92 84 96 92 96 100 92 94 98 86
000
Calculate the average monthly output.
Solution:
(i) Using Direct Method
80 88 92 84 96 92 96 100 92 94 98 86
12
X
+ + + + + + + + + + +
=
= 91.5 ('000 mtrs)
(ii) Using Short Cut Method
Let A = 90.
80 88 92 84 96 92 96 100 92 94 98 86
18
10 2 2 6 6 2 6 10 2 4 8 4
i
i i i
X
Total
d X A d = - = - - - -
\
= +
18
90
12
X
= 90 + 1.5 = 91.5 thousand mtrs
(b) When data are in the form of an ungrouped frequency distribution
Let there be n values X
1
, X
2
, ..... X
n
out of which X
1
has occurred f
1
times, X
2
has
occurred f
2
times, ..... X
n
has occurred f
n
times. Let N be the total frequency,
i.e., N =
=
1
n
i
i
f
. Alternatively, this can be written as follows :
Values X
1
X
2
- - - X
n
Total Frequency
Frequency f
1
f
2
- - - f
n
N
Direct Method : The arithmetic mean of these observations using direct method is given
by
x =
1 2
1 1 1 2 2
1 2
... ... ... ... ... ...
...
n
n n
f times f times f times
n
X X X X X X X
f f f
1442443 144424443 1442443
+ + + + + + + + + + + +
+ +
Since X
1
+ X
1
+ ..... + X
1
added f
1
times can also be written f
1
X
1
. Similarly, by writing
other observation in same manner, we have
+ + + = =
= = =
+ + +
=
1 1 2 2
1 2
... 1 1
...
1
i i i i
n n
n
n n
f X f X
f X f X f X i i
X
n
f f f N
f
i
i
.... (3)
Short-Cut Method: As before, we take the deviations of observations from an arbitrary
value A. The deviation of i th observation from A is d
i
= X
i
A.
Multiplying both sides by fi we have f
i
d
i
= f
i
(X
i
A)
Taking sum over all the observations
S
f d
i i
= S
f X A
i i
b g = S
f X
i i
AS
f
i
= S f
i
X
i
- A.N
28
Quantitative Techniques for
Management
Dividing both sides by N we have
f
i
d
i
N
f
i
X
i
N
A
= X A -
or
= + = +
f d
i i
X A A d
N
.
Example 2: The following is the frequency distribution of age of 670 students of a
school. Compute the arithmetic mean of the data.
X
(in years)
5 6 7 8 9 10 11 12 13 14
Frequency 25 45 90 165 112 96 81 26 18 12
Solution:
Direct method: The computations are shown in the following table :
X
f
fX
5 6 7 8 9 10 11 12 13 14 Total
25 45 90 165 112 96 81 26 18 12 f 670
125 270 630 1320 1008 960 891 312 234 168 fX 5918
=
=
X
fX
f
=
= =
5918
670
8.83 years.
Short-Cut Method: The method of computations are shown in the following table :
X Total
f
d X 8
fd
5 6 7 8 9 10 11 12 13 14
25 45 90 165 112 96 81 26 18 12 670
3 2 1 0 1 2 3 4 5 6
75 90 90 0 112 192 243 104 90 72 558
=
\ X A
fd
N
= +
558
8
670
= + =
8 + 0.83 = 8.83 years.
(c) When data are in the form of a grouped frequency distribution
In a grouped frequency distribution, there are classes along with their respective
frequencies. Let l
i
be the lower limit and u
i
be the upper limit of i th class. Further, let the
number of classes be n, so that i = 1, 2,.....n. Also let f
i
be the frequency of i th class. This
distribution can written in tabular form, as shown.
Note: Here u
1
may or may not be equal to l
2
, i.e., the upper limit of a class may or may
not be equal to the lower limit of its following class.
It may be recalled here that, in a grouped frequency distribution, we only know the
number of observations in a particular class interval and not their individual magnitudes.
Therefore, to calculate mean, we have to make a fundamental
assumption that the observations in a class are uniformly distributed.
Under this assumption, the mid-value of a class will be equal to the
mean of observations in that class and hence can be taken as their
representative. Therefore, if X
i
is the mid-value of i th class with
frequency f
i
, the above assumption implies that there are f
i
observations each with magnitude X
i
(i = 1 to n). Thus, the
arithmetic mean of a grouped frequency distribution can also be
calculated by the use of the formula, given in 9.5.1(b).
Remarks: The accuracy of arithmetic mean calculated for a
grouped frequency distribution depends upon the validity of the fundamental assumption.
This assumption is rarely met in practice. Therefore, we can only get an approximate
value of the arithmetic mean of a grouped frequency distribution.
1 1 1
2 2 2
( )
-
-
-
n n n
i
Class Frequency
Intervals f
l u f
l u f
l u f
Total
f N
Frequency
= =
M M
29
Measures of Central Tendency
Example 3: Calculate arithmetic mean of the following distribution :
Class
Intervals
: 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80
Frequency : 3 8 12 15 18 16 11 5
Solution: Here only short-cut method will be used to calculate arithmetic mean but it
can also be calculated by the use of direct-method.
\ = + = + =
660
35 42.5
88
fd
X A
N
Example 4: The following table gives the distribution of weekly wages of workers in a
factory. Calculate the arithmetic mean of the distribution.
Weekly
Wages
: 240 - 269 270 - 299 300 - 329 330 - 359 360 - 389 390 - 419 420 - 449
No. of
Workers
: 7 19 27 15 12 12 8
Solution: It may be noted here that the given class intervals are inclusive. However, for
the computation of mean, they need not be converted into exclusive class intervals.
\
= + = =
780
344.5 336.7
100
fd
X A
N
Step deviation method or coding method
In a grouped frequency distribution, if all the classes are of equal width, say 'h', the
successive mid-values of various classes will differ from each other by this width. This
fact can be utilised for reducing the work of computations.
Let us define
i
i
X A
u
h
-
=
. Multiplying both sides by f
i
and taking sum over all the
observations we have,
( )
= =
=
1 1
1
n n
i i i i
i i
f u f X A
h
or
= = = =
= =
1 1 1 1
.
n n n n
i i i i i i i
i i i i
h f u f X A f f X A N
= -
- -
- -
- -
35
( ) ( )
0-10 5 3 30 90
10-20 15 8 20 160
20-30 25 12 10 120
30-40 35 15 0 0
40-50 45 18 10 180
50-60 55 16 20 320
60-70 65 11 30 330
70-80 75 5 40 200
88 660
Frequency
Class Mid
d X fd
Values X f
Intervals
Total
= -
- -
- -
- -
344.5
( )
254.5 7 90 630 240-269
284.5 19 60 1140 270-299
314.5 27 30 810 300-329
344.5 15 0 0 330-359
374.5 12 30 360 360-389
404.5 12 60 720 390-419
434.5 8 90 720 420-449
Class Mid
Frequency d X fd
Intervals Values X
To -780 100 tal
30
Quantitative Techniques for
Management
Dividing both sides by N, we have
= =
= =
1 1
n n
i i i i
i i
fu f X
h A X A
N N
\
=
= +
1
n
i i
i
f u
X A h
N
.... (5)
Using this relation we can simplify the computations of Example 4, as shown below.
Using formula (5), we have
=
30 26
344.5
100
X
= 336.7
Example 5: Following table gives the distribution of companies according to size of
capital. Find the mean size of the capital of a company.
Capital Lacs Rs
No of Companies
( )
.
< < < < < < 5 10 15 20 25 30
20 27 29 38 48 53
Solution: This is a 'less than' cumulative frequency distribution. This will first be converted
into class intervals.
\
=
5 3
12.5
53
X
= Rs 12.22 Lacs
Example 6: A charitable organisation decided to give old age pension to people over
sixty years of age. The scale of pension were fixed as follows :
Age Group
Pension/ Month ( Rs)
: 60-65 65-70 70-75 75-80 80-85 85-90 90- 95
: 100 120 140 160 180 200 220
If the total pension paid per month in various age groups are :
Age Group : 60 - 65 65 - 70 70 - 75 75 - 80 80 - 85 85 - 90 90 - 95
Total Pension/Month : 700 600 840 800 720 600 440
Calculate the average amount of pension paid per month per head and the average age
of the group of old persons.
Solution: The computations of pension per head and the average age are shown in the
following table.
344.5
3 2 1 0 1 2 3
30
7 19 27 15 12 12 8 100
21 38 27 0 12 24 24 26
X
u Total
f
fu
-
= - - -
- - - -
(
-
(
-
-
-
-
-
Class
Intervals
Frequency
f
Mid values
X
u
X
fu
Total
) )
.
.
.
.
.
.
.
=
12 5
5
0 5
5 10
10 15
15 20
20 25
20
7
2
9
10
5
2 5
7 5
12 5
17 5
22 5
27 5
2
1
0
1
2
3
40
7
0
9
20
15
53 3
25- 30
31
Measures of Central Tendency
Average age
( )
= + =
5 21
77.5
32
X 77.5 - 3.28 = 74.22 Years
The average pension per head =
Total pension paid
No. of persons
=
4700
32
= Rs 146.88
Charlier's Check of Accuracy
When the arithmetic mean of a frequency distribution is calculated by short-cut or step-
deviation method, the accuracy of the calculations can be checked by using the following
formulae, given by Charlier.
For short-cut method
( )
+ = +
1
i i i i i
f d f d f
or ( )
= +
1
i i i i i
f d f d f ( )
= +
1
i i
f d N
Similarly, for step-deviation method
( ) + = +
1
i i i i i
f u f u f
or ( )
= +
1
i i i i i
f u f u f ( )
= +
1
i i
f u N
Checking the accuracy of calculations of Example 5, we have
( )
+ =
1 f u 20 ( - 1 ) + ( 7 0) + ( 2 1) + ( 9 2) + ( 10 3) + ( 5 4) = 50
Since ( )
+ = = =
1 50 53 3 f u N fu , the calculations are correct.
Weighted Arithmetic Mean
In the computation of simple arithmetic mean, equal importance is given to all the items.
But this may not be so in all situations. If all the items are not of equal importance, then
simple arithmetic mean will not be a good representative of the given data. Hence,
weighing of different items becomes necessary. The weights are assigned to different
items depending upon their importance, i.e., more important items are assigned more
weight. For example, to calculate mean wage of the workers of a factory, it would be
wrong to compute simple arithmetic mean if there are a few workers (say managers)
with very high wages while majority of the workers are at low level of wages. The
simple arithmetic mean, in such a situation, will give a higher value that cannot be regarded
as representative wage for the group. In order that the mean wage gives a realistic
picture of the distribution, the wages of managers should be given less importance in its
computation. The mean calculated in this manner is called weighted arithmetic mean.
The computation of weighted arithmetic is useful in many situations where different
items are of unequal importance, e.g., the construction index numbers, computation of
standardised death and birth rates, etc.
(
( )
( )
( )
.
-
(
-
-
-
-
-
-
-
Age
Group
Rate of
Pension per
month Y
in Rs
Total
Pension paid
per month T
in Rs
No of
Persons
f T Y
Mid values
of Class
Intervals
X
u
X
fu
Total
)
)
.
.
.
.
.
.
.
.
=
=
77 5
5
60 65 100 700 7 62 5 3 21
65 70 120 600 5 67 5 2 10
70 75 140 840 6 72 5 1 6
75 80 160 800 5 77 5 0 0
80 85 180 720 4 82 5 1 4
85 90 200 600 3 87 5 2 6
90 95 220 440 2 92 5 3 6
4700 32 21
32
Quantitative Techniques for
Management
Formulae for Weighted Arithmetic Mean
Let X
1
, X
2
....., X
n
be n values with their respective weights w
1
, w
2
....., w
n
. Their
weighted arithmetic mean denoted as X
w
is given by,
(i)
i i
w
i
w X
X
w
=
(where d
i
= X
i
- A) (Using short-cut method),
(iii)
i i
w
i
wu
X A h
w
= +
(where
i
i
X A
u
h
-
=
) (Using step-deviation method)
Example 7: Ram purchased equity shares of a company in 4 successive months, as
given below. Find the average price per share.
Solution: The average price is given by the weighted average of prices, taking the
number of shares purchased as weights.
Month
Price of share X
in Rs
No of shares
w
d X dw
Dec
Jan
Feb
Mar
Total
(
)
.
(
-
-
-
-
)
( )
=
150
91 100 200 50 10000
92 150 250 0 0
92 200 280 50 14000
92 125 300 25 7500
1030 3500
3, 500
150
1, 030
w
X =
= Rs 146.60
Example 8: From the following results of two colleges A and B, find out which of the
two is better :
Examination College A College B
Appeared Passed Appeared Passed
M.Sc.
M. A.
B. Sc.
B. A.
60
100
200
120
40
60
150
75
200
240
200
160
160
200
140
100
Solution: Performance of the two colleges can be compared by taking weighted arithmetic
mean of the pass percentage in various classes. The calculation of weighted arithmetic
mean is shown in the following table.
Month No. of Shares Price per share (in Rs.)
Dec
Jan
Feb
Mar
-
-
-
-
91 100 200
92 150 250
92 200 280
92 125 300
33
Measures of Central Tendency
A A
A
32500.2
for College A
480
w
w X
X
w
= =
= 67.71%
B B
B
59999.2
for College B
800
w
w X
X
w
= =
= 75%
Since the weighted average of pass percentage is higher for college B, hence college B
is better.
Remarks: If X denotes simple mean and X
w
denotes the weighted mean of the same
data, then
(i) X = X
w
, when equal weights are assigned to all the items.
(ii) X > X
w
, when items of small magnitude are assigned greater weights and items of
large magnitude are assigned lesser weights.
(iii) X < X
w
, when items of small magnitude are assigned lesser weights and items of
large magnitude are assigned greater weights.
Properties of Arithmetic Mean
Arithmetic mean of a given data possess the following properties :
1. The sum of deviations of the observations from their arithmetic mean is always
zero.
According to this property, the arithmetic mean serves as a point of balance or a
centre of gravity of the distribution; since sum of positive deviations (i.e., deviations
of observations which are greater than X) is equal to the sum of negative deviations
(i.e., deviations of observations which are less than X).
Proof : Let X
1
, X
2
....., X
n
be n observations with respective frequencies f
1
, f
2
.....,
f
n
. Let Sf
i
= N, be the total frequency. Thus,
i i
f X
X
N
=
Let
i i
d X X = - , where i =1, 2 ..... n. Multiplying both sides by f
i
and taking sum
over all the observations, we have
( )
i i i i i i i
f d f X X f X X f = =
=
( )
. 0 Since
i i i i
f X X N f X NX = =
. Hence Proved.
2. The sum of squares of deviations of observations is minimum when taken from
their arithmetic mean. Because of this, the mean is sometimes termed as 'least
square' measure of central tendency.
Proof: The sum of squares of deviations of observations from arithmetic mean
=
( )
2
i i
f X X
.... (1)
We have to show that S will be minimum when
A X.
To prove this, we try to find that value of A for which S is minimum. The necessary
and sufficient conditions for minimum of S are :
2
2
0 and 0
dS d S
dA dA
= >
34
Quantitative Techniques for
Management
Differentiating (1) w.r.t. A we have
( ) 2 0
i i
dS
f X A
dA
= =
and
N. According to this property, if any two of the three values are known, the third
can be easily computed. This property is obvious and requires no proof.
4. If X
1
and N
1
are the mean and number of observations of a series and X
2
and N
2
are the corresponding magnitudes of another series, then the mean X of the
combined series of N
1
+ N
2
observations is given by
1 1 2 2
1 2
N X N X
X
N N
+
=
+
Proof : To find mean of the combined series, we have to find sum of its observations.
Now, the sum of observations of the first series, i.e.,
1 1 1 1
f X N X =
.
\ The sum of observations of the combined series, i.e.,
1 1 2 2
N X N X + .
Thus, the combined mean
1 1 2 2
1 2
N X N X
X
N N
+
=
+
This result can be generalised: If there are k series each with mean X
i
and number
of observations equal to N
i
, where i = 1,2 ..... k, the mean of the combined series
of N
1
+ N
2
+ ..... + N
k
observations is given by
1
1 1 2 2
1 2
1
...
...
k
i i
i
k k
k
k
i
i
N X
N X N X N X
X
N N N
N
=
=
+ + +
= =
+ + +
or
u X B = +
.
i.e., The mean of u
i
= X
i
+ B is obtained by adding B to the mean of X
i
values.
Similarly, it can be shown that if vi = X
i
- B, then
. v X B = -
6. If every observation is multiplied (divided) by a constant b, the mean of these
observations also gets multiplied (divided) by it.
Proof: Let us define w
i
= X
i
. Multiplying both sides by f
i
and taking sum over all
the observations, we get Sf
i
w
i
= bSf
i
X
i
.
Dividing both sides by N, we get
i i
i i
f w
f X
N N
b =
or w X b =
Similarly, it can be shown that if D
i
=
i
X
b
, then
X
D
b
=
Using properties 5 and 6, we can derive the following results :
If Y
i
= a + bX
i
, then Sf
i
Y
i
= Sf
i
(a + bX
i
) or Sf
i
Y
i
= aSf
i
+ bSf
i
X
i
.
Dividing both sides by N( = Sf
i
), we have
i i
i i
f Y
f X
a b
N N
= +
or Y a bX = +
This shows that relationship between the means of two variables is same as the
relationship between the variables themselves.
7. If some observations of a series are replaced by some other observations, then the
mean of original observations will change by the average change in magnitude of
the changed observations.
Proof: Let mean of n observations be X
X
1
X
2
X
n
n
=
+ + + LL
. Further, Let X
1
,
X
2
, X
3
are replaced by the respective observations Y
1
, Y
2
, Y
3
. Therefore, the
change in magnitude of the changed observations = (Y
1
+ Y
2
+ Y
3
) - (X
1
+ X
2
+
X
3
).
Hence average change in magnitude
=
+ + + + (Y
1
Y
2
Y
3
) (X
1
X
2
X
3
)
n
.
Thus, new X = old X + average change in magnitude.
Example 9: There are 130 teachers and 100 non-teaching employees in a college. The
respective distributions of their monthly salaries are given in the following table :
36
Quantitative Techniques for
Management
From the above data find :
(i) Average monthly salary of a teacher.
(ii) Average monthly salary of a non-teaching employee.
(iii) Average monthly salary of a college employee (teaching and non-teaching).
Solution:
(i) Average monthly salary of a teacher
\ X
1
= 6500 + 469.23 = Rs 6969.23
(ii) Average monthly salary of a non-teaching employee
\ X
2
= 2500 + 190 = Rs 2690
(iii) Combined average monthly salary is
X
N X N X
N N
=
+
+
1 1 2 2
1 2
Here N
1
= 130, X
1
= 6969.23, N
2
= 100 and X
2
= 2690
\ X =
130 6969.23 100 2690
230
+
= Rs 5108.70
Example 10: The average rainfall for a week, excluding Sunday, was 10 cms. Due to
heavy rainfall on Sunday, the average for the week rose to 15 cms. How much rainfall
was on Sunday?
Solution: A week can be treated as composed of two groups: First group consisting of 6
days excluding Sunday for which N
1
= 6 and X
1
= 10; the second group consisting of
only Sunday for which N
2
= 1. Also, mean of this group will be equal to the observation
itself. Let this be X. We have to determine the value of X.
0 6
37
Measures of Central Tendency
We are also given N = 7 and X
1
= 15 (for the whole week).
\
15
6 10 1 X
7
=
+
or 60 + X = 15 7
X = 105 - 60 = 45 cms. Thus, the rainfall on Sunday was 45 cms.
Example 11: The mean age of the combined group of men and women is 30.5 years. If
the mean age of the sub-group of men is 35 years and that of the sub-group of women is
25 years, find out percentage of men and women in the group.
Solution: Let x be the percentage of men in the combined group. Therefore, percentage
of women = 100 - x.
We are given that X
1
(men) = 35 years and X
2
(women) = 25 years
Also
X
(combined) = 30.5
30.5
35 25 100
100
35 2500 25
100
=
+
+
=
+ x x
x x
x x b g
or 3050 = 10x + 2500
x =
550
10
= 55%. Thus, there are 55% men and 45% women in the group.
To find missing frequency or a missing value
Example 12: The following is the distribution of weights (in lbs.) of 60 students of a
class:
Weights : 93 - 97 98 - 102 103 - 107 108 - 112 113 - 117
No. of
Students
: 2 5 12 ? 14
Weights : 118 - 122 123 - 127 128 - 132 Total
No. of
Students
: ? 3 1 60
If the mean weight of the students is 110.917, find the missing frequencies.
Solution: Let f
1
be the frequency of the class 108-112. Then, the frequency of the class
118-122 is given by 60 - (2 + 5 + 12 + 14 + 3 + 1 + f
1
) = 23 - f
1
Writing this information in tabular form we have :
Using the formula for A.M., we can write
1
(45 2 )5
110.917 110
60
f -
= +
or 11.004 = 45 - 2f
1
or 2f
1
= 33.996 = 34 (approximately)
Thus, f
1
= 17 is the frequency of the class 108 - 112 and 23 - 17= 6 is the frequency of
the class 118 - 122.
Example 13: Find out the missing item (x) of the following frequency distribution whose
arithmetic mean is 11.37.
1
1 1
. - 110
( ) 5 ( .) ( )
93-97 2 95 3 6
98-102 5 100 2 10
103-107 12 105 1 12
108-112 110 0 0
113-117 14 115 1 14
118-122 23 120 2 46 2
123-127 3 125 3 9
128
No of Weights Mid Values X
u fu
Students f in lbs X
f
f f
-
=
-
-
- -
- -
- -
1
-132 1 130 4 4
45 2 60 f Total -
38
Quantitative Techniques for
Management
X : 5 7 x a f 11 13 16 20
f : 2 4 29 54 11 8 4
fX
X
f
=
( ) ( ) ( ) ( ) ( ) ( ) 5 2 7 4 29 11 54 13 11 16 8 20 4
112
x + + + + + +
=
11.37 =
10 28 29 594 143 128 80
112
x + + + + + +
or 11.37 112 = 983 + 29x
\ x =
290.44
29
= 10.015 = 10 (approximately)
Example 14: The arithmetic mean of 50 items of a series was calculated by a student
as 20. However, it was later discovered that an item 25 was misread as 35. Find the
correct value of mean.
Solution: N = 50 and
X
= 20 \ SX
i
= 50 20 = 1000
Thus SX
i
(corrected)
= 1000 + 25 - 35 = 990 and
X
(corrected)
=
990
50
= 19.8
Alternatively, using property 7 :
X X
new old
= + average change in magnitude =
10
20
50
-
= 20 - 0.2 = 19.8
Example 15: The sales of a balloon seller on seven days of a week are as given below:
Days Mon Tue Wed Thu Fri Sat Sun
Sales in Rs ( ) 100 150 125 140 160 200 250
If the profit is 20% of sales, find his average profit per day.
Solution: Let P denote profit and S denote sales, \ P
20
100
S =
Using property 6, we can write
20 1
or
100 5
P S P S = =
Now
100 150 125 140 160 200 250
7
S
+ + + + + +
= = 160.71
\
160.71
5
P = = Rs 32.14
Hence, the average profit of the balloon seller is Rs 32.14 per day.
Alternatively, we can find profit of each day and take mean of these values.
Days Mon Tue Wed Thu Fri Sat Sun
Profit in Rs ( ) 20 30 25 28 32 40 50
20 30 25 28 32 40 50
7
P
+ + + + + +
=
= Rs 32.14
Merits and Demerits of Arithmetic Mean
Merits
Out of all averages arithmetic mean is the most popular average in statistics because of
its merits given below:
39
Measures of Central Tendency
1. Arithmetic mean is rigidly defined by an algebraic formula.
2. Calculation of arithmetic mean requires simple knowledge of addition, multiplication
and division of numbers and hence, is easy to calculate. It is also simple to understand
the meaning of arithmetic mean, e.g., the value per item or per unit, etc.
3. Calculation of arithmetic mean is based on all the observations and hence, it can be
regarded as representative of the given data.
4. It is capable of being treated mathematically and hence, is widely used in statistical
analysis.
5. Arithmetic mean can be computed even if the detailed distribution is not known but
sum of observations and number of observations are known.
6. It is least affected by the fluctuations of sampling.
7. It represents the centre of gravity of the distribution because it balances the
magnitudes of observations which are greater and less than it.
8. It provides a good basis for the comparison of two or more distributions.
Demerits
Although, arithmetic mean satisfies most of the properties of an ideal average, it has
certain drawbacks and should be used with care. Some demerits of arithmetic mean are:
1. It can neither be determined by inspection nor by graphical location.
2. Arithmetic mean cannot be computed for a qualitative data; like data on intelligence,
honesty, smoking habit, etc.
3. It is too much affected by extreme observations and hence, it does not
adequately represent data consisting of some extreme observations.
4. The value of mean obtained for a data may not be an observation of the data and
as such it is called a fictitious average.
5. Arithmetic mean cannot be computed when class intervals have open ends. To
compute mean, some assumption regarding the width of class intervals is to be
made.
6. In the absence of a complete distribution of observations the arithmetic mean may
lead to fallacious conclusions. For example, there may be two entirely different
distributions with same value of arithmetic mean.
7. Simple arithmetic mean gives greater importance to larger values and lesser
importance to smaller values.
Exercise with Hints
1. The frequency distribution of weights in grams of mangoes of a given variety is
given below. Calculate the arithmetic mean.
Hint : Take the mid-value of a class as the mean of its limits and find arithmetic
mean by the step-deviation method.
2. The following table gives the monthly income (in rupees) of families in a certain
locality. By stating the necessary assumptions, calculate arithmetic mean of the
distribution.
Weights
in gms
No of
Mangoes
Weights
in gms
No of
Mangoes ( )
.
( )
.
- -
- -
- -
-
410 419 14 450 459 45
420 429 20 460 469 18
430 439 42 470 479 7
440 449 52
40
Quantitative Techniques for
Management
Income : 1000 1000 - 2000 2000 - 3000 3000 - 4000 4000 - 5000 5000
No. of
Families
: 100 1200 1450 250 70 30
Hint : This distribution is with open end classes. To calculate mean, it is to be assumed
that the width of first class is same as the width of second class. On this
assumption the lower limit of the first class will be 0. Similarly, it is assumed that
the width of last class is equal to the width of last but one class. Therefore, the
upper limit of the last class can be taken as 6,000.
3. Compute arithmetic mean of the following distribution of marks in Economics of 50
students.
Marks more than
No. of Students
Marks more than
No. of Students
0 50 50 15
10 46 60 8
20 40 70 3
30 33 80 0
40 25
Hint: First convert the distribution into class intervals and then calculate
X
.
4. The monthly profits, in '000 rupees, of 100 shops are distributed as follows:
Profit per Shop : 0 - 100 0 - 200 0 - 300 0 - 400 0 - 500 0 - 600
No. of Shops : 12 30 57 77 94 100
Find average profit per shop.
Hint: This is a less than type cumulative frequency distribution.
5. Typist A can type a letter in five minutes, typist B in ten minutes and typist C in
fifteen minutes. What is the average number of letters typed per hour per typist?
Hint: In one hour, A will type 12 letters, B will type 6 letters and C will type
4 letters.
6. A taxi ride in Delhi costs Rs 5 for the first kilometre and Rs 3 for every additional
kilometre travelled. The cost of each kilometre is incurred at the beginning of the
kilometre so that the rider pays for the whole kilometre. What is the average cost
of travelling
2
3
4
kilometres?
Hint: Total cost of travelling
2
3
4
kilometres = Rs 5 + 3 + 3 = Rs 11.
7. A company gave bonus to its employees. The rates of bonus in various salary
groups are :
Monthly Salary
in Rs
Rate of Bonus
in Rs
( )
- - - -
( )
:
:
1000 2000 2000 3000 3000 4000 4000 5000
2000 2500 3000 3500
The actual salaries of staff members are as given below :
1120, 1200, 1500, 4500, 4250, 3900, 3700, 3950, 3750, 2900, 2500, 1650, 1350,
4800, 3300, 3500, 1100, 1800, 2450, 2700, 3550, 2400, 2900, 2600, 2750, 2900,
2100, 2600, 2350, 2450, 2500, 2700, 3200, 3800, 3100.
Determine (i) Total amount of bonus paid and (ii) Average bonus paid per employee.
Hint: Find the frequencies of the classes from the given information.
8. Calculate arithmetic mean from the following distribution of weights of 100 students
of a college. It is given that there is no student having weight below 90 lbs. and the
total weight of persons in the highest class interval is 350 lbs.
41
Measures of Central Tendency
Weights
Frequency
:
:
< < < < < < < < 100 110 120 130 140 150 160 170 170
3 5 23 45 66 85 95 98 2
Hint: Rearrange this in the form of frequency distribution by taking class inter-
vals as 90 - 100, 100 - 110, etc.
9. By arranging the following information in the form of a frequency distribution, find
arithmetic mean.
"In a group of companies 15%, 25%, 40% and 75% of them get profits less than Rs
6 lakhs, 10 lakhs, 14 lakhs and 20 lakhs respectively and 10% get Rs 30 lakhs or
more but less than 40 lakhs."
Hint: Take class intervals as 0 - 6, 6 - 10, 10 - 14, 14 - 20, etc.
10. Find class intervals if the arithmetic mean of the following distribution is 38.2 and
the assumed mean is equal to 40.
Step deviations : 3 2 1 0 1 2 3
Frequency : 8 14 18 28 17 10 5
Hint: Use the formula
X
= A +
fu
N
= 7.55 inches.
Example 22: The following table gives the distribution of marks by 500 students in an
examination. Obtain median of the given data.
Solution: Since the class intervals are inclusive, therefore, it is necessary to convert
them into class boundaries.
' '
- - .
- - .
- . - .
- . - .
- . - .
- . - .
- -
- . - .
Class Intervals Class Boundaries Frequency Less than type c f . .
.
.
. .
0 9 0 5 9 5 30 30
10 19 9 5 19 5 40 70
20 29 19 5 29 5 50 120
30 39 29 5 39 5 48 168
40 49 39 5 49 5 24 192
50 59 49 5 59 5 162 354
60 69 59 5 69 5 132 486
70 79 69 5 79 5 14 500
Since
N
2
= 250, the median class is 49.5 - 59.5 and, therefore, L
m
= 49.5, h = 10,
f
m
= 162, C = 192.
Thus, M
d
= 49.5 +
250 192
10
162
-
= 53.08 marks.
Example 23: The weekly wages of 1,000 workers of a factory are shown in the following
table. Calculate median.
Weekly Wages (less than) : 425 475 525 575 625 675 725 775 825 875
No. of Workers : 2 10 43 123 293 506 719 864 955 1000
Solution: The above is a 'less than' type frequency distribution. This will first be converted
into class intervals.
Class Intervals Frequency ( f ) ' Less than' type c. f .
3 - 4 3 3
4 - 5 7 10
5 - 6 12 22
6 - 7 16 38
7 - 8 22 60
8 - 9 20 80
9 - 10 13 93
10 - 11 7 100
Marks : 0 - 9 10 - 19 20 - 29 30 - 39 40 - 49 50 - 59 60 - 69 70 - 79
No. of Students : 30 40 50 48 24 162 132 14
Class Intervals Frequency Less than c. f .
less than 425 2 2
425 - 475 8 10
475 - 525 33 43
525 - 575 80 123
575 - 625 170 293
625 - 675 213 506
675 - 725 213 719
725 - 775 145 864
775 - 825 91 955
825 - 875 45 1000
50
Quantitative Techniques for
Management
Since
N
2
= 500, the median class is 625 - 675. On substituting various
values in the formula for median, we get
M
d
= 625 +
500 293
50
213
= Rs 673.59
Example 24: Find the median of the following data :
Solution: Note that it is 'greater than' type frequency distribution.
Since
N
2
=
230
2
= 115, the median class is 40 - 50.
Using the formula, M
d
= U
m
-
2
m
N
C
f
-
h
=
115 73
50 10 41.6
50
-
- =
years
Example 25: The following table gives the daily profits (in Rs) of 195 shops of a town.
Calculate mean and median.
Profits : 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100 100 - 110 110 - 120 120 - 130 130 - 140
No. of shops : 15 20 32 35 33 22 20 10 8
Solution: The calculations of
X
and M
d
are shown below:
X A
fu
N
h = +
= = 95
95
195
10 Rs 90.13
Since
N
2
=
195
2
= 97.5, the median class is 80 - 90.
Age greater than in yrs
No of Persons
( ) :
. :
0 10 20 30 40 50 60 70
230 218 200 165 123 73 28 8
Class Intervals Greater than c. f . Frequency
0 - 10 230 12
10 - 12 218 18
20 - 30 200 35
30 - 40 165 42
40 - 50 123 50
50 - 60 73 45
60 - 70 28 20
70 and above 8 8
- 95
( ) . . 10
50-60 15 55 4 60 15
60-70 20 65 3 60 35
70-80 32 75 2 64 67
80-90 35 85 1 35 102
90-100 33 95 0 0 135
100-110 22 105 1 22 157
110-120 20 115 2 40 177
120-130 10 125 3 30 187
130-14
Mid value Less than X
Class Intervals f u fu
X c f
-
=
- -
- -
- -
- -
0 8 135 4 32 195
195 95 Total -
51
Measures of Central Tendency
\ Md = 80 +
97.5 67
10
35
-
= Rs 88.71
Example 26: Find median of the following distribution :
Mid - Values : 1500 2500 3500 4500 5500 6500 7500
Frequency : 27 32 65 78 58 32 8
Solution: Since the mid-values are equally spaced, the difference between their two
successive values will be the width of each class interval. This width is 1,000. On
subtracting and adding half of this, i.e., 500 to each of the mid-values, we get the lower
and the upper limits of the respective class intervals. After this, the calculation of median
can be done in the usual way.
Since
N
2
= 150, the median class is 4,000 - 5,000.
Hence M
d
= 4,000 +
150 124
1, 000
78
-
= 4,333.33.
Determination of Missing Frequencies
If the frequencies of some classes are missing, however, the median of the distribution is
known, then these frequencies can be determined by the use of median formula.
Example 27: The following table gives the distribution of daily wages of 900 workers.
However, the frequencies of the classes 40 - 50 and 60 - 70 are missing. If the median
of the distribution is Rs 59.25, find the missing frequencies.
Solution: Let f
1
and f
2
be the frequencies of the classes 40 - 50 and 60 - 70 respectively.
Since median is given as 59.25, the median class is 50 - 60.
Therefore, we can write
59.25 = 50 +
( )
1
450 120
10
200
f - +
= 50 +
330 f
1
20
or 9.25 20 = 330 - f
1
or f
1
= 330 - 185 = 145
Further, f
2
= 900 - (120 + 145 + 200 + 185) = 250.
Mid - Values Class Intervals Frequency c. f . (less than)
1500 1000 - 2000 27 27
2500 2000 - 3000 32 59
3500 3000 - 4000 65 124
4500 4000 - 5000 78 202
5500 5000 - 6000 58 260
6500 6000 - 7000 32 292
7500 7000 - 8000 8 300
Wages Rs
No of Workers
( ) - - - - -
. ? ?
:
:
30 40 40 50 50 60 60 70 70 80
120 200 185
1 1
1
2 1 2
. .
( )
30-40 120 120
40-50 120
50-60 320 200
60-70 320
70-80 900 185
Class c f
Frequency
Intervals less than
f f
f
f f f
+
+
+ +
52
Quantitative Techniques for
Management
Graphical location of Median
So far we have calculated median by the use of a formula. Alternatively, it can be
determined graphically, as illustrated in the following example.
Example 28: The following table shows the daily sales of 230 footpath sellers of Chandni
Chowk :
Sales in Rs
No of Sellers
Sales in Rs
No of Sellers
( ) - - - -
.
( ) - - - -
.
:
:
:
:
0 500 500 1000 1000 1500 1500 2000
12 18 35 42
2000 2500 2500 3000 3000 3500 3500 4000
50 45 20 8
Locate the median of the above data using
(i) only the less than type ogive, and
(ii) both, the less than and the greater than type ogives.
Solution: To draw ogives, we need to have a cumulative frequency distribution.
(i) Using the less than type ogive
The value
N
2
= 115 is marked on the vertical axis and a horizontal line is drawn from this
point to meet the ogive at point S. Drop a perpendicular from S. The point at which this
meets X- axis is the median.
(ii) Using both types of ogives
Class Intervals Frequency Less than c. f . More than c. f .
0 - 500 12 12 230
500 - 1000 18 30 218
1000 - 1500 35 65 200
1500 - 2000 42 107 165
2000 - 2500 50 157 123
2500 - 3000 45 202 73
3000 - 3500 20 222 28
3500 - 4000 8 230 8
Figure 2.2
Figure 2.3
53
Measures of Central Tendency
A perpendicular is dropped from the point of intersection of the two ogives. The point at
which it intersects the X-axis gives median. It is obvious from Fig. 2.2 and 2.3 that
median = 2080.
Properties of Median
1. It is a positional average.
2. It can be shown that the sum of absolute deviations is minimum when taken from
median. This property implies that median is centrally located.
Merits and Demerits of Median
(a) Merits
1. It is easy to understand and easy to calculate, especially in series of individual
observations and ungrouped frequency distributions. In such cases it can even be
located by inspection.
2. Median can be determined even when class intervals have open ends or not of
equal width.
3. It is not much affected by extreme observations. It is also independent of range or
dispersion of the data.
4. Median can also be located graphically.
5. It is centrally located measure of average since the sum of absolute deviation is
minimum when taken from median.
6. It is the only suitable average when data are qualitative and it is possible to rank
various items according to qualitative characteristics.
7. Median conveys the idea of a typical observation.
(b) Demerits
1. In case of individual observations, the process of location of median requires their
arrangement in the order of magnitude which may be a cumbersome task,
particularly when the number of observations is very large.
2. It, being a positional average, is not capable of being treated algebraically.
3. In case of individual observations, when the number of observations is even, the
median is estimated by taking mean of the two middle-most observations, which is
not an actual observation of the given data.
4. It is not based on the magnitudes of all the observations. There may be a situation
where different sets of observations give same value of median. For example, the
following two different sets of observations, have median equal to 30.
Set I : 10, 20, 30, 40, 50 and Set II : 15, 25, 30, 60, 90.
5. In comparison to arithmetic mean, it is much affected by the fluctuations of sampling.
6. The formula for the computation of median, in case of grouped frequency distribution,
is based on the assumption that the observations in the median class are uniformly
distributed. This assumption is rarely met in practice.
7. Since it is not possible to define weighted median like weighted arithmetic mean,
this average is not suitable when different items are of unequal importance.
Uses
1. It is an appropriate measure of central tendency when the characteristics are not
measurable but different items are capable of being ranked.
2. Median is used to convey the idea of a typical observation of the given data.
3. Median is the most suitable measure of central tendency when the frequency
distribution is skewed. For example, income distribution of the people is generally
positively skewed and median is the most suitable measure of average in this case.
4. Median is often computed when quick estimates of average are desired.
5. When the given data has class intervals with open ends, median is preferred as a
measure of central tendency since it is not possible to calculate mean in this case.
54
Quantitative Techniques for
Management
Check Your Progress 2.1
1 What are the merits and demerits of Mean and Median?
2. Find Arithmetic mean of first ten prime numbers.
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
2.7 OTHER PARTITION OR POSITIONAL MEASURES
Median of a distribution divides it into two equal parts. It is also possible to divide it into
more than two equal parts. The values that divide a distribution into more than two equal
parts are commonly known as partition values or fractiles. Some important partition
values are discussed in the following sections.
Quartiles
The values of a variable that divide a distribution into four equal parts are called quartiles.
Since three values are needed to divide a distribution into four parts, there are three
quartiles, viz. Q
1
, Q
2
and Q
3
, known as the first, second and the third quartile respectively.
For a discrete distribution, the first quartile (Q
1
) is defined as that value of the variate
such that at least 25% of the observations are less than or equal to it and at least 75% of
the observations are greater than or equal to it.
For a continuous or grouped frequency distribution, Q
1
is that value of the variate such
that the area under the histogram to the left of the ordinate at Q
1
is 25% and the area to
its right is 75%. The formula for the computation of Q
1
can be written by making suitable
changes in the formula of median.
After locating the first quartile class, the formula for Q
1
can be written as follows:
Q L
N
C
f
h
Q
Q
1 1
1
4
= +
F
H
G
I
K
J
Here, L
Q
1
is lower limit of the first quartile class, h is its width, f
Q
1
is its frequency and C
is cumulative frequency of classes preceding the first quartile class.
By definition, the second quartile is median of the distribution. The third quartile (Q
3
) of
a distribution can also be defined in a similar manner.
For a discrete distribution, Q
3
is that value of the variate such that at least 75% of the
observations are less than or equal to it and at least 25% of the observations are greater
than or equal to it.
For a grouped frequency distribution, Q
3
is that value of the variate such that area under
the histogram to the left of the ordinate at Q
3
is 75% and the area to its right is 25%. The
formula for computation of Q
3
can be written as
Q L
N
C
f
h
Q
Q
3
3
3
3
4
= +
F
H
G
I
K
J
,
where the symbols have their usual meaning.
55
Measures of Central Tendency
Deciles
Deciles divide a distribution into 10 equal parts and there are, in all, 9 deciles denoted as
D
1
, D
2
, ...... D
9
respectively.
For a discrete distribution, the i th decile D
i
is that value of the variate such that at least
(10i)% of the observation are less than or equal to it and at least (100 - 10i)% of the
observations are greater than or equal to it (i = 1, 2, ...... 9).
For a continuous or grouped frequency distribution, D
i
is that value of the variate such
that the area under the histogram to the left of the ordinate at D
i
is (10i)% and the area
to its right is (100 - 10i)%. The formula for the i th decile can be written as
D L
iN
C
f
h
i D
i
D
i
= +
F
H
G
I
K
J
10
(i = 1, 2, ...... 9)
Percentiles
Percentiles divide a distribution into 100 equal parts and there are, in all, 99 percentiles
denoted as P
1
, P
2
, ...... P
25
, ...... P
40
, ...... P
60
, ...... P
99
respectively.
For a discrete distribution, the kth percentile P
k
is that value of the variate such that at
least k% of the observations are less than or equal to it and at least (100 - k)% of the
observations are greater than or equal to it.
For a grouped frequency distribution, P
k
is that value of the variate such that the area
under the histogram to the left of the ordinate at P
k
is k% and the area to its right is
(100 - k)% . The formula for the kth percentile can be written as
P L
kN
C
f
h
k P
k
P
k
= +
F
H
G
I
K
J
100
, (k = 1, 2, ...... 99)
Remarks :
(i) We may note here that P
25
= Q
1
, P
50
= D
5
= Q
2
= M
d
, P
75
= Q
3
, P
10
= D
1
, P
20
= D
2
,
etc.
(ii) In continuation of the above, the partition values are known as Quintiles (Octiles) if
a distribution is divided in to 5 (8) equal parts.
(iii) The formulae for various partition values of a grouped frequency distribution, given
so far, are based on 'less than' type cumulative frequencies. The corresponding
formulae based on 'greater than' type cumulative frequencies can be written in a
similar manner, as given below:
1
1
1
3
4
Q
Q
N
C
Q U h
f
-
= -
,
3
3
3
4
Q
Q
N
C
Q U h
f
-
= -
10
i
i
i D
D
iN
N C
D U h
f
- -
= -
,
100
K
k
k P
P
kN
N C
P U h
f
- -
= -
Here U
Q
1
,U
Q
3
,U
D
i
,U
P
K
are the upper limits of the corresponding classes and C
denotes the greater than type cumulative frequencies.
Example 29: Locate Median, Q
1
, Q
3
, D
4
, D
7,
P
15,
P
60
and P
90
from the following data :
Solution: First we calculate the cumulative frequencies, as in the following table :
Daily Profit in Rs
No of Shops
( ) :
. :
75 76 77 78 79 80 81 82 83 84 85
15 20 32 35 33 22 20 10 8 3 2
56
Quantitative Techniques for
Management
1. Determination of Median: Here
N
2
= 100. From the cumulative frequency column,
we note that there are 102 (greater than 50% of the total) observations that are
less than or equal to 78 and there are 133 observations that are greater than or
equal to 78. Therefore, M
d
= Rs 78.
2. Determination of Q
1
and Q
3
: First we determine
N
4
which is equal to 50. From
the cumulative frequency column, we note that there are 67 (which is greater than
25% of the total) observations that are less than or equal to 77 and there are 165
(which is greater than 75% of the total) observations that are greater than or equal
to 77. Therefore, Q
1
= Rs 77. Similarly, Q
3
= Rs 80.
3. Determination of D
4
and D
7
: From the cumulative frequency column, we note
that there are 102 (greater than 40% of the total) observations that are less than or
equal to 78 and there are 133 (greater than 60% of the total) observations that are
greater than or equal to 78. Therefore, D
4
= Rs 78. Similarly, D
7
= Rs 80.
4. Determination of P
15
, P
60
and P
90
: From the cumulative frequency column, we
note that there are 35 (greater than 15% of the total) observations that are less
than or equal to 76 and there are 185 (greater than 85% of the total) observations
that are greater than or equal to 76. Therefore, P
15
= Rs 76. Similarly, P
60
= Rs 79
and P
90
= Rs 82.
Example 30: Calculate median, quartiles, 3rd and 6th deciles and 40th and 70th
percentiles, from the following data:
( ) : - - - - -
. :
( ) : - - - -
. :
Wages per Week in Rs
No of Workers
Wages per Week in Rs
No of Workers
50 100 100 150 150 200 200 250 250 300
15 40 35 60 125
300 350 350 400 400 450 450 500
100 70 40 15
Also determine (i) The percentage of workers getting weekly wages between Rs 125
and Rs 260 and (ii) percentage of worker getting wages greater than Rs 340.
Solution: First we make a cumulative frequency distribution table :
(i) Calculation of median: Here N = 500 so that
N
2
= 250. Thus, median class is
250 - 300 and hence L
m
= 250, f
m
= 125, h = 50 and C = 150.
Substituting these values in the formula for median, we get
Md = 250 +
250 150
50
125
-
= Rs 290
Daily Profit in Rs
No of Shops f
Less than c f
( )
. ( )
75 76 77 78 79 80 81 82 83 84 85
15 20 32 35 33 22 20 10 8 3 2
15 35 67 102 135 157 177 187 195 198 200 . .
Class Intervals Frequency c. f . (less than)
50 - 100 15 15
100 - 150 40 55
150 - 200 35 90
200 - 250 60 150
250 - 300 125 275
300 - 350 100 375
350 - 400 70 445
400 - 450 40 485
450 - 500 15 500
57
Measures of Central Tendency
(ii) Calculation of Quartiles:
(a) For Q
1
, we first find
N
4
which is equal to 125. The first quartile class is
200 - 250 and hence L
Q
1
= 200, f
Q
1
= 60, h = 50 and C = 90.
\ Q
1
= 200 +
125 90
50
60
-
= Rs 229.17
(b) For Q
3
we first find
3N
4
which is equal to 375. The third quartile class is
300 - 350 and hence L
Q
3
= 300, f
Q
3
= 100, h = 50 and C =275.
\ Q
3
= 300 +
375 275
50
100
-
= Rs 350
(iii) Calculation of Deciles:
(a) For D
3
we first find
3N
10
which is equal to 150. The third decile class is
200 - 250 and hence L
D
3
= 200, f
D
3
= 60, h = 50, C = 90.
\ D
3
= 200 +
150 90
50
60
-
= Rs 250
(b) For D
6
we first find
6N
10
which is equal to 300. The sixth decile class is
300 - 350 and hence L
D
6
= 300, f
D
6
= 100, h = 50 and C = 275.
\ D
6
= 300 +
300 275
50
100
-
= Rs 312.50
(iv) Calculation of percentiles:
(a) For P
40
we first find
40N
100
which is equal to 200. The 40th percentile class is
250 - 300 and hence L
P
40
= 250, f
P
40
= 125, h = 50 and C = 150.
\ P
40
= 250 +
200 150
50
125
-
= Rs 270
(b) For P
70
we first find
70N
100
which is equal to 350. The 70th percentile class is
300 - 350 and hence L
P
70
= 300, f
P
70
= 100, h = 50 and C = 275.
\ P
70
= 300 +
350 275
50
100
-
= Rs 337.5
(v) Determination of percentage of workers getting wages between Rs 125
and Rs 260:
Let x be the percentage of workers getting wage less than 125. Since 125 lies in
the class 100 - 150, this is xth percentiles class. Using the formula for xth percentile
we have
125 = 100 +
.500
15
100
50
40
x
-
or 5x 15 = 20 x = 7
Further, let y be the percentage of workers getting wages less then 260. Since 260
lies in the class 250 - 300, this is yth percentile class. Using the relevant formula,
we have
58
Quantitative Techniques for
Management
260 = 250 +
5 150
50
125
y -
or 5y 150 = 25 or y = 35
Hence percentage of workers getting wages between Rs 125 and Rs 260 is given
by 35 7 = 28%.
Alternative Method
The number of workers getting wages between 125 and 260 can be written directly
as
=
150 125
40
50
-
+ 35 + 60 +
260 250
125
50
-
= 20 + 35 + 60 + 25 = 140.
\Percentage of workers =
140
500
100 = 28%.
(vi) Determination of percentage of workers getting wages greater than Rs 340:
Since we have already computed 'less than' type cumulative frequencies, in the
above table, we shall first find percentage of workers getting wages less than 340.
Let x be this percentage. Also xth percentiles class is 300 - 350.
\340 = 300 +
5 275
50
100
x -
or 5x - 275 = 80 or x = 71
Hence, percentage of workers getting wages greater than Rs 340 is (100 - 71)
= 29%.
Alternative Method
This percentage can also be obtained directly as shown below.
The percentage of workers getting wages greater than Rs 340
=
350 340
100
50
-
+ 70 + 40 + 15 = 145
\Percentage =
145
100
500
= 29%
Example 31: From the following table, showing the wage distribution of workers, find
(i) the range of incomes earned by middle 50% of the workers,
(ii) the range of incomes earned by middle 80% of the workers,
(iii) the percentage of workers earning between Rs 550 and Rs 880.
Solution: The above table gives a 'less than' type cumulative frequency distribution.
Therefore, we can rewrite the above table as :
Monthly Income Rs No of Workers ( ) .
-
-
-
-
-
0 200 150
0 400 250
0 600 330
0 800 380
0 1000 400
Monthly Income Rs c f less than Frequency f ( ) )
-
-
-
-
-
. . (
( )
0 200 150 150
200 400 250 100
400 600 330 80
600 800 380 50
800 1000 400 20
59
Measures of Central Tendency
(i) The range of incomes earned by middle 50% of the workers is given by Q
3
- Q
1
.
Now Q
1
= 0 +
100 0
150
200 = Rs 133.33
and Q
3
= 400 +
300 250
200
80
-
= Rs 525.
Thus, Q
3
- Q
1
= 525 - 133.33 = Rs. 391.67.
(ii) The range of incomes of middle 80% of the workers is given by P
90
- P
10
.
Now P
10
= 0 +
10 400
0
100
200
150
= Rs 53.33
and P
90
= 600 +
90 400
330
100
200
50
= Rs 720.
Thus, P
90
- P
10
= 720 - 53.33 = Rs 666.67.
(iii) The No. of workers earning between Rs 550 and Rs 880 is given by
600 550
80
200
-
+ 50 +
880 800
20
200
-
= 78.
\ Percentage of workers =
78
400
100 = 19.5%
Example 32: The following incomplete table gives the number of students in different
age groups of a town. If the median of the distribution is 11 years, find out the missing
frequencies.
Age Group : 0 - 5 5 - 10 10 - 15 15- 20 20 - 25 25 - 30 Total
No. of Students : 15 125 ? 66 ? 4 300
Solution: Let x be the frequency of age group 10 - 15. Then the frequency of the age
group 20 - 25 will be 300 - (15 + 125 + x + 66 + 4) = 90 - x.
Making a cumulative frequency table we have
. (
)
-
-
-
-
-
-
Age Groups No of Students c f less than
x x
x
x
. .
0 5 15 15
5 10 125 140
10 15 140
15 20 66 206
20 25 90 296
25 30 4 300
+
+
Here
2
N
=
300
2
= 150. Since median is given as 11, the median class is 10 - 15.
Hence, 11 =
150 140
10 5
x
-
+ or x = 50.
Also, frequency of the age group 20 - 25 is 90 - 50 = 40.
Exercise with Hints
1. The following table gives weekly income of 24 families in a certain locality :
S. No. of family : 1 2 3 4 5 6 7 8 9 10 11 12
Weekly Income : 60 400 86 95 100 150 110 74 90 92 280 180
S. No. of family : 13 14 15 16 17 18 19 20 21 22 23 24
Weekly Income : 96 98 104 75 80 94 100 75 600 82 200 84
Calculate M
d
, Q
1
, Q
3
, D
4
, D
7
, P
20
, P
45
, and P
95.
60
Quantitative Techniques for
Management
Hint: Arrange the data in ascending or descending order of magnitude and then calculate
various values. For calculation of Q
1
there are two values satisfying the definition.
These two values are 82 and 84. Thus, Q
1
can be any value in the closed interval
[82, 84]. By convention, the mid-value of the interval is taken as Q
1
.
2. Calculate the value of M
d
, Q
1
, Q
3
, D
2
, D
8
, P
35
, P
48
, and P
68
, from the following
data:
Classes below
Frequency
: - - - - - - - -
:
10 10 15 15 20 20 25 25 30 30 35 35 40 40 45 45 50
1 2 5 7 10 7 5 2 1
Hint: See example 30.
3. Find median from the following data:
Wages Week Rs
No of Workers
( ) - - - - - - -
.
/ :
:
50 59 60 69 70 79 80 89 90 99 100 109 110 119
15 40 50 60 45 40 15
Hint: This is a distribution with inclusive class intervals. To compute median, these are
to be converted into exclusive intervals like 49.5 - 59.5, 59.5 - 69.5, etc.
4. The following table gives the distribution of wages of 65 employees in a
factory :
( ) : 50 60 70 80 90 100 110 120
. : 65 57 47 31 17 7 2 0
Wages
No of employees
Draw a 'less than type' ogive from the above data and estimate the number of
employees earning at least Rs 63 but less than Rs 75.
Hint: To draw a 'less than' type ogive, the distribution is to be converted into 'less than'
type cumulative frequencies.
5. The following table shows the age distribution of persons in a particular region:
Age ( years) No. of Persons (' 000)
Below 10 2
Below 20 5
Below 30 9
Below 40 12
Below 50 14
Below 60 15
Below 70 15. 5
70 and above 15. 6
(i) Find median age.
(ii) Why is the median a more suitable measure of central tendency than mean in
this case?
Hint: Median is suitable here because the upper limit of the last class is not known and
therefore, mean cannot be satisfactorily calculated.
6. A number of particular articles have been classified according to their weights.
After drying for two weeks the same articles have again been weighed and similarly
classified. It is known that median weight in the first weighing was 20.83 oz. while
in second weighing it was 17.35 oz. Some frequencies a and b in the first weighing
and x and y in the second weighing, are missing. It is known that a =
1
3
x and
b =
1
2
y. Find the missing frequencies.
Classes 0 - 5 5 - 10 10 - 15 15 - 20 20 - 25 25 - 30
Frequency
1st weighing
2nd weighing
a b 11 52 75 22
x y 40 50 30 28
2nd
61
Measures of Central Tendency
Hint:
( )
160
63
2
20.83 20 5
75
a b
a b
+ +
- + +
= +
.... (1)
and
( )
148 4
40
2
17.35 15 5
50
x
x y
+ +
- + +
= +
.... (2)
Put x = 3a and y = 2b in equation (2) and solve (1) and (2) simultaneously.
7. The percentage distribution of regularly employed workers who commute between
home and work place by foot and those who use cycles, according to the distance
is given below. How will you find the mean distance and the median distance of the
walkers and cyclists? State your assumptions carefully.
Hint: The given percentage of walkers and cyclists can be taken as frequencies. For
calculation of mean, the necessary assumption is that the width of the first class is
equal to the width of the following class, i.e.,
1
4
. On this assumption, the lower limit
of the first class can be taken as 0. Similarly, on the assumption that width of the
last class is equal to the width of last but one class, the upper limit of last class can
be taken as 6. No assumption is needed for the calculation of median.
8. In a factory employing 3,000 persons, 5 percent earn less than Rs 3 per hour, 580
earn Rs 3.01 to 4.50 per hour, 30 percent earn from Rs 4.51 to Rs 6.00 per hour,
500 earn from 6.01 to Rs 7.5 per hour, 20 percent earn from Rs 7.51 to Rs 9.00 per
hour and the rest earn Rs 9.01 or more per hour. What is the median wage?
Hint: Write down the above information in the form of a frequency distribution. The
class intervals given above are inclusive type. These should be converted into
exclusive type for the calculation of median.
9. The distribution of 2,000 houses of a new locality according to their distance from
a milk booth is given in the following table :
( )
.
( )
.
- -
- -
- -
- -
- -
- -
- -
Distance
in metres
No of
Houses
Distance
in metres
No of
Houses
0 50 20 350 400 275
50 100 30 400 450 400
100 150 35 450 500 325
150 200 46 500 550 205
200 250 50 550 600 184
250 300 105 600 650 75
300 350 200 650 700 50
(i) Calculate the median distance of a house from milk booth.
(ii) In second phase of the construction of the locality, 500 additional houses were
constructed out of which the distances of 200, 150 and 150 houses from the
milk booth were in the intervals 450 - 500, 550 - 600 and 650 - 700 meters
respectively. Calculate the median distance, taking all the 2500 houses into
account.
Distance in kms Walkers Cyclists
less than
above
. .
-
-
-
-
- . .
- . .
. .
1 4 453 11
1 4 1 2 211 6 0
1 2 1 152 9 6
1 2 98 17 9
2 3 53 205
3 4 2 2 19 2
4 5 06 152
5 05 105
. .
. .
. .
. .
19.2
62
Quantitative Techniques for
Management
Hint: Add 200, 150 and 150 to the respective frequencies of the class intervals
450 - 500, 550 - 600 and 650 - 700.
10. The monthly salary distribution of 250 families in a certain locality of Agra is given
below.
Monthly Salary
more than 0
more than 500
more than 1000
more than 1500
No. of Families
250
200
120
80
Monthly Salary
more than 2000
more than 2500
more than 3000
more than 3500
No. of Families
55
30
15
5
Draw a less than ogive for the data given above and hence find out :
(i) The limits of the income of the middle 50% of the families. (ii) If income tax is
to be levied on families whose income exceeds Rs 1800 p.m., calculate the
percentage of families which will be paying income tax.
Hint: See example 23.
11. The following table gives the frequency distribution of marks of 800 candidates in
an examination :
Marks : 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50
No. of candidates : 10 40 80 140 170
Marks : 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100
No. of candidates : 130 100 70 40 20
Draw 'less than' and 'more than' type ogives for the above data and answer the
following from the graph :
(i) If the minimum marks required for passing are 35, what percentage of
candidates pass the examination?
(ii) It is decided to allow 80% of the candidate to pass, what should be the minimum
marks for passing?
(iii) Find the median of the distribution.
Hint: See example 28.
12. Following are the marks obtained by a batch of 10 students in a certain class test in
statistics (X) and accountancy (Y).
Roll No. : 1 2 3 4 5 6 7 8 9 10
X : 63 64 62 32 30 60 47 46 35 28
Y : 68 66 35 42 26 85 44 80 33 72
In which subject the level of knowledge of student is higher?
Hint: Compare median of the two series.
13. The mean and median marks of the students of a class are 50% and 60%
respectively. Is it correct to say that majority of the students have secured more
than 50% marks? Explain.
Hint: It is given that at least 50% of the students have got 60% or more marks.
14. The monthly wages of 7 workers of a factory are : Rs 1,000, Rs 1,500, Rs 1,700,
Rs 1,800, Rs 1,900, Rs 2,000 and Rs 3,000. Compute mean and median. Which
measure is more appropriate? Which measure would you use to describe the situation
if you were (i) a trade union leader, (ii) an employer?
Hint: (i) median, (ii) mean.
15. A boy saves Re. 1 on the first day, Rs 2 on the second day, ...... Rs 31 on the 31st
day of a particular month. Compute the mean and median of his savings per day.
If his father contributes Rs 10 and Rs 100 on the 32nd and 33rd day respectively,
compute mean and median of his savings per day. Comment upon the results.
Hint: Mean is too much affected by extreme observations.
63
Measures of Central Tendency
2.8 MODE
Mode is that value of the variate which occurs maximum number of times in a distribution
and around which other items are densely distributed. In the words of Croxton and
Cowden, The mode of a distribution is the value at the point around which the items
tend to be most heavily concentrated. It may be regarded the most typical of a series of
values. Further, according to A.M. Tuttle, Mode is the value which has the greatest
frequency density in its immediate neighbourhood.
If the frequency distribution is regular, then mode is determined by the value corresponding
to maximum frequency. There may be a situation where concentration of observations
around a value having maximum frequency is less than the concentration of observations
around some other value. In such a situation, mode cannot be determined by the use of
maximum frequency criterion. Further, there may be concentration of observations around
more than one value of the variable and, accordingly, the distribution is said to be bi-
modal or multi-modal depending upon whether it is around two or more than two values.
The concept of mode, as a measure of central tendency, is preferable to mean and
median when it is desired to know the most typical value, e.g., the most common size of
shoes, the most common size of a ready-made garment, the most common size of income,
the most common size of pocket expenditure of a college student, the most common size
of a family in a locality, the most common duration of cure of viral-fever, the most
popular candidate in an election, etc.
Determination of Mode
(a) When data are either in the form of individual observations or in the form of ungrouped
frequency distribution
Given individual observations, these are first transformed into an ungrouped frequency
distribution. The mode of an ungrouped frequency distribution can be determined in two
ways, as given below :
(i) By inspection or
(ii) By method of Grouping
(i) By inspection: When a frequency distribution is fairly regular, then mode is often
determined by inspection. It is that value of the variate for which frequency is
maximum. By a fairly regular frequency distribution we mean that as the values of
the variable increase the corresponding frequencies of these values first increase
in a gradual manner and reach a peak at certain value and, finally, start declining
gradually in, approximately, the same manner as in case of increase.
Example 33: Compute mode of the following data :
3, 4, 5, 10, 15, 3, 6, 7, 9, 12, 10, 16, 18,
20, 10, 9, 8, 19, 11, 14, 10, 13, 17, 9, 11
Solution: Writing this in the form of a frequency distribution, we get
Values : 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Frequency: 2 1 1 1 1 1 3 4 2 1 1 1 1 1 1 1 1 1
\ Mode = 10
Remarks :
(i) If the frequency of each possible value of the variable is same, there is no mode.
(ii) If there are two values having maximum frequency, the distribution is said to be bi-
modal.
64
Quantitative Techniques for
Management
Example 34: Compute mode of the following distribution:
X : 5 10 15 20 25 30 35 40
f : 2 4 6 10 15 9 5 4
Solution: The given distribution is fairly regular. Therefore, the mode can be deter-
mined just by inspection. Since for X = 25 the frequency is maximum, mode = 25.
(ii) By method of Grouping: This method is used when the frequency distribution is
not regular. Let us consider the following example to illustrate this method.
Example 35: Determine the mode of the following distribution
X : 10 11 12 13 14 15 16 17 18 19
f : 8 15 20 100 98 95 90 75 50 30
Solution: This distribution is not regular because there is sudden increase in frequency
from 20 to 100. Therefore, mode cannot be located by inspection and hence the method
of grouping is used. Various steps involved in this method are as follows :
(i) Prepare a table consisting of 6 columns in addition to a column for various values
of X.
(ii) In the first column, write the frequencies against various values of X as given in the
question.
(iii) In second column, the sum of frequencies, starting from the top and grouped in
twos, are written.
(iv) In third column, the sum of frequencies, starting from the second and grouped in
twos, are written.
(v) In fourth column, the sum of frequencies, starting from the top and grouped in
threes are written.
(vi) In fifth column, the sum of frequencies, starting from the second and grouped in
threes are written.
(vii) In the sixth column, the sum of frequencies, starting from the third and grouped in
threes are written.
The highest frequency total in each of the six columns is identified and analysed to
determine mode. We apply this method for determining mode of the above example.
Analysis Table
Columns
V A R I A B L E
10 11 12 13 14 15 16 17 18 19
1 1
2 1 1
3 1 1
4 1 1 1
5 1 1 1
6 1 1 1
Total 0 0 0 3 4 4 2 1 0 0
65
Measures of Central Tendency
Since the value 14 and 15 are both repeated maximum number of times in the analysis
table, therefore, mode is ill defined. Mode in this case can be approximately located by
the use of the following formula, which will be discussed later, in this chapter.
Mode = 3 Median - 2 mean
Calculation of Median and Mean
X 10 11 12 13 14 15 16 17 18 19
Total
f 8 15 20 100 98 95 90 75 50 30
581
c. f . 8 23 43 143 241 336 426 501 551 581
fX 80 165 240 1300 1372 1425 1440 1275 900 570 8767
Median = Size of
581 1
2
+
th, i.e., 291st observation = 15. Mean =
8767
581
= 15.09
\ Mode = 3 15 - 2 15.09 = 45 - 30.18 = 14.82
Remarks: If the most repeated values, in the above analysis table, were not adjacent,
the distribution would have been bi-modal, i.e., having two modes
Example 36: From the following data regarding weights of 60 students of a class, find
modal weight :
Weight : 50 51 52 53 54 55 56 57 58 59 60
No. of Students : 2 4 5 6 8 5 4 7 11 5 3
Solution: Since the distribution is not regular, method of grouping will be used for
determination of mode.
Grouping Table
Analysis Table
Columns
W E I G H T S
50 51 52 53 54 55 56 57 58 59 60
1
1
2
1 1
3
1 1
4
1 1 1
5
1 1 1
6 1 1 1 1 1 1
Total 0 0 1 1 1 0 1 3 6 3 1
Since the value 58 has occurred maximum number of times, therefore, mode of the
distribution is 58 kgs.
(b) When data are in the form of a grouped frequency distribution
The following steps are involved in the computation of mode from a grouped frequency
distribution.
(i) Determination of modal class: It is the class in which mode of the distribution
lies. If the distribution is regular, the modal class can be determined by inspection,
otherwise, by method of grouping.
66
Quantitative Techniques for
Management
(ii) Exact location of mode in a modal class (interpolation formula): The exact
location of mode, in a modal class, will depend upon the frequencies of the classes
immediately preceding and following it. If these frequencies are equal, the mode
would lie at the middle of the modal class interval. However, the position of mode
would be to the left or to the right of the middle point depending upon whether the
frequency of preceding class is greater or less
than the frequency of the class following it. The
exact location of mode can be done by the use of
interpolation formula, developed below :
Let the modal class be denoted by L
m
- U
m
, where
L
m
and U
m
denote its lower and the upper limits
respectively. Further, let f
m
be its frequency and h
its width. Also let f
1
and f
2
be the respective
frequencies of the immediately preceding and
following classes.
We assume that the width of all the class intervals of the distribution are equal. If
these are not equal, make them so by regrouping under the assumption that
frequencies in a class are uniformly distributed.
Make a histogram of the frequency distribution with height of each rectangle equal
to the frequency of the corresponding class. Only three rectangles, out of the
complete histogram, that are necessary for the purpose are shown in the above
figure.
Let
1
= f
m
- f
1
and
2
= f
m
- f
2
. Then the mode, denoted by M
o
, will divide the
modal class interval in the ratio
1
2
D
D
. The graphical location of mode is shown
in Fig. 2.4.
To derive a formula for mode, the point M
o
in the figure, should be such that
1
2
o m
m o
M L
U M
- D
=
- D
or M
o
D
2
- L
m
D
2
= U
m
D
1
- M
o
D
1
( D
1
+ D
2
)M
o
= L
m
D
2
+ U
m
D
1
= L
m
D
2
+ (L
m
+ h)D
1
(where U
m
= L
m
+ h)
= ( D
1
+ D
2
) L
m
+ D
1
h
Dividing both sides by D
1
+ D
2
, we have
M L h
o m
= +
+
1
1 2
.... (1)
By slight adjustment, the above formula can also be written in terms of the upper
limit (U
m
) of the modal class.
M
o
= U
m
- h +
1
1 2
+
h
= U
m
-
1
1
1 2
+
L
N
M
O
Q
P
h
= U
m
-
2
1 2
h
D
D + D
.... (2)
Replacing D
1
by f
m
- f
1
and D
2
by f
m
- f
2
, the above equations can be written as
M
o
= L
m
+
1
1 2
2
m
m
f f
h
f f f
-
- -
.... (3)
Figure 2.4
67
Measures of Central Tendency
and M
o
= U
m
-
2
1 2
2
m
m
f f
h
f f f
-
- -
.... (4)
Note: The above formulae are applicable only to a unimodal frequency distribution.
Example 37: The monthly profits (in Rs) of 100 shops are distributed as follows :
Profit per Shop : 0 - 100 100 - 200 200 - 300 300 - 400 400 - 500 500 - 600
No. of Shops : 12 18 27 20 17 6
Determine the 'modal value' of the distribution graphically and verify the result by
calculation.
Solution: Since the distribution is regular, the modal class would be a class having the
highest frequency. The modal class, of the given distribution, is 200 - 300.
Graphical Location of Mode
To locate mode we draw a histogram of the
given frequency distribution. The mode is
located as shown in Fig. 9.5. From the figure,
mode = Rs 256.
Determination of Mode by interpolation
formula
Since the modal class is 200 - 300, L
m
= 200, D
1
= 27 - 18 = 9, D
2
= 27 - 20 = 7 and
h = 100.
\ M
o
= 200 +
9
100
9 7
+
= Rs 256.25
Example 38: The frequency distribution of marks obtained by 60 students of a class in
a college is given below :
Marks : 30 - 34 35 - 39 40 - 44 45- 49 50 - 54 55 - 59 60 - 64
Frequency : 3 5 12 18 14 6 2
Find mode of the distribution.
Solution: The given class intervals are first converted into class boundaries, as given in
the following table :
Marks :
29. 5 - 34. 5
34. 5 - 39. 5 39. 5- 44. 5 44. 5 - 49. 5
Frequency : 3 5 12 18
Marks : 49. 5 - 54. 5 54. 5 - 59. 5 59. 5 - 64. 5
Frequency : 14 6 2
We note that the distribution is regular. Thus, the modal class, by inspection, is
44.5 - 49.5.
Further, L
m
= 44.5, D
1
= 18 - 12 = 6, D
2
= 18 - 14 = 4 and h = 5
\ Mode = 44.5 +
6
5
6 4
+
= 47.5 marks
Example 39: Calculate mode of the following data :
Weekly Wages ( R )
No. of Workers
Weekly Wages ( Rs )
No. of Workers
s :
200- 250
250- 300 300- 350 350- 400
: 4 6 20 12
: 400- 450 450- 500 500- 550 550-600
: 33 17 8 2
Solution: Since the frequency distribution is not regular, the modal class will be determined
by the method of grouping.
Figure 2.5
68
Quantitative Techniques for
Management
Grouping Table
Analysis Table
The modal class, from analysis table, is 400 - 500.
Thus, L
m
= 400, D
1
= 33 - 12 = 21, D
2
= 33 - 17 = 16 and h = 50
Hence, mode = 400 +
21
50
37
= Rs 428.38
Example 40: Calculate mode of the following distribution :
Weights (lbs. ) : below100 below110 below120 below130 below140
No. of Students : 4 6 24 46 67
Weights (lbs. ) : below150 below160 below170 below180
No. of Students : 86 96 99 100
Solution: Rewriting the above distribution in the form of a frequency distribution with
class limits, we get
Weights (lbs. ) : Less than 100 100 - 110 110 - 120 120 - 130 130 - 140
Frequency : 4 2 18 22 21
Weights (lbs. ) : 140 - 150 150 - 160 160 - 170 170 - 180
Frequency : 19 10 3 1
We note that there is a concentration of observations in classes 120 - 130 and 130 - 140,
therefore, modal class can be determined by the method of grouping.
Grouping Table
Columns 300 - 350 350 - 400 400 - 450 450 - 500 500 - 550
1 1
2 1 1
3 1 1
4 1 1 1
5 1 1 1
6 1 1 1
Total 1 3 6 3 1
69
Measures of Central Tendency
Analysis Table
Since the two classes, 120 - 130 and 130 - 140, are repeated maximum number of times
in the above table, it is not possible to locate modal class even by the method of grouping.
However, an approximate value of mode is given by the empirical formula:
Mode = 3 Median - 2 Mean (See 2.9)
Looking at the cumulative frequency column, given in the question, the median class is
130 - 140. Thus, L
m
= 130, C = 46, f
m
= 21, h = 10.
\ M
d
= 130 +
50 46
10
21
-
= 131.9 lbs.
Assuming that the width of the first class is equal to the width of second, we can write
Mid - Values
(
X
) 95 105 115 125 135 145 155 165 175 Total
f 4 2 18 22 21 19 10 3 1 100
u
X 135
10
4 3 2 1 0 1 2 3 4
fu 16 6 36 22 0 19 20 9 4 28
Thus,
X
= 135 -
28 10
100
+
= 36.33
Example 42: The rate of sales tax as a percentage of sales, paid by 400 shopkeepers of
a market during an assessment year ranged from 0 to 25%. The sales tax paid by 18%
of them was not greater than 5%. The median rate of sales tax was 10% and 75th
percentile rate of sales tax was 15%. If only 8% of the shopkeepers paid sales tax at a
rate greater than 20% but not greater than 25%, summarise the information in the form
of a frequency distribution taking intervals of 5%. Also find the modal rate of sales tax.
Solution: The above information can be written in the form of the following
distribution :
Columns 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60
1 1
2 1 1
3 1 1
4 1 1 1
5 1 1 1
6 1 1 1
Total 1 3 5 4 1
71
Measures of Central Tendency
By inspection, the modal class is 5 - 10.
\ M
o
= 5 +
128 72
5
128 72 128 100
-
- + -
= 8.33%
Example 43: The following table gives the incomplete income distribution of 300 workers
of a firm, where the frequencies of the classes 3000 - 4000 and 5000 - 6000 are missing.
If the mode of the distribution is Rs 4428.57, find the missing frequencies.
Monthly Income ( Rs) No. of Workers
1000- 2000 30
2000- 3000 35
3000- 4000 ?
4000- 5000 75
5000-6000 ?
6000-7000 30
7000-8000 15
Solution: Let the frequency of the class 3000 - 4000 be f
1
. Then the frequency of the
class 5000 - 6000 will be equal to 300 - 30 - 35 - f
1
- 75 - 30 - 15 = 115 - f
1
. It is given that
mode = 4428.57, therefore, modal class is 4000 - 5000.
Thus, L
m
= 4000, D
1
= 75 - f
1
, D
2
= 75 - (115 - f
1
) = f
1
- 40 and h = 1000.
Using the interpolation formula, we have
4428.57 = 4000 +
1
1 1
75
1000
75 40
f
f f
-
- + -
or 428.57 =
1
75
1000
35
f -
or 14.999 = 75 - f
1
or f
1
= 75 - 15 = 60 (taking 14.999 = 15). Also f
2
= 115 - 60 = 55
Merits and Demerits of Mode
Merits
1. It is easy to understand and easy to calculate. In many cases it can be located just
by inspection.
2. It can be located in situations where the variable is not measurable but categorisation
or ranking of observations is possible.
3. Like mean or median, it is not affected by extreme observations. It can be calculated
even if these extreme observations are not known.
4. It can be determined even if the distribution has open end classes.
5. It can be located even when the class intervals are of unequal width provided that
the width of modal and that of its preceding and following classes are equal.
.
( )
18
0-5 400 72
100
5-10 200 72 128
10-15 300 200 100
15-20 400 72 128 100 32 68
8
20-25 400 32
100
Class Intervals No of
in percentage Shopkeepers
=
- =
- =
- - - - =
=
72
Quantitative Techniques for
Management
6. It is a value around which there is more concentration of observations and hence
the best representative of the data.
Demerits
1. It is not based on all the observations.
2. It is not capable of further mathematical treatment.
3. In certain cases mode is not rigidly defined and hence, the important requisite of a
good measure of central tendency is not satisfied.
4. It is much affected by the fluctuations of sampling.
5. It is not easy to calculate unless the number of observations is sufficiently large
and reveal a marked tendency of concentration around a particular value.
6. It is not suitable when different items of the data are of unequal importance.
7. It is an unstable average because, mode of a distribution, depends upon the choice
of width of class intervals.
2.9 RELATION BETWEEN MEAN, MEDIAN AND MODE
The relationship between the above measures
of central tendency will be interpreted in
terms of a continuous frequency curve.
If the number of observations of a frequency
distribution are increased gradually, then
accordingly, we need to have more number
of classes, for approximately the same range
of values of the variable, and simultaneously, the width of the corresponding classes
would decrease. Consequently, the histogram of the frequency distribution will get
transformed into a smooth frequency curve, as shown in Fig. 2.6.
For a given distribution, the mean is the value of the variable which is the point of
balance or centre of gravity of the
distribution. The median is the value such
that half of the observations are below it and
remaining half are above it. In terms of the
frequency curve, the total area under the
curve is divided into two equal parts by the
ordinate at median. Mode of a distribution is
a value around which there is maximum
concentration of observations and is given
by the point at which peak of the curve occurs.
For a symmetrical distribution, all the three measures of central tendency are equal i.e.
X = M
d
= M
o
, as shown in Fig. 2.7.
Imagine a situation in which the symmetrical distribution is made asymmetrical or positively
(or negatively) skewed by adding some observations of very high (or very low) magnitudes,
so that the right hand (or the left hand) tail of the frequency curve gets elongated.
Consequently, the three measures will depart from each other. Since mean takes into
account the magnitudes of observations, it would be highly affected. Further, since the
total number of observations will also increase, the median would also be affected but to
a lesser extent than mean. Finally, there would be no change in the position of mode.
More specifically, we shall have M
o
< M
d
< X, when skewness is positive and X
< M
d
< M
o
, when skewness is negative, as shown in Fig 2.8.
Fig. 2.6
Fig. 2.7
73
Measures of Central Tendency
Empirical Relation between Mean, Median and Mode
Empirically, it has been observed that for a moderately skewed distribution, the difference
between mean and mode is approximately three times the difference between mean and
median, i.e., ( )
3
o d
X M X M - = - .
This relation can be used to estimate the value of one of the measures when the values
of the other two are known.
Example 44:
(a) The mean and median of a moderately skewed distribution are 42.2 and 41.9
respectively. Find mode of the distribution.
(b) For a moderately skewed distribution, the median price of men's shoes is Rs 380
and modal price is Rs 350. Calculate mean price of shoes.
Solution:
(a) Here, mode will be determined by the use of empirical formula.
( )
3 3 2
o d o d
X M X M or M M X - = - = -
It is given that X = 42.2 and M
d
= 41.9
\ M
o
= 3 41.9 - 2 42.2 = 125.7 - 84.4 = 41.3
(b) Using the empirical relation, we can write
3
2
d o
M M
X
-
=
It is given that M
d
= Rs 380 and M
o
= Rs. 350
\
3 380 350
2
X
-
=
= Rs 395
Example 45: Find mode of the following distribution :
Class Intervals : 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50
Frequency : 45 20 14 7 3
Solution: Since the highest frequency occurs in the first class interval, the interpolation
formula is not applicable. Thus, mode will be calculated by the use of empirical formula.
Calculation of Mean and Median
Class
Intervals
Frequency c. f .
Mid -
Values
u
X 25
10
fu
0 - 10 45 45 5 2 90
10 - 20 20 65 15 1 20
20 - 30 14 79 25 0 0
30 - 40 7 86 35 1 7
40 - 50 3 89 45 2 6
Total 89 97
Since
2
N
=
89
2
= 44.5, the median class is 0 - 10.
Fig. 2.8
74
Quantitative Techniques for
Management
\ M
d
= 0 +
44.5 0
10
45
-
= 9.89
Also
X
= 25
97 10
89
= 14.10
Thus, 3 2
o d
M M X = - = 3 9.89 - 2 14.10 = 1.47
Example 46: Estimate mode of the following distribution :
Weekly Wages of
Workers ( Rs )
No.of Workers
: 105-115 115-125 125-135 135-145 145-155
: 8 15 25 40 62
Solution: We shall use empirical formula for the calculation of mode.
Calculation of X and M
d
Class
Intervals
Frequency c. f .
Mid -
Values
u
X 130
10
fu
105 - 115 8 8 110 2 16
115 - 125 15 23 120 1 15
125 - 135 25 48 130 0 0
135 - 145 40 88 140 1 40
145 - 155 62 150 150 2 124
Total 150 133
Since
N
2
150
2
= 75, the median class is 135 - 145
\ M
d
= 135 +
75 48
10
40
-
F
H
G
G
I
K
J
J
X X X
n
X
i
n n
n i 1 2
1
1
1
. KK b g , where the symbol P is used to denote the
product of observations.
To evaluate GM, we have to use logarithms. Taking log of both sides we have
log (GM) =
1
n
log .
1 2 n
X X X KK b g
= + + +
1
1 2
n
X X X
n
log log log LL
log
i
X
n
=
This result shows that the GM of a set of observations is the antilog of the arithmetic
mean of their logarithms.
Example 47: Calculate geometric mean of the following data :
1, 7, 29, 92, 115 and 375
Solution:
Calculation of Geometric Mean
X 1 7 29 92 115 375 log X
log X 0. 0000 0. 8451 1. 4624 1. 9638 2. 0607 2. 5740 8. 9060
GM = antilog
log X
n
= antilog
8. 9060
6
L
N
M
O
Q
P
= 30.50
(b) Ungrouped Frequency Distribution
If the data consists of observations X
1
, X
2
, ...... X
n
with respective frequencies f
1
, f
2
,
...... f
n
, where
1
n
i
i
f N
=
=
, the geometric mean is given by=
=
L
N
M
M
O
Q
P
P
X
f
X
f
X
f
N
n
n
1
1
2
2
1
. KK
79
Measures of Central Tendency
Taking log of both sides, we have
log (GM)
= + + +
1
1 2
1 2
N
X X X
f f
n
f
n
log log log LL
= + + +
1
1 1 2 2
N
f X f X f X
n n
log log log LL =
1
log
n
i i
i
f X
N
=
or GM = antilog
1
1
log
n
i i
i
f X
N
=
, which is again equal to the antilog of the arithmetic
mean of the logarithm of observations.
Example 48: Calculate geometric mean of the following distribution :
X : 5 10 15 20 25 30
f : 13 18 50 40 10 6
Solution:
Calculation of GM
X f logX f logX
5 13 0. 6990 9. 0870
10 18 1. 0000 18. 0000
15 50 1. 1761 58. 8050
20 40 1. 3010 52. 0400
25 10 1. 3979 13. 9790
30 6 1. 4771 8. 8626
Total 137 160. 7736
\ GM = antilog
160. 7736
137
L
N
M
O
Q
P
= antilog 1.1735 = 14.91
(c) Continuous Frequency Distribution
In case of a continuous frequency distribution, the class intervals are given. Let X
1
, X
2
,
......X
n
denote the mid-values of the first, second ...... nth class interval respectively
with corresponding frequencies f
1
, f
2
, ...... f
n
, such that
f
i
= N. The formula for calculation
of GM is same as the formula used for an ungrouped frequency distribution
i.e., GM = antilog
log
i i
f X
N
Example 51: If the geometric means of two groups consisting of 10 and 25 observations
are 90.4 and 125.5 respectively, find the geometric mean of all the 35 observations
combined into a single group.
Solution:
Combined GM = antilog
1 1 2 2
1 2
log log n G n G
n n
+
+
Here n
1
= 10, G
1
= 90.4 and n
2
= 25, G
2
= 125.5
\ GM = antilog
10log90.4 25log125.5
35
+
= antilog
10 1.9562 25 2.0986
35
+
= antilog 2.0579 = 114.27
81
Measures of Central Tendency
To determine the average rate of change of price for the entire period when
the rate of change of prices for different periods are given
Let P
0
be the price of a commodity in the beginning of the first year. If it increases by k
1
% in the first year, the price at the end of 1st year (or beginning of second year) is given
by
P
1
= P
0
+
P
0
k
1
100
=
1
0
1
100
k
P
+
= P
0
(1 + r
1
), where r
1
=
k
1
100
denotes the rate of
increase per rupee in first year. Similarly, if the price changes by k
2
% in second year, the
price at the end of second year is given by
P
2
= P
1
+
P
1
k
2
100
=
2
1
1
100
k
P
+
= P
1
(1 + r
2
)
Replacing the value of P
1
as P
0
(1 + r
1
) we can write
P
2
= P
0
(1 + r
1
)(1 + r
2
)
Proceeding in this way, if 100r
n
% is the rate of change of price in the i th year, the price
at the end of nth period, P
n
, is given by
P
n
= P
0
(1 + r
1
)(1 + r
2
) ...... (1 + r
n
) .... (1)
Further, let 100r
n
% per year be the average rate of increase of price that gives the price
P
n
at the end of n years. Therefore, we can write
P
n
= P
0
(1 + r)(1 + r) ...... (1 + r) = P
0
(1 + r)
n
.... (2)
Equating (1) and (2), we can write
(1 + r
n
) = (1 + r
1
)(1 + r
2
) ...... (1 + r
n
)
or (1 + r) =
1 1 1
1 2
1
+ + + r r r
n
n
b gb g b g KK
.... (3)
This shows that (1 + r) is geometric mean of (1 + r
1
), (1 + r
2
), ...... and (1 + r
n
).
From (3), we get
r =
1 1 1
1 2
1
+ + + r r r
n
n
b gb g b g KK
- 1 .... (4)
Note: Here r denotes the per unit rate of change. This rate is termed as the rate of
increase or the rate of growth if positive and the rate of decrease or the rate of decay if
negative.
Example 52: The price of a commodity went up by 5%, 8% and 77% respectively in
the last three years. The annual average rise of price is 26% and not 30%. Comment.
Solution: The correct average in this case is given by equation (4), given above.
Let r
1
, r
2
and r
3
be the increase in price per rupee in the respective years.
\
1 2 3
5 8 77
0.05, 0.08 and 0.77
100 100 100
r r r = = = = = =
The average rate of rise of price, denoted by r, is given by
( )( )( )
1
3
1 2 3
1 1 1 1 r r r r = + + + -
= ( )( )( )
1
3
1 0.05 1 0.08 1 0.77 1 + + + -
= ( )
1
3
1.05 1.08 1.77 1 -
82
Quantitative Techniques for
Management
Now ( ) ( )
1
3
1
log 1.05 1.08 1.77 log1.05 log1.08 log1.77
3
= + +
=
1
3
[ 0.0212 + 0.0334 + 0.2480] =
1
3
0.3026 = 0.1009
\
( )
1
3
1.05 1.08 1.77
= antilog 0.1009 = 1.26
Thus, r = 1.26 - 1 = 0.26
Also, the percentage rise of price is 100r% = 26%.
Note: 30% is the arithmetic mean of 5%, 8% and 77%, which is not a correct average.
This can be verified as below :
If we take the average rise of price as 30% per year, then the price at the end of first
year, taking it to be 100 in the beginning of the year, becomes 130.
Price at the end of 2nd year =
130 130
169
100
=
Price at the end of 3rd year =
169 130
219.7
100
=
Similarly, taking the average as 26%, the price at the end of 3rd year
=
126 126 126
100 200.04
100 100 100
=
Also, the actual price at the end of 3rd year
=
105 108 177
100 2007
100 100 100
=
. This price is correctly given by the
geometric average and hence, it is the most suitable average in this case.
Average Rate of Growth of Population
The average rate of growth of price, denoted by r in the above section, can also be
interpreted as the average rate of growth of population. If P
0
denotes the population in
the beginning of the period and P
n
the population after n years, using Equation (2), we
can write the expression for the average rate of change of population per annum as
r =
P
n
P
0
F
H
G
I
K
J
1
n
- 1.
Similarly, Equation (4), given above, can be used to find the average rate of growth of
population when its rates of growth in various years are given.
Remarks: The formulae of price and population changes, considered above, can also be
extended to various other situations like growth of money, capital, output, etc.
Example 53: The population of a country increased from 2,00,000 to 2,40,000 within a
period of 10 years. Find the average rate of growth of population per year.
Solution: Let r be the average rate of growth of population per year for the period of 10
years. Let P
0
be initial and P
10
be the final population for this period.
We are given P
0
= 2,00,000 and P
10
= 2,40,000.
\ r =
P
10
P
0
F
H
G
I
K
J
1
10
1 =
1
10
2, 40, 000
1
2, 00, 000
-
83
Measures of Central Tendency
Now ( )
1
10
24 1
antilog log24 log20
20 10
= -
=
( ) ( )
1
anti log 1.3802 1.3010 anti log 0.0079 =1.018
10
- =
Thus, r = 1.018 - 1 = 0.018.
Hence, the percentage rate of growth = 0.018 100 = 1.8% p. a.
Example 54: The gross national product of a country was Rs 20,000 crores before 5
years. If it is Rs 30,000 crores now, find the annual rate of growth of G.N.P.
Solution: Here P
5
= 30,000, P
0
= 20,000 and n = 5.
\
1
5
30, 000
1
20, 000
r
= -
Now
1
5
3 1
antilog (log3 log2)
2 5
= -
=
1
antilog (0.4771 0.3010)
5
-
= antilog (0.0352) = 1.084
Hence r = 1.084 - 1 = 0.084
Thus, the percentage rate of growth of G.N.P. is 8.4% p.a
Example 55: Find the average rate of increase of population per decade, which increased
by 20% in first, 30% in second and 40% in the third decade.
Solution: Let r denote the average rate of growth of population per decade, then
1
1
3
3
120 130 140
1 (1.2 1.3 1.4) 1
100 100 100
r
= - = -
Now
1
3
1
(1.2 1.3 1.4) anti log (log1.2 log1.3 log1.4)
3
= + +
anti log
1
3
(0. 0792 0.1139 0.1461)
L
N
M
O
Q
P
= antilog 0.1131 = 1.297
\ r = 1.297 - 1 = 0.297
Hence, the percentage rate of growth of population per decade is 29.7%.
Suitability of Geometric Mean for Averaging Ratios
It will be shown here that the geometric mean is more appropriate than arithmetic mean
while averaging ratios.
Let there be two values of each of the variables x and y, as given below :
x
40
20
y
60
80
Ratio
x
y
F
H
G
I
K
J
2/3
1/4
Ratio
y
x
F
H
G
I
K
J
3/2
4
Now AM of (x/y) ratios =
2 1
11
3 4
2 24
+
=
and the AM of (y/x) ratios =
3
4
11
2
2 4
+
=
.
84
Quantitative Techniques for
Management
We note that their product is not equal to unity.
However, the product of their respective geometric means, i.e.,
1
6
and
6
, is equal to
unity.
Since it is desirable that a method of average should be independent of the way in which
a ratio is expressed, it seems reasonable to regard geometric mean as more appropriate
than arithmetic mean while averaging ratios.
Properties of Geometric Mean
1. As in case of arithmetic mean, the sum of deviations of logarithms of values from
the log GM is equal to zero.
This property implies that the product of the ratios of GM to each observation, that
is less than it, is equal to the product the ratios of each observation to GM that is
greater than it. For example, if the observations are 5, 25, 125 and 625, their
GM = 55.9. The above property implies that
55.9 55.9 125 625
5 25 55.9 55.9
=
2. Similar to the arithmetic mean, where the sum of observations remains
unaltered if each observation is replaced by their AM, the product of observations
remains unaltered if each observation is replaced by their GM.
Merits, Demerits and Uses of Geometric Mean
Merits
1. It is a rigidly defined average.
2. It is based on all the observations.
3. It is capable of mathematical treatment. If any two out of the three values, i.e., (i)
product of observations, (ii) GM of observations and (iii) number of observations,
are known, the third can be calculated.
4. In contrast to AM, it is less affected by extreme observations.
5. It gives more weights to smaller observations and vice-versa.
Demerits
1. It is not very easy to calculate and hence is not very popular.
2. Like AM, it may be a value which does not exist in the set of given observations.
3. It cannot be calculated if any observation is zero or negative.
Uses
1. It is most suitable for averaging ratios and exponential rates of changes.
2. It is used in the construction of index numbers.
3. It is often used to study certain social or economic phenomena.
Exercise with Hints
1. A sum of money was invested for 4 years. The respective rates of interest per
annum were 4%, 5%, 6% and 8%. Determine the average rate of interest p.a.
Hint:
1
4
104 105 106 108
1
100 100 100 100
r
= -
, \ average rate of interest = 100r %.
85
Measures of Central Tendency
2. The number of bacteria in a certain culture was found to be 4 10
6
at noon of one
day. At noon of the next day, the number was 9 10
6
. If the number increased at
a constant rate per hour, how many bacteria were there at the intervening midnight?
Hint: The number of bacteria at midnight is GM of 4 10
6
and 9 10
6
.
3. If the price of a commodity doubles in a period of 4 years, what is the average
percentage increase per year?
Hint:
1
1
4
0
2
1 1
1
n
n
P
r
P
= - = -
.
4. A machine is assumed to depreciate by 40% in value in the first year, by 25% in
second year and by 10% p.a. for the next three years, each percentage being
calculated on the diminishing value. Find the percentage depreciation p.a. for the
entire period.
Hint:
( )( )( )
1
3
5
1 2 3
1 1 1 1 r r r r
- = - - -
.
5. A certain store made profits of Rs 5,000, Rs 10,000 and Rs 80,000 in 1965, 1966
and 1967 respectively. Determine the average rate of growth of its
profits.
Hint:
1
2
80, 000
1
5, 000
r
= -
.
6. An economy grows at the rate of 2% in the first year, 2.5% in the second, 3% in
the third, 4% in the fourth ...... and 10% in the tenth year. What is the average rate
of growth of the economy?
Hint:
1
10
(1.02 1.025 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10) 1 r =
.
7. The export of a commodity increased by 30% in 1988, decreased by 22% in 1989
and then increased by 45% in the following year. The increase/decrease, in each
year, being measured in comparison to its previous year. Calculate the average
rate of change of the exports per annum.
Hint:
1
3
(1.30 0.78 1.45) 1 r = .
8. Show that the arithmetic mean of two positive numbers a and b is at least as large
as their geometric mean.
Hint: We know that the square of the difference of two numbers is always
positive, i.e., (a - b)
2
0. Make adjustments to get the inequality (a + b)
2
4ab
and then get the desired result, i.e., AM GM.
9. If population has doubled itself in 20 years, is it correct to say that the rate of
growth has been 5% per annum?
Hint: The annual rate of growth is given by
1
20
100 100 (2) 1 r
= -
= 3.53%,
which is not equal to 5%.
10. The weighted geometric mean of 5 numbers 10, 15, 25, 12 and 20 is 17.15. If the
weights of the first four numbers are 2, 3, 5, and 2 respectively, find weight of the
fifth number.
Hint: Let x be the weight of the 5th number, then
1
2 3 5 2
12
10 .15 .25 .12 .20 17.15.
x
x +
=
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Quantitative Techniques for
Management
2.11 HARMONIC MEAN
The harmonic mean of n observations, none of which is zero, is defined as the reciprocal
of the arithmetic mean of their reciprocals.
Calculation of Harmonic Mean
(a) Individual series
If there are n observations X
1
, X
2
, ...... X
n
, their harmonic mean is defined as
HM
n
X X X
n
X
n
n
i
i
=
+ + +
=
=
1 1 1
1
1 2 1
LL
Example 56: Obtain harmonic mean of 15, 18, 23, 25 and 30.
Solution:
5 5
20.92 Ans.
1 1 1 1 1
0.239
15 18 23 25 30
HM = = =
+ + + +
(b) Ungrouped Frequency Distribution
For ungrouped data, i.e., each X
1
, X
2
, ...... X
n
, occur with respective frequency f
1
, f
2
......
f
n
, where Sf
i
= N is total frequency, the arithmetic mean of the reciprocals of observations
is given by
1
1
N
f
X
i
n
i
i
=
.
Thus,
i
i
N
HM
f
X
=
.... (1)
= 48.13 kms/hour
Verification : Average speed =
Total distance travelled
Total time taken
We note that the numerator of Equation (1) gives the total distance travelled by train.
Further, its denominator represents total time taken by the train in travelling 150 kms,
since
50
40
is time taken by the train in travelling 50 kms at a speed of 40 kms/hour.
Similarly
60
50
and
40
60
are time taken by the train in travelling 60 kms and 40 kms at the
speeds of 50 kms./hour and 60 kms/hour respectively. Hence, weighted harmonic mean
is most appropriate average in this case.
Example 60: Ram goes from his house to office on a cycle at a speed of 12 kms/hour
and returns at a speed of 14 kms/hour. Find his average speed.
Solution: Since the distances of travel at various speeds are equal, the average speed of
Ram will be given by the simple harmonic mean of the given speeds.
Average speed =
2 2
1 1
0.1547
12 14
= =
+
12.92 kms/hour
Choice between Harmonic Mean and Arithmetic Mean
The harmonic mean, like arithmetic mean, is also used in averaging of rates like price per
unit, kms per hour, work done per hour, etc., under certain conditions. To explain the
method of choosing an appropriate average, consider the following illustration.
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Quantitative Techniques for
Management
Let the price of a commodity be Rs 3, 4 and 5 per unit in three successive years. If we
take A.M. of these prices, i.e.,
3 4 5
4
3
+ +
= , then it will denote average price when
equal quantities of the commodity are purchased in each year. To verify this, let us
assume that 10 units of commodity are purchased in each year.
\ Total expenditure on the commodity in 3 years = 103 + 104 + 105.
Also, Average price =
Total expenditure
Total quantity purchased
=
10 3 10 4 10 5
10 10 10
+ +
+ +
=
3 4 5
3
+ +
,
which is arithmetic mean of the prices in three years.
Further, if we take harmonic mean of the given prices, i.e.,
3
1 1 1
3 4 5
+ +
, it will denote the
average price when equal amounts of money are spent on the commodity in three years.
To verify this let us assume that Rs 100 is spent in each year on the purchase of the
commodity.
\ Average price =
Total expenditure
Total quantity purchased
=
300 3
100 100 100 1 1 1
3 4 5 3 4 5
=
+ + + +
Next, we consider a situation where different quantities are purchased in the three years.
Let us assume that 10, 15 and 20 units of the commodity are purchased at prices of Rs
3, 4 and 5 respectively.
Average price =
Total expenditure
Total quantity purchased
=
3 10 4 15 5 20
10 15 20
+ +
+ +
, which is weighted
arithmetic mean of the prices taking respective quantities as weights.
Further, if Rs 150, 200 and 250 are spent on the purchase of the commodity at prices of
Rs 3, 4 and 5 respectively, then
Average price =
150 200 250
150 200 250
3 4 5
+ +
+ +
, where
150
3
,
200
4
and
250
5
are the quantities
purchased in respective situations.
The above average price is equal to the weighted harmonic mean of prices taking money
spent as weights.
Therefore, to decide about the type of average to be used in a given situation, the first
step is to examine the rate to be averaged. It may be noted here that a rate represents a
ratio, e.g., price =
money
quantity
, speed =
distance
time
, work done per hour =
work done
time taken
, etc.
We have seen above that arithmetic mean is appropriate average of prices
money
quantity
when quantities, that appear in the denominator of the rate to be averaged,
purchased in different situations are given. Similarly, harmonic mean will be appropriate
when sums of money, that appear in the numerator of the rate to be averaged, spent in
different situations are given.
To conclude, we can say that the average of a rate, defined by the ratio p/q, is given by
the arithmetic mean of its values in different situations if the conditions are given in
terms of q and by the harmonic mean if the conditions are given in terms of p. Further, if
the conditions are same in different situations, use simple AM or HM and otherwise use
weighted AM or HM.
89
Measures of Central Tendency
Example 61: An individual purchases three qualities of pencils. The relevant data are
given below :
Quality Price per pencil Rs Money Spent Rs
A
B
C
( ) ( )
.
.
.
100 50
150 30
2 00 20
Calculate average price per pencil.
Solution: Since different sums of money spent in various situations are given, we shall
calculate weighted harmonic mean to calculate average price.
Weighted HM =
50+30+20
50
1.00
30
1.50
20
2.00
100
50 20 10
Rs 1.25
+ +
=
+ +
=
Example 62: In a 400 metre athlete competition, a participant covers the distance as
given below. Find his average speed.
Speed (Metres per second)
First 80 metres 10
Next 240 metres 7.5
Last 80 metres 10
Solution: Since Speed =
distance
time
and the conditions are given in terms of distance
travelled at various speeds, HM will be the appropriate average.
80 240 80 400
8.33 metres/second
80 240 80
8 32 8
10 7.5 10
+ +
= =
+ +
+ +
Example 63: Peter travelled by a car for four days. He drove 10 hours each day. He
drove first day at the rate of 45 kms/hour, second day at the rate of 40 kms/hour, third
day at the rate of 38 kms/hour and fourth day at the rate of 37 kms/hour. What was his
average speed.
Solution: Since the rate to be averaged is speed=
distance
time
and the conditions are
given in terms of time, therefore AM will be appropriate. Further, since Peter travelled
for equal number of hours on each of the four days, simple AM will be calculated.
\ Average speed =
45 40 38 37
4
+ + +
= 40 kms/hour
Example 64: In a certain factory, a unit of work is completed by A in 4 minutes, by B
in 5 minutes, by C in 6 minutes, by D in 10 minutes and by E in 12 minutes. What is their
average rate of working? What is the average number of units of work completed per
minute? At this rate, how many units of work each of them, on the average, will complete
in a six hour day? Also find the total units of work completed.
Solution: Here the rate to be averaged is time taken to complete a unit of work,
i.e.,
time
units of work done
. Since we have to determine the average with reference to a
(six hours) day, therefore, HM of the rates will give us appropriate average.
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Quantitative Techniques for
Management
Thus, the average rate of working =
5
1 1 1 1 1
4 5 6 10 12
+ + + +
= 6.25 minutes/unit.
The average number of units of work completed per minute =
1
6. 25
= 0.16.
The average number of units of work completed by each person = 0.16 360 = 57.6.
Total units of work completed by all the five persons = 57.6 5 = 288.0.
Example 65: A scooterist purchased petrol at the rate of Rs 14, 15.50 and 16 per litre
during three successive years. Calculate the average price of petrol (i) if he purchased
150, 160 and 170 litres of petrol in the respective years and (ii) if he spent Rs 2,200, 2,500
and 2,600 in the three years.
Solution: The rate to be averaged is expressed as
money
litre
(i) Since the condition is given in terms of different litres of petrol in three years,
therefore, weighted AM will be appropriate.
\ Average price
150 14 160 15.5 170 16
150 160 170
+ +
= =
+ +
Rs 15.21/litre.
(ii) The weighted HM will be appropriate in this case.
Average price =
2200 2500 2600 7300
2200 2500 2600
157.14 161.29 162.50
14 15.5 16
+ +
=
+ +
+ +
= Rs 15.18/litre
Merits and Demerits of Harmonic Mean
Merits
1. It is a rigidly defined average.
2. It is based on all the observations.
3. It gives less weight to large items and vice-versa.
4. It is capable of further mathematical treatment.
5. It is suitable in computing average rate under certain conditions.
Demerits
1. It is not easy to compute and is difficult to understand.
2. It may not be an actual item of the given observations.
3. It cannot be calculated if one or more observations are equal to zero.
4. It may not be representative of the data if small observations are given
correspondingly small weights.
Relationship among AM, GM and HM
If all the observations of a variable are same, all the three measures of central tendency
coincide, i.e., AM = GM = HM. Otherwise, we have AM > GM > HM.
Example 66: Show that for any two positive numbers a and b, AM
GM
HM.
Solution: The three averages of a and b are :
2 2
, and
1 1
2
a b ab
AM GM ab HM
a b
a b
+
= = = =
+
+
.
91
Measures of Central Tendency
Since the square of the difference between a and b is always a non-negative number, we
can write
(a - b)
2
0 or a
2
+ b
2
- 2ab 0 or a
2
+ b
2
2ab.
Adding 2ab to both sides, we have
a
2
+ b
2
+ 2ab 4ab or (a + b)
2
4ab
or
( )
2
or
4 2
a b a b
ab ab
+ +
.... (1)
AM GM .... (2)
Divide both sides of inequality (1) by
a b
2
, to get
2
1
ab
a b
+
Multiply both sides by ab , to get
2ab
ab
a b
+
GM HM .... (3)
Combining (2) and (3), we can write
AM GM HM
Note: The equality sign will hold when a = b
Example 67: For any two positive numbers, show that
GM AM HM =
.
Solution: If a and b are two positive numbers, then
2
, and
2
a b ab
AM GM ab HM
a b
+
= = =
+
Now AM.HM =
2
2
a b ab
a b
+
+
= ab = (GM)
2
or
GM AM HM =
. Hence the result.
Example 68:
(a) If AM of two observations is 15 and their GM is 9, find their HM and the two
observations.
(b) Comment on the following :
The AM of 20 observations is 25, GM = 20 and HM = 21.
Solution:
(a)
AM HM
= GM
\
15 HM
= 9 or 15 HM = 81. Thus, HM = 5.4.
Let the two observations be X
1
and X
2
. We are given that
1 2
15
2
X X +
=
or X
1
+ X
2
= 30. .... (1)
Also X
1
. X
2
9 or X
1
.X
2
= 81
We can write (X
1
- X
2
)
2
= (X
1
+ X
2
)
2
4X
1
X
2
= 900 481 = 576
or X
1
- X
2
= 24 .... (2)
Adding (1) and (2), we get
2X
1
= 54, \ X
1
= 27. Also X
2
= 3
(b) The statement is wrong because HM cannot be greater than GM.
92
Quantitative Techniques for
Management
Exercise with Hints
1. A train runs 25 miles at a speed of 30 m.p.h., another 50 miles at a speed of 40
m.p.h., then due to repairs of the track, 6 miles at a speed of 10 m.p.h. What should
be the speed of the train to cover additional distance of 24 miles so that the average
speed of the whole run of 105 miles is 35 m.p.h?
Hint: Let x be the speed to cover a distance of 24 miles,
\
25 50 6 24
35 ,
25 50 6 24
30 40 10
find x
x
+ + +
=
+ + +
.
2. Prices per share of a company during first five days of a month were
Rs 100, 120, 150, 140 and 50.
(i) Find the average daily price per share.
(ii) Find the average price paid by an investor who purchased Rs 20,000 worth of
shares on each day.
(iii) Find the average price paid by an investor who purchased 100, 110, 120, 130
and 150 shares on respective days.
Hint: Find simple HM in (ii) and weighted AM in (iii).
3. Typist A can type a letter in five minutes, B in ten minutes and C in fifteen minutes.
What is the average number of letters typed per hour per typist?
Hint: Since we are given conditions in terms of per hour, therefore, simple HM of speed
will give the average time taken to type one letter. From this we can obtain the
average number of letters typed in one hour by each typist.
Simple
3
1 1 1
5 10 15
HM = =
+ +
8.18 minutes per letter.
\ No. of letters typed in 60 minutes =
60
7.33
8.18
=
4. Ram paid Rs 15 for two dozens of bananas in one shop, another Rs 15 for three
dozens of bananas in second shop and Rs 15 for four dozens of
bananas in third shop. Find the average price per dozen paid by him.
Hint: First find the prices per dozen in three situations and since equal money is spent,
HM is the appropriate average.
5. A country accumulates Rs 100 crores of capital stock at the rate of Rs 10 crores/
year, another Rs 100 crores at the rate of Rs 20 crores/year and Rs 100 crores at
the rate of Rs 25 crores/year. What is the average rate of accumulation?
Hint: Since Rs 100 crores, each, is accumulated at the rates of Rs 10, 20
and 25 crores/year, simple HM of these rates would be most appropriate.
6. A motor car covered a distance of 50 miles 4 times. The first time at 50 m.p.h., the
second at 20 m.p.h., the third at 40 m.p.h. and the fourth at 25 m.p.h. Calculate the
average speed.
Hint: Use HM.
7. The interest paid on each of the three different sums of money yielding 10%, 12%
and 15% simple interest p.a. is the same. What is the average yield percent on the
sum invested?
Hint: Use HM.
93
Measures of Central Tendency
Quadratic Mean
Quadratic mean is the square root of the arithmetic mean of squares of observations.
If X
1
, X
2
...... X
n
are n observations, their quadratic mean is given by
QM
X X X
n
X
n
n
i
=
+ + +
=
1
2
2
2 2
2
LL
Similarly, the QM of observations X
1
, X
2
...... X
n
with their respective frequencies as f
1
,
f
2
...... f
n
is given by QM
2
i i
f X
N
, where N = Sf
i
.
Moving Average
This is a special type of average used to eliminate periodic fluctuations from the time
series data.
Progressive Average
A progressive average is a cumulative average which is computed by taking all the
available figures in each succeeding years. The average for different periods are obtained
as shown below :
X
X X X X X
1
1 2 1 2 3
2 3
, , ,
+ + +
LLetc.
This average is often used in the early years of a business.
Composite Average
A composite average is an average of various other averages. If for example,
X X X
k 1 2
, , KK are the arithmetic means of k series, their composite average
=
+ + + X X X
k
k 1 2
KK
.
Check Your Progress 2.2
1 Establish the relation between AM, GM and HM.
2. What is Empirical relation among mean, median and mode.
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
94
Quantitative Techniques for
Management
2.12 LET US SUM UP
Thus we can say that Mean, Median, Mode is the essential phenomena in any statistical
analysis. Thus the measure central tendency helps in summarising the data and classify
it into simple form.
(i)
i i
f X
X
N
=
(Simple AM)
(ii)
i i
f d
X A
N
= +
(Short-cut method)
(iii)
i i
f u
X A h
N
= +
(Step-deviation method)
(iv)
i i
w
i
w X
X
w
=
(Weighted AM)
(v) X
N X N X N X
N N N
k k
k
=
+ + +
+ + +
1 1 2 2
1 2
LL
LL
(Mean of combined series)
(vi)
2
d m
m
N
C
M L h
f
-
= + (Median)
(vii)
Q
i
L
Q
i
iN
4
C
f
Q
i
where i = 1, 3 (Quartiles)
(viii)
100
k
k
k P
P
kN
C
P L h
f
-
= + (k th Percentile)
(ix)
log
Anti log
i i
f X
GM
N
=
(Simple GM)
(x)
log
Anti log
i i
w
i
w X
GM
w
=
(Weighted GM)
(xi)
G
n G n G n G
n n n
k k
k
=
+ + +
+ + +
L
N
M
O
Q
P
Anti log
log log log
1 1 2 2
1 2
LL
LL
(GM of the combined series)
(xii)
r r r r r
n
n
= + + + + 1 1 1 1 1
1 2 3
1
b gb gb g b g KK
is average annual rate of growth per unit
where r
1
, r
2
...... r
n
are the rates of growth in various years.
(xiii) HM =
i
i
N
f
X
(Simple HM)
(xiv)
i
w
i
i
w
HM
w
X
=
(Weighted HM)
2.13 LESSON-END ACTIVITY
The harmonic mean, like arithmetic mean, is also used in averaging of rates like price per
unit, kms per hour etc., under certain conditions. Explain the method of choosing an
appropriate average between arithmetic mean and harmonic mean.
95
Measures of Central Tendency
2.14 KEYWORDS
Mean
Median
Mode
Average
Central Tendency
2.15 QUESTIONS FOR DISCUSSION
1. Write True or False against each of the statement:
(a) In computation of single arithematic mean equal importance is given to all the
items.
(b) Median divides the value of variate into two equal parts.
(c) The value that divides distribution into four equal parts are called Median.
(d) Mode is that value of the variate which occurs maximum no. of times.
(e) Harmonic mean is reciprocal of arithematic mean of their reciprocals.
2. Fill in the blanks :
(a) ................ is a value which is typical representative of a set of data.
(b) A measure of ................ is a typical value around which other figures
congregate.
(c) In ................ given observations are arranged in ascending or descending
order of magnitude.
(d) Decile divides distribution into ................ equal parts.
(e) Mode can be determined in two ways by ................ and by ................
3. Distinguish between:
(a) Median and Mode
(b) Percentile and Decile
(c) Harmonic Mean and Geometric Mean
(d) Progressive Average and Composite Average
(e) Inclusive and Exclusive series
4. Comment on the following:
(a) Summarisation of data is necessary for any statistical analysis.
(b) Arithematic mean is the most popular average in statistics.
(c) Median is a positional average.
(d) An average is a substitute for complex group of variables.
2.16 TERMINAL QUESTIONS
1. What is a statistical average? Describe the characteristics of a good statistical
average.
2. What are the functions of an average? Discuss the relative merits and demerits of
various types of statistical averages.
3. Give the essential requisites of a measure of 'Central Tendency'. Under what
circumstances would a geometric mean or a harmonic mean be more appropriate
than arithmetic mean?
96
Quantitative Techniques for
Management
4. What do you mean by 'Central Tendency'? Describe the advantages and the
disadvantages of arithmetic mean and mode.
5. What are the characteristics of an ideal average? How far these are satisfied by
the mode and median?
6. Distinguish between a mathematical average and a positional average. Give
advantages and disadvantages of each type of average.
7. What do you understand by partition values? Give the definitions of quartiles, deciles
and percentiles.
8. "Each average has its own special features and it is difficult to say which one is the
best". Explain this statement.
9. Discuss the considerations that determine the selection of a suitable average. Explain
by giving one example of each case.
10. Explain the empirical relation between mean, median and mode. What are its uses?
Under what circumstances it is expected to hold true?
11. Distinguish between a simple average and a weighted average. Explain with an
example the circumstances in which the latter is more appropriate than the former.
12. "An average is a substitute for a complex group of variables but it is not always
safe to depend on the substitute alone to the exclusion of individual measurements
of groups". Discuss.
13. Show that if all observations of a series are added, subtracted, multiplied or divided
by a constant b, the mean is also added, subtracted, multiplied or divided by the
same constant.
14. Prove that the algebric sum of deviations of a given set of observations from their
mean is zero.
15. Prove that the sum of squared deviations is least when taken from the mean.
16. The heights of 15 students of a class were noted as shown below. Compute
arithmetic mean by using (i) Direct Method and (ii) Short-Cut Method.
S No
Ht cms
. . :
( ) :
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
160 167 174 158 155 171 162 152 156 175 178 167 177 162 153
17. Compute arithmetic mean of the following series :
Marks : 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60
No. of Students : 12 18 27 20 17 6
18. Calculate arithmetic mean of the following data :
Mid-Values
Frequency
: 10 12 14 16 18 20
: 3 7 12 18 10 5
19. Calculate mean from the following data :
Wages in Rs
No of Workers
( ) :
. :
- - - - - - 8 12 14 18 20 24 26 30 32 36 38 42
6 10 17 13 3 1
20. Calculate mean marks from the following table :
Marks, less than : 10 20 30 40 50
No. of Students : 25 40 60 75 100
21. The weights (in gms) of 30 articles are given below :
14 16 16 14 22 13 15 24 12 23 14 20 17 21 18 18 19 20 17
16 15 11 12 21 20 17 18 19 22 23.
97
Measures of Central Tendency
Construct a grouped frequency distribution by taking equal class intervals in which
the first interval should be 11 - 13 (exclusive). Also find the arithmetic mean.
22. The following information relates to wages of workers in a factory, their total
working hours and the average working hours per worker. Calculate the wage per
worker and the total wage.
Wages ( Rs )
Total hours worked
Average No. of hours
worked per worker
: 50-70 70- 90 90-110 110-130 130-150 150-170
: 72 200 255 154 78 38
: 9 8 8.5 7 7.8 7.6
23. The monthly salaries of 30 employees of a firm are given below :
69 148 132 118 142 116 139 126 114 100 88 62 77 99 103 144
148 63 104 123 95 80 85 106 123 133 140 134 108 129
The firm gave bonus of Rs 10, 15, 20, 25, 30 and 35 for individuals in the respective
salary group; exceeding Rs 60 but not exceeding Rs 75, exceeding Rs 75 but not
exceeding Rs 90 and so on up to exceeding Rs 135 but not exceeding Rs 150. Find
out the average bonus paid per employee.
24. Find out the missing frequency in the following distribution with mean equal to 30.
Class : 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50
Frequency : 5 6 10 ? 13
25. (a) The following table gives the monthly salary of academic staff of a college.
Calculate the simple and weighted arithmetic means of their monthly salary.
Which of these averages is most appropriate and why?
Designation Monthly Salary No. of Teachers
(i ) Principal 4500 1
(ii ) Reader 3700 5
(iii ) Senior - Lecturer 3000 15
(iv) Lecturer 2200 25
(b) The sum of deviations of a certain number of observations from 12 is 166 and
the sum of deviations of these observations from 16 is 54. Find the number of
observations and their mean.
26. Twelve persons gambled on a certain night. Seven of them lost at an average rate
of Rs 10.50 while remaining five gained at an average of Rs 13.00. Is the information
given above is correct? If not, why?
27. The incomes of employees in an industrial concern are given below. The total
income of ten employees in the class over Rs 250 is Rs 3,000. Compute mean
income. Every employee belonging to the top 25% of the earners is required to pay
1% of his income to workers' relief fund. Estimate the contribution to this fund.
Income ( Rs) 250 and above
Frequency
: 0- 50 50-100 100-150 150- 200 200- 250
: 90 150 100 80 70 10
28. Comment on the performance of the students of three universities given below:
Courses
of Study
Bombay University
Pass% No. of Students
Calcutta University
Pass% No. of Students
Madras University
Pass% No. of Students
M. A.
M. Com.
M. Sc.
B. A.
B. Com.
B. Sc.
71
300
83 400
66 300
73 500
74 200
65 300
82
200
76
300
60
700
73
600
76
700
65
300
81
200
76
350
73
200
74
450
58
200
70
700
98
Quantitative Techniques for
Management
29. (a) Compute the weighted arithmetic mean of the indices of various groups as
given below:
Group Index Weight
Food 120 4
Clothing 130 2
Housing 150 2
Education of
Children
100 1
Miscellaneous 160 1
(b) A cumulative frequency distribution has 65 as the mid-value of its last class
interval. The cumulative frequencies of the first, second ...... seventh classes
are 5, 21, 45, 72, 85, 94 and 100 respectively. If all the class intervals are of
equal width of 10 units, write down the relevant frequency distribution. Also
calculate its mean and median.
30. A distribution consists of three components each with total frequency of 200, 250
and 300 and with means of 25, 10 and 15 respectively. Find out the mean of the
combined distribution.
31. Find the average number of children per family for the sub-groups separately as
well as combined as a whole.
Sub - group I
No. of Children No. of families
0 10
1 50
2 60
3 40
Sub - group II
No. of Children No. of families
4 - 5 20
6 - 7 12
8 - 9 4
10 - 11 4
32. (a) The mean of a certain number of items is 20. If an observation 25 is added to
the data, the mean becomes 21. Find the number of items in the original data.
(b) The mean age of a combined group of men and women is 30 years. If the
mean age of the men's group is 32 years and that for the womens group is 27
years, find the percentage of men and women in the combined group.
33. The average age of 40 students entering B.A. (Honours) Economics first year in a
college was 19 years. Out of this only 25 students passed the third year examination.
If the average age of these 25 students is 22.5 years, find the average age of the
remaining students.
34. Fifty students took a test. The result of those who passed the test is given below:
Marks : 4 5 6 7 8 9
No. of Students : 8 10 9 6 4 3
If the average marks for all the 50 students was 5.16, find the average marks of
those who failed.
35. A person had 7 children. The average age of the children was 14 years when one
of the child died at the age of 8 years. What will be the average age of the remaining
children after five years of this death?
36. The mean marks of 100 students was calculated as 40. Later on it was discovered
that a score 53 was misread as 83. Find the correct mean.
37. An examination was held to decide the award of a scholarship. The weights given
to various subjects were different. Only three applicants for the scholarship obtained
over 50% marks in aggregate. The marks were as follows :
Subjects Weights % Marks of A % Marks of B % Marks of C
Cost Accounting
5 70 65 90
Statistics
4 63 80 75
Business Law
2 50 40 65
Economics
3 55 50 40
Insurance
1 60 40 38
99
Measures of Central Tendency
Of the candidates, the one getting the highest average marks is to be awarded the
scholarship. Determine, who will get it?
38. The number of fully formed tomatoes on 100 plants were counted with the following
results :
2 plants had 0 tomatoes
5 " 1 "
7 " 2 "
11 " 3 "
18 " 4 "
24 " 5 "
12 " 6 "
8 " 7 "
6 " 8 "
4 " 9 "
3 " 10 "
(i) How many tomatoes were there in all?
(ii) What was the average number of tomatoes per plant?
39. (a) The average income of 300 employees of a company is Rs 1,800 p.m. Due to
rise in prices the company owner decided to give ad-hoc increase of 25% of
the average income to each of the 25% lowest paid employees, 10% of the
average income to each of the 10% highest paid employees and 15% to each
of the remaining employees. Find out the amount of money required for
ad hoc increase and also the average income of an employee after this increase.
(b) The frequency distribution of the number of casual leave taken by the
employees of a firm in a particular year is given below in which one entry
marked as '?' is missing. Determine the missing value if the average number
of casual leave taken by an employee is 8.5.
No. of Casual leave taken : 0 4 5 ? 9 10 12
No. of Employees : 8 35 40 65 79 91 82
40. The mean salary paid to 1,000 employees of an establishment was found to be Rs
180.40. Later on, after disbursement of salary, it was discovered that the salaries
of two employees were wrongly entered as Rs 297 and Rs 165
instead of Rs 197 and 185 respectively. Find the correct mean salary.
41. The following variations were recorded in the measurements of parts by a machine:
Variations from the Standard ( mm. ) No. of parts
10 to 15 1
5 to 10 3
0 to 5 20
5 to 0 25
10 to 5 22
15 to 10 17
20 to 15 13
25 to 20 10
30 to 25 7
35 to 30 2
(i) Find average variations.
(ii) What proportion fell within a range of 5 mm. either way of the standard?
100
Quantitative Techniques for
Management
(iii) If those which fall more than 10 mm. apart from the standard are classified
as bad, what percentage of the parts are bad?
(iv) Which stretch of 15 mm. contains the greatest number of parts and what
fraction of the total fall inside this stretch?
42. (a) The average monthly production of a certain factory for the first ten months
of a year was 3,500 units. Due to workers' unrest in the last two months, the
average monthly production for the whole year came down to 3,200 units.
Find the average monthly production of the last two months.
(b) The average sales of a balloon seller on the first five days (i.e., Monday to
Friday) of a particular week was Rs 50 and his average sales for the entire
week was Rs 70. If his sales on Sunday were 40% higher than his sales on
Saturday, find his sales on each of the last two days, i.e., on Saturday and
Sunday.
43. Determine median from the following data :
30, 37, 54, 58, 61, 64, 31, 34, 52, 55, 62, 28, 47, 55, 60
44. Locate median of the following data:
65, 85, 55, 75, 96, 76, 65, 60, 40, 85, 80, 125, 115, 40
45. Locate Md, Q
1
, Q
3
, D
3
, D
6
, P
20
, P
40
, P
85
and P
90
from the following data :
S. No. Marks S. No. Marks S. No. Marks
1 17 7 41 13 11
2 32 8 32 14 15
3 35 9 10 15 35
4 33 10 18 16 23
5 15 11 20 17 38
6 21 12 22 18 12
46. In a class of 16 students, the following are the marks obtained by them in statistics.
Find out the lower quartile, upper quartile, seventh decile and thirty-fifth percentile.
S. No. : 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Marks : 5 12 17 23 28 31 37 41 42 49 54 58 65 68 17 77
47. Locate M
d
, Q
1
, Q
3
, D
4
, D
7
, P
26
, P
45
, P
66
, P
70
and P
79
from the following data :
Age of Children in years ( ) :
:
6 7 8 9 10 11 12 13 14 15
32 33 39 43 58 59 52 38 33 13 No. of Children
48. Find median from the series given below :
Marks (less than) : 5 10 15 20 25 30 35 40 45 50
No. of Students : 5 13 28 53 83 105 123 135 142 145
49. Calculate median from the following table :
Wages (more than) : 30 40 50 60 70 80 90
No. of Workers : 58 46 40 31 16 5 0
50. Calculate median from the following data :
Class : 0 - 5 5 - 10 10 - 15 15 - 20 20 - 25 25 - 30 30 - 35 35 - 40 40 - 45 45 - 50
Frequency : 5 8 5 22 20 25 19 25 6 5
51. Compute median from the following data :
Class : 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70
Frequency : 15 8 17 29 7 4
101
Measures of Central Tendency
52. Find out median from the following :
No. of Workers : 1- 5 6 - 10 11- 15 16 - 20 21- 25
No. of factories : 3 8 13 11 5
53. Calculate median income for the following distribution :
Income ( Rs )
No. of Persons
: 40- 44 45- 49 50- 54 55- 59 60-64 65-69 70-74
: 2 7 10 12 8 3 3
54. With the help of the following figures, prepare a cumulative frequency curve and
locate the median and quartiles:
Marks Obtained : 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50
No. of Students : 10 12 20 18 10
55. Draw a cumulative frequency curve from the following data and find out the median
and both quartiles:
Class : 1- 5 6 - 10 11- 15 16 - 20 21- 25 26 - 30 31- 35 36 - 40 41- 45
Frequency : 7 10 16 32 24 18 10 5 1
56. Calculate median and both quartiles from the following data :
Age : 20 - 24 25 - 29 30 - 34 35 - 39 40 - 44 45 - 49 50 - 54 55 - 59
No. of Persons : 50 70 100 180 150 120 70 60
57. Calculate the quartiles, D
7
and P
85
from the following data :
Class : Less than 100 100 - 250 250 - 400 400 - 500 500 - 550
Frequency : 85 100 175 74 66
Class : 550 - 600 600 - 800 800 - 900 900 - 1000
Frequency : 35 5 18 2
58. Calculate arithmetic mean and median from the data given below :
Income in Rs less than
No of Workers
( ) :
. :
80 70 60 50 40 30 20 10
100 90 80 60 32 20 13 5
59. Calculate mean and median from the following series :
Class Intervals : 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50
Frequency : 15 20 18 27 20
60. Calculate mean and median from the following table :
Price ( Rs )
Frequency
: 10- 20 10- 30 10- 40 10- 50 10-60 10-70 10-80 10- 90
: 4 16 56 97 124 137 146 150
61. Compute mean and median from the following data :
Marks obtained : 0 - 9 10 - 19 20 - 29 30 - 39 40 - 49 50 - 59 60 - 69 70 - 79 80 - 89
No. of Students : 0 5 10 17 18 30 10 8 2
62. Calculate mean and median of the following distribution :
Size : 0 - 4 4 - 8 8 - 12 12 - 16 16 - 20 20 - 24 24 - 28 28 - 32
Frequency : 5 7 9 17 15 14 6 0
63. Following is the distribution of marks obtained by 50 students in 'mercantile law'.
Calculate median marks. If 60% of the students pass this test, find the minimum
marks obtained by a passed candidate.
Marks (more than) : 0 10 20 30 40 50
No. of Students : 50 46 40 20 10 3
102
Quantitative Techniques for
Management
64. Estimate the number of first, second and third divisioners and the number of failures
from the following data. First division is awarded at 60 or more marks, second
division at 50 and above but less than 60, third division at 36 or more but less than
50 and those securing less than 36 are failures.
Marks out of and above
No of Students
0 - 20 20 - 40 40 - 60 60 - 80 80
( ) :
. :
100
18 30 66 25 11
65. Following relate to the weekly wages (in Rs) of workers of a factory :
100, 75, 79, 80, 110, 93, 109, 84, 95, 77, 100, 89, 84, 81, 106, 96, 94, 83, 95, 78, 101,
99, 83, 89, 102, 97, 93, 82, 97, 80, 102, 96, 87, 99, 107, 99, 97, 80, 98, 93, 106, 94, 88,
104, 103, 100, 98, 84, 100, 96, 86, 93, 89, 100, 101, 106, 92, 86, 105, 97, 82, 92, 75,
103, 101, 103, 100, 88, 106, 98, 87, 90, 76, 104, 101, 107, 97, 91, 103, 98, 109, 86, 76,
107, 88, 107, 88, 93, 85, 98, 104, 78, 79, 110, 94, 108, 86, 95, 84, 87.
Prepare a frequency distribution by taking class intervals as 75 - 80, 80 - 85, etc.
and locate its median and the two quartiles.
66. Find an appropriate average for the following distribution :
Weekly Income ( in Rs ) No. of families
Below 100 50
100 - 200 500
200 - 300 555
300 - 400 100
400 - 500 3
500 and above 2
67. In the frequency distribution of 100 families given below, the number of families
corresponding to weekly expenditure groups 200 - 400 and 600 - 800 are missing.
However, the median of the distribution is known to be Rs 500. Find the missing
frequencies.
Expenditure : 0 - 200 200 - 400 400 - 600 600 - 800 800 - 1000
No. of families : 14 ? 27 ? 15
68. Find median from the following distribution :
X : 1 2 3 4 5- 9 10 - 14 15 - 19 20 - 25
f : 5 10 16 20 30 15 8 6
69. The following is the monthly wage distribution of a certain factory :
Wages ( Rs )
No. of Workers
Wages ( Rs )
No. of Workers
: 50-80 80-100 100-110 110-120 120-130
: 50 120 200 250 170
: 130-150 150-170 170- 200
: 130 60 20
(a) Find the median wage.
(b) A fund is to be raised and it is decided that the workers getting less than Rs
120 should contribute 5% of their wages and those getting Rs 120 or more
should contribute 10% of their wages. What sum should be collected?
70. Determine the mode of the following data :
58, 60, 31, 62, 48, 37, 78, 43, 65, 48
71. Locate mode of the following series :
S. No. : 1 2 3 4 5 6 7 8 9 10 11 12
Age : 9 7 4 9 10 8 4 10 5 8 15 8
12 65
103
Measures of Central Tendency
72. Determine whether there is any mode in the following series :
S. No. : 1 2 3 4 5 6 7 8
Size : 10 10 10 10 10 10 10 10
73. The number of calls received in 240 successive one minute intervals at an exchange
are shown in the following frequency distribution. Calculate mode:
No. of calls : 0 1 2 3 4 5 6 7
Frequency : 14 21 25 43 51 35 39 12
74. Calculate mode from the following data :
: 1 2 3 4 5 6 7 8
: 5 50 45 30 20 10 15 5
Midpoints
Frequency
75. Calculate mode from the following series :
Class Intervals : 10 - 19 20 - 29 30 - 39 40 - 49 50 - 59 60 - 69
Frequency : 4 6 8 5 4 2
76. Calculate mode of the following frequency distribution :
Marks : 0 - 6 6 - 12 12 - 18 18 - 24 24 - 30 30 - 36
No. of Students : 12 24 36 38 37 6
77. Calculate mode from the following distribution :
Marks (less than) : 7 14 21 28 35 42 49
No. of Students : 20 25 33 41 45 50 52
78. Calculate median and mode from the following data :
Size : 10 - 20 10 - 30 10 - 40 10 - 50 10 - 60 10 - 70 10 - 80 10 - 90
Frequency : 4 16 56 97 124 137 146 150
79. Calculate
X
and M
o
from the following distribution :
Class Intervals : 6 - 10 11- 15 16 - 20 21- 25 26 - 30
Frequency : 20 30 50 40 10
80. Find out mode of the following data graphically and check the result by calculation:
Size : 0 - 1 1- 2 2 - 3 3 - 4 4 - 5 5- 6 6 - 7 7 - 8 8 - 9 9 - 10 10 - 11
Frequency : 3 7 9 15 25 20 14 12 8 6 2
81. (a) Construct a frequency distribution of the marks obtained by 50 students in
economics as given below :
42, 53, 65, 63, 61, 47, 58, 60, 64, 45, 55, 57, 82, 42, 39, 51, 65, 55, 33, 70, 50, 52,
53, 45, 45, 25, 36, 59, 63, 39, 65, 30, 45, 35, 49, 15, 54, 48, 64, 26, 75, 20, 42, 40,
41, 55, 52, 46, 35, 18. (Take the first class interval as 10 - 20).
(b) Calculate mode of the above distribution.
82. The monthly profits (in Rs) of 100 shops are distributed as follows :
Profits : 0 - 100 100 - 200 200 - 300 300 - 500 500 - 600 600 - 800
No. of Shops : 19 21 30 40 10 12
Calculate mode of the distribution.
83. The mode of the following incomplete distribution of weights of 160 students is 56.
Find the missing frequencies.
Weights ( kgs)
No. of Students
: 30- 40 40- 50 50-60 60-70 70-80 80-90
: 20 36 ? ? 15 5
104
Quantitative Techniques for
Management
84. Calculate mean, median and mode from the following table :
Wages ( Rs ) No. of Persons
Less than
Less than
and above
and above
8 5
16 12
8- 24 29
24 31
32- 40 8
40 19
48- 56 5
85. (a) In a moderately skewed distribution, the arithmetic mean is 10 and mode is 7.
Find median.
(b) In a moderately asymmetrical distribution, the mean is 25 and the median is
23.5. Find mode.
86. Find geometric mean from the following daily income (in Rs) of 10 families:
85, 70, 15, 75, 500, 8, 45, 250, 40 and 36.
87. Calculate geometric mean of the following distribution :
Marks (less than) : 10 20 30 40 50
No. of Students : 12 27 72 93 100
88. The value of a machine depreciates at a constant rate from the cost price of Rs
1,000 to the scrap value of Rs 100 in ten years. Find the annual rate of depreciation
and the value of the machine at the end of one, two, three years.
89. Calculate weighted GM from the following data :
Items Weights Price Index
Wheat 10 135
Milk 5 140
Sugar 2 160
Eggs 6 120
90. The price of a commodity increased by 12% in 1986, by 30% in 1987 and by 15%
in 1988. Calculate the average increase of price per year.
91. The population of a city was 30 lakh in 1981 which increased to 45 lakh in 1991.
Determine the rate of growth of population per annum. If the same growth continues,
what will be the population of the city in 1995.
92. The value of a machine depreciated by 30% in 1st year, 13% in 2nd year and by
5% in each of the following three years. Determine the average rate of depreciation
for the entire period.
93. The following table gives the diameters of screws obtained in a sample enquiry.
Calculate mean diameter by using geometric average.
Diameter mm
No of Screws
: 3 4 6 6 3 5 2 1 1
( ) :
.
130 135 140 145 146 148 149 150 157
94. (a) The price of a commodity doubles in a period of 5 years. What will be the
average rate of increase per annum.
(b) If a sum of Rs 1,500 is invested at 15% rate of interest compounded annually,
determine the amount after 5 years.
105
Measures of Central Tendency
95. (a) Find the average rate of increase per decade in the population which increased
by 10% in the first decade, by 20% in the second and by 40% in the third.
(b) The price of a commodity increased by 10% in 1st year, by 15% in 2nd year
and decreased by 10% in 3rd year. Determine the average change of price
after 3 years.
96. The following table gives the marks obtained by 70 students in mathematics.
Calculate arithmetic and geometric means:
Marks ( more than) : 80 70 60 50 40 30 20
No. of Students : 0 7 18 40 40 63 70
97. The population of a city has grown in the following manner :
Years : 1951 1961 1971 1981 1991
Population (lacs) : 10 13 15. 5 20. 8 30. 5
Find the average growth per decade.
98. The geometric means of three groups consisting of 15, 20 and 23 observations are
14.5, 30.2 and 28.8 respectively. Find geometric mean of the combined group.
99. A sum of money was invested for 3 years. The rates of interest in the first, second
and third year were 10%, 12% and 14% respectively. Determine the average rate
of interest per annum.
100. The weighted geometric mean of four numbers 8, 25, 17 and 30 is 15.3. If the
weights of first three numbers are 5, 3 and 4 respectively, find the weight of the
fourth number.
101. The annual rates of growth of output of a factory in five years are 5.0, 6.5, 4.5, 8.5
and 7.5 percent respectively. What is the compound rate of growth of output per
annum for the period?
102. (a) A man invested Rs 1,000, Rs 12,000 and Rs 15,000 at the respective
rates of return of 5%, 14% and 13% p.a. respectively. Determine his average
rate of return per annum.
(b) The arithmetic and the geometric means of two numbers are 20.5 and 20
respectively. Find the numbers.
103. (a) Calculate the harmonic mean of the following data :
9, 5, 2, 10, 15, 35, 20, 24, 21
(b) Calculate HM of the following items :
1.0, 1.5, 15.0, 250, 0.5, 0.05, 0.095, 1245, 0.009
104. Calculate
X
, GM and HM and verify that
X
> GM > HM.
Class Intervals : 5 - 15 15 - 25 25 - 35 35 - 45 45 - 55
Frequency : 6 9 15 8 4
105. Four typists take 15, 10, 8, 7 minutes respectively to type a letter. Determine the
average time required to type a letter if
(a) Four letters are to be typed by each typist.
(b) Each typist works for two hours.
106. (a) A person spends Rs 60 for oranges costing Rs 10 per dozen and another Rs
70 for oranges costing Rs 14 per dozen. What is the average price per dozen
paid by him?
(b) Three mechanics take 10, 8, and 6 hours respectively to assemble a machine.
Determine the average number of hours required to assemble one machine.
106
Quantitative Techniques for
Management
107. At harvesting time, a farmer employed 10 men, 20 women and 16 boys to lift
potatoes. A woman's work was three quarters as effective as that of a man, while
a boy's work was only half. Find the daily wage bill if a man's rate was Rs 24 per
day and the rates for the women and boys were in proportion to their effectiveness.
Calculate the average daily rate for the 46 workers.
108. Saddam takes a trip which entails travelling 1,350 kms by train at a speed of 60
kms/hr, 630 kms by aeroplane at 350 kms/hr, 4,500 kms by ship at 25 kms/hr and
20 kms by car at 30 kms/hr. What is the average speed for the entire journey?
109. (a) A man travels from Lucknow to Kanpur, a distance of 80 kms, at a speed of
45 kms/hr. From Kanpur he goes to Etawah, a distance of 165 kms, at a
speed of 65 kms/hr and from Etawah he comes back to Lucknow, along the
same route, at a speed of 60 kms/hr. What is his average speed for the entire
journey?
(b) If refills for 5 rupees are purchased at 40 paise each and for another 5 rupees
are purchased at 60 paise each, the average price would be 48 paise and not
50 paise. Explain and verify.
110. (a) An aeroplane travels distances of 2,500, 1,200, and 500 kms at the speeds of
500, 400 and 250 kms/hour respectively. Find the average speed for the entire
trip, commenting upon the choice of your average.
(b) A train goes from Delhi to Agra in four hours at speeds of 25, 60, 80 and 40
kms/hour in each successive hour respectively. Find the average speed of the
train and verify your answer.
111. A can do a unit of work in 10 minutes, B in 18 minutes and C in 20 minutes. Find
their average rate of working when :
(i) A works for 8 hours, B for 9 hours and C for 10 hours per day.
(ii) Each of them have to complete 40 units of work per day.
Also determine the total units of work done per day in each of the above situations
and verify your answer.
112. Choose an appropriate average to find the average price per kg., for the
following data:
Articles Qty Purchased Rate in gms rupee
Wheat kg
Rice kg
Sugar kg
Pulses kg
.
( ./ )
.
.
.
5 250
3 150
1 100
2 90
113. Calculate the weighted harmonic mean of the following data :
X : 3 10 25 40
w : 6 3 4 1
Now change the weights as 12, 6, 8 and 2 respectively and recalculate the weighted
harmonic mean. What do you conclude?
114. (a) The speeds of various buses of a company plying on the same route was
found to be as given below :
Speed in miles hour
No of Buses
/
( ) :
. :
12 15 18
3 5 2
Find the average speed of the 10 buses.
107
Measures of Central Tendency
(b) Find mean daily earnings from the following data :
50 men get at the rate of Rs 50 per man per day
35 " 60 "
25 " 75 "
10 " 100 "
115. A college canteen sells tea for 75 paise per cup, coffee for Rs 1.50 per cup and
bread pakora for Rs 2 per plate. If on a particular day, it sold tea worth
Rs 150, coffee worth Rs 165 and bread pakora worth Rs 200, what is the average
price per item sold?
116. A firm of readymade garments makes both men's and women's shirts. Its profit
average 6% of sales ; its profit in men's shirts average 8% of sales. If the share of
women's shirts in total sales is 60%, find the average profit as a percentage of the
sales of women's shirts.
117. Which of the averages will be most suitable in the following circumstances?
(i) Average rate of growth of population in a given period.
(ii) Average number of children in a family.
(iii) Average size of oranges on a tree.
(iv) Average speed of work.
(v) Average marks of students in a class.
(vi) Average intelligence of students in a class.
(vii) Average size of collars.
(viii) Average income of a lawyer.
(ix) Average size of readymade garments.
(x) Average size of agricultural holdings.
(xi) Average change in prices.
(xii) Average level of health.
118. Select the correct alternative.
(a) Relationship between mean (m), geometric mean (g) and harmonic mean (h)
is:
(i)
. mh
g
m h
=
+
(ii) . g mh = (iii)
2
m h
g
+
=
(iv) None of the these.
(b) In a moderately skewed distribution, mode (M
o
) can be calculated by:
(i)
3 2
2
d
o
X M
M
-
=
, (ii) 3 2
o d
M X M = -
(iii) 3 3
o d
M X M = - , (iv) 3 2
o d
M M X = -
(c) Which of the following would be an appropriate average for determining the
average size of readymade garments :
(i) Arithmetic mean (ii) Median (iii) Mode (iv) Geometric mean
(d) Most appropriate average to determine the size of oranges on a tree is:
(i) Mode (ii) Median (iii) Mean (iv) None of the these.
(e) Most appropriate measure for qualitative measurements is :
(i) Mode (ii) Median (iii) Mean (iv) None of the these.
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(f) The most unstable measure of central tendency is :
(i) Mean (ii) Median (iii) Mode (iv) None of the these.
(g) The sum of deviations of observations is zero when measured from :
(i) Median (ii) GM (iii) Mode (iv) Mean
(h) The average, most affected by the extreme observations, is :
(i) Mode (ii) Mean (iii) GM (iv) Median
(i) The most stable average is :
(i) Mode (ii) Mean (iii) Median (iv) GM
119. State whether the following statements are true or false :
(i)
X
can be calculated for a distribution with open ends.
(ii) M
d
is not affected by the extreme observations.
(iii)
X
is based on all the observations.
(iv) X = M
o
= M
d
, for a symmetrical distribution.
(v) M
o
can be calculated if class intervals are of unequal width.
(vi) The class limits should be exclusive for the calculation of M
d
and M
o
.
120. Fill in the blanks :
(i) ...... is most suitable for measuring average rate of growth.
(ii) ...... or ...... are used for averaging rates under certain conditions.
(iii) ...... or ...... are the averages which can be calculated for a distribution with
open ends.
(iv) ...... or ...... are the averages used to study the pattern of a distribution.
(v) ...... or ...... are the averages which can be calculated when the characteristics
are not measurable.
(vi) ...... or ...... or ...... averages depend upon all the observations.
(vii) The sum of squares of deviations is ...... when taken from mean.
(viii) The average which divides a distribution into two equal parts is ...... .
(ix) M
d
of a distribution is also equal to its ...... quartile.
(x) The point of intersection of the 'less than type' and 'more than type' ogives
corresponds to ...... .
(xi) The algebric sum of deviations of 30 observations from a value 14 is 3. The
mean of these observations is ...... .
121. Examine the validity of the following statements giving necessary proofs and reasons
for your answer :
(i) For a set of 50 observations X
i
, i = 1, 2 ...... 50,
( )
50
1
10 90
i
i
X
=
- =
, when
X = 10.
(ii) Geometric mean of a given number of observations cannot be obtained if one
of them is zero.
(iii) The mean depth of water of a river is 130 cms, therefore, a man with a height
of 165 cms can cross the river safely.
(iv) For a wholesale manufacturer, interested in the type which is usually in
demand, median is the most suitable average.
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Measures of Central Tendency
(v) If AM = 25 and HM = 9, then GM = 15 for two positive values of a variable.
(vi) For a set of 8 observations AM, GM and HM are 5.2, 6.3 and 7.1 respectively.
(vii) If 2y 6x = 6 and mode of y is 66, then mode of x is 21.
2.17 MODEL ANSWERS TO QUESTIONS FOR
DISCUSSION
1. (a) True (b) True (c) False (d) True (e) True
2. (a) Average (b) Central Tendency (c) Median (d) Ten
(e) Inspection, grouping
2.18 SUGGESTED READINGS
Mario F. Triola, Elementary Statistics, Addison-Wesley January 2006.
David & Moae, Introduction to the Practice of Statistics, W.H. Freeman & Co.
February 2005.
Allan & Blumon, Elementary Statistics : A Step by Step Approach. McGraw-Hill College,
June 2003.
James T. McClave Terry Sincich, William Mendenhall, Statistics, Prentice Hall
February 2005
Mark L. Berenson, David M. Revine, Tineothy C. Krehbiel, Basic Business Statistics:
Concepts & Applications, Prentice Hall, May 2005.
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LESSON
3
MATHEMATICAL MODEL
CONTENTS
3.0 Aims and Objectives
3.1 Introduction
3.2 Mathematics The Language of Modelling
3.3 Building a Mathematical Model
3.4 Verifying and Refining a Model
3.5 Variables and Parameters
3.6 Continuous-in-Time vs. Discrete-in-Time Models
3.7 Deterministic Model Example
3.8 Probabilistic Models
3.9 Let us Sum Up
3.10 Lesson-end Activity
3.11 Keywords
3.12 Questions for Discussion
3.13 Model Answers to Questions for Discussion
3.14 Suggested Readings
3.0 AIMS AND OBJECTIVES
In the previous and preceding previous lessons we had an elaborative view on quantitative
techniques and distinguishable statistical approaches. In this lesson we are going to discuss
various models or rather we can say mathematical models which are extremely powerful
because they usually enable predictions to be made about the system.
3.1 INTRODUCTION
Models in science come in different forms. A physical model that you probably are
familiar with is an anatomically detailed model of the human body. Mathematical models
are less commonly found in science classes, but they form the core of modem cosmology.
Mathematical models are extremely powerful because they usually enable predictions to
be made about a system. The predictions then provide a road map for further
experimentation. Consequently, it is important for you to develop an appreciation for this
type of model as you learn more about cosmology. Two sections of the activity develop
mathematical models of direct relevance to cosmology and astronomy. The math skills
required in the activity increase with each section, but nothing terribly advanced is required.
A very common approach to the mathematical modeling of a physical system is to collect
111
Mathematical Model
a set of experimental data and then figure out a way to graph the data so that one gets a
straight line. Once a straight line is obtained, it is possible to generalize the information
contained in the straight line in terms of the powerful algebraic equation: You probably
are familiar with this equation. In it y represents a value on the y-axis, x represents a
value on the x-axis, m represents the slope of the straight line, and b represents the value
of the intercept of the line on the y-axis. In all sections of this activity, your goal will be
to analyze and then graph a set of data so that you obtain a straight line. Then you will
derive the equation that describes the line, and use the equation to make predictions
about the system. So relax and have fun with math!
y = mx + b
Mathematical modeling is the process of creating a mathematical representation of some
phenomenon in order to gain a better understanding of that phenomenon. It is a process
that attempts to match observation with symbolic statement. During the process of building
a mathematical model, the model will decide what factors are relevant to the problem and
what factors can be de-emphasized. Once a model has been developed and used to answer
questions, it should be critically examined and often modified to obtain a more accurate
reflection of the observed reality of that phenomenon. In this way, mathematical modeling
is an evolving process; as new insight is gained, the process begins again as additional
factors are considered. Generally the success of a model depends on how easily it can be
used and how accurate are its predictions. (Edwards & Hamson, 1994, p. 3)
3.2 MATHEMATICS THE LANGUAGE OF MODELLING
Like other languages, the essence of mathematics is the way it enables us to express,
communicate, and reason about ideas and, especially, ideas about our world. The word
red in English is important because it describes the color below. Without seeing this
color one misses a great deal about the word red.
We are interested in using mathematics to talk about meaningful problems. For this
reason, laboratory equipment like the Texas Instrument CBL that allows us to collect
and record quantitative information about the real world, and sources like the United
States Census are especially important to us.
Working with real problems requires the full power of mathematics the ability to work
with symbols, with graphics, and with numerical calculations. For this reason computer
algebra systems like MathCad, Maple, Mathematica, and the CAS built into the TI-92
are an integral part of our tool kit. They give us powerful environments for doing
mathematics. And together with a browser, like Netscape, some cables, and equipment
like the TI-CBL they give us the ability to use the full power of mathematics with real
data from the real world.
3.3 BUILDING A MATHEMATICAL MODEL
Building a mathematical model for your project can be challenging, yet interesting, task.
A thorough understanding of the underlying scientific concepts is necessary and a mentor
with expertise in your project topic is invaluable. It is also best to work as part of a team
to provide more brainstorming power. In industry and engineering, it is common practice
for a team of people to work together in building a model, with the individual team
members bringing different areas of expertise to the project.
Although problems may require very different methods of solution, the following steps
outline a general approach to the mathematical modeling process:
1. Identify the problem, define the terms in your problem, and draw diagrams
where appropriate.
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2. Begin with a simple model, stating the assumptions that you make as you focus
on particular aspects of the phenomenon.
3. Identify important variables and constants and determine how they relate to
each other.
4. Develop the equation(s) that express the relationships between the variables
and constants.
Check Your Progress 3.1
1 What is the difference between physical model and mathematical model?
2. What are the different steps of mathematical modelling process?
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
3.4 VERIFYING AND REFINING A MODEL
Once the model has been developed and applied to the problem, your resulting model
solution must be analyzed and interpreted with respect to the problem. The interpretations
and conclusions should be checked for accuracy by answering the following questions:
l Is the information produced reasonable?
l Are the assumptions made while developing the model reasonable?
l Are there any factors that were not considered that could affect the outcome?
l How do the results compare with real data, if available?
In answering these questions, you may need to modify your model. This refining process
should continue until you obtain a model that agrees as closely as possible with the real
world observations of the phenomenon that you have set out to model.
3.5 VARIABLES AND PARAMETERS
Mathematical models typically contain three distinct types of quantities: output variables,
input variables, and parameters (constants). Output variables give the model solution.
The choice of what to specify as input variables and what to specify as parameters is
somewhat arbitrary and often model dependent. Input variables characterize a single
physical problem while parameters determine the context or setting of the physical problem.
For example, in modeling the decay of a single radioactive material, the initial amount of
material and the time interval allowed for decay could be input variables, while the decay
constant for the material could be a parameter. The output variable for this model is the
amount of material remaining after the specified time interval.
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Mathematical Model
3.6 CONTINUOUS-IN-TIME VS. DISCRETE-IN-TIME
MODELS
Mathematical models of time dependent processes can be split into two categories
depending on how the time variable is to be treated. A continuous-in-time mathematical
model is based on a set of equations that are valid for any value of the time variable.
A discrete-in-time mathematical model is designed to provide information about the state
of the physical system only at a selected set of distinct times.
The solution of a continuous-in-time mathematical model provides information about the
physical phenomenon at every time value. The solution of a discrete-in-time mathematical
model provides information about the physical system at only a fInite number of time
values. Continuous-in-time models have two advantages over discrete-in-time models:
(1) they provide information at all times and (2) they more clearly show the qualitative
effects that can be expected when a parameter or an input variable is changed. On the
other hand, discrete in time models have two advantages over continuous in time models:
(1) they are less demanding with respect to skill level in algebra, trigonometry, calculus,
differential equations, etc. and (2) they are better suited for implementation on a computer.
Some Examples of Mathematical Models
Population Growth
A Spring Mass System
A Falling Rock Heat Flow
Problem 1
Rotating all or part of a space station can create artificial gravity in the station. The
resulting centrifugal force will be indistinguishable from gravitational force. Develop a
mathematical model that will determine the rotational rate of the station as a function of
the radius of the station (distance from the center of rotation) and the desired artificial
gravitational force. Use this model to answer the question: What rotational rate is needed
if the radius of the station is 150 m and Earth surface gravity is desired.
Problem 2
A stretch of Interstate 25 is being widened to accommodate increasing traffIc going
north and south. Unfortunately, the Department of Transportation is going to have to
bring out the orange barrels and close all but one lane at the big I intersection.
The department would like to have traffIc move along as quickly as possible without
additional accidents. What speed limit would provide for maximum, but safe, traffic
flow?
3.7 DETERMINISTIC MODEL EXAMPLE
An example of a deterministic model is a calculation to determine the return on a 5-year
investment with an annual interest rate of 7%, compounded monthly. The model is just
the equation below:
F = P (1 + r/m)
YM
The inputs are the initial investment (P = $1000), annual interest rate (r = 7% = 0.07), the
compounding period (m = 12 months), and the number of years (Y = 5).
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One of the purposes of a model such as this is to make predictions and try What If?
scenarios. You can change the inputs and recalculate the model and youll get a new
answer. You might even want to plot a graph of the future value (F) vs. years (Y). In
some cases, you may have a fixed interest rate, but what do you do if the interest rate is
allowed to change? For this simple equation, you might only care to know a worst/best
case scenario, where you calculate the future value based upon the lowest and highest
interest rates that you might expect.
3.8 PROBABILISTIC MODELS
The toy roulette at the left is a pale model of a real roulette wheel. Real roulette wheels
are usually found in casinos, surrounded by glitter and glitz. But this toy captures the
essentials of roulette. Both the toy and real roulette wheels have 38 slots, numbered 1
through 36, 0, and 00. Two of the slots are colored green; 18 are colored red and 18 are
colored black. Betters often bet on red. If they wager $1.00 on red then if the roulette
ball lands in a red slot they win $1.00 but if it lands in either a green slot or a black slot
they lose $1.00. Because there are 18 red slots out of a total of 38 slots the chances of
winning this bet are 18/38 considerably less than even. The casinos make up the rules
and they make them up so that they make huge profits.
Gambling games like roulette are good models for many phenomena involving chance
for example, investing in the stock market. It is easier to analyze games involving a
roulette wheel than investments involving the stock market but the same ideas are involved.
In this section we will consider and compare two different strategies that a gamber
might use playing roulette. The same kinds of strategies and considerations are involved
with investments. The same tools that we develop here for roulette can be used by
investors.
Suppose that you have $10.00 and that you want to win an additional $10.00. We will
consider two different strategies.
l The Flamboyant Strategy:
You stride purposefully up to the wheel with a devil-may-care smile on your face.
You bet your entire fortune of $10.00 on one spin of the wheel. If the ball lands in
a red slot then you win, pocket your winnings, and leave with $20.00 and a genuine
happy smile on your face. If the ball lands in a slot of a different color then you
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Mathematical Model
smile bravely at everyone as if $10.00 is mere chickenfeed and leave with empty
pockets and feeling gloomy. With the flamboyant strategy your chances of
winning are 18/38 or roughly 0.4737.
l The Timid Strategy:
With this strategy you approach the roulette table with obvious trepidation. After
watching for a while and working up your courage, you bet $1.00. When the ball
falls in a slot you either win or lose $1.00. Now you have either $9.00 or $11.00.
You continue betting one dollar on each spin of the wheel until you either go broke
or reach your goal of $20.00.
Before continuing pause and think about these two strategies. Which of the two do you
think gives you the best chance of winning? or are your chances of winning the same
whichever strategy you use?
One way to study the questions raised above is by trying the two strategies in real
casinos, wagering your own real money. This approach has several advantages and
several disadvantages. One advantage is that this approach is realistic. Real casinos are
run by people who know how to make a profit. They are skilled at creating an atmosphere
that is likely to encourage customers to bet and lose more than they might like. The
lessons that you learn in a real casino are more likely to be real lessons than the ones you
learn in a simulated casino like the one we use below. One disadvantage is that this
approach can be very costly both in terms of money and time.
We take a different approach using the CAS window to simulate playing with the
second, or timid, strategy. We already know the chances of winning with the first, or
flamboyant, strategy 18/38, or roughly 0.4737.
Computer algebra systems like Maple, MathCad, Mathematica, or the CAS system in
the TI-92 have a procedure that generates random numbers. For example, on the TI-92
the command randO, produces a random number between zero and one. The screen
below shows the results of executing this command seven times. Notice that it produced
seven different random numbers.
Using the random number generator in your CAS window, you can easily simulate one
spin of a roulette with a procedure like the one shown below.
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Your CAS window has a program that is built on this basic idea and will simulate playing
roulette using the timid strategy. Use this program to answer the questions below.
l Compare the timid strategy to the flamboyant strategy.
l Consider an intermediate strategy betting $2.00 on each spin of the wheel.
l Consider another, intermediate strategy betting $5.00 on each spin of the wheel.
l Some people enjoy gambling. If you play the flamboyant strategy then you spin the
wheel just once. On the average how often would you spin the wheel with each of
the strategies above.
l What conclusion can you draw from our work in this module regarding the
advisability of diversifying your investments? Be careful. Your answer depends on
your investment goals and your beliefs about whether stock prices are more likely
to rise or to fall.
Check Your Progress 3.2
1 What is the difference between Variables and Parameters?
2. Give two applications of computer algebra system.
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
3.9 LET US SUM UP
This course is about the essence of science understanding the world in which we live.
We use mathematics as a language to help us describe and understand our world. Because
the purpose of Mathematical Modeling is to talk about our world, the most important
part of this course are the applications our mathematical discussions about real world
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Mathematical Model
phenomena. In this first chapter we have looked at the following applications. Everything
we have discussed above the content of the course the tools and the technology
would be useless without you. Indeed, without you there would be no purpose.
The purpose of mathematical modeling is to enable people like you and me to learn about
our world, to form mental pictures of how it works and how we can make it a bit better.
Mathematical modeling requires your active participation thinking, working with your
computer algebra system, with old-fashioned paper and pencil, exploring the world with
the TI-CBL, rubber bands, and TinkerToys, and exchanging ideas with friends and
colleagues.
3.10 LESSON-END ACTIVITY
As we know that mathematical modelling is the process of creating a mathematical
representation of some phenomenon. So constructing a mathematical model for your
project can be a challenging, yet interesting task. Being a technician and a computer use
you have to think of a system where mathematical modelling will be used. Like use of
mathematical modelling in a National Stock Exchange.
3.11 KEYWORDS
Model
Time Models
Flamboyant Strategy
Timid Strategy
Parameters
3.12 QUESTIONS FOR DISCUSSION
1. Write True or False against each statement:
(a) Mathematical Modelling is the process of creating a mathematical
representaiton.
(b) Mathematical models typically contain input and output variables and
parameters.
(c) Models only represents patterns found in graphs.
(d) Mathematical Modelling is used to collect a set of experimental data and
figure out to graph.
2. Distinguish between:
(a) Variables and Parameters
(b) Continuous-in-Time and Discrete-in-Time Mathematical Model
(c) The Flamboyant Strategy and The Timid Strategy
(d) Probabilistic Model and Deterministic Model
(e) Mathematics and Mathematical Modelling
3. Write short notes on:
(a) Model
(b) Building a Mathematical Model
(c) Time Mathematical Model
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(d) Compound Interest Model
(e) Probabilistic Models Strategy
4. Fill in the blanks:
(a) A good model should .................. the essential character of the model to be
analysed.
(b) Building Model can be .................. yet .................. task.
(c) .................. model is based on a set of equations.
(d) The best example of probabilistic model is ..................
(e) .................. is based other than flamboyant and timid strategy.
3.13 MODEL ANSWERS TO QUESTIONS FOR
DISCUSSION
1. (a) True (b) True (c) False (d) True
4. (a) Capture (b) Challenging, interesting (c) Continuous-in-Time
(d) Gambling games (e) CAS window
3.14 SUGGESTED READINGS
M.P. Williams, Model Building in Mathematical Programming, Wiley
Bruno Poizat, Moses Klein, A Course in Model Theory: An Introduction to
Contemporary Mathematical Logic, Springer Verlag, May 2000
N.N. Bogulubov, Jr, A.S. Shunovsly, B.I. Sadovnikov, A.S. Shumovskii, Mathematical
Methods of Statistical Mechanics of Model System CRC, Pr I LIC
A.H. Lingstone, Mathematical Logic: An Introduction to Model Theory, Kluwer
Academic (Pub)
Goran Pjordevic, J.Wess, Lyubisa Nesic, Mathematical, Theoretical and
Phenomenological Challenges, World Scientific Pub Co. Inc. (March 2005)
LESSON
4
LINEAR PROGRAMMING: GRAPHICAL METHOD
CONTENTS
4.0 Aims and Objectives
4.1 Introduction
4.2 Essentials of Linear Programming Model
4.3 Properties of Linear Programming Model
4.4 Formulation of Linear Programming
4.5 General Linear Programming Model
4.6 Maximization & Minimization Models
4.7 Graphical Method
4.8 Solving Linear Programming Graphically Using Computer
4.9 Summary of Graphical Method
4.10 Unbounded LP Problem
4.11 Let us Sum Up
4.12 Lesson-end Activity
4.13 Keywords
4.14 Questions for Discussion
4.15 Terminal Questions
4.16 Model Answers to Questions for Discussion
4.17 Suggested Readings
4.0 AIMS AND OBJECTIVES
In this unit we have talked about Quantitative Techniques and the Measurement of
Mean, Median and Mode and the various Mathematical Models and now we will talk
about linear programming and in this lesson we will learn the graphical method of linear
programming.
4.1 INTRODUCTION
Linear programming is a widely used mathematical modeling technique to determine the
optimum allocation of scarce resources among competing demands. Resources typically
include raw materials, manpower, machinery, time, money and space. The technique is
very powerful and found especially useful because of its application to many different
types of real business problems in areas like finance, production, sales and distribution,
personnel, marketing and many more areas of management. As its name implies, the
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linear programming model consists of linear objectives and linear constraints, which
means that the variables in a model have a proportionate relationship. For example, an
increase in manpower resource will result in an increase in work output.
4.2 ESSENTIALS OF LINEAR PROGRAMMING MODEL
For a given problem situation, there are certain essential conditions that need to be
solved by using linear programming.
1. Limited resources : limited number of labour, material equipment and
finance
2. Objective : refers to the aim to optimize (maximize the profits or
minimize the costs).
3. Linearity : increase in labour input will have a proportionate
increase in output.
4. Homogeneity : the products, workers' efficiency, and machines are
assumed to be identical.
5. Divisibility : it is assumed that resources and products can be divided
into fractions. (in case the fractions are not possible,
like production of one-third of a computer, a modification
of linear programming called integer programming can
be used).
4.3 PROPERTIES OF LINEAR PROGRAMMING MODEL
The following properties form the linear programming model:
1. Relationship among decision variables must be linear in nature.
2. A model must have an objective function.
3. Resource constraints are essential.
4. A model must have a non-negativity constraint.
4.4 FORMULATION OF LINEAR PROGRAMMING
Formulation of linear programming is the representation of problem situation in a
mathematical form. It involves well defined decision variables, with an objective function
and set of constraints.
Objective function
The objective of the problem is identified and converted into a suitable objective function.
The objective function represents the aim or goal of the system (i.e., decision variables)
which has to be determined from the problem. Generally, the objective in most cases will
be either to maximize resources or profits or, to minimize the cost or time.
For example, assume that a furniture manufacturer produces tables and chairs. If the
manufacturer wants to maximize his profits, he has to determine the optimal quantity of
tables and chairs to be produced.
Let x
1
= Optimal production of tables
p
1
= Profit from each table sold
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Linear Programming:
Graphical Method
x
2
= Optimal production of chairs
p
2
= Profit from each chair sold.
Hence, Total profit from tables = p
1
x
1
Total profit from chairs = p
2
x
2
The objective function is formulated as below,
Maximize Z or Z
max
= p
1
x
1
+ p
2
x
2
Constraints
When the availability of resources are in surplus, there will be no problem in making
decisions. But in real life, organizations normally have scarce resources within which the
job has to be performed in the most effective way. Therefore, problem situations are
within confined limits in which the optimal solution to the problem must be found.
Considering the previous example of furniture manufacturer, let w be the amount of
wood available to produce tables and chairs. Each unit of table consumes w
1
unit of
wood and each unit of chair consumes w
2
units of wood.
For the constraint of raw material availability, the mathematical expression is,
w
1
x
1
+ w
2
x
2
w
In addition to raw material, if other resources such as labour, machinery and time are
also considered as constraint equations.
Non-negativity constraint
Negative values of physical quantities are impossible, like producing negative number of
chairs, tables, etc., so it is necessary to include the element of non-negativity as a constraint
i.e., x
1
, x
2
0
4.5 GENERAL LINEAR PROGRAMMING MODEL
A general representation of LP model is given as follows:
Maximize or Minimize, Z = p
1
x
1
+ p
2
x
2
p
n
x
n
Subject to constraints,
w
11
x
1
+ w
12
x
2
+ w
1n
x
n
or = or
w
1
(i)
w
21
x
1
+ w
22
x
2
w
2n
x
n
or = or
w
2
(ii)
. . . .
. . . .
. . . .
w
m1
x
1
+ w
m2
x
2
+w
mn
x
n
or =
w
m
(iii)
Non-negativity constraint,
x
i
1/2
5/2
S
3/2
S
3
P
e/2
Z + P
e
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Step 12: Check the values of objective function. If there are negative values, the solution
is not an optimal one; go to step 5. Else, if all the values are positive, optimality
is reached. Non-negativity for objective function value is not considered. Write
down the values of x
1
, x
2
,..x
i
and calculate the objective function for
maximization or minimization.
Note:
(i) If there are no x
1
, x
2
variables in the final iteration table, the values of x
1
and x
2
are
zero.
(ii) Neglect the sign for objective function value in the final iteration table.
5.4 SOLVING LP PROBLEMS USING COMPUTER WITH
TORA
From the MAIN MENU, select LINEAR PROGRAMMING option, and enter the
input values of the previously discussed problem as shown in the Figure 5.1.
Figure 5.1: Solving LPP using Computer with TORA (Input Screen )
Click Solve Menu, and select Solve Problem Algebraic Iterations All-Slack
Starting Solution. Now, click Go To Output screen, then the first iteration table will be
displayed. To select the entering variable, click a non-basic variable (if correct, the column
turns green). Similarly, select the leaving variable (if correct, the row turns red),
Figure 5.2.
Figure 5.2: Selecting the Leaving Variable (TORA, Output Screen)
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Linear Programming :
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Then click Next Iteration button to display the next iteration table as shown in Figure 5.3.
Figure 5.3: Next Iteration Table (TORA, Output Screen)
Again click next iteration button to get the third and final iteration table. A pop-up menu
also indicates that the solution has reached the optimal level. Now we can notice that all
the values in the objective function Z
max
row are non-negative which indicates that the
solution is optimal. The final Iteration Table is shown in Figure 5.4.
Figure 5.4: Final Iteration Table (TORA, Output Screen)
From the final Iteration Table, the values of X
1
, X
2
and Z
max
are taken to the corresponding
values in the solution column (last column) of the simplex table.
i.e., Z
max
= 210.00
X
1
= 30.00
X
2
= 15.00
Example 1: Solve the LP problem using Simplex method. Determine the following :
(a) What is the optimal solution?
(b) What is the value of the objective function?
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(c) Which constraint has excess resources and how much?
Z
max
= 5x
1
+ 6x
2
Subject to constraints,
2x
1
+ x
2
2000 ....................(i)
x
1
800 ....................(ii)
x
2
200 ....................(iii)
where x
1
, x
2
0
Solution: Converting the inequality constraints by introducing the slack variables,
Z
max
= 5x
1
+ 6x
2
+ 0S
3
+ 0S
4
+ 0S
5
2x
1
+ x
2
+ S
3
= 2000
x
1
+ S
4
= 800
x
2
+ S
5
= 200
Equate x
1
and x
2
to zero , to find the initial basic solution
2(0) + 0 + S
3
=2000
0 + S
4
= 800
0 + S
5
= 200
The initial basic solution is,
S
3
= 2000
S
4
= 800
S
5
= 200
Establish a simplex table to represent the co-efficient of variables for optimal computation
as shown in Table 5.6.
Table 5.6: Simplex Table
In the final table, all the values of Z
j
are 0, hence optimality is reached. The optimum
solution is,
(a) The value of x
1
= 800 units
x
2
= 200 units
Iteration
Number
Basic
Variable
Solution
Value
X
1
X
2
S
3
S
4
S
5
Min
Ratio
Equation
0 S
3
2000 2 1 1 0 0 2000
S
4
800 1 0 0 1 0
Kr S
3
200 0 1 0 0 1 200
-Z 1200 -5 -6 0 0 0
1 S
3
1800 2 0 1 0 -1 900 S
3
P
e
K
r
S
4
800 1 0 0 1 0 800 S
4
Pe X
2
200 0 1 0 0 1 S
5
-Z 1200 -5 0 0 0 6 Z + 6Pe
2 S
3
200 0 -2 1 -2 -1 S
3
2Pe
Pe X
1
800 1 0 0 1 0 S
4
X
2
200 0 1 0 0 1 X
2
-Z
j
5200 0 0 0 5 6 Z + 5Pe
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Linear Programming :
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(b) Objective function Z
max
= 5x
1
+ 6x
2
= 5(800) + 6(200)
= Rs. 5200.00
(c) In the final iteration Table 5.2, slack variable S
3
represents the first constraint,
therefore this constraint has excess unused resources of 200 units.
5.5 MINIMIZATION LP PROBLEMS
In real life we need to minimize cost or time in certain situations. The objective now is
minimization. Procedure for minimization problems is similar to maximization problems.
The only difference is, enter the coefficients of the objective function in the simplex
table without changing the sign.
Another way to solve minimization problems is by converting the objective function as a
maximization problem by multiplying the equation by ( 1).
For example, if the objective function is,
Minimize Z =10x
1
+ 5x
2
Convert the objective function into maximization and solve
Maximize Z = 10x
1
5x
2
5.6 BIG M METHOD
So far, we have seen the linear programming constraints with less than type. We come
across problems with greater than and equal to type also. Each of these types must
be converted as equations. In case of greater than type, the constraints are rewritten
with a negative surplus variable S
1
and by adding an artificial variable a. Artificial variables
are simply used for finding the initial basic solutions and are thereafter eliminated. In
case of an equal to constraint, just add the artificial variable to the constraint.
The co-efficient of artificial variables a
1
, a
2
,.. are represented by a very high value M,
and hence the method is known as BIG-M Method.
Example 2: Solve the following LPP using Big M Method.
Minimize Z = 3x
1
+ x
2
Subject to constraints
4x
1
+ x
2
= 4 ....................(i)
5x
1
+ 3x
2
7 ....................(ii)
3x
1
+ 2x
2
6 ....................(iii)
where x
1
, x
2
0
Solution: Introduce slack and auxiliary variables to represent in the standard form.
Constraint 4x
1
+ x
2
= 4 is introduced by adding an artificial variable a
1
, i.e.,
4x
1
+ x
2
+ a
1
= 4
Constraint, 5x
1
+ 3x
2
7 is converted by subtracting a slack S
1
and adding an auxiliary
variable a
2
.
5x
1
+ 3x
2
S
1
+ a
2
= 7
Constraint 3x
2
+ 2x
2
6 is included with a slack variable S
2
3x
2
+ 2x
2
+ S
2
= 6
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The objective must also be altered if auxiliary variables exist. If the objective function is
minimization, the co-efficient of auxiliary variable is +M (and -M, in case of maximization)
The objective function is minimization,
Minimize Z = 3x
1
+ x
2
+ 0S
1
+ 0S
2
+ Ma
1
+ Ma
2
Z
min
= 3x
1
+ x
2
+ Ma
1
+ Ma
2
The initial feasible solution is (Put x
1
, x
2
, S
1
= 0)
a
1
= 4
a
2
= 7
s
2
= 6
Establish a table as shown below and solve:
Table 5.7: Simplex Table
The solution is,
x
1
= 5/7 or 0.71
x
2
= 8/7 or 1.14
Z
min
= 3 x 5 / 7 + 8/7
= 23/7 or 3.29
Check Your Progress 5.1
1. What are the different types of additional variables used in simplex method?
2. How will you introduce/auxiliary variables in solving LPT problem?
Iteration
Number
Basic
Variables
Solution
Value
X
1
X
2
S
1
S
2
a
1
a
2
Min
Ratio
Equation
0 Z 0 3 1 0 0 M M
Kr a
1
4 4 1 0 0 1 0 0.75
a
2
7 5 3 1 0 0 1 1.6
S
2
6 3 2 0 1 0 0 2
Z
1
11M 9M + 3 4M + 1 M 0 0 0
Z + ( Ma
1
)
Ma
2
1 Pe X
1
1 1 0 0 4 a
1
/4
Kr a
2
2 0 7/4 1 0 1.14 a
2
5Pe
S
2
3 0 5/4 0 1 2.4 S
2
3Pe
Z
1
2M-3 0 7M/4
+1/4
M 0
Z
1
+ (9M
3) P
e
2 x
1
5/7 1 0
1/7
0 X
1
P
e
/4
x
2
8/7 0 1
4/7
0
4 / 7
2
a
S
2
22/14 0 0 10/
14
1
Z
1
23/7 0 0 1/7 0
Z
1
+ (7M/4
) P
e
Contd....
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Linear Programming :
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Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
5.7 DEGENERACY IN LP PROBLEMS
In solving linear programming problem, while improving the basic solution, it may so
transpire that there is no scope to generate an optimal solution. This is known as
'degeneracy' in linear programming. This occurs when there is a tie in the minimum ratio
column. In other words, two or more values in the minimum ratio column are the same.
To resolve degeneracy, the following method is used. Divide the key column values (of
the tied rows) by the corresponding values of columns on the right side. This makes the
values unequal and the row with minimum ratio is the key row.
Example 3: Consider the following LPP,
Maximize Z = 2x
1
+ x
2
Subject to constraints,
4x
1
+ 3x
2
12 ...................(i)
4x
1
+x
2
8 ...................(ii)
4x
1
x
2
8 ...................(iii)
Solution: Converting the inequality constraints by introducing the slack variables,
Maximize Z=2x
1
+ x
2
Subject to constraints,
4x
1
+ 3x
2
+ S
3
= 12 ...................(iv)
4x
1
+ x
2
+ S
4
= 8 ...................(v)
4x
1
x
2
+ S
5
= 8 ...................(vi)
Equating x
1
, x
2
= 0, we get
S
3
= 12
S
4
= 8
S
5
= 8
Table 5.8: Illustrating Degeneracy
Iteration
Number
Basic
Variables
Solution
Value
X
1
X
2
S
3
S
4
S
5
Minimum
Ratio
Equation
0 S
3
12 4 3 1 0 0 3
S
4
8 4 1 0 1 0 2
S
5
8 4 -1 0 0 1 2
-Z 0 -2 -1 0 0 0
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For S
4
; 4/2 = 2
For S
5
; 4/2 = 2
After entering all the values in the first iteration table, the key column is -2, variable
corresponding is x
1
. To identify the key row there is tie between row S
4
and row S
5
with
same values of 2, which means degeneracy in solution. To break or to resolve this,
consider the column right side and divide the values of the key column values. We shall
consider column x
2
, the values corresponding to the tie values 1, 1. Divide the key
column values with these values, i.e., 1/4, 1/4 which is 0.25 and 0.25. Now in selecting
the key row, always the minimum positive value is chosen i.e., row S
4
. Now, S
4
is the
leaving variable and x
1
is an entering variable of the next iteration table. The problem is
solved. Using computer and the solution is given in the Figure 5.5.
Figure 5.5: LPP Solved Using Computer with TORA (Output Screen)
5.8 UNBOUNDED SOLUTIONS IN LPP
In a linear programming problem, when a situation exists that the value objective function
can be increased infinitely, the problem is said to have an 'unbounded' solution. This can
be identified when all the values of key column are negative and hence minimum ratio
values cannot be found.
Table 5.9: Illustrating Unbounded Solution
For S
3
; 12/-2
For X
1
; 8 /-1 all values are negative
For S
4
; 4/-4
Iteration
Value
Basic
Variable
Solution
Value
X
1
X
2
S
3
S
4
S
5
Minimum
Ratio
Equation
1 S
3
12 1 -2 1 0 0
X
1
8 3 -1 0 1 0
S
4
4 2 -4 0 0 1
-Z 0 -4 -8 0 0 0
tie
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Linear Programming :
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5.9 MULTIPLE SOLUTIONS IN LPP
In the optimal iteration table if (P
j
- Z
j
) value of one or more non-basic variable is equal
to 0, then the problem is said to have multiple or alternative solutions.
Table 5.10: Illustrating Multiple Solutions
5.10 DUALITY IN LP PROBLEMS
All linear programming problems have another problem associated with them, which is
known as its dual. In other words, every minimization problem is associated with a
maximization problem and vice-versa. The original linear programming problem is known
as primal problem, and the derived problem is known as its dual problem. The optimal
solutions for the primal and dual problems are equivalent.
Conversion of primal to dual is done because of many reasons. The dual form of the
problem, in many cases, is simple and can be solved with ease. Moreover, the variables
of the dual problem contain information useful to management for analysis.
Procedure
Step 1: Convert the objective function if maximization in the primal into minimization in
the dual and vice versa. Write the equation considering the transpose of RHS of
the constraints
Step 2: The number of variables in the primal will be the number of constraints in the
dual and vice versa.
Step 3: The co-efficient in the objective function of the primal will be the RHS constraints
in the dual and vice versa.
Step 4: In forming the constraints for the dual, consider the transpose of the body matrix
of the primal problems.
Note: Constraint inequality signs are reversed
Example 4: Construct the dual to the primal problem
Maximize Z = 6x
1
+ 10x
2
Subject to constraints,
2x
1
+ 8x
2
60 .......................(i)
3x
1
+ 5x
2
45 .......................(ii)
5x
1
- 6x
2
10 .......................(iii)
x
2
40 .......................(iv)
where x
1
, x
2
0
Solution:
Minimize W = 60y
1
+ 45y
2
+ 10y
3
+ 40y
4
P
j
4
1
0
0
0
Iteration
Number
Basic
Number
Solution
Value
X
1
X
2
S
3
S
4
S
5
Minimum
Ratio
Equation
2 X
2
6 5 2 0 1 0
S
2
3 4 1 2 1 0
Z
j
4 4 1 1 2 0
P
j
Z
j
0 0 -1 -2 0
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Subject to constraints,
2y
1
+3y
2
+5y
3
+ 0y
4
6
8y
1
+ 5y
2
+ 6y
3
+ y
4
10
where y
1
, y
2
, y
3
, y
4
0
Example 5: Construct a dual for the following primal
Minimize Z = 6x
1
4x
2
+ 4x
3
Subject to constraints,
6x
1
10x
2
+ 4x
3
14 ..................(i)
6x
1
+ 2x
2
+ 6x
3
10 ..................(ii)
7x
1
2x
2
+ 5x
3
20 ..................(iii)
x
1
4x
2
+ 5x
3
3 ..................(iv)
4x
1
+ 7x
2
4x
3
20 ..................(v)
where x
1
, x
2
, x
3
0
Solution: Convert 'less than' constraints into 'greater than' type by multiplying by
(1) on both sides (i.e., for e.g. iii).
6x
1
10x
2
+ 4x
3
14
6x
1
+ 2x
2
+ 6x
3
10
7x
1
+ 2x
2
5x
3
20
x
1
4x
2
+ 5x
3
3
4x
1
+ 7x
2
4x
3
20
The dual for the primal problem is,
Maximize W = 14y
1
+10y
2
+20y
3
+3y
4
+20y
5
Subject to constraints,
6y
1
+ 6y
2
7y
3
+ y
4
+ 4y
5
6
10y
1
+ 2y
2
+ 2y
3
4y
4
+7y
5
4
4y
1
+ 6y
2
5y
3
+ 5y
4
4y
5
4
where y
1
, y
2
, y
3
, y
4
and y
5
0
5.11 SENSITIVITY ANALYSIS
Sensitivity analysis involves 'what if?' questions. In the real world, the situation is constantly
changing like change in raw material prices, decrease in machinery availability, increase
in profit on one product, and so on. It is important to decision makers for find out how
these changes affect the optimal solution. Sensitivity analysis can be used to provide
information and to determine solution with these changes.
Sensitivity analysis deals with making individual changes in the co-efficient of the objective
function and the right hand sides of the constraints. It is the study of how changes in the
co-efficient of a linear programming problem affect the optimal solution.
We can answer questions such as,
i. How will a change in an objective function co-efficient affect the optimal solution?
ii. How will a change in a right-hand side value for a constraint affect the optimal
solution?
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Linear Programming :
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For example, a company produces two products x
1
and x
2
with the use of three different
materials 1, 2 and 3. The availability of materials 1, 2 and 3 are 175, 50 and 150 respectively.
The profit for selling per unit of product x
1
is Rs. 40 and that of x
2
is Rs. 30. The raw
material requirements for the products are shown by equations, as given below.
Z
max
= 40x
1
+ 30x
2
Subject to constraints
4x
1
+ 5x
2
175 ....................(i)
2x
2
50 ....................(ii)
6x
1
+ 3x
2
150 ....................(iii)
where x
1
, x
2
0
The optimal solution is
x
1
= Rs. 12.50
x
2
= Rs. 25.00
Z
max
= 40 12.50 + 30 25.00
= Rs. 1250.00
The problem is solved using TORA software and the output screen showing sensitivity
analysis is given in Table 5.11.
Change in objective function co-efficients and effect on optimal solution
Table 5.11: Sensitivity Analysis Table Output
Referring to the current objective co-efficient, if the values of the objective function co-
efficient decrease by 16 (Min. obj. co-efficient) and increase by 20 (Max. obj. co-
efficient) there will not be any change in the optimal values of x
1
= 12.50 and
x
2
= 25.00. But there will be a change in the optimal solution, i.e. Z
max
.
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Note: This applies only when there is a change in any one of the co-efficients of variables
i.e., x
1
or x
2
. Simultaneous changes in values of the co-efficients need to apply for 100
Percent Rule for objective function co-efficients.
For x
1
, Allowable decrease = Current value - Min. Obj. co-efficient
= 40 24
= Rs. 16 ------------------ (i)
Allowable increase = Max. Obj. co-efficient Current value
= 60 40
= Rs. 20.00 ---------------- (ii)
Similarly, For x
2
, Allowable decrease = Rs. 10.00 ---------------- (iii)
Allowable increase = Rs. 20.00 --------------- (iv)
For example, if co-efficient of x
1
is increased to 48, then the increase is
48 40 = Rs. 8.00. From (ii), the allowable increase is 20, thus the increase in x
1
co-
efficient is 8/20 = 0.40 or 40%.
Similarly,
If co-efficient of x
2
is decreased to 27, then the decrease is 30 - 27 = Rs. 3.00.
From (iii), the allowable decrease is 10, thus the decrease in x
2
co-efficient is 3/10 = 0.30
or 30%.
Therefore, the percentage of increase in x
1
and the percentage of decrease in x
2
is 40
and 30 respectively.
i.e. 40% + 30% = 70%
For all the objective function co-efficients that are changed, sum the percentage of the
allowable increase and allowable decrease. If the sum of the percentages is less than or
equal to 100%, the optimal solution does not change, i.e., x
1
and x
2
values will not change.
But Z
max
will change, i.e.,
= 48(12.50) + 27(25)
= Rs. 1275.00
If the sum of the percentages of increase and decrease is greater than 100%, a different
optimal solution exists. A revised problem must be solved in order to determine the new
optimal values.
Change in the right-hand side constraints values and effect on optimal solution
Suppose an additional 40 kgs of material 3 is available, the right-hand side constraint
increases from 150 to 190 kgs.
Now, if the problem is solved, we get the optimal values as
x
1
= 23.61, x
2
= 16.11 and Z
max
= 1427.78
From this, we can infer that an additional resources of 40 kgs increases the profit by
= 1427.78 1250 = Rs. 177.78
Therefore, for one kg or one unit increase, the profit will increase by
= 177.78 / 40
= Rs. 4.44
Dual price is the improvement in the value of the optimal solution per unit increase in the
right-hand side of a constraint. Hence, the dual price of material 3 is Rs 4.44 per kg.
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Linear Programming :
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Increase in material 2 will simply increase the unused material 2 rather than increase in
objective function. We cannot increase the RHS constraint values or the resources. If
the limit increases, there will be a change in the optimal values.
The limit values are given in Table 2.10, i.e., Min RHS and Max RHS values.
For example, for material 3, the dual price Rs. 4.44 applies only to the limit range 150 kgs
to 262.50 kgs.
Where there are simultaneous changes in more than one constraint RHS values, the 100
per cent Rule must be applied.
Reduced Cost
Reduced cost / unit of activity =
activity of
unit per Profit
activity of
unit per resources
consumed of Cost
If the activity's reduced cost per unit is positive, then its unit cost of consumed resources
is higher than its unit profit, and the activity should be discarded. This means that the
value of its associated variable in the optimum solution should be zero.
Alternatively, an activity that is economically attractive will have a zero reduced cost in
the optimum solution signifying equilibrium between the output (unit profit) and the input
(unit cost of consumed resources).
In the problem, both x
1
and x
2
assume positive values in the optimum solution and hence
have zero reduced cost.
Considering one more variable x
3
with profit Rs. 50
Z
max
= 40x
1
+ 30x
2
+ 50x
3
Subject to constraints,
4x
1
+ 5x
2
+ 6x
3
175 ....................(i)
2x
2
+ 1x
3
50 ....................(ii)
6x
1
+ 3x
2
+ 3x
3
150 ....................(iii)
where x
1
, x
2
, x
3
0
The sensitivity analysis of the problem is shown in the computer output below in
Table 5.12.
Table 5.12: Sensitivity Analysis
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The reduced cost indicates how much the objective function co-efficient for a particular
variable would have to improve before that decision function assumes a positive value in
the optimal solution.
The reduced cost of Rs.12.50 for decision variable x
2
tells us that the profit contribution
would have to increase to at least 30 + 12.50 = 42.50 before x
3
could assume a positive
value in the optimal solution.
Check Your Progress 5.2
1 What is Duality concept?
2. What is meant by degeneracy in Linear Programming?
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
5.12 LET US SUM UP
Thus LP is a planning technique of selecting the best possible (optimal) strategy among
number of alternatives. The chosen strategy is said to be the best because it involves
minimization/maximization of source desired action e.g. maximization of profits,
minimization of costs, smoothening running of the business.
5.13 LESSON-END ACTIVITIES
1. Linear Programming is a general method usable for a wide range of problems.
Go to any nutrition center which sells health-food. Bring into play the applications
of LP in formation and building.
2. LP is no doubt an vital problem. Not in this counters of petty problems with only a
couple of variables, but is much bigger problem.
Exaggerate this logic with the help of illstrations which can be matched and linked
with you real-life-situations.
5.14 KEYWORDS
Slack
Simplex method
Surplus
161
Linear Programming :
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Variable
Solution
5.15 QUESTIONS FOR DISCUSSION
1. Write True or False against each statement:
(a) Artificial variable are imaginary and do not have any physical meaning.
(b) Simplex method solve the LPP in iteration to enhance the value of the objective
function.
(c) Sensitivity analysis can not be used to provide information and to determine
solution with these changes.
2. Briefly comment on the following statement:
(a) Two or more entries in the ratio column.
(b) LP is a planning techniques.
(c) LP techniques are used to optimise the resources for best result.
(d) LP in a part of management science.
(e) Algebraic techniques is used to solve large problems using simplex method.
5.16 TERMINAL QUESTIONS
1. Explain the procedure involved in the simplex method to determine the optimum
solution.
2. What are slack, surplus and artificial variables ?
3. What is degeneracy in LP problems ? When does it occur ? How can degeneracy
problem be resolved ?
4. What is a basic variable and a non-basic variable ?
5. Explain what is an unbounded solution in LPP.
6. Differentiate between primal and dual problems.
7. Why is the simplex method more advantageous than the graphical method?
8. What are the rules in selecting key column, key row and pivotal element?
9. Discuss the role of sensitivity analysis in linear programming.
10. In sensitivity analysis, explain
i. The effect of change of objective function coefficients
ii. The effect of change in the right hand side of constraints
Exercise Problems
1. A company manufactures three products A, B and C, which require three raw
materials I, II and III. The table given below shows the amount of raw materials
required per kg of each product. The resource availability per day and the profit
contribution for each product is also given.
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i. Formulate the problem as a linear programming problem.
ii. Solve the problem and determine the optimal product mix.
2. A metal fabricator manufactures three types of windows. Each of the windows
needs four processes. The time taken on various machines differ due to the size of
windows. The time taken and available hours are given in the table below:
The profit contribution for windows A, B and C are Rs. 3.00, Rs. 4.00 and Rs. 5.00
respectively.
a. Formulate the problem.
b. Solve the problem using simplex method to maximize the profit.
c. Determine the excess time available in each processes and by how much.
3. Solve the following LPP using simplex method.
Maximize , Z = 2x
1
+ x
2
Subject to constraints,
4x
1
+ 3x
2
12 .....................(i)
4x
1
+ x
2
8 .....................(ii)
4x
1
x
2
8 .....................(iii)
where x
1
, x
2
0
4. Solve the following LPP:
Z
max
= 20x
1
+ 28x
2
+ 23x
3
Subject to constraints,
4x
1
+ 4x
2
75 ....................(i)
2x
1
+ x
2
+ 2x
3
100 ....................(ii)
3x
1
+ 2x
2
+ x
3
50 ....................(iii)
where x
1
, x
2
, x
3
0
5. Three high precision products are manufactured by a Hi-Tech Machine Tools
Company. All the products must undergo process through three machining centers
A, B and C. The machine hours required per unit are,
Product
Raw Material
A B C Availability (kg)
I 4 1 6 800
II 5 6 8 1500
III 2 4 1 1200
Profit per unit (Rs) 9 10 6
Window Type Cutting Heat Treating Forging Grinding
A 5 7 1 4
B 7 4 4 8
C 4 8 6 2
Available time (Hrs) 20 24 28 22
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Linear Programming :
Simplex Method
The available time in machine hours per week is
It is estimated that the unit profits of the product are
a. Formulate the problem as a LPP.
b. Solve the problem to determine the optimal solution. What is the number of
units to be made on each product.
c. Does machining center C has any extra time to spare? If so, how much spare
time is available ?
d. If additional 10 machine hours are available with machining center A, then
what is the optimal product mix ? What is the change in the value of profit ?
6. Raghu Constructions is considering four projects over the next 3 years. The expected
returns of each project and cash outlays for these projects are listed in the tables
given. All values are in Lacs of Rupees.
Raghu has to decide to undertake construction projects. Ignore the time value of
money. As a consultant, what suggestion you would like to give Raghu in deciding
about the projects to select. Determine the solution using TORA.
7. Solve the following LP Problem using Big M Method.
Minimize, Z = 2x
1
+ 9x
2
+ x
3
Subject to constraints,
x
1
+ 4x
2
+ 2x
3
5 .......................(i)
3x
1
+ x
2
+ 2x
3
4 .......................(ii)
where x
1
, x
2
, x
3
0
8. Solve the following LPP
Z
min
= 4x
1
+ x
2
Product Machining Center
I II III
A 2 4 6
B 3 6 2
C 3 2 1
Machining Center Machine Hours Per Week
A 150
B 100
C 120
Product Unit Profits (Rs)
I 3
II 4
III 6
Cash outlay (lakh Rs.)
Project
Year 1 Year 2 Year 3
Return
1 12.32 11.10 9.50 42.25
2 11.15 9.75 8.11 31.20
3 7.65 5.50 4.75 15.10
4 10.71 10.31 7.77 12.05
Available funds
(lakh Rs.)
110.00 40.00 35.00
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Subject to constraints,
3x + x
2
= 3 .................(i)
4x +3x
2
6 .................(ii)
x
1
+ 2x
2
3 ................(iii)
where x
1
, x
2
0
9. Solve the following LPP. Find whether multiple or alternate solution exists
Maximize Z = 2x
1
+ 4x
2
+ 6x
3
Subject to constraints,
10x
1
+ 4x
2
+ 6x
3
150 ..................(i)
8x
1
+ 6x
2
+ 2x
3
100 ..................(ii)
x
1
+ 2x
2
+ x
3
120 ....................(iii)
where x
1
, x
2
, x
3
0
10. Write the dual of the following LP problem
Minimize Z = 6x
1
4x
2
+ 4x
3
Subject to constraints,
3x
1
+ 10x
2
+ 4x
3
15 .......................(i)
12x
1
+ 2x
2
+ 5x
3
4 ...................(ii)
5x
1
4x
2
2x
3
10 ...................(iii)
x
1
3x
2
+ 6x
3
3 ...................(iv)
4x
1
+ 9x
2
4x
3
2 ...................(v)
where x
1
, x
2
, x
3
0
11. Obtain the dual of the following linear programming problem
Maximize Z , = 4x
1
+ 9x
2
+ 6x
3
Subject to constraints,
10x
1
+ 10x
2
2x
3
6 .......................(i)
-5x
1
+ 5x
3
+ 6x
3
8 .......................(ii)
14x
1
2x
2
5x
3
20 ........................(iii)
5x
1
4x
2
+7x
3
3 ........................(iv)
8x
1
+ 10x
2
5x
3
= 2 .......................(v)
where x
1
, x
2
, x
3
0
5.17 MODEL ANSWERS TO QUESTIONS FOR
DISCUSSION
1. (a) True (b) True (c) False
5.18 SUGGESTED READINGS
Dantzig, G and M. Thapa, Linear Programming 1: Introduction, Springer,
New York 1997.
Simonnard M., Linear Programming. Englewood Cliffs, N.J. Prentice Hall, 1966.
Bersitman, D, and J Tsitsiklin, Introduction to Linear Optimization, Belmont. Mass:
Athena Publishing 1997.
Unit-II
LESSON
6
TRANSPORTATION MODEL
CONTENTS
6.0 Aims and Objectives
6.1 Introduction
6.2 Mathematical Formulation
6.3 Network Representation of Transportation Model
6.4 General Representation of Transportation Model
6.5 Use of Linear Programming to Solve Transportation Problem
6.6 Formulation of LP model
6.7 Solving Transportation Problem Using Computer
6.8 Balanced Transportation Problem
6.9 Unbalanced Transportation Problem
6.10 Procedure to Solve Transportation Problem
6.11 Degeneracy in Transportation Problems
6.12 Maximization Transportation Problem
6.13 Prohibited Routes Problem
6.14 Transhipment Problem
6.15 Let us Sum Up
6.16 Lesson-end Activity
6.17 Keywords
6.18 Questions for Discussion
6.19 Terminal Questions
6.20 Model Answers to Questions for Discussion
6.21 Suggested Readings
6.0 AIMS AND OBJECTIVES
In this unit we would be able to learn the Time Management Models. i.e. Transportation
and Assignment Models, thus would be able to learn transportation models in this lesson
and also we will talk about transhipment problems.
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6.1 INTRODUCTION
Transportation problem is a particular class of linear programming, which is associated
with day-to-day activities in our real life and mainly deals with logistics. It helps in solving
problems on distribution and transportation of resources from one place to another. The
goods are transported from a set of sources (e.g., factory) to a set of destinations (e.g.,
warehouse) to meet the specific requirements. In other words, transportation problems
deal with the transportation of a product manufactured at different plants (supply origins)
to a number of different warehouses (demand destinations). The objective is to satisfy
the demand at destinations from the supply constraints at the minimum transportation
cost possible. To achieve this objective, we must know the quantity of available supplies
and the quantities demanded. In addition, we must also know the location, to find the cost
of transporting one unit of commodity from the place of origin to the destination. The
model is useful for making strategic decisions involved in selecting optimum transportation
routes so as to allocate the production of various plants to several warehouses or
distribution centers.
The transportation model can also be used in making location decisions. The model helps
in locating a new facility, a manufacturing plant or an office when two or more number
of locations is under consideration. The total transportation cost, distribution cost or
shipping cost and production costs are to be minimized by applying the model.
6.2 MATHEMATICAL FORMULATION
The transportation problem applies to situations where a single commodity is to be
transported from various sources of supply (origins) to various demands (destinations).
Let there be m sources of supply S
1
, S
2
, ...............S
m
having a
i
( i = 1,2,......m) units of
supplies respectively to be transported among n destinations D
1
, D
2
D
n
with b
j
( j = 1,2..n) units of requirements respectively. Let C
ij
be the cost for shipping one unit
of the commodity from source i, to destination j for each route. If x
ij
represents the units
shipped per route from source i, to destination j, then the problem is to determine the
transportation schedule which minimizes the total transportation cost of satisfying supply
and demand conditions.
The transportation problem can be stated mathematically as a linear programming problem
as below:
Minimize Z =
=
m
i 1
=
n
j 1
c
ij
x
ij
Subject to constraints,
=
n
j
ij
x
1
= a
i,
i = 1,2,..m (supply constraints)
=
n
i
ij
x
1
= b
j,
j = 1,2,..m (demand constraints)
and x
ij
> 0 for all i = 1,2,..m and,
j = 1,2,..m
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Transportation Model
6.3 NETWORK REPRESENTATION OF
TRANSPORTATION MODEL
The transportation model is represented by a network diagram in Figure 6.1.
Figure 6.1: Network Transportation Model
where,
m be the number of sources,
n be the number of destinations,
S
m
be the supply at source m,
D
n
be the demand at destination n,
c
ij
be the cost of transportation from source i to destination j, and
x
ij
be the number of units to be shipped from source i to destination j.
The objective is to minimize the total transportation cost by determining the unknowns
x
ij
, i.e., the number of units to be shipped from the sources and the destinations while
satisfying all the supply and demand requirements.
6.4 GENERAL REPRESENTATION OF
TRANSPORTATION MODEL
The Transportation problem can also be represented in a tabular form as shown in
Table 6.1
Let C
ij
be the cost of transporting a unit of the product from i
th
origin to j
th
destination.
a
i
be the quantity of the commodity available at source i,
b
j
be the quantity of the commodity needed at destination j, and
x
ij
be the quantity transported from i
th
source to j
th
destination
c
11
: x
11
S
1
D
1
Supply Demand
S
2
D
2
S
m
D
n
c
mn
: x
mn
1 1
m
n
2 2
Source
Destination
Factory Warehouse
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Table 6.1: Tabular Representation of Transportation Model
= =
=
n
j
j
m
i
i
b a
1 1
If the total supply is equal to total demand, then the given transportation problem is a
balanced one.
6.5 USE OF LINEAR PROGRAMMING TO SOLVE
TRANSPORTATION PROBLEM
Figure 6.2: Linear Programming Solution
Factory Warehouse
Source Destination
6000
5 5000
6
9
7
7
Supply Demand
5000 8 4000
2
4
6 3 2000
5
4000 3
Transportation cost 4000
Chennai
1
Bangalore
1
Coimbatore
2
Hyderabad
2
Madurai
3
Cochin
3
Goa
4
To Supply
D
1
D
2
D
n
From A
i
S
1
C
11
C
12
C
1n
A
1
x
11
x
12
S
2
C
21
C
22
C
2n
A
2
x
21
x
22
. . . . .
. . . . .
. . . . .
S
m
C
m1
C
m2
C
mn
A
m
x
m1
x
m2
B
j
B
1
B
2
B
n
= =
=
n
j
j
m
i
i
b a
1 1
171
Transportation Model
The network diagram shown in Figure 6.2 represents the transportation model of M/s
GM Textiles units located at Chennai, Coimbatore and Madurai. GM Textiles produces
ready-made garments at these locations with capacities 6000, 5000 and 4000 units per
week at Chennai, Coimbatore and Madurai respectively. The textile unit distributes its
ready-made garments through four of its wholesale distributors situated at four locations
Bangalore, Hyderabad, Cochin and Goa. The weekly demand of the distributors are
5000, 4000, 2000 and 4000 units for Bangalore, Hyderabad, Cochin and Goa respectively.
The cost of transportation per unit varies between different supply points and destination
points. The transportation costs are given in the network diagram.
The management of GM Textiles would like to determine the number of units to be
shipped from each textile unit to satisfy the demand of each wholesale distributor. The
supply, demand and transportation cost are as follows:
Table 6.2: Production Capacities
Table 6.3: Demand Requirements
Table 6.4: Transportation cost per unit
A linear programming model can be used to solve the transportation problem.
Let,
X
11
be number of units shipped from source1 (Chennai) to destination 1 (Blore).
X
12
be number of units shipped from source1 (Chennai) to destination 2 (Hyderabad).
X
13
number of units shipped from source 1 (Chennai) to destination 3 (Cochin).
X
14
number of units shipped from source 1 (Chennai) to destination 4 (Goa)
and so on.
X
ij
= number of units shipped from source i to destination j, where i = 1,2,..m
and,
j = 1,2,n.
Check Your Progress 6.1
1 What is the transportation problem?
2. Give a tabular representation of transportation model.
Destination Wholesale Distributor Weekly Demand (Units)
1 Bangalore 5000
2 Hyderabad 4000
3 Cochin 2000
4 Goa 4000
Destination Supply
Blore Hyderabad Cochin Goa
Chennai 5 6 9 7
Coimbatore 7 8 2 4
Madurai 6 3 5 3
Supply Textile Unit Weekly Production (Units)
1 Chennai 6000
2 Coimbatore 5000
3 Madurai 4000
Contd....
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Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
6.6 FORMULATION OF LP MODEL
Objective function: The objective is to minimize the total transportation cost. Using the
cost data table, the following equation can be arrived at:
Transportation cost for units
shipped from Chennai = 5x
11
+6x
12
+9x
13
+7x
14
Transportation cost for units
shipped from Coimbatore = 7x
21
+8x
22
+2x
23
+4x
24
Transportation cost for units
shipped from Madurai = 6x
31
+3x
32
+5x
33
+3x
34
Combining the transportation cost for all the units shipped from each supply point with
the objective to minimize the transportation cost, the objective function will be,
Minimize Z = 5x
11
+6x
12
+9x
13
+7x
14
+7x
21
+8x
22
+2x
23
+4x
24
+6x
31
+3x
32
+5x
33
+3x
34
Constraints:
In transportation problems, there are supply constraints for each source, and demand
constraints for each destination.
Supply constraints:
For Chennai, x
11
+ x
12
+ x
13
+ x
14
< 6000
For Coimbatore, x
21
+ x
22
+ x
23
+ x
24
< 5000
For Madurai, x
31
+ x
32
+ x
33
+ x
34
< 4000
Demand constraints:
For Blore, x
11
+ x
21
+ x
31
= 5000
For Hyderabad, x
12
+ x
22
+ x
32
= 4000
For Cochin, x
13
+ x
23
+ x
33
= 2000
For Goa, x
14
+ x
24
+ x
34
= 4000
The linear programming model for GM Textiles will be write in the next line. Minimize
Z = 5x
11
+ 6x
12
+ 9x
13
+ 7x
14
+ 7x
21
+ 8x
22
+ 2x
23
+ 4x
24
+ 6x
31
+ 3x
32
+ 5x
33
+ 3x
34
Subject to constraints,
X
11
+x
12
+x
13
+x
14
< 6000 ......................(i)
173
Transportation Model
X
21
+x
22
+x
23
+x
24
< 5000 .......................(ii)
X
31
+x
32
+x
33
+x
34
< 4000 ........................(iii)
X
11
+x
21
+x
31
= 5000 ........................(iv)
X
12
+x
22
+x
32
= 4000 ........................(v)
X
13
+x
23
+x
33
= 2000 ........................(vi)
X
14
+x
24
+x
34
= 4000 ........................(vii)
Where, x
ij
> 0 for i = 1, 2, 3 and j = 1, 2, 3, 4.
6.7 SOLVING TRANSPORTATION PROBLEM USING
COMPUTER
Input screen for solving TP & LP models using TORA
Figure 6.3: TORA Screen for TP Model
Output screen using TP & LP models
Figure 6.4: TORA Screen for LP Model
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Quantitative Techniques
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Example 1: Consider the following transportation problem (Table 6.5) and develop a
linear programming (LP) model.
Table 6.5: Transportation Problem
Solution: Let x
ij
be the number of units to be transported from the source i to the destination
j, where i = 1, 2, 3,m and j = 1, 2, 3,n.
The linear programming model is
Minimize Z = 15x
11
+20x
12
+30x
13
+10x
21
+9x
22
+15x
23
+14x
31
+12x
32
+18x
33
Subject to constraints,
x
11
+x
12
+x
13
< 350 ..................(i)
x
21
+x
22
+x
23
< 200 ...................(ii)
x
31
+x
32
+x
33
< 400 ...................(iii)
x
11
+x
12
+x
31
= 250 ...................(iv)
x
12
+x
22
+x
32
= 400 ...................(v)
x
13
+x
23
+x
33
= 300 ...................(vi)
x
ij
> 0 for all i and j.
In the above LP problem, there are m n = 3 3 = 9 decision variables and
m + n = 3 + 3 = 6 constraints.
6.8 BALANCED TRANSPORTATION PROBLEM
When the total supplies of all the sources are equal to the total demand of all destinations,
the problem is a balanced transportation problem.
Total supply = Total demand
= =
=
n
j
j
m
i
i
b a
1 1
The problem given in Example 3.1 represents a balanced transportation problem.
6.9 UNBALANCED TRANSPORTATION PROBLEM
When the total supply of all the sources is not equal to the total demand of all destinations,
the problem is an unbalanced transportation problem.
Total supply Total demand
=
m
i
i
a
1
=
n
j
j
b
1
Demand Less than Supply
In real-life, supply and demand requirements will rarely be equal. This is because of
variation in production from the supplier end, and variations in forecast from the customer
Destination
Source
1 2 3 Supply
1 15 20 30 350
2 10 9 15 200
3 14 12 18 400
Demand 250 400 300
175
Transportation Model
end. Supply variations may be because of shortage of raw materials, labour problems,
improper planning and scheduling. Demand variations may be because of change in
customer preference, change in prices and introduction of new products by competitors.
These unbalanced problems can be easily solved by introducing dummy sources and
dummy destinations. If the total supply is greater than the total demand, a dummy
destination (dummy column) with demand equal to the supply surplus is added. If the
total demand is greater than the total supply, a dummy source (dummy row) with supply
equal to the demand surplus is added. The unit transportation cost for the dummy column
and dummy row are assigned zero values, because no shipment is actually made in case
of a dummy source and dummy destination.
Example 2: Check whether the given transportation problem shown in Table 6.6 is a
balanced one. If not, convert the unbalanced problem into a balanced transportation
problem.
Table 6.6: Transportation Model with Supply Exceeding Demand
Solution: For the given problem, the total supply is not equal to the total demand.
=
3
1 i
i
a
=
3
1 j
j
b
since,
700 a
3
1 i
i
=
=
600 b and 0
3
1 j
j
=
=
The given problem is an unbalanced transportation problem. To convert the unbalanced
transportation problem into a balanced problem, add a dummy destination (dummy column).
i.e., the demand of the dummy destination is equal to,
= =
3
1 j
j
3
1 i
i
b a
Thus, a dummy destination is added to the table, with a demand of 100 units. The modified
table is shown in Table 6.7 which has been converted into a balanced transportation
table. The unit costs of transportation of dummy destinations are assigned as zero.
Table 6.7: Dummy Destination Added
Similarly,
If
= =
>
m
i
i
n
j
j
a b
1 1
then include a dummy source to supply the excess demand.
Destination
Source
1 2 3
Supply
1 25 45 10 200
2 30 65 15 100
3 15 40 55 400
Demand 200 100 300
Destination
Source
1 2 3 4
Supply
1 25 45 10 0 200
2 30 65 15 0 100
3 15 40 55 0 400
Demand 200 100 300 100 700/700
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Demand Greater than Supply
Example 3: Convert the transportation problem shown in Table 6.8 into a balanced
problem.
Table 6.8: Demand Exceeding Supply
Solution: The given problem is,
= =
>
3
1
4
1 i
j
j
j
a b
=
=
3
1
800
i
i
a
and
1000
4
1
=
= j
j
b
The given problem is an unbalanced one. To convert it into a balanced transportation
problem, include a dummy source (dummy row) as shown in Table 6.9
Table 6.9: Balanced TP Model
6.10 PROCEDURE TO SOLVE TRANSPORTATION
PROBLEM
Step 1: Formulate the problem.
Formulate the given problem and set up in a matrix form. Check whether
the problem is a balanced or unbalanced transportation problem. If
unbalanced, add dummy source (row) or dummy destination (column) as
required.
Step 2: Obtain the initial feasible solution.
The initial feasible solution can be obtained by any of the following three
methods:
i. Northwest Corner Method (NWC)
ii. Least Cost Method (LCM)
iii. Vogels Approximation Method (VAM)
The transportation cost of the initial basic feasible solution through Vogels
approximation method, VAM will be the least when compared to the other
two methods which gives the value nearer to the optimal solution or optimal
solution itself. Algorithms for all the three methods to find the initial basic
feasible solution are given.
Destination
Source
1 2 3 4
Supply
1 10 16 9 12 200
2 12 12 13 5 300
3 14 8 13 4 300
Demand 100 200 450 250 1000/800
Source Destination
1 2 3 4 Supply
1 10 16 9 12 200
2 12 12 13 5 300
3 14 8 13 4 300
4 0 0 0 0 200
Demand 100 200 450 250 1000/1000
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Transportation Model
Algorithm for North-West Corner Method (NWC)
(i) Select the North-west (i.e., upper left) corner cell of the table and allocate the
maximum possible units between the supply and demand requirements. During
allocation, the transportation cost is completely discarded (not taken into
consideration).
(ii) Delete that row or column which has no values (fully exhausted) for supply or
demand.
(iii) Now, with the new reduced table, again select the North-west corner cell and
allocate the available values.
(iv) Repeat steps (ii) and (iii) until all the supply and demand values are zero.
(v) Obtain the initial basic feasible solution.
Algorithm for Least Cost Method (LCM)
(i) Select the smallest transportation cost cell available in the entire table and allocate
the supply and demand.
(ii) Delete that row/column which has exhausted. The deleted row/column must not be
considered for further allocation.
(iii) Again select the smallest cost cell in the existing table and allocate. (Note: In case,
if there are more than one smallest costs, select the cells where maximum allocation
can be made)
(iv) Obtain the initial basic feasible solution.
Algorithm for Vogels Approximation Method (VAM)
(i) Calculate penalties for each row and column by taking the difference between the
smallest cost and next highest cost available in that row/column. If there are two
smallest costs, then the penalty is zero.
(ii) Select the row/column, which has the largest penalty and make allocation in the cell
having the least cost in the selected row/column. If two or more equal penalties
exist, select one where a row/column contains minimum unit cost. If there is again
a tie, select one where maximum allocation can be made.
(iii) Delete the row/column, which has satisfied the supply and demand.
(iv) Repeat steps (i) and (ii) until the entire supply and demands are satisfied.
(v) Obtain the initial basic feasible solution.
Remarks: The initial solution obtained by any of the three methods must satisfy the
following conditions:
(a) The solution must be feasible, i.e., the supply and demand constraints must be
satisfied (also known as rim conditions).
(b) The number of positive allocations, N must be equal to m+n-1, where m is the
number of rows and n is the number of columns.
6.11 DEGENERACY IN TRANSPORTATION PROBLEMS
Step 3: Check for degeneracy
The solution that satisfies the above said conditions N = m + n 1 is a
non-degenerate basic feasible solution otherwise, it is a degenerate solution.
Degeneracy may occur either at the initial stage or at subsequent iterations.
If number of allocations, N = m + n 1, then degeneracy does not exist.
Go to Step 5.
If number of allocations, N m + n 1, then degeneracy does exist. Go to
Step 4.
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Quantitative Techniques
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* *
* *
* *
* *
Step 4: Resolving degeneracy
To resolve degeneracy at the initial solution, allocate a small positive quantity
e to one or more unoccupied cell that have lowest transportation costs, so as
to make m + n 1 allocations (i.e., to satisfy the condition N = m + n 1).
The cell chosen for allocating e must be of an independent position. In
other words, the allocation of e should avoid a closed loop and should not
have a path.
The following Table 6.10 shows independent allocations.
Table 6.10: Independent Allocations
The following Tables 6.10 (a), (b) and (c) show non-independent allocations.
Table 6.10 (a): Non-Independent Allocations
Table 6.10 (b)
Table 6.10 (c)
Optimal Solution
Step 5: Test for optimality
The solution is tested for optimality using the Modified Distribution (MODI)
method (also known as U-V method).
Once an initial solution is obtained, the next step is to test its optimality. An
optimal solution is one in which there are no other transportation routes
that would reduce the total transportation cost, for which we have to
evaluate each unoccupied cell in the table in terms of opportunity cost. In
this process, if there is no negative opportunity cost, and the solution is an
optimal solution.
(i) Row 1, row 2,, row i of the cost matrix are assigned with variables
U
1
, U
2
, ,U
i
and the column 1, column 2,, column j are assigned
with variables V
1
, V
2
, ,V
j
respectively.
* *
*
* *
* * *
*
* *
*
* *
179
Transportation Model
(ii) Initially, assume any one of U
i
values as zero and compute the values
for U
1
, U
2
, ,U
i
and V
1
, V
2
, ,V
j
by applying the formula for
occupied cell.
For occupied cells,
C
ij
+ U
i
+ V
j
= 0
U
i
V
j
(iii) Obtain all the values of C
ij
for unoccupied cells by applying the formula
for unoccupied cell.
For unoccupied cells,
Opportunity Cost,
ij
C
= C
ij
+ U
i
+ V
j
U
i
V
j
If
ij
C
values are > 0 then, the basic initial feasible solution is optimal.
Go to step 7.
If
ij
C
values are =0 then, the multiple basic initial feasible solution
exists. Go to step 7.
If
ij
C
values are < 0 then, the basic initial feasible solution is not
optimal. Go to step 6.
Step 6: Procedure for shifting of allocations
Select the cell which has the most negative
ij
C
value and introduce a
positive quantity called q in that cell. To balance that row, allocate a q
to that row in occupied cell. Again, to balance that column put a positive
q in an occupied cell and similarly a -q to that row. Connecting all the
qs and -qs, a closed loop is formed.
Two cases are represented in Table 6.11(a) and 6.11(b). In Table 6.11(a) if
all the q allocations are joined by horizontal and vertical lines, a closed loop
is obtained.
The set of cells forming a closed loop is
CL = {(A, 1), (A, 3), (C, 3), (C, 4), (E, 4), (E, 1), (A, 1)}
The loop in Table 6.11(b) is not allowed because the cell (D3) appears
twice.
Table 6.11(a): Showing Closed Loop
1 2 3 4
A
B
C
D
E
C
ij
C
i
C
i j
A
* *
* *
* *
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Table 6.11(b)
1 2 3 4
A
B
C
D
E
Conditions for forming a loop
(i) The start and end points of a loop must be the same.
(ii) The lines connecting the cells must be horizontal and vertical.
(iii) The turns must be taken at occupied cells only.
(iv) Take a shortest path possible (for easy calculations).
Remarks on forming a loop
(i) Every loop has an even number of cells and at least four cells
(ii) Each row or column should have only one + and sign.
(iii) Closed loop may or may not be square in shape. It can also be a
rectangle or a stepped shape.
(iv) It doesnt matter whether the loop is traced in a clockwise or anti-
clockwise direction.
Take the most negative ' q' value, and shift the allocated cells
accordingly by adding the value in positive cells and subtracting it in
the negative cells. This gives a new improved table. Then go to step
5 to test for optimality.
Step 7: Calculate the Total Transportation Cost.
Since all the
ij
C
values are positive, optimality is reached and hence the
present allocations are the optimum allocations. Calculate the total
transportation cost by summing the product of allocated units and unit costs.
Example 4: The cost of transportation per unit from three sources and four destinations
are given in Table 6.12. Obtain the initial basic feasible solutions using the following
methods.
(i) North-west corner method
(ii) Least cost method
(iii) Vogels approximation method
Table 6.12: Transportation Model
Solution: The problem given in Table 6.13 is a balanced one as the total sum of supply is
equal to the total sum of demand. The problem can be solved by all the three methods.
North-West Corner Method: In the given matrix, select the North-West corner cell.
The North-West corner cell is (1,1) and the supply and demand values corresponding to
cell (1,1) are 250 and 200 respectively. Allocate the maximum possible value to satisfy
the demand from the supply. Here the demand and supply are 200 and 250 respectively.
Hence allocate 200 to the cell (1,1) as shown in Table 6.13.
Destination
Source
1 2 3 4
Supply
1 4 2 7 3 250
2 3 7 5 8 450
3 9 4 3 1 500
Demand 200 400 300 300 1200
* *
* * *
* *
181
Transportation Model
Table 6.13: Allocated 200 to the Cell (1, 1)
Now, delete the exhausted column 1 which gives a new reduced table as shown in
Tables 6.14 (a, b, c, d). Again repeat the steps.
Table 6.14 (a): Exhausted Column 1 Deleted
Destination
2 3 4 Supply
1 50 0
Source 2 450
3 500
400 300 350
Demand 350
Table after deleting Row 1
Table 6.14 (b): Exhausted Row 1 Deleted
Table after deleting column 2
Table 6.14 (c): Exhausted Column 2 Deleted
Finally, after deleting Row 2, we have
Destination
1 2 3 4 Supply
1 250 50
Source 2 450
3 500
Demand 200 400 300 300
0
4 2 7 3
200
3 7 5 8
9 4 3 1
Destination
2 3 4 Supply
2 450 100
Source
3 500
350 300 300
Demand 0
7 5 8
350
4 3 1
Destination
3 4 Supply
Source 2 100 0
3 500
Demand 300 300
200
5 8
100
3 1
2 7 3
50
7 5 8
4 3 1
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Table 6.14 (d): Exhausted Row 2 Deleted
Destination
3 4 Supply
Source 3 500
Demand 300 200
0 0
Now only source 3 is left. Allocating to destinations 3 and 4 satisfies the supply of 500.
The initial basic feasible solution using North-west corner method is shown in Table 6.15
Table 6.15: Initial Basic Feasible Solution Using NWC Method
Transportation cost = (4 200) + (2 50) + (7 350) + (5 100) +
(2 300) + (1 300)
= 800 + 100 + 2450 + 500 + 600 + 300
= Rs. 4,750.00
Least Cost Method
Select the minimum cost cell from the entire Table 6.16, the least cell is (3,4). The
corresponding supply and demand values are 500 and 300 respectively. Allocate the
maximum possible units. The allocation is shown in Table 6.16.
Table 6.16: Allocation of Maximum Possible Units
Destination
From the supply value of 500, the demand value of 300 is satisfied. Subtract 300 from
the supply value of 500 and subtract 300 from the demand value of 300. The demand of
3 1
300 200
1
2 3 4 Supply
1
4
0
2
7
3
250
Source 2
3
7
350
5
100
8
450
3
9
33
4
3
200
1
300
500 200
Demand 200 400 300
300
0
P l a n t
1
2 3 4 5 S u p p l y
1
1 0 2
3
1 5
9
2 5
2
5
1 0
1 5
2
4
3 0
3
1 5
5
1 4
7
1 5
2 0
W a r e h o u s e
4
2 0
1 5
1 3
8
3 0
D e ma n d 2 0 2 0 3 0 1 0 2 5 1 0 5
2 0
2 5
1 0
2 0
5 2 5
183
Transportation Model
destination 4 is fully satisfied. Hence, delete the column 4; as a result we get, the table
as shown in Table 6.17.
Table 6.17: Exhausted Column 4 Deleted
Destination
Now, again take the minimum cost value available in the existing table and allocate it
with a value of 250 in the cell (1,2).
The reduced matrix is shown in Table 6.18
Table 6.18: Exhausted Row 1 Deleted
In the reduced Table 6.18, the minimum value 3 exists in cell (2,1) and (3,3), which is a
tie. If there is a tie, it is preferable to select a cell where maximum allocation can be
made. In this case, the maximum allocation is 200 in both the cells. Choose a cell
arbitrarily and allocate. The cell allocated in (2,1) is shown in Table 6.18. The reduced
matrix is shown in Table 6.19.
Table 6.19: Reduced Matrix
Now, deleting the exhausted demand row 3, we get the matrix as shown in
Table 6.20
Table 6.20: Exhausted Row 3 Deleted
1
2 3 Supply
1
4
0
2
250
7
250
Source 2
3
7
350
5
100
450
3
9
33
4
3
200
200
Demand 200
400
150
300
Destination
2 3 Supply
2
7
5
250
Source 3
4
350
3
200
200 0
Demand
150
300
100
Desitnation
1
2 3 Supply
2
3
2000
7
5
450 250
Source 3
9
4
3
450
Demand
200
150 300
Destination
2 3 Supply
Source 2
7
150
5
100
250 0
Demand
150 100
0 0
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The initial basic feasible solution using least cost method is shown in a single
Table 6.21
Table 6.21: Initial Basic Feasible Solution Using LCM Method
Transportation Cost = (2 250)+ (3 200) + (7 150) + (5 100)+ ( 3 200) +
(1 300)
= 500 + 600 + 1050 + 500 + 600 + 300 = Rs. 3550
Vogels Approximation Method (VAM): The penalties for each row and column
are calculated (steps given on pages 176-77) Choose the row/column, which has the
maximum value for allocation. In this case there are five penalties, which have the
maximum value 2. The cell with least cost is Row 3 and hence select cell (3,4) for
allocation. The supply and demand are 500 and 300 respectively and hence allocate 300
in cell (3,4) as shown in Table 6.22
Table 6.22: Penalty Calculation for each Row and Column
Since the demand is satisfied for destination 4, delete column 4 . Now again calculate the
penalties for the remaining rows and columns.
Table 6.23: Exhausted Column 4 Deleted
D e s t i n a t i o n
1
2 3 4 S u p p l y P e n a l t y
1
4
0
2
7
3
2 5 0 ( 1 )
S o u r c e 2
3
7
3 5 0
5
1 0 0
8
4 5 0 ( 2 )
3
9
3 3
4
3
2 0 0
1
3 0 0
5 0 0
2 0 0 ( 2 )
D e ma n d 2 0 0 4 0 0 3 0 0
3 0 0
0
( 1 ) ( 2 ) ( 2 ) ( 2 )
D e s t i n a t i o n
1
2 3 4 S u p p l y
1
4
0
2
2 5 0
7
3
2 5 0
S o u r c e 2
3
2 0 0
7
1 5 0 0
5
1 0 0 0
8
4 5 0
3
9
3 3
4
3
2 0 0
1
3 0 0
5 0 0
D e ma n d 2 0 0 4 0 0 3 0 0 3 0 0
0
D e s t i n a t i o n
1
2 3 S u p p l y P e n a l t y
1
4
0
2
2 5 0
7
2 5 0 0
( 2 )
S o u r c e 2
3
7
3 5 0
5
1 0 0
4 5 0 ( 2 )
3
9
3 3
4
3
2 0 0
2 0 0 ( 1 )
D e m a n d 2 0 0
4 0 0
3 0 0
1 5 0
( 1 ) ( 2 ) ( 2 )
185
Transportation Model
In the Table 6.24 shown, there are four maximum penalties of values which is 2. Selecting
the least cost cell, (1,2) which has the least unit transportation cost 2. The cell
(1, 2) is selected for allocation as shown in Table 6.23. Table 6.24 shows the reduced
table after deleting row l.
Table 6.24: Row 1 Deleted
Destination
After deleting column 1 we get the table as shown in the Table 6.25 below.
Table 6.25: Column 1 Deleted
Destination
Finally we get the reduced table as shown in Table 6.26
Table 6.26: Final Reduced Table
1 2 3 Supply Penalty
2
200
450
250
(2)
Source
3
200
(1)
Demand 200 150 300
(6) (3) (2)
3
7
9
3 5
4
2 3 Supply Penalty
2
250 (2)
Source
3
150
200
50
(1)
Demand
150
0
(3)
300
(2)
7 5
4 3
Destination
3
Demand 300
0
250
50
5
3
Supply
250
0
50
0
Source 2
3
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Quantitative Techniques
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The initial basic feasible solution is shown in Table 6.27.
Table 6.27: Initial Basic Feasible Solution
Transportation cost = (2 250) + (3 200) + (5 250) + (4 150) + (3 50) +
(1 300)
= 500 + 600 + 1250 + 600 + 150 + 300
= Rs. 3,400.00
Example 5: Find the initial basic solution for the transportation problem and hence
solve it.
Table 6.28: Transportation Problem
Solution: Vogels Approximation Method (VAM) is preferred to find initial feasible solution.
The advantage of this method is that it gives an initial solution which is nearer to an
optimal solution or the optimal solution itself.
Step 1: The given transportation problem is a balanced one as the sum of supply
equals to sum of demand.
Step 2: The initial basic solution is found by applying the Vogels Approximation
method and the result is shown in Table 6.29.
Destination
W
1
W
2
W
3
W
4
Supply
F
1
17
5
9
65
140 (4) (4) (8) (48) (48)
F
2
20 10
12
65
260 (2) (2) (8) (45) (45)
F
3
15
0
5
65
360 (5) (5) (10) (50) __
F
4
13
1 10 65
220 (9) __ __ __ __ __
Demand 200 320 250 210
(2)
(2)
(2)
(2)
(3)
(1)
(5)
__
__
__
(4)
(4)
__
__
__
(0)
(0)
(0)
(0)
(0)
50 210
10 100 250
140
220
Destination
1 2 3 4 Supply
1 4 2 7 3 250
Source 2 3 7 5 8 450
3 9 4 3 1 500
Demand 200 400 300 300
187
Transportation Model
Table 6.29: Initial Basic Solution Found by Applying VAM
Destination
Step 3: Calculate the Total Transportation Cost.
Initial Transportation cost = (2 250) + (3 200) + (5 250) + (4 150) +
(3 50) + (1 300)
= 500 + 600 + 1250 + 600 + 150 + 300
= Rs. 3,400
Step 4: Check for degeneracy. For this, verify the condition,
Number of allocations, N= m + n 1
6 = 3 + 4 1
6 = 6
Since the condition is satisfied, degeneracy does not exist.
Step 5: Test for optimality using modified distribution method. Compute the values
of U
i
and V
j
for rows and columns respectively by applying the formula
for occupied cells.
C
ij
+U
i
+V
j
= 0
Then, the opportunity cost for each unoccupied cell is calculated using the
formula
ij
C = C
ij
+ U
i
+ V
j
and denoted at the left hand bottom corner of
each unoccupied cell. The computed valued of u
j
and v
i
and are shown in
Table 6.30.
Table 6.30: Calculation of the Opportunity Cost
Destination
V
1
= 1 V
2
= 4 V
3
= -3 V
4
= 1
Calculate the values of U
i
and V
j
, using the formula for occupied cells. Assume any one
of U
i
and V
j
value as zero (U
3
is taken as 0)
1
2 3 4 Supply
1
4
0
2
250
7
3
250
Source 2
3
200
7
350
5
2500
8
450
3
9
33
4
150
3
500
1
300
500
Demand 200 400 300 300
1
2 3 4 Supply
1
5
4 2
250
7
6
3
4
250 U
1
= 2
Source 2
3
200
7
1
5
250
8
5
450 U
2
= -2
3
9
8
4
150
3
50
1
300
500 U
3
= 0
Demand 200 400 300 300
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Quantitative Techniques
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C
ij
+ U
i
+ V
j
= 0
4 + 0 + V
2
= 0, V
2
= 4
5 + V
2
3 = 0, U
2
= 2
3 2 + V
1
= 0, V
1
= 1
2 4 + U
1
= 0, U
1
= 2
Calculate the values of
ij
C , using the formula for unoccupied cells
ij
C
=
C
ij
+ U
i
+ V
j
C
11
=
4+2 1 = 5
C
13
= 7+2 3 = 6
C
14
= 3+2 1 = 4
C
22
= 72 4 = 1
C
24
= 82 1 = 5
C
31
= 9 +0 1 = 8
Since all the opportunity cost,
ij
C
values are positive the solution is optimum.
Total transportation cost = (2 25) + (3 200) + (5 250) + (4 150) + (3 50)
+ (1 300)
= 50 + 600 +1250 + 600 + 150 + 300
= Rs 2,950/-
Example 6: Find the initial basic feasible solution for the transportation problem given in
Table 6.31.
Table 6.31: Transportation Problem
Solution : The initial basic feasible solution using VAM is shown in Table 6.32.
Table 6.32: Initial Basic Feasible Solution Using VAM
To
From
A B C
Available
I
II
III
Requirement
50
90
250
4
30
45
200
2
220
170
50
2
1
3
4
To
A B C Available
Requirement 40 0 20 0 20 0
(40) (15) (120)
(40) (15) --
3
2
2
220
30 50
170
45 90
50 200 250
I
From I
III
1 (20) (20)
0
3 (45) (45)
0
4(150) (50)
2 0
189
Transportation Model
Check for degeneracy,
The number of allocations, N must be equal to m + n 1.
i.e., N = m+n 1
5 = 3+3 1
since 4 5, therefore degeneracy exists.
To overcome degeneracy, the condition N = m + n 1 is satisfied by allocating a very
small quantity, close to zero in an occupied independent cell. (i.e., it should not form a
closed loop) or the cell having the lowest transportation cost. This quantity is denoted by
e.
This quantity would not affect the total cost as well as the supply and demand values.
Table 6.33 shows the resolved degenerate table.
Table 6.33: Resolved Degenerate Table
Total transportation cost = (50 1)+ (90 3) + (200 2) + (50 2) + (250 e)
= 50 + 270 + 400 + 100 + 250 e
= 820 + 250 e = Rs. 820 since e 0
Example 7: Obtain an optimal solution for the transportation problem by MODI method
given in Table 6.34.
Table 6.34: Transportation Problem
Solution:
Step1: The initial basic feasible solution is found using Vogels Approximation
Method as shown in Table 6.35.
To
A B C Available
Requirement 4 2 2
3
2
2
220
30 50
170
45 90
50
200 250
I
From I
III
1
3
4
Destination
D
1
D
2
D
3
D
4
Supply
S
1
19 30 50 10 7
S
2
70 30 40 60 9 Source
S
3
40 8 70 20 18
Demand 5 8 7 14
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Quantitative Techniques
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Table 6.35: Initial Basic Feasible Solution Using VAM
Total transportation cost = (19 5) + (10 2) + (40 7) + (60 2) + (8 8) +
(20 10)
= 95 + 20 + 280 + 120 + 64 + 200
= Rs. 779.00
Step 2: To check for degeneracy, verify the number of allocations, N = m+n 1.
In this problem, number of allocation is 6 which is equal m+n 1.
\ N = m + n 1
6 = 3 + 4 1
6 = 6 therefore degeneracy does not exist.
Step 3: Test for optimality using MODI method. In Table 6.36 the values of U
i
and
V
j
are calculated by applying the formula C
ij
+ U
i
+ V
j
= 0 for occupied
cells , and
ij
C = C
ij
+ U
i
+ V
j
for unoccupied cells respectively.
Table 6.36: Optimality Test Using MODI Method
V
1
= 19 V
2
= 2 V
3
= 10 V
4
= 10
Find the values of the dual variables U
i
and V
j
for occupied cells.
Initially assume U
i
= 0,
C
ij
+
U
i
+ V
j
= 0,
Destination
D
1
D
2
D
3
D
4
Supply
S
1
7 (9) (9) (40) (40
2 0
S
2
7
2
9 (10) (20) (20) (20)
2 0
Source
S
3
8
10 18 (12) (20) (50) --
10 0
Demand
5 0 8 0 7 0 14 4 2 0
(21)
(21)
--
--
(22)
--
--
--
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(50)
19 30 50 10
70 30 40 60
40 8 70 20
Destination
D
1
D
2
D
3
D
4
Supply
S
1
19
5
30
32
50
60
10
2
7 U
1
= 0
Source S
2
70
1
30
-18
40
7
60
2
9U
2
= -50
S
3
40
11
8
8
70
70
20
10
18 U
3
= 10
Demand 5 8 7 14
191
Transportation Model
19 + 0 + V
i
= 0, V
1
= 19
10 + 0 + V
4
= 0, V
4
= 10
60 + U
2
10 = 0, U
2
= 50
20 + U
3
10 = 0, U
3
= 10
8 10 + V
2
= 0, V
2
= 2
40 50 + V
3
= 0, V
3
= 10
Find the values of the opportunity cost,
ij
C for unoccupied cells,
ij
C = C
ij
+ U
i
+ V
j
C
12
= 30 + 0 + 2 = 32
C
13
= 50 + 0 + 10 = 60
C
21
= 70 50 19 = 1
C
22
= 30 50 + 2 = 18
C
31
= 40 10 19 = 11
C
33
= 70 10 + 10 = 70
In Table the cell (2,2) has the most negative opportunity cost. This negative
cost has to be converted to a positive cost without altering the supply and
demand value.
Step 4: Construct a closed loop . Introduce a quantity + q in the most negative cell
(S
2
, D
2
) and a put q in cell (S
3
, D
2
) in order to balance the column D
2
.
Now, take a right angle turn and locate an occupied cell in column D
4
. The
occupied cell is (S
3
, D
4
) and put a + q in that cell. Now, put a q in cell (S
2
,
D
4
) to balance the column D
4
. Join all the cells to have a complete closed
path. The closed path is shown in Figure 6.5.
Figure 6.5: Closed Path
Now, identify the q values, which are 2 and 8. Take the minimum value, 2 which is the
allocating value. This value is then added to cells (S
2
, D
2
) and (S
3
, D
4
) which have +
signs and subtract from cells (S
2
, D
4
) and (S
3
, D
2
) which have signs. The process
is shown in Figure 6.6
Figure 6.6
-
0 2
-
8 0
-
(S
2
, D
2)
0+2 = 2
(S
2
, D
4)
2-2 = 0
-
(S
3
, D
2)
8-2 = 6
(S
3
, D
4)
10+2 = 12
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Table 6.37: Closed Path
The table after reallocation is shown in Table 6.38
Table 6.38: After Reallocation
Now, again check for degeneracy. Here allocation number is 6.
Verify whether number of allocations,
N = m + n 1
6 = 3 + 4 1
6 = 6
therefore degeneracy does not exits.
Again find the values of U
i
, V
j
and
ij
C for the Table 6.39 shown earlier.
For occupied cells, C
ij
+ U
i
+ V
j
= 0
19 + 0 + V
1
= 0, V
1
= 19
10 + 0 + V
4
= 0, V
4
= 10
20 + U
3
10 = 0, U
3
= 10
8 10 + V
2
= 0, V
2
= 2
30 + U
2
+ 2 = 0, U
2
= 32
40 50 + V
3
= 0, V
3
= 10
Destination
D
1
D
2
D
3
D
4
Supply
S
1
19
5
30
32
50
60
10
2
7
Source S
2
70
1
30
18
40
7
60
2
9
S
3
40
11
8
- 8
70
70
20
10
18
Demand 5 8 7 14
Destination
D
1
D
2
D
3
D
4
Supply
S
1
19
5
30
50
10
2
7
Source S
2
70
30
2
40
7
60
9
S
3
40
8
6
70
20
12
18
Demand 5 8 7 14
193
Transportation Model
For unoccupied cells,
ij
C = C
ij
+U
i
+V
j
C
12
= 30 + 0 + 20 = 50
C
13
= 50 + 0 8 = 42
C
21
= 70 32 19 = 19
C
24
= 60 32 10 = 18
C
31
= 40 10 19 = 11
C
33
= 70 10 8 = 52
The values of the opportunity cost
ij
C are positive. Hence the optimality is reached.
The final allocations are shown in Table 6.39.
Table 6.39: Final Allocation
V
1
= 19 V
2
= 2 V
3
= 8 V
4
= 10
Total transportation cost = (19 5) + (10 2) + (30 2) + (40 7) + (8 6)
+ (20 12)
= 95 + 20 + 60 + 280 + 48 + 240
= Rs. 743
Example 8: Solve the transportation problem
The problem is unbalanced if S
a
i
= S
b
j
, that is, when the total supply is not equal to the
total demand. Convert the unbalanced problem into a balanced one by adding a dummy
row or dummy column as required and solve.
Destination
D
1
D
2
D
3
D
4
Supply
S
1
19
5
30
50
10
2
7 U
1
= 0
Source S
2
70
30
2
40
7
60
9 U
2
= 32
S
3
40
8
6
70
20
12
18 U
3
= 10
Demand 5 8 7 14
Destination
1 2 3 Supply
1 3 5 7 10
Source 2 11 8 9 8
3 13 3 9 5
Demand 5 9 11 23
25
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Here the supply does not meet the demand and is short of 2 units. To convert it to a
balanced transportation problem add a dummy row and assume the unit cost for the
dummy cells as zero as shown in Table 6.40 and solve.
Table 6.40: Dummy Row Added to TP
6.12 MAXIMIZATION TRANSPORTATION PROBLEM
In this type of problem, the objective is to maximize the total profit or return. In this case,
convert the maximization problem into minimization by subtracting all the unit cost from
the highest unit cost given in the table and solve.
Example 9: A manufacturing company has four plants situated at different locations, all
producing the same product. The manufacturing cost varies at each plant due to internal
and external factors. The size of each plant varies, and hence the production capacities
also vary. The cost and capacities at different locations are given in the following table:
Table 6.41: Cost and Capacity of Different Plants
The company has five warehouses. The demands at these warehouses and the
transportation costs per unit are given in the Table 6.42 below. The selling price per unit
is Rs. 30/-
Table 6.42: Transportation Problem
(i) Formulate the problem to maximize profits.
(ii) Determine the solution using TORA.
(iii) Find the total profit.
Particulars Plant
A B C D
Production cost per
unit (Rs.)
18
17
15
12
Capacity 150 250 100 70
Warehouse Transportation cost (Rs) Unit-wise Demand
A B C D
1 6 9 5 3 100
2 8 10 7 7 200
3 2 6 3 8 120
4 11 6 2 9 80
5 3 4 8 10 70
Destination
1 2 3 Supply
1 3 5 7 10
2 11 8 9 8
3 13 3 9 5
Source
4 0 0 0 2
Demand 5 9 11 25
25
195
Transportation Model
Solution:
(i) The objective is to maximize the profits. Formulation of transportation problem as
profit matrix table is shown in Table 6.43. The profit values are arrived as follows.
Profit = Selling Price Production cost Transportation cost
Table 6.43: Profit Matrix
Converting the profit matrix to an equivalent loss matrix by subtracting all the profit
values from the highest value 13. Subtracting all the values from 13, the loss matrix
obtained is shown in the Table 6.44
Table 6.44: Loss Matrix
(ii) To determine the initial solution using TORA
Input Screen:
Figure 6.7: TORA, Input Screen for TP Max Problem
Destination
A B C D Demand
1 6 4 10 15 100
2 4 3 8 11 200
3 10 7 12 10 120
4 1 7 13 9 80
5 9 9 7 8 70
Supply 150 250 100 70 570
Destination
A B C D Demand
1 9 11 5 0 100
2 11 12 7 4 200
3 5 8 3 5 120
4 14 8 2 6 80
5 6 6 8 7 70
Supply 150 250 100 70 570
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Output Screen:
Figure 6.8: TORA Output Screen (Vogels Method)
The first iteration itself is optimal, hence optimality is reached.
(iii) To find the total cost:
The total maximization profit associated with the solution is
Total Profit = (6 10) + (4 20) + (10 120) + (3 180) + (9 70) + (10 20)
+ (13 80) + (15 70)
= 60 + 80 + 1200 + 540 + 630 + 200 + 1040 + 1050
= Rs 4800.00
6.13 PROHIBITED ROUTES PROBLEM
In practice, there may be routes that are unavailable to transport units from one source
to one or more destinations. The problem is said to have an unacceptable or prohibited
route. To overcome such kind of transportation problems, assign a very high cost to
prohibited routes, thus preventing them from being used in the optimal solution regarding
allocation of units.
Example 10:The following transportation table shows the transportation cost per unit
(in Rs.) from sources 1,2, and 3 to destinations A, B, C. Shipment of goods is prohibited
from source 2 to destination C. Solve the transportation problem using TORA
Table 6.45: Problem for TORA Solution
Destination
Solution: The entries of the transportation cost are made using TORA
A B C Supply
1 25 21 19 120
2 15 7 150
3 10 12 16 80
Demand 150 125 75
197
Transportation Model
Input Screen:
Figure 6.9: TP Prohibited Route TORA (Input Screen)
Output Screen:
Figure 6.10: TP Prohibited Route (TORA Output Screen)
From the output Schedule, there are no goods that are to be shipped from source 2 to
destination C. The total transportation cost is Rs 4600 /-
6.14 TRANSHIPMENT PROBLEM
The transshipment problem is an extension of the transportation problem in which the
commodity can be transported to a particular destination through one or more intermediate
or transshipment nodes.
Each of these nodes in turn supply to other destinations. The objective of the transshipment
problem is to determine how many units should be shipped over each node so that all the
demand requirements are met with the minimum transportation cost.
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Quantitative Techniques
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Considering a company with its manufacturing facilities situated at two places, Coimbatore
and Pune. The units produced at each facility are shipped to either of the companys
warehouse hubs located at Chennai and Mumbai. The company has its own retail outlets
in Delhi, Hyderabad, Bangalore and Thiruvananthapuram. The network diagram
representing the nodes and transportation per unit cost is shown in Figure 6.11. The
supply and demand requirements are also given.
Manufacturing Warehouses Retail Outlets Demand
facility (Origin nodes) (Transshipment nodes ) (Destination nodes)
Figure 6.11: Network Representation of Transshipment Problem
Solving Transshipment Problem using Linear Programming
Let
X
ij
be the number of units shipped from node i to node j,
X
13
be the number of units shipped from Coimbatore to Chennai,
X
24
be the number of units shipped from Pune to Mumbai, and so on
Table 6.46 shows the unit transportation cost from sources to destination.
Table 6.46: TP of the Shipment
Warehouse
Facility Chennai Mumbai
Coimbatore 4 7
Pune 6 3
Warehouses Retail outlets
Delhi Hyderabad Bangalore Thiruvananthapuram
Chennai 7 4 3 5
Mumbai 5 6 7 8
Supply Demand
Coimbatore
1
Pune
2
Chennai
3
Mumbai
4
Thiruvananthapuram
8
Bangalore
7
Hyderabad
6
Delhi
5
199
Transportation Model
Objective
The objective is to minimize the total cost
Minimize
Z = 4X
13
+ 7X
14
+ 6X
23
+ 3X
24
+ 7X
35
+ 4X
36
+ 3X
37
+ 5X
38
+ 5X
45
6X
46
+ 7X
47
+ 8X
48
Constraints: The number of units shipped from Coimbatore must be less than or equal
to 800. Because the supply from Coimbatore facility is 800 units. Therefore, the constraints
equation is as follows:
X
13
+ X
14
< 800 .. (i)
Similarly, for Pune facility
X
23
+ X
24
< 600 ...(ii)
Now, considering the node 3,
Number of units shipped out from node 1 and 2 are,
X
13
+ X
23
Number of units shipped out from node 3 is,
X
35
+ X
36
+ X
37
+ X
38
The number of units shipped in must be equal to number of units shipped out, therefore
X
13
+ X
23
= X
35
+ X
36
+ X
37
+ X
38
Bringing all the variables to one side, we get
X
13
X
23
+ X
35
+ X
36
+ X
37
+ X
38
= 0 .(iii)
Similarly for node 4
X
14
X
24
+ X
45
X
46
+ X
47
+ X
48
=0 ..(iv)
Now considering the retail outlet nodes, the demand requirements of each outlet must be
satisfied. Therefore for retail node 5, the constraint equation is
X
35
+ X
45
= 350 .................(v)
Similarly for nodes 6, 7, and 8, we get,
X
36
+ X
46
= 200 ...........(vi)
X
37
+ X
47
= 400 ...........(vii)
X
38
+ X
48
= 450 ...........(viii)
Linear Programming formulation,
Minimize Z = 4X
13
+7X
14
+6X
22
+3X
24
+7X
35
+4X
36
+3X
37
+5X
38
+5X
45
+6X
46
+7X
47
+8X
48
Subject to constraints ,
X
13
+ X
14
< 800
X
23
+ X
23
< 600
X
13
X
23
+ X
35
+ X
36
+ X
37
+ X
38
= 0
X
14
X
24
+ X
45
+ X
46
+ X
47
+ X
48
= 0
X
35
+ X
45
= 350
X
36
+ X
46
= 200
X
37
+ X
47
= 400
X
38
+ X
48
= 450
s constraint origin
s constraint n destinatio
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Check Your Progress 6.2
1. In the transportation model an example of decision under certainty or decision-
making under uncertainty.
2. How can the travelling sales man problem be solved using transportation
model.
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
6.15 LET US SUM UP
The use of transportation models to minimize the cost of shipping from a number of
source to number of destinations. In most general form, a transportation problems has a
number of origins and a number of destination. A number of techniques are there to
compute the initial basic feasible solution of a TP. These are NWC, LCM, VAM. Further
there can be an optimum solution while could obtained from MODI and stepping stone.
Transportation problem can be generalized into transshipment problem where shipment
could be feasible from origin to origin.
6.16 LESSON-END ACTIVITY
I hope you all are familiar with the Aeroplane and Airport. The Airport authorities take
lot of pain in streamlining and maintaining traffic. So that the havoc situations could be
controlled and also there may not be any confusion among each other. Being an expert
in Transportation know this. Transportation programming techniques facilitates. in
maintaining the traffic rules. Apply with the help of illustrations.
6.17 KEYWORDS
Origin : Origin of a TP is the from which shipments are dispatched.
Destination : Destination of TA is a point to where shipment are
transported.
Source : Supply location is a TP.
Northwest corner : A systematic procedure for establishing our initial feasible
solution to an optimal
Degeneracy : A situation that occurs where the number of occupied squares
in any solution is less than number of row play number of
column in a transportation basic.
201
Transportation Model
Unbalance problem : A situation is which demand in not equal to supply.
Summary Destination : An artificial destination.
VAM : Vogel Approximation Method is an interactive proceeded of
a feasible solution.
6.18 QUESTIONS FOR DISCUSSION
1 Explain the initial basic feasible solution of transportation model.
2 Is the TP model is are example of decision-making under certainty or
decision-making under uncertainty why?
3. Write True or False against each statement:
(a) TP is a special type of liner programming
(b) Dummy rows to dummy column are assigned source values.
(c) Initial Basic solution can be obtained by MODI method.
(d) Least cost method is a best method to find initial basic solution.
(e) In maximisation the objective is to maximise the total profit.
4. Briefly comment on the following statements:
(a) Transportation problem is said to be unbalanced.
(b) Optimum solution have an edge as compared to initial basic feasible solution.
(c) Transportation problem can be generalize with a transshipment problem.
(d) Problem is known as unbalanced TP if they are unequal.
(e) MODI distribution method provides a minimum cost solution.
(f) Degeneracy does not cause any serious difficulty.
(g) Transportation problem is a balanced when sum of supply equals to sum of
demand.
5. Fill in the blanks:
(a) In the transportation problem __________ are always transported
(b) Initial basis feasible solution through VAM will be ________________
(c) Demand variation may occur because of change in _______________
preference
(d) TP deals with the transportation of a ______________manufactured.
(e) In real life supply & demand requirement will be rarely ______________
6. Differentiate between the following:
(a) MODI vs Shipping Stone
(b) LCM vs NWC
(c) VAM vs MODI
6.19 TERMINAL QUESTIONS
1. What is a transportation problem ?
2. What is the difference between a balanced transportation problem and an
unbalanced transportation problem ?
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3. What are the methods used to find the initial transportation cost ?
4. Which of the initial three methods give a near optimal solution ?
5. Explain Vogels approximation method of finding the initial solution.
6. What is degeneracy in a transportation problem ? How is it resolved ?
7. What are the conditions for forming a closed loop ?
8. How are the maximization problems solved using transportation model ?
9. How is optimality tested in solving transportation problems ?
10. In what ways is a transshipment problem different from a transportation problem ?
Exercise Problems
1. Develop a network representation of the transportation problem for a company
that manufactures products at three plants and ships them to three warehouses.
The plant capacities and warehouse demands are shown in the following table:
The transportations cost per unit (in Rs.) is given in matrix.
2. Determine whether a dummy source or a dummy destination is required to balance
the model given.
(a) Supply a
1
= 15, a
2
= 5, a
3
= 4, a
4
= 6
Demand b
1
= 4, b
2
= 15, b
3
= 6, b
4
= 10
(b) Supply a
1
= 27, a
2
= 13, a
3
= 10
Demand b
1
= 30, b
2
= 10, b
3
= 6, b
4
= 10
(c) Supply a
1
= 2, a
2
= 3, a
3
= 5
Demand b
1
= 3, b
2
= 2, b
3
= 2, b
4
= 2, b
5
= 1.
3. A state has three power plants with generating capacities of 30, 40 and 25 million
KWH that supply electricity to three cities located in the same state. The demand
requirements (maximum) of the three cities are 35, 40 and 20 million KWH. The
distribution cost (Rs. in thousand) per million unit for the three cities are given in
the table below:
Plant Warehouse Plant Capacity
(no. of units)
W1 W2 W3
P1 22 18 26 350
P2 12 12 10 450
P3 14 20 10 200
Warehouse demand
(no. of units)
250 450 300
City
1 2 3
1 60 75 45
2 35 35 40
Plant
3 55 50 45
203
Transportation Model
(a) Formulate the problem as a transportation model.
(b) Determine an economical distribution plan.
(c) If the demand is estimated to increase by 15%, what is your revised plan?
(d) If the transmission loss of 5% is considered, determine the optimal plan.
4. Find the initial transportation cost for the transportation matrix given using North-
West corner method, Least cost method and Vogels Approximation Method.
5. In problem No. 4, if the demand for destination 4 increases from 15 units to 25
units, develop the transportation schedule incorporating the change.
6. Find the initial solution using all the three methods and hence find the optimal solution
using TORA package for the following transportation problem. The unit
transportation cost is given in the following matrix:
7. The Sharp Manufacturing Company produces three types of monoblock pumps for
domestic use. Five machines are used for manufacturing the pumps. The production
rate varies for each machine and also the unit product cost. Daily demand and
machine availability are given below.
Demand Information
Machine Availability Details
Warehouse
1 2 3 4 5 6 Supply
A 10 25 35 16 18 22 70
B 11 22 16 18 22 19 60
Factory C 21 32 41 20 20 11 50
D 25 24 23 22 23 24 85
E 16 21 18 20 19 16 45
Demand 55 45 35 40 70 65
Product
A B C
Demand (units) 2000 15000 700
Destination
1 2 3 4 Supply
A 5 6 7 8 25
Source B 7 5 4 2 75
C 6 1 3 2 15
Demand 50 30 20 15
Machine capacity (units)
1 2 3 4 5
Available 700 1000 1500 1200 800
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Quantitative Techniques
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Unit Product Cost
Determine the minimum production schedule for the products and machines.
8. A company has plants at locations A, B and C with the daily capacity to produce
chemicals to a maximum of 3000 kg, 1000 kg and 2000 kg respectively. The cost of
production (per kg) are Rs. 800 Rs. 900 and Rs. 7.50 respectively. Customers
requirement of chemicals per day is as follows:
Transportation cost (in rupees) per kg from plant locations to customers place is
given in table.
Find the transportation schedule that minimizes the total transportation cost.
9. A transportation model has four supplies and five destinations. The following table
shows the cost of shipping one unit from a particular supply to a particular destination.
The following feasible transportation pattern is proposed:
x
11
= 10, x
12
= 3, x
22
= 9, x
23
= 6, x
33
= 9, x
34
= 4, x
44
= 9, x
45
= 5.
Test whether these allocations involve least transportation cost. If not, determine
the optimal solution.
10. A linear programming model is given:
Minimize Z = 8x
11
+ 12x
12
+ 9x
22
+ 10x
23
+ 7x
31
+ 6x
32
+ 15x
33
, subject to the
constraints,
Customer Chemical Required Price offered
1 2000 200
2 1000 215
3 2500 225
4 1000 200
Customer
1 2 3 4
A 5 7 10 12
B 7 3 4 2
Plant
C 4 6 3 9
Source Destination Supply
1 2 3 4 5
1 13 6 9 6 10 13
2 8 2 7 7 9 15
3 2 12 5 8 7 13
Demand 10 15 7 10 2
Product
Machine A B C
1 150 80 75
2 120 95 60
3 112 100 60
4 121 95 50
5 125 75 50
205
Transportation Model
x
11
+ x
12
+ x
13
= 60
x
21
+ x
22
+ x
23
= 50 Supply constraints
x
31
+ x
32
+ x
33
= 30
x
11
+ x
21
+ x
31
= 20
x
12
+ x
22
+ x
32
= 60 Demand constraints
x
13
+ x
23
+ x
33
= 30
Formulate and solve as a transportation problem to minimize the transportation
cost.
11. A company has four factories situated in four different locations in the state and
four company showrooms in four other locations outside the state. The per unit
sale price, transportation cost and cost of production is given in table below, along
with weekly requirement.
Determine the weekly distribution schedule to maximize the sales profits.
12. Solve the given transportation problem to maximize profit.
Use TORA to solve the problem.
13. A computer manufacturer has decided to launch an advertising campaign on
television, magazines and radio. It is estimated that maximum exposure for these
media will be 70, 50, and 40 million respectively. According to a market survey, it
was found that the minimum desired exposures within age groups 15-20, 21-25, 26-
30, 31-35 and above 35 are 10, 20, 25, 35 and 55 million respectively. The table
below gives the estimated cost in paise per exposure for each of the media.
Determine an advertising plan to minimize the cost.
Factory Showrooms
Cost of production
(Rs)
1 2 3 4
A 9 4 5 3 12
B 4 4 4 4 17
C 4 6 5 6 19
D 8 7 7 4 17
Factory Weekly Capacity (units) Weekly demand (units)
A 15 10
B 20 14
C 25 20
D 20 22
Source Profit / unit Supply
1 2 3 4 5 6
A 65 30 77 31 65 51 200
B 60 51 65 42 64 76 225
C 70 62 21 71 45 52 125
Demand 45 55 40 60 25 70
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Quantitative Techniques
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Solve the problem and find the optimal solution, i.e., maximum coverage at minimum
cost.
14. A garment manufacturer has 4 units I, II, III, and IV, the production from which
are received by 4 direct customers. The weekly production of each manufacturing
unit is 1200 units and all the units are of the same capacity. The company supplies
the entire production from one unit to one supplier. Since the customers are situated
at different locations, the transportation cost per unit varies. The unit cost of
transportation is given in the table. As per the companys policy, the supply from
unit B is restricted to customer 2 and 4, and from unit D to customer 1 and 3. Solve
the problem to cope with the supply and demand constraints.
15. Check whether the following transportation problem has an optimal allocation:
16. A company dealing in home appliances has a sales force of 20 men who operate
from three distribution centers. The sales manager feels that 5 salesmen are needed
to distribute product line I, 6 to distribute product line II, 5 for product line III and 4
to distribute product line IV. The cost (in Rs) per day of assigning salesmen from
each of the offices are as follows:
Currently, 8 salesmen are available at center A, 5 at center B and 7 at center C.
How many salesmen should be assigned from each center to sell each product line,
in order to minimize the cost? Is the solution unique?
Warehouse
1 2 3 4 5 Supply
A 100 100
B 25 25
C 25 50 75
D 50 100 50 200
Dummy 100 100
Demand 150 50 50 100 150
Product Line
I II III IV
A 10 12 13 9
B 9 11 12 13 Source
C 7 8 9 10
Media Age Groups
15-20 21-25 26-30 31-35 above 35
TV 14 9 11 11 12
Radio 11 7 6 7 8
Magazine 9 10 7 10 8
Manufacturing
unit
1 2 3 4
A 4 6 8 3
B 4 5
C 6 5 5 9
D 7 6
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Transportation Model
Destination
I II III Supply
A 7 3 4 2
B 2 1 3 3 Source
C 3 4 6 5
Demand 4 1 5
Distribution Area
1 2 3
A 75 95 120
B 250 150 80 Source
C 300 250 140
O
1
T
4
T
3
D
7
D
6
D
5
O
2
17. Solve the following degenerate transportation problem:
18. Three water distribution tanks with daily capacities of 7, 6 and 9 lakh litres
respectively, supply three distribution areas with daily demands of 5, 8 and 9 lakh
litres respectively. Water is transported to the distribution areas through an
underground network of pipelines. The cost of transportation is Rs 0.50 per 1000
litres per pipeline kilometer. The table shows the pipeline lengths between the water
tanks and the distribution areas.
A. Formulate the transportation model
B. Use TORA to determine the optimum distribution schedule
19. In problem 18, if the demand for distribution area 3 increases to 11 lakh litres,
determine a suitable distribution plan to meet the excess demand and minimize the
distribution cost. Use TORA to solve the problem.
20. Formulate a linear programming model for the following transshipment network
given below.
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6.20 MODEL ANSWERS TO QUESTIONS FOR
DISCUSSION
3. (a) True (b) False (c) False (d) False (e) True
5. (a) consignment (b) least (c) customer (d) product (e) equal
6.21 SUGGESTED READINGS
Render, B. E. Stair, R.M., Management Science: A self-correcting approach, Boston
Allyn and Bacon, Inc.
Bowman E., Production Scheduling by the transportation method of LP, Operation
Research.
Srinivasan V., A transshipment model for cost management decision. Management
Science, Vol. 20, June 1974.
Sadleir C.D., Use of Transportation Method of LP in Production Planning: A Case
Study, Operation Research Vol. 21. No. 4.
209
Assignment Model
LESSON
7
ASSIGNMENT MODEL
CONTENTS
7.0 Aims and Objectives
7.1 Introduction
7.2 Mathematical Structure of Assignment Problem
7.3 Network Representation of Assignment Problem
7.4 Use of Linear Programming to Solve Assignment Problem
7.5 Types of Assignment Problem
7.6 Hungarian Method for Solving Assignment Problem
7.7 Unbalanced Assignment Problem
7.8 Restricted Assignment Problem
7.9 Multiple and Unique Solutions
7.10 Maximization Problem
7.11 Travelling Salesman Problem
7.12 Solving Problems on the Computer with TORA
7.13 Solving Unbalanced Assignment Problem using Computer
7.14 Solving Maximization Problems Using Computers
7.15 Let us Sum Up
7.16 Lesson-end Activity
7.17 Keywords
7.18 Questions for Discussion
7.19 Terminal Questions
7.20 Model Answers to Questions for Discussion
7.21 Suggested Readings
7.0 AIMS AND OBJECTIVES
In this lesson we would be able to learn assignment of various work activities using
various methods of assignment problems. Solving both maximization and minimization
problems and both bounded and unbounded solutions of assignment problem.
7.1 INTRODUCTION
The basic objective of an assignment problem is to assign n number of resources to n
number of activities so as to minimize the total cost or to maximize the total profit of
allocation in such a way that the measure of effectiveness is optimized. The problem of
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assignment arises because available resources such as men, machines, etc., have varying
degree of efficiency for performing different activities such as job. Therefore cost, profit
or time for performing the different activities is different. Hence the problem is, how
should the assignments be made so as to optimize (maximize or minimize) the given
objective. The assignment model can be applied in many decision-making processes like
determining optimum processing time in machine operators and jobs, effectiveness of
teachers and subjects, designing of good plant layout, etc. This technique is found suitable
for routing travelling salesmen to minimize the total travelling cost, or to maximize the
sales.
7.2 MATHEMATICAL STRUCTURE OF ASSIGNMENT
PROBLEM
The structure of assignment problem of assigning operators to jobs is shown in
Table 7.1.
Table 7.1: Structure of Assignment Problem
Let n be the number of jobs and number of operators.
t
ij
be the processing time of job i taken by operator j.
A few applications of assignment problem are:
i. assignment of employees to machines.
ii. assignment of operators to jobs.
iii. effectiveness of teachers and subjects.
iv. allocation of machines for optimum utilization of space.
v. salesmen to different sales areas.
vi. clerks to various counters.
In all the cases, the objective is to minimize the total time and cost or otherwise maximize
the sales and returns.
7.3 NETWORK REPRESENTATION OF ASSIGNMENT
PROBLEM
An assignment model is represented by a network diagram in Figure 1 for an operator
job assignment problem, given in Table 7.2 the time taken (in mins.) by operators to
perform the job.
Table 7.2: Assignment Problem
The assignment problem is a special case of transportation problem where all sources
and demand are equal to 1.
Operator
1 2 j .. n
1 t
11
t
12
t
1j
. t
1n
2 t
21
t
22
. t
2j
. t
2n
. .
I t
i1
t
i2
t
ij
t
in
. . .
Job
n t
n1
t
n2
t
nj
t
nn
Job Operator
1 2 3
A 10 16 7
B 9 17 6
C 6 13 5
211
Assignment Model
Figure 7.1: Network Diagram for an Operator-job Assignment Problem
7.4 USE OF LINEAR PROGRAMMING TO SOLVE
ASSIGNMENT PROBLEM
A linear programming model can be used to solve the assignment problem. Consider the
example shown in Table 2, to develop a linear programming model.
Let,
x
11
represent the assignment of operator A to job 1
x
12
represent the assignment of operator A to job 2
x
13
represent the assignment of operator A to job 3
x
21
represent the assignment of operator B to job 1
and so on.
Formulating the equations for the time taken by each operator,
10 x
11
+ 16 x
12
+ 7 x
13
= time taken by operator A.
9 x
21
+ 17 x
22
+ 6 x
23
= time taken by operator B.
6 x
31
+ 13 x
32
+ 5 x
33
= time taken by operator C.
The constraint in this assignment problem is that each operator must be assigned to only
one job and similarly, each job must be performed by only one operator. Taking this
constraint into account, the constraint equations are as follows:
x
11
+ x
12
+ x
13
< 1 operator A
x
21
+ x
22
+ x
23
< 1 operator B
x
31
+ x
32
+ x
33
< 1 operator C
x
11
+ x
21
+ x
31
= 1 Job 1
Source Destination
1 10 1
16
7
9
1 1
6
1 5 1
Time Taken (in mins)
Operator
A
Operator
B
Operator
C
Job
3
Job
2
Job
1
Supply
Demand 17
6
13
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x
12
+ x
22
+ x
32
= 1 Job 2
x
13
+ x
23
+ x
33
= 1 Job 3
Objective function: The objective function is to minimize the time taken to complete all
the jobs. Using the cost data table, the following equation can be arrived at:
The objective function is,
Minimize Z = 10 x
11
+ 16 x
12
+ 7 x
13
+9 x
21
+ 17 x
22
+ 6 x
23
+6 x
31
+ 13 x
32
+ 5 x
33
The linear programming model for the problem will be,
Minimize Z = 10 x
11
+ 16 x
12
+ 7 x
13
+9 x
21
+ 17 x
22
+ 6 x
23
+6 x
31
+ 13 x
32
+ 5 x
33
subject to constraints
x
11
+ x
12
+ x
13
< 1 ....................(i)
x
21
+ x
22
+ x
23
< 1 ....................(ii)
x
31
+ x
32
+ x
33
< 1 ....................(iii)
x
11
+ x
12
+ x
13
= 1 ....................(iv)
x
12
+ x
22
+ x
32
= 1 ....................(v)
x
13
+ x
23
+ x
33
= 1 ....................(vi)
where, x
ij
> 0 for i = 1,2,3 and j = 1,2,3.
The problem is solved on a computer, using transportation model in TORA package.
The input screen and output screens are shown in Figure 7.1 and Figure 7.2 respectively.
Figure 7.2: TORA, Input Screen
213
Assignment Model
Figure 7.3: TORA, Output Screen
The objective function value = 28 mins.
Table 7.3: The Assignment Schedule
7.5 TYPES OF ASSIGNMENT PROBLEM
The assignment problems are of two types (i) balanced and (ii) unbalanced. If the number
of rows is equal to the number of columns or if the given problem is a square matrix, the
problem is termed as a balanced assignment problem. If the given problem is not a
square matrix, the problem is termed as an unbalanced assignment problem.
If the problem is an unbalanced one, add dummy rows /dummy columns as required so
that the matrix becomes a square matrix or a balanced one. The cost or time values for
the dummy cells are assumed as zero.
7.6 HUNGARIAN METHOD FOR SOLVING ASSIGNMENT
PROBLEM
Step 1: In a given problem, if the number of rows is not equal to the number of
columns and vice versa, then add a dummy row or a dummy column. The
assignment costs for dummy cells are always assigned as zero.
Men Job Time Taken
(in mins.)
1 2 16
2 3 6
3 1 6
Total 28
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Step 2: Reduce the matrix by selecting the smallest element in each row and subtract
with other elements in that row.
Step 3: Reduce the new matrix column-wise using the same method as given in step 2.
Step 4: Draw minimum number of lines to cover all zeros.
Step 5: If Number of lines drawn = order of matrix, then optimally is reached, so
proceed to step 7. If optimally is not reached, then go to step 6.
Step 6: Select the smallest element of the whole matrix, which is NOT COVERED
by lines. Subtract this smallest element with all other remaining elements that
are NOT COVERED by lines and add the element at the intersection of
lines. Leave the elements covered by single line as it is. Now go to step 4.
Step 7: Take any row or column which has a single zero and assign by squaring it.
Strike off the remaining zeros, if any, in that row and column (X). Repeat the
process until all the assignments have been made.
Step 8: Write down the assignment results and find the minimum cost/time.
Note: While assigning, if there is no single zero exists in the row or column, choose any
one zero and assign it. Strike off the remaining zeros in that column or row, and repeat
the same for other assignments also. If there is no single zero allocation, it means multiple
number of solutions exist. But the cost will remain the same for different sets of allocations.
Example 1: Assign the four tasks to four operators. The assigning costs are given in
Table 7.4.
Table 7.4: Assignment Problem
Solution:
Step 1: The given matrix is a square matrix and it is not necessary to add a dummy
row/column
Step 2: Reduce the matrix by selecting the smallest value in each row and subtracting
from other values in that corresponding row. In row A, the smallest value is
13, row B is 15, row C is 17 and row D is 12. The row wise reduced matrix
is shown in Table 7.5.
Table 7.5: Row-wise Reduction
Operators
1 2 3 4
A 20 28 19 13
Tasks B 15 30 31 28
C 40 21 20 17
D 21 28 26 12
Operators
1 2 3 4
A 7 15 6 0
Tasks B 0 15 16 13
C 23 4 3 0
D 9 16 14 0
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Assignment Model
Step 3: Reduce the new matrix given in Table 6 by selecting the smallest value in
each column and subtract from other values in that corresponding column. In
column 1, the smallest value is 0, column 2 is 4, column 3 is 3 and column 4 is
0. The column-wise reduction matrix is shown in Table 7.6.
Table 7.6: Column-wise Reduction Matrix
Step 4: Draw minimum number of lines possible to cover all the zeros in the matrix
given in Table 7.7
Table 7.7: Matrix with all Zeros Covered
No. of lines drawn order
of matrix
The first line is drawn crossing row C covering three zeros, second line is
drawn crossing column 4 covering two zeros and third line is drawn crossing
column 1 (or row B) covering a single zero.
Step 5: Check whether number of lines drawn is equal to the order of the matrix, i.e.,
3 4. Therefore optimally is not reached. Go to step 6.
Step 6: Take the smallest element of the matrix that is not covered by single line,
which is 3. Subtract 3 from all other values that are not covered and add 3 at
the intersection of lines. Leave the values which are covered by single line.
Table 7.8 shows the details.
Table 7.8: Subtracted or Added to Uncovered Values and Intersection Lines Respectively
Operators
1 2 3 4
A 7 11 3 6
Tasks B 0 11 13 13
C 23 0 0 0
D 9 12 11 0
Operators
1 2 3 4
A 7 11 3 0
Tasks B 0 11 13 13
C 23 0 0 0
D 9 12 11 0
=
Operators
1 2 3 4
A 7 9 0 0
Tasks B 0 9 10 13
C 26 0 0 3
D 9 9 8 0
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Step 7: Now, draw minimum number of lines to cover all the zeros and check for
optimiality. Here in Table 7.9 minimum number of lines drawn is 4 which is
equal to the order of matrix. Hence optimality is reached.
Table 7.9: Optimality Matrix
Step 8: Assign the tasks to the operators. Select a row that has a single zero and
assign by squaring it. Strike off remaining zeros if any in that row or column.
Repeat the assignment for other tasks. The final assignment is shown in
Table 7.10.
Table 7.10: Final Assignment
Therefore, optimal assignment is:
Task Operator Cost
A 3 19
B 1 15
C 2 21
D 4 12
Total Cost = Rs. 67.00
Example 2: Solve the following assignment problem shown in Table 7.11 using Hungarian
method. The matrix entries are processing time of each man in hours.
Operators
1 2 3 4
A 7 9 0
Tasks B 9 10 13
C 26 0 3
D 9 9 8
0
0
0
0
Operators
1 2 3 4
A 7 9 0 0
Tasks B 0 9 10 13
C 26 0 0 3
D 9 9 8 0
No. of lines
drawn = order of matrix
217
Assignment Model Table 7.11: Assignment Problem
Solution: The row-wise reductions are shown in Table 7.12
Table 7.12: Row-wise Reduction Matrix
The column wise reductions are shown in Table 7.13.
Table 7.13: Column-wise Reduction Matrix
Matrix with minimum number of lines drawn to cover all zeros is shown in
Table 7.14.
Table 7.14: Matrix will all Zeros Covered
Men
1 2 3 4 5
I 20 15 18 20 25
II 18 20 12 14 15
Job III 21 23 25 27 25
IV 17 18 21 23 20
V 18 18 16 19 20
Men
1 2 3 4 5
I 5 0 3 5 10
Job II 6 8 0 2 3
III 0 2 4 6 4
IV 0 1 4 6 3
V 2 2 0 3 4
Men
1 2 3 4 5
I 5 0 3 3 7
Job II 6 8 0 0 0
III 0 2 4 4 1
IV 0 1 4 4 0
V 2 2 0 1 1
Men
1 2 3 4 5
I 5 0 3 3 7
Job II 6 8 0 0 0
III 0 2 4 4 1
IV 0 1 4 4 0
V 2 2 0 1 1
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The number of lines drawn is 5, which is equal to the order of matrix. Hence optimality
is reached. The optimal assignments are shown in Table 7.15.
Table 7.15: Optimal Assignment
Therefore, the optimal solution is:
Job Men Time
I 2 15
II 4 14
III 1 21
IV 5 20
V 3 16
Total time = 86 hours
7.7 UNBALANCED ASSIGNMENT PROBLEM
If the given matrix is not a square matrix, the assignment problem is called an unbalanced
problem. In such type of problems, add dummy row(s) or column(s) with the cost
elements as zero to convert the matrix as a square matrix. Then the assignment problem
is solved by the Hungarian method.
Example 3: A company has five machines that are used for four jobs. Each job can be
assigned to one and only one machine. The cost of each job on each machine is given in
the following Table 7.16.
Table 7.16: Assignment Problem
Solution: Convert the 4 5 matrix into a square matrix by adding a dummy row D5.
Men
1 2 3 4 5
I 5 3 3 7
Job II 6 8 0 0
III 2 4 4 1
IV 0 1 4 4
V 2 2 1 1
0
0
0
0
0
Machines
A B C D E
1 5 7 11 6 7
2 8 5 5 6 5
3 6 7 10 7 3
4 10 4 8 2 4
Job
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Assignment Model
Table 7.17: Dummy Row D5 Added
Table 7.18: Row-wise Reduction of the Matrix
Column-wise reduction is not necessary since all columns contain a single zero. Now,
draw minimum number of lines to cover all the zeros, as shown in Table 7.19.
Table 7.19: All Zeros in the Matrix Covered
Number of lines drawn Order of matrix. Hence not optimal.
Select the least uncovered element, i.e., 1, subtract it from other uncovered elements,
add to the elements at intersection of lines and leave the elements that are covered with
single line unchanged as shown in Table 7.20.
Machines
A B C D E
1 5 7 11 6 7
2 8 5 5 6 5
Job 3 6 7 10 7 3
4 10 4 8 2 4
D
5
0 0 0 0 0
Machines
A B C D E
1 0 2 6 1 2
2 3 0 0 1 0
Job 3 3 4 7 4 0
4 8 2 6 2 0
D
5
0 0 0 0 0
Machines
A B C D E
1 0 2 6 1 2
2 3 0 0 1 0
Job 3 3 4 7 4 0
4 8 2 6 2 0
D
5
0 0 0 0 0
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Table 7.20: Subtracted or Added to Elements
Number of lines drawn Order of matrix. Hence not optimal.
Table 7.21: Again Added or Subtracted 1 from Elements
Number of lines drawn = Order of matrix. Hence optimality is reached. Now assign the
jobs to machines, as shown in Table 7.22.
Table 7.22: Assigning Jobs to Machines
Machines
A B C D E
1 0 1 5 0 2
2 4 0 0 1 1
Job 3 3 3 6 3 0
4 8 1 5 1 0
D
5
1 0 0 0 1
Machines
A B C D E
1 0 1 5 0 3
2 4 0 0 1 2
Job 3 2 2 5 2 0
4 7 0 4 0 0
D
5
1 0 0 0 2
Machines
A B C D E
1 1 5 0 3
2 4 0 1 2
Job 3 2 2 5 2
4 7 0 4 0
D
5
1 0 0 2
0
0
0
0
0
221
Assignment Model
Hence, the optimal solution is:
Job Machine Cost
1 A 5
2 B 5
3 E 3
4 D 2
D5 C 0
Total Cost = Rs.15.00
Example 4: In a plant layout, four different machines M
1
, M
2
, M
3
and M
4
are to be
erected in a machine shop. There are five vacant areas A, B, C, D and E. Because of
limited space, Machine M
2
cannot be erected at area C and Machine M
4
cannot be
erected at area A. The cost of erection of machines is given in the Table 7.23.
Table 7.23: Assignment Problem
Find the optimal assignment plan.
Solution: As the given matrix is not balanced, add a dummy row D
5
with zero cost
values. Assign a high cost H for (M
2
, C) and (M
4
, A). While selecting the lowest cost
element neglect the high cost assigned H, as shown in Table 7.24 below.
Table 7.24: Dummy Row D
5
Added
Row-wise reduction of the matrix, is shown in Table 7.25.
Area
A B C D E
M
1
4 5 9 4 5
Machine M
2
6 4 -- 4 3
M
3
4 5 8 5 1
M
4
-- 2 6 1 2
Area
A B C D E
M
1
4 5 9 4 5
Machine M
2
6 4 H 4 3
M
3
4 5 8 5 1
M
4
H 2 6 1 2
D
5
0 0 0 0 0
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Table 7.25: Matrix Reduced Row-wise
Note: Column-wise reduction is not necessary, as each column has at least one single
zero. Now, draw minimum number of lines to cover all the zeros, see Table 7.26.
Table 7.26: Lines Drawn to Cover all Zeros
Number of lines drawn Order of matrix. Hence not Optimal. Select the smallest
uncovered element, in this case 1. Subtract 1 from all other uncovered element and
add 1 with the elements at the intersection. The element covered by single line remains
unchanged. These changes are shown in Table 7.27. Now try to draw minimum number
of lines to cover all the zeros.
Table 7.27: Added or Subtracted 1 from Elements
Now number of lines drawn = Order of matrix, hence optimality is reached. Optimal
assignment of machines to areas are shown in Table 7.28.
Area
A B C D E
M
1
0 1 5 0 1
Machine M
2
3 1 H 1 0
M
3
3 4 7 4 0
M
4
H 1 5 0 1
D
5
0 0 0 0 0
Area
A B C D E
M
1
0 1 5 0 1
Machine M
2
3 1 H 1 0
M
3
3 4 7 4 0
M
4
H 1 5 0 1
D
5
0 0 0 0 0
Area
A B C D E
M
1
0 1 5 1 2
Machine M
2
2 0 H 1 0
M
3
2 3 6 4 0
M
4
H 0 4 0 1
D
5
0 0 0 1 1
223
Assignment Model
Table 7.28: Optimal Assignment
Hence, the optimal solution is:
Machines Area Erection Cost
M
1
A 4
M
2
B 4
M
3
C 1
M
4
D 1
D
5
E 0
Total Erection Cost = Rs.10.00
7.8 RESTRICTED ASSIGNMENT PROBLEM
In real practice, situations may arise where a particular machine cannot be assigned to
an operator because he may not be skilled enough to operate it. Because of this, no
assignment is made for the operator on that machine. This situation is overcome by
assigning a large value, or by assigning M. This will result in no assignment made to the
restricted combinations.
Example 5: Five jobs are to be assigned to five men. The cost (in Rs.) of performing
the jobs by each man is given in the matrix (Table 7.29). The assignment has restrictions
that Job 4 cannot be performed by Man 1 and Job 3 cannot be performed by Man 4 Find
the optimal assignment of job and its cost involved.
Table 7.29: Assignment Problem
Area
A B C D E
M
1
1 5 1 2
Machine M
2
2 H 1 0
M
3
2 3 6 4
M
4
H 0 4 1
D
5
0 0 1 1
0
0
0
0
0
Men 1 2 3 4 5
1 16 12 11 x 15
2 13 15 11 16 18
3 20 21 18 19 17
4 16 13 x 16 12
5 20 19 18 17 19
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Solution: Assign large value to the restricted combinations or introduce M, see
Table 7.30.
Table 7.30: Large Value Assignment to Restricted Combinations
Job
1 2 3 4 5
1 16 12 11 M 15
2 13 15 11 16 18
Men 3 20 21 18 19 17
4 16 13 M 16 12
5 20 19 18 17 19
Table 7.31: Reducing the matrix row-wise
Job
1 2 3 4 5
1 5 1 0 M 4
2 2 4 0 5 7
Men 3 3 4 1 2 0
4 4 1 M 4 0
5 3 2 1 0 1
Table 7.32: Reducing the matrix column-wise
Job
1 2 3 4 5
1 3 0 0 M 4
2 0 3 0 5 7
Men 3 1 3 1 2 0
4 2 0 M 4 0
5 1 1 1 0 1
Draw minimum number of lines to cover all zeros, see Table 7.33.
Table 7.33: All Zeros Covered
Job
1 2 3 4 5
1 3 0 0 M 4
2 0 3 0 5 7
Men 3 1 3 1 2 0
4 2 0 M 4 0
5 1 1 1 0 1
225
Assignment Model
Now, number of lines drawn = Order of matrix, hence optimality is reached (Table 7.34).
Allocating Jobs to Men.
Table 7.34: Job Allocation to Men
Job
1 2 3 4 5
1 3 0 0 M 4
2 0 3 0 5 7
Men 3 1 3 1 2 0
4 2 0 M 4 0
5 1 1 1 0 1
Table 7.35: Assignment Schedule and Cost
As per the restriction conditions given in the problem, Man 1
and Man 4 are not assigned
to Job 4 and Job 3 respectively.
7.9 MULTIPLE AND UNIQUE SOLUTIONS
For a given Job-Men assignment problem, there can be more than one optimal solution,
i.e., multiple solutions can exist. Two assignment schedules that give same results are
called Multiple optimal solutions. If the problem has only one solution then the solution
is said to be Unique solution. A problem having multiple optimal solutions is shown in
Example 4.6.
7.10 MAXIMIZATION PROBLEM
In maximization problem, the objective is to maximize profit, revenue, etc. Such problems
can be solved by converting the given maximization problem into a minimization problem.
i. Change the signs of all values given in the table.
ii. Select the highest element in the entire assignment table and subtract all the elements
of the table from the highest element.
Example 6: A marketing manager has five salesmen and sales districts. Considering
the capabilities of the salesmen and the nature of districts, the marketing manager estimates
that sales per month (in hundred rupees) for each salesman in each district would be as
follows (Table 7.36). Find the assignment of salesmen to districts that will result in
maximum sales.
.......................(7)
Probability of completing the project within the scheduled time is,
P (T< T
s
) = P ( Z< Z
0
) (from normal tables) .................(8)
Example 8: An R & D project has a list of tasks to be performed whose time estimates
are given in the Table 8.11, as follows.
Time expected for each activity is calculated using the formula (5):
6
4
T
0
a
tp tm t + +
=
=
( )
6
8 6 4 4 + +
=
6
36
= 6 days for activity A
Similarly, the expected time is calculated for all the activities.
The variance of activity time is calculated using the formula (6).
1
2
p 0 2
t t
6
=
=
2
6
4 8
= 0.444
Similarly, variances of all the activities are calculated. Construct a network diagram and
calculate the time earliest, T
E
and time Latest T
L
for all the activities.
Figure 8.23: Network Diagram
6 2 5 8
9 10
7
4 4
8
14 14
12 8
1
2
4
3
6
5
7
6 7
4 2
0 0
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Table 8.11: Time Estimates for R & D Project
a. Draw the project network.
b. Find the critical path.
c. Find the probability that the project is completed in 19 days. If the probability is less
that 20%, find the probability of completing it in 24 days.
Solution:
Calculate the time average t
a
and variances of each activity as shown in Table 8.12.
Table 8.12: T
e
& s
2
Calculated
From the network diagram Figure 8.24, the critical path is identified as
1-4, 4-6, 6-7, with a project duration of 22 days.
The probability of completing the project within 19 days is given by,
P (Z< Z
0
)
To find Z
0
,
s e
0
T T
Z
in critical path
=
Ss
19 22
2.777 0.444 1.777
-
=
+ +
3
5
-
=
= 1.3416 days
Activity
i j
Activity Name T
0
t
m
( in days)
t
p
1-2 A 4 6 8
1-3 B 2 3 10
1-4 C 6 8 16
2-4 D 1 2 3
3-4 E 6 7 8
3-5 F 6 7 14
4-6 G 3 5 7
4-7 H 4 11 12
5-7 I 2 4 6
6-7 J 2 9 10
Activity T
o
T
m
T
p
T
a
2
1-2 4 6 8 6 0.444
1-3 2 3 10 4 1.777
1-4 6 8 16 9 2.777
2-4 1 2 3 2 0.111
3-4 6 7 8 7 0.111
3-5 6 7 14 8 1.777
4-6 3 5 7 5 0.444
4-7 4 11 12 10 1.777
5-7 2 4 6 4 0.444
6-7 2 9 10 8 1.777
259
Network Model
we know, P (Z <Z
0
) = 0.5 Y (1.3416) (from normal tables, Y (1.3416) = 0.4099)
= 0.5 0.4099
= 0.0901
= 9.01%
Thus, the probability of completing the R & D project in 19 days is 9.01%. Since the
probability of completing the project in 19 days is less than 20%, we find the probability
of completing it in 24 days.
s e
0
T T
Z
in critical path
=
=
24 22
5
-
2
5
=
= 0.8944 days
P (Z < Z
0
) = 0.5 Y (0.8944) (from normal tables, Y (0.8944) = 0.3133)
= 0.5 + 0.3133
= 0.8133
= 81.33%
8.10 SOLVING PERT PROBLEMS USING COMPUTER
Example 8.8 is solved using computer with TORA. Go to MAIN MENU, SELECT
PROJECT PLANNING and Click PERT Program Evaluation Review Technique.
Enter the values as shown in Figure 8.24 below.
Figure 8.24: Solving PERT Problem Using Computer with TORA (Input Screen)
Now, go to solve menu and click. In the output screen, select Activity mean / Variance
option in select output option. The following screen appears as shown in Figure 8.25.
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Figure 8.25: TORA (Output Screen), Select PERT Calculations.
Selecting the PERT calculations option. The following screen appears. This shows the
average duration and standard deviation for the activities.
Figure 8.26: TORA (Output Screen) Showing Average Durations and Standard Deviation for
Activities
8.11 COST ANALYSIS
The two important components of any activity are the cost and time. Cost is directly
proportional to time and vice versa. For example, in constructing a shopping complex,
the expected time of completion can be calculated using be time estimates of various
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Network Model
activities. But if the construction has to the finished earlier, it requires additional cost to
complete the project. We need to arrive at a time / cost trade-off between total cost of
project and total time required to complete it.
Normal time: Normal time is the time required to complete the activity at normal
conditions and cost.
Crash time: Crash time is the shortest possible activity time; crashing more than the
normal time will increase the direct cost.
Cost Slope
Cost slope is the increase in cost per unit of time saved by crashing. A linear cost curve
is shown in Figure 8.27.
Figure 8.27: Linear Cost Curve
c c
t t
Crash cost C Normal cost N
Cost slope
Normal time N Crash time C
=
c c
t t
C N
N C
=
.........................(9)
Example 8: An activity takes 4 days to complete at a normal cost of Rs. 500.00. If it is
possible to complete the activity in 2 days with an additional cost of Rs. 700.00, what is
the incremental cost of the activity?
Solution:
Incremental Cost or Cost Slope
c c
t t
C N
N C
=
00 500
4 2
7
=
= Rs. 100.00
It means, if one day is reduced we have to spend Rs. 100/- extra per day.
Project Crashing
Procedure for crashing
Step1: Draw the network diagram and mark the Normal time and Crash time.
Step2: Calculate T
E
and T
L
for all the activities.
Cost
Crash cost
Normal cost
Time
Crash time Normal time
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Step3: Find the critical path and other paths.
Step 4: Find the slope for all activities and rank them in ascending order.
Step 5: Establish a tabular column with required field.
Step 6: Select the lowest ranked activity; check whether it is a critical activity. If so,
crash the activity, else go to the next highest ranked activity.
Note: The critical path must remain critical while crashing.
Step 7: Calculate the total cost of project for each crashing.
Step 8: Repeat Step 6 until all the activities in the critical path are fully crashed.
Example 9: The following Table 8.13 gives the activities of a construction project and
other data.
Table 8.13: Construction Project Data
If the indirect cost is Rs. 20 per day, crash the activities to find the minimum duration of
the project and the project cost associated.
Solution: From the data provided in the table, draw the network diagram (Figure 8.28)
and find the critical path.
Figure 8.28: Network Diagram
From the diagram, we observe that the critical path is 1-2-5 with project duration of
14 days
The cost slope for all activities and their rank is calculated as shown in Table 8.14
c c
t t
Crash cost C Normal cost N
Cost slope
Normal time N Crash time C
=
Normal Crash Activity
Time (days) Cost (Rs) Time (days) Cost (Rs)
1-2 6 50 4 80
1-3 5 80 3 150
2-4 5 60 2 90
2-5 8 100 6 300
3-4 5 140 2 200
4-5 2 60 1 80
6 6
8
6
5 2
5
5
14 14
0 0
11 12
5 7
1
2
3 4
5
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Network Model
Cost Slope for activity 1 2
80 50
6 4
=
30
2
=
= 15.
Table 8.14: Cost Slope and Rank Calculated
The available paths of the network are listed down in Table 8.15 indicating the sequence
of crashing (see Figure 8.29).
Table 8.15: Sequence of Crashing
Figure 8.29: Network Diagram Indicating Sequence of Crashing
The sequence of crashing and the total cost involved is given in Table 8.16
Initial direct cost = sum of all normal costs given
= Rs. 490.00
Table 8.16: Sequence of Crashing & Total Cost
Path Number of days crashed
1-2-5 14 12 11 10
1-2-4-5 13 11 11 10
1-3-4-5 12 12 11 10
Activity Cost Slope Rank
1-2 15 2
1-3 35 4
2-4 10 1
2-5 100 5
3-4 20 3
4-5 20 3
7
8 b
6 - 4
4 2-1
5 2
5 3
5 2
4
3
1
2
3 4
5
Activity
Crashed
Project
Duration
Critical Path Direct Cost
in (Rs.)
Indirect Cost
(in Rs.)
Total
Cost (in
Rs)
14 1 2 5 490 14 20 = 280 770
1 2(2) 12 1 2 5 490 + (2 15) = 520 12 20 = 240 760
Contd...
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It is not possible to crash more than 10 days, as all the activities in the critical path are
fully crashed. Hence the minimum project duration is 10 days with the total cost of
Rs. 970.00.
Check Your Progress 8.3
If an activity zero free float, does this mean that a delay in completing that activity
is likely to delay the completion of data of the project on whole.
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
8.12 LET US SUM UP
Network analysis, as stated above, is a technique related to sequencing problems which
are linked with minimizing same measure of performance of the system like the total
consumption time of the project. This is a very productive technique for describing the
elements in a complex situation for purpose of designing, coordinating, planning, analysing,
controlling and making decision. The new most popular form of learnings PERT and
CPM.
8.13 LESSON-END ACTIVITY
As you know that we all live in houses. Those houses are constructed by the construction
company like DLF, Unitech, Parsavnath, Ansals etc. You have to visit to one of the
construction company and analyse its modules-operandi to function. Apply the concept
of network model (line PERT and CPM) to proper completion of work in time.
8.14 KEYWORDS
Critical path : Is a network and a continuous chain of activities that connect
the initial event to the terminal event.
Activity : An activity represents an action and consumption of sources.
2 5 (1)
3 4 (1)
11 1 2 5
1 3 4 5
1 2 4 5
520 + (1 100) + (1 20) =
640
11 20 = 220 860
2 5 (1)
2 4 (1)
3 4 (1)
10 1 2 5
1 3 4 5
1 2 4 5
640 + (1 100) + (1 10) +
(1 20) = 770
10 20 = 200 970
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Network Model
PERT : Project Evaluation Review Technique is a unique and
important controlling device. The PERT take into
consideration the three types of time optimistic time,
pessimistic time and likely time.
CPM : Critical Plan Method is a diagrammatical technique for
planning and scheduling of projects.
Float : Is used in the context of network analysis. Float may be
+ive or ive.
Arrow : Direction shows the general progression in time.
Slack : Normally associated with events. It indicates the amount of
latitude.
Network : Is a series of related activities which result in once produces
(or services). It is a pictorial presentation of the various events
and activities covering a project.
Event : An event represent the start or completion of activity.
8.15 QUESTIONS FOR DISCUSSION
1. Write True or False against each statement:
(a) Critical path for any network is the longest path through the entire network.
(b) An imaginary activity always consumes resource and time.
(c) Slack is the amount of time by which the start of an activity may be delayed.
(d) Crash time is the maximum possible activity time.
(e) An activity which lies on the critical path is called non-critical activity .
2. Briefly comment on the following:
(a) PERT/CPM system results in considerable improvements.
(b) PERT/CPM network techniques in their original developments have essentially
time oriented techniques.
(c) CPM does not incorporate statistical analysis.
(d) Two important components of any activity are the cost and time.
(e) Project involved planning, scheduling and controlling a number of interrelated
activities.
(f) Project managements in general have their phases.
(g) Network should have only one start event and one end event.
3. Fill in the blank:
(a) ....................... is the shortest possible activity time.
(b) CPM is a ....................... time estimate and PERT has ....................... time
estimate.
(c) Cost single is the increase in cost per ........................
(d) ....................... time is the shortest time taken to complete the activity.
4. Write Short Notes:
(a) PERT (b) CPM (c) Events (d) Activity
(e) Crashing
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8.16 TERMINAL QUESTIONS
1. What is the difference between CPM and PERT?
2. Explain the logic in constructing a network diagram. What are the network
components?
3. List out the rules in constructing a network diagram.
4. What is a dummy activity?
5. What are critical path activities and why are they considered important?
6. Explain the procedure for computing earliest time and latest time of an activity.
7. What is (i) Total float (ii) Free float and (iii) Independent float ?
8. Briefly describe PERT and its advantages.
9. Explain the terms (i) Time estimates (ii) Expected time and (iii) Variance of activity
time.
10. What is project crashing? Explain the procedure for crashing of project activities.
Exercise Problems
1. You are required to prepare a network diagram for constructing a 5 floor apartment.
The major activities of the project are given as follows:
2. For the problem No.1 the time estimates in days are given. Determine the Time
earliest and Time latest, and the critical activities
3. An assembly having the following sequence of activities given along with their
predecessor in the table below. Draw a network diagram for the assembly.
Activity Description Immediate Predecessor
A Selection of site -
B Preparation of drawings -
C Arranging the for finance A
D Selection of contractor A
E Getting approval from Govt A
F Laying the foundation E
G Start construction D, F
H Advertise in newspaper B, C
I Allocation of tenants G, H
Activity A B C D E F G H I
Time (days) 3 5 7 2 5 20 60 2 10
Activity Description Predecessor
A Pick bolt & washer -
B Insert washer in screw A
C Fix the bolt in flange A
D Screw the nut with bolt B, C
E Pick the spanner D
F Tighten the nut E
G Place the assembly apart F
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Network Model
4. Draw a network diagram for the project:
5. Determine the critical path and project duration for the following project:
6. A national conference is planned in a college. The activities are listed down along
with their predecessors and time taken. Prepare a network diagram and determine
the critical activities.
7. Consider the following project with the list of activities:
Activity Description Immediate
Predecessor
Duration (days)
A Confirm lead speaker and topic - 5
B Prepare brochure - 1
C Send letters to other speakers B 2
D Get confirmation from speakers C 5
E Send letters to participants C,D 2
F Obtain travel plans from speakers D 2
G Arrange for accommodation for speakers F 1
H Get handouts from speakers F 4
I Finalize registrations G,H 10
J Arrange hall and AV I 1
K Conduct of programme J 1
Activity Predecessors Duration (months)
A - 1
B A 3
C B 4
D B 3
E B 3
F C 4
G D,E 5
H F 1
I G,H 4
J I 3
Activity A B C D E F G H I J
Predecessor - A B B B C C F, G D, E, F I
Activity Immediate Predecessor Time (days)
A - 3
B - 7
C A 4
D B 2
E C,D 5
F A 6
G E,F 3
Contd....
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a. Construct the project network diagram.
b. Compute the earliest start time and earliest finish time.
c. Find the latest start and latest finish time.
d. Find the slack for each activity.
e. Determine the critical path and project duration.
Use TORA to compare and check answer.
8. You are alone at home and have to prepare a bread sandwich for yourself. The
preparation activities and time taken are given in the table below:
a. Determine the critical activities and preparation time for tasks given in table.
b. Find the earliest time and latest time for all activities.
c. While purchasing sauce, you met a friend and spoke to him for 6 minutes. Did
this cause any delay in preparation?
9. An amusement park is planned at a suitable location. The various activities are
listed with time estimates. Using TORA, determine the critical path. Also, find
whether the amusement park can be opened for public within 35 days from the
start of the project work.
Activity : A B C D E F G H I J K
Time (days) : 9 6 2 7 10 3 6 1 7 2 5
The predecessor activities are given below:
Task Description Predecessor Time (minutes)
A Purchase of bread - 20
B Take cheese and apply on bread A 5
C Get onions from freezer A 1
D Fry onions with pepper B,C 6
E Purchase sauce for bread - 15
F Toast Bread B,C 4
G Assemble bread and fried onions F 2
H Arrange in plate G 1
Activity Predecessor
A -
B -
C A
D A
E C
F B
G E,F
H D
I H,E
J I
K G
J I 3
K I 4
L J 3
M K 5
N L 5
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Network Model
10. Draw the network from the following activity and find the critical path and total
duration of project.
11. Draw a network diagram and determine the project duration
12. Determine the critical path and project duration for the network given.
Activity Duration (days)
1-2 5
1-3 3
1-4 6
2-3 8
2-5 7
3-5 2
4-5 6
Activity Duration (weeks)
1-2 2
1-4 4
1-3 7
2-5 6
3-4 (Dummy) 0
4-6 6
3-6 8
5-7 10
5-6 9
5-8 2
6-7 6
7-9 2
8-9 5
A Dummy
(5) D (0)
E G
C (8) (7) (6)
(0)Dummy H (4) (1) I
B (6) F
1
2
3 5 7
4 6
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Time (Weeks) Cost (Rs) Activity
Normal Crash Normal Crash
1-2 9 4 1300 2400
1-3 15 13 1000 1380
2-3 7 4 7000 1540
2-4 7 3 1200 1920
2-5 12 6 1700 2240
3-6 12 11 600 700
4-5 6 2 1000 1600
5-6 9 6 900 1200
Time Activity Predecessor
Optimistic Most likely Pessimistic
A - 2 5 14
B - 1 10 12
C A 0 0 6
D A 1 4 7
E C 3 10 15
F D 3 5 7
G B 1 2 3
H E,F 5 10 15
I G 3 6 9
Time (Weeks) Cost (Rs) Activity
Normal Crash Normal Crash
1-2 9 4 1300 2400
1-3 15 13 1000 1380
2-3 7 4 7000 1540
2-4 7 3 1200 1920
2-5 12 6 1700 2240
3-6 12 11 600 700
4-5 6 2 1000 1600
5-6 9 6 900 1200
13. For the PERT problem find the critical path and project duration. What is the
probability that the project will be completed in 25 days?
14. The following table lists the jobs of a network along with their estimates.
a. Draw the project network diagram.
b. Calculate the length and variance of the critical path.
c. What is the probability that the jobs on the critical path can be completed in
41 days?
15. The following table gives data at normal time and cost crashed time and project
cost.
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Network Model
Time (weeks) Cost (Rs.) Activity
t
0
tm
t
p
Crash
time
Normal Crash
1-2 1 5 3 1 500 900
2-3 1 7 4 3 800 1400
2-4 1 5 3 2 400 600
2-5 5 11 8 7 500 600
3-6 2 6 4 2 300 500
4-6 5 7 6 4 200 360
5-7 4 6 5 4 1000 1400
6-7 1 5 3 1 700 1060
Find the optimum project time and corresponding minimum total project cost by
crashing appropriate activities in proper order. Show the network on time-scale at
each step. Indicated cost per day is Rs. 400.00.
16. Solve the following project, and find the optimum project time and project cost.
8.17 MODEL ANSWERS TO QUESTIONS FOR
DISCUSSION
1. (a) True (b) False (c) True (d) False (e) False
3. (a) Crash time (b) single, three (c) unit (d) optimistic
8.18 SUGGESTED READINGS
Harry & Evartis, Introduction to PERT
S.K. Bhatnagar, Network Analysis Technique
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LESSON
9
WAITING MODEL (QUEUING THEORY)
CONTENTS
9.0 Aims and Objectives
9.1 Introduction
9.2 Queuing Systems
9.3 Characteristics of Queuing System
9.3.1 The Arrival Pattern
9.3.2 The Service Mechanism
9.3.3 The Queue Discipline
9.3.4 The Number of Customers allowed in the System
9.3.5 The Number of Service Channels
9.3.6 Attitude of Customers
9.4 Poisson and Exponential Distribution
9.5 Symbols and Notations
9.6 Single Server Queuing Model
9.7 Solving the Problem Using Computer with TORA
9.8 Let us Sum Up
9.9 Lesson-end Activity
9.10 Keywords
9.11 Questions for Discussion
9.12 Terminal Questions
9.13 Model Answers to Questions for Discussion
9.14 Suggested Readings
9.0 AIMS AND OBJECTIVES
In this lesson we are going to talk about the queuing theory which is also known as
waiting line. These queuing theory will facilitate in solving the queue related problem of
the industry. The most important point will be taken into consideration in the designing
queue system which should balance service to customers.
9.1 INTRODUCTION
Queuing theory deals with problems that involve waiting (or queuing). It is quite common
that instances of queue occurs everyday in our daily life. Examples of queues or long
waiting lines might be
l Waiting for service in banks and at reservation counters.
l Waiting for a train or a bus.
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Waiting Model
(Queuing Theory)
l Waiting for checking out at the Supermarket.
l Waiting at the telephone booth or a barber's saloon.
Whenever a customer arrives at a service facility, some of them usually have to wait
before they receive the desired service. This forms a queue or waiting line and customers
feel discomfort either mentally or physically because of long waiting queue.
We infer that queues form because the service facilities are inadequate. If service facilities
are increased, then the question arises how much to increase? For example, how many
buses would be needed to avoid queues? How many reservation counters would be
needed to reduce the queue? Increase in number of buses and reservation counters
requires additional resource. At the same time, costs due to customer dissatisfaction
must also be considered.
In designing a queuing system, the system should balance service to customers (short
queue) and also the economic considerations (not too many servers). Queuing theory
explores and measures the performance in a queuing situation such as average number
of customers waiting in the queue, average waiting time of a customer and average
server utilization.
9.2 QUEUING SYSTEMS
The customers arrive at service counter (single or in groups) and are attended by one or
more servers. A customer served leaves the system after getting the service. In general,
a queuing system comprises with two components, the queue and the service facility.
The queue is where the customers are waiting to be served. The service facility is
customers being served and the individual service stations. A general queuing system
with parallel server is shown in Figure 9.1 below:
Figure 9.1: A typical queuing system
9.3 CHARACTERISTICS OF QUEUING SYSTEM
In designing a good queuing system, it is necessary to have a good information about the
model. The characteristics listed below would provide sufficient information.
1. The arrival pattern.
2. The service mechanism.
3. The queue discipline.
4. The number of customers allowed in the system.
5. The number of service channels.
S
1
S
2
(x)
.
.
.
S
n.
Customers
Arrival (x)
Queue
Queuing System
(x) Customers
Departure
(x) Customers
Departure
Service Facility
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9.3.1 The Arrival Pattern
The arrival pattern describes how a customer may become a part of the queuing system.
The arrival time for any customer is unpredictable. Therefore, the arrival time and the
number of customers arriving at any specified time intervals are usually random variables.
A Poisson distribution of arrivals correspond to arrivals at random. In Poisson distribution,
successive customers arrive after intervals which independently are and exponentially
distributed. The Poisson distribution is important, as it is a suitable mathematical model
of many practical queuing systems as described by the parameter "the average arrival
rate".
9.3.2 The Service Mechanism
The service mechanism is a description of resources required for service. If there are
infinite number of servers, then there will be no queue. If the number of servers is finite,
then the customers are served according to a specific order. The time taken to serve a
particular customer is called the service time. The service time is a statistical variable
and can be studied either as the number of services completed in a given period of time
or the completion period of a service.
9.3.3 The Queue Discipline
The most common queue discipline is the "First Come First Served" (FCFS) or
"First-in, First-out" (FIFO). Situations like waiting for a haircut, ticket-booking counters
follow FCFS discipline. Other disciplines include "Last In First Out" (LIFO) where
last customer is serviced first, "Service In Random Order" (SIRO) in which the
customers are serviced randomly irrespective of their arrivals. "Priority service" is
when the customers are grouped in priority classes based on urgency. "Preemptive
Priority" is the highest priority given to the customer who enters into the service,
immediately, even if a customer with lower priority is in service. "Non-preemptive
priority" is where the customer goes ahead in the queue, but will be served only after
the completion of the current service.
9.3.4 The Number of Customers allowed in the System
Some of the queuing processes allow the limitation to the capacity or size of the waiting
room, so that the waiting line reaches a certain length, no additional customers is allowed
to enter until space becomes available by a service completion. This type of situation
means that there is a finite limit to the maximum queue size.
9.3.5 The Number of Service Channels
The more the number of service channels in the service facility, the greater the overall
service rate of the facility. The combination of arrival rate and service rate is critical for
determining the number of service channels. When there are a number of service channels
available for service, then the arrangement of service depends upon the design of the
system's service mechanism.
Parallel channels means, a number of channels providing identical service facilities so
that several customers may be served simultaneously. Series channel means a customer
go through successive ordered channels before service is completed. The arrangements
of service facilities are illustrated in Figure 45. A queuing system is called a one-server
model, i.e., when the system has only one server, and a multi-server model i.e., when
the system has a number of parallel channels, each with one server.
(a) Arrangement of service facilities in series
X X X X
Served Customers
Served Facility Customers
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Waiting Model
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(1) Single Queue Single Server
(2) Single Queue, Multiple Server
(b) Arrangement of Service facilities in Parallel
(c) Arrangement of Mixed Service facilities
Figure 9.2: Arrangements of Service Facilities (a, b, c)
9.3.6 Attitude of Customers
Patient Customer: Customer arrives at the service system, stays in the queue until
served, no matter how much he has to wait for service.
Impatient Customer: Customer arrives at the service system, waits for a certain time
in the queue and leaves the system without getting service due to some reasons like long
queue before him.
Balking: Customer decides not to join the queue by seeing the number of customers
already in service system.
Reneging: Customer after joining the queue, waits for some time and leaves the service
system due to delay in service.
Jockeying: Customer moves from one queue to another thinking that he will get served
faster by doing so.
9.4 POISSON AND EXPONENTIAL DISTRIBUTIONS
Both the Poisson and Exponential distributions play a prominent role in queuing theory.
Considering a problem of determining the probability of n arrivals being observed during
a time interval of length t, where the following assumptions are made.
X X X X
Served Customers
Served Facility
Customers
X X X X
Served Customers
Service Facility
Service Facility
Served Customers
Customers
X X X X
Served
Customer
Service Facilities
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i. Probability that an arrival is observed during a small time interval (say of length v)
is proportional to the length of interval. Let the proportionality constant be l, so that
the probability is lv.
ii. Probability of two or more arrivals in such a small interval is zero.
iii. Number of arrivals in any time interval is independent of the number in non-
overlapping time interval.
These assumptions may be combined to yield what probability distributions are likely to
be, under Poisson distribution with exactly n customers in the system.
Suppose function P is defined as follows:
P (n customers during period t) = the probability that n arrivals will be observed
in a time interval of length t
then, P (n, t) =
( )
! n
e t
t n
(n = 0, 1, 2,) ..................(1)
This is the Poisson probability distribution for the discrete random variable n, the number
of arrivals, where the length of time interval, t is assumed to be given. This situation in
queuing theory is called Poisson arrivals. Since the arrivals alone are considered (not
departures), it is called a pure birth process.
The time between successive arrivals is called inter-arrival time. In the case where
the number of arrivals in a given time interval has Poisson distribution, inter-arrival times
can be shown to have the exponential distribution. If the inter-arrival times are independent
random variables, they must follow an exponential distribution with density f(t) where,
f (t) = le
lt
(t > 0) .................(2)
Thus for Poisson arrivals at the constant rate l per unit, the time between successive
arrivals (inter-arrival time) has the exponential distribution. The average Inter - arrival
time is denoted by
I
.
By integration, it can be shown that E(t) =
/ I
.................(3)
If the arrival rate l = 30/hour, the average time between two successive arrivals are
1/30 hour or 2 minutes.
For example, in the following arrival situations, the average arrival rate per hour, l and
the average inter arrival time in hour, are determined.
(i) One arrival comes every 15 minutes.
Average arrival rate , l =
15
60
= 4 arrivals per hour.
Average inter arrival time
I
= 15 minutes = or 0.25 hour.
(ii) Three arrivals occur every 6 minutes.
Average arrival rate, l = 30 arrivals per hour.
Average Inter-arrival time,
I
=
3
6
= 2 minutes =
30
1
or 0.33 hr.
(iii) Average interval between successive intervals is 0.2 hour.
Average arrival rate, l =
2 . 0
1
= 5 arrivals per hour.
Average Inter-arrival time,
I
= 0.2 hour.
Similarly, in the following service situations, the average service rate per hour, and
average service time in hours are determined.
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Waiting Model
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(i) One service is completed in 10 minutes.
Average service rate, m =
10
60
= 6 services per hour.
Average service time,
S
=
4
30
= 10 minutes or 0.166 hour.
(ii) Number of customers served in 15 minutes is 4.
Average service rate, m =
15
4
x 60 =16 services per hour.
Average services time,
S
=
4
30
= 3.75 mins or 0.0625 hour.
(iii) Average service time is 0.25 hour.
Average service rate , m = 4 services per hour.
Average service time
S
= 15 mins or 0.25 hour.
Example 1: In a factory, the machines break down and require service according to a
Poisson distribution at the average of four per day. What is the probability that exactly
six machines break down in two days?
Solution: Given l = 4, n = 6, t =2
P(n, t) = P(6, 4) when l = 4
we know, P(n, t) =
( )
!
n
e t
t n
P(6,2) =
( )
! 6
2 4
2 4 6
e
=
720
8
8 6
e
= 0.1221
Solving the Problem using Computer
Example 1 is solved using computer with TORA. Enter into TORA package and select
Queuing Analysis option. Press 'go to input screen' to enter the values. The input
screen is shown in Figure 9.3 given below. The numbers scenarios is 1 and the value of
Lambda is lt = 4 2 = 8.
Figure 9.3: Queuing Analysis Using TORA (Input Screen)
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Press 'solve', to view the Queuing Analysis output . Select Scenario 1 option, to get the
result, as shown in Figure 9.4.
Figure 9.4: Queuing Analysis Using TORA (Output Screen)
In the output screen, for n = 6 the probability, Pn is given as 0.12214.
Example 2: On an average, 6 customers arrive in a coffee shop per hour. Determine
the probability that exactly 3 customers will reach in a 30 minute period, assuming that
the arrivals follow Poisson distribution.
Solution: Given, l = 6 customers / hour
t = 30 Minutes = 0.5 hour
n = 2
we know, P(n, t) =
( )
!
n
e t
t n
P(6,2) =
( )
! 2
5 . 0 6
5 . 0 6 2
e
= 0.22404
Similarly, when the time taken to serve different customers are independent, the probability
that no more than t periods would be required to serve a customer is given by exponential
distribution as follows:
p(not more than t time period) = 1 e
mt
where m = average service rate
Example 3: A manager of a fast food restaurant observes that, an average of 9 customers
are served by a waiter in a one-hour time period. Assuming that the service time has an
exponential distribution, what is the probability that
(a) A customer shall be free within 12 minutes.
(b) A customer shall be serviced in more than 25 minutes.
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Waiting Model
(Queuing Theory)
Solution:
(a) Given, m = 9 customers / hour
t = 15 minutes = 0.25 hour
Therefore, p (less than 15 minutes) = l e
mt
= 1 e
9 0.25
= 0.8946
(b) Given, m = 9 customers / hour
t = 25 minutes = 0.4166 hour
Therefore, P (more than 25 minutes) = l e
mt
= 1 e
9 0.4166
= 0.0235
To analyze queuing situations, the questions of interest that are typically concerned with
measures of queuing system performance include,
l What will be the waiting time for a customer before service is complete?
l What will be the average length of the queue?
l What will be the probability that the queue length exceeds a certain length?
l How can a system be designed at minimum total cost?
l How many servers should be employed?
l Should priorities of the customers be considered?
l Is there sufficient waiting area for the customers?
9.5 SYMBOLS AND NOTATIONS
The symbols and notations used in queuing system are as follows:
n = Number of customers in the system (both waiting and in service).
l = Average number of customers arriving per unit of time.
m = Average number of customers being served per unit of time.
l / m = P, traffic intensity.
C = Number of parallel service channels (i,e., servers).
L
s
= Average or expected number of customers in the system (both waiting
and in service).
L
q
= Average or expected number of customers in the queue.
W
s
= Average waiting time in the system (both waiting and in service).
W
q
= Average waiting time of a customer in the queue.
P
n
= Time independent probability that there are n customers in the system
(both waiting and in service).
P
n
(t) = Probability that there are n customers in the system at any time t
(both waiting and in service).
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9.6 SINGLE SERVER QUEUING MODEL
Model 1: (MM1) : (a aa aa / FIFO)
This model is based on the following assumptions:
(i) The arrivals follow Poisson distribution, with a mean arrival rate l.
(ii) The service time has exponential distribution, average service rate m.
(iii) Arrivals are infinite population a.
(iv) Customers are served on a First-in, First-out basis (FIFO).
(v) There is only a single server.
System of Steady-state Equations
In this method, the question arises whether the service can meet the customer demand.
This depends on the values of l and m.
If l m l m l m l m l m, i.e., if arrival rate is greater than or equal to the service rate, the waiting line
would increase without limit. Therefore for a system to work, it is necessary that l < m.
As indicated earlier, traffic intensity r = l / m. This refers to the probability of time. The
service station is busy. We can say that, the probability that the system is idle or there are
no customers in the system, P
0
= 1 r.
From this, the probability of having exactly one customer in the system is P
1
= r P
0
.
Likewise, the probability of having exactly 2 customers in the system would be
P
3
= rP
1
= r
2
P
0
The probability of having exactly n customers in the system is
P
n
= r
n
P
0
= r
n(1-r)
= (l / m)
n
P
0
The expected number of customers in the system is given by,
L
s
=
1 n
n
nP
=
( )( )
1 n
n
/ / 1 n
1
........................(2)
The expected number of customers in the queue is given by,
( )
1 n
n n
P 1 n L
1 n
n
1 n
n
P nP
( )
1
2
2
....................(3)
With an average arrival rate l, the average time between the arrivals is 1 / l. Therefore,
the mean waiting time in queue, w
q
is the product of the average time between the
arrivals and the average queue length,
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Waiting Model
(Queuing Theory)
W
q
= 1
]
1
1
]
1
1
1 1
....................(4)
= 1
]
1
1
]
1
1
Substituting
( )
1
]
1
2
Similarly the average waiting time in the system , Ws
W
s
= 1
]
1
1
]
1
1
1
.......................(5)
putting Ls = l (m l) , we get
W
s
=
1
Queuing Equations
The evaluation of Model I is listed below:
1. Expected number of customers in the system,
1
L
s
2. Expected number of customers in the queue,
1 ) (
L
2 2
q
3. Average waiting time in the system,
1
W
s
4. Average waiting time in the queue,
) (
W
q
>
7. Probability that there are n customers in the system,
1
]
1
1
]
1
1
]
1
1
0
n n
n
P P
8. Probability that there is nobody in the system,
1
P
0
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9. Probability that there is at least one customer or queue is busy,
0 b
P 1 P
10. Traffic intensity,
Example 4: Consider a situation where the mean arrival rate (l) is one customer every
4 minutes and the mean service time (m) is 2 minutes. Calculate the average number
of customers in the system, the average queue length and the time taken by a customer
in the system and the average time a customer waits before being served.
Solution: Given, Average Arrival Rate l = 1 customer every 4 minutes or 15 customers
per hour
Average Service -Rate m = 1 customer every 2 minutes or 24 customers per hour
(i) The average number of customers in the system,
s
L
66 . 1
15 24
15
customers
(ii) The average queue length,
1
]
1
1
]
1
q
L
15 24
15
24
15
= 1.04 customers
(iii) The average time a customer spends in the system,
1
W
s
=
15 24
1
=
) 15 24 ( 24
15
= 0.069 60
= 4.16 minutes
Example 5: Trucks at a single platform weigh-bridge arrive according to Poisson
probability distribution. The time required to weigh the truck follows an exponential
probability distribution. The mean arrival rate is 12 trucks per day, and the mean service
rate is 18 trucks per day. Determine the following:
(a) What is the probability that no trucks are in the system?
(b) What is the average number of trucks waiting for service?
(c) What is the average time a truck waits for weighing service to begin?
(d) What is the probability that an arriving truck will have to wait for service?
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Waiting Model
(Queuing Theory)
Solution: Given l = 12 trucks per days, m = 18 trucks per day.
(a) Probability that no trucks are waiting for service,
1 P
0
18
12
1
= 0.3333 or 33.33%
(b) Average number of trucks waiting for service,
1
]
1
1
]
1
q
L
1
]
1
1
]
1
12 18
12
18
12
= 1.33 trucks
(c) Average time a truck waits for weighing service to begin,
) (
W
q
) 12 18 ( 18
12
= 0.66667
In the same problem, to determine the probability that there are 2 trucks in the system,
we use the formula,
1
]
1
1
]
1
1 P
n
n
1
]
1
1
]
1
18
12
1
18
12
2
= 0.4444 0.3333
= 0.14815 or 14.81%
This can also be read in the output screen for n=2 the probability P
n
= 0.14815,
Similarly, the probabilities for different values of n can be directly read.
Example 6: A TV repairman finds that the time spent on his jobs has a exponential
distribution with mean 30 minutes. If he repairs TV sets in the order in which they come
in, and if the arrivals follow approximately Poisson distribution with an average rate of
10 per 8 hour day, what is the repairman's expected idle time each day? How many jobs
are ahead of the average with the set just brought in?
Solution: Given l = 10 TV sets per day.
m = 16 TV sets per day.
(i) The Probability for the repairman to be idle is,
P
0
= 1 r
We know, r = l / 30 = 10 / 16 =0.625
P
0
= 1 r
= 1 0.625 = 0.375
Expected idle time per day = 8 0.375
= 3 hours.
(ii) How many jobs are ahead of the average set just brought in
s
L
10 16
10
=
6
10
= 1.66 say 2 jobs.
Example 7: Auto car service provides a single channel water wash service. The incoming
arrivals occur at the rate of 4 cars per hour and the mean service rate is 8 cars per hour.
Assume that arrivals follow a Poisson distribution and the service rate follows an
exponential probability distribution. Determine the following measures of performance:
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(a) What is the average time that a car waits for water wash to begin?
(b) What is the average time a car spends in the system?
(c) What is the average number of cars in the system?
Solution: Given l = 4 cars per hour, m = 8 cars per day.
(a) Average time that a car waits for water - wash to begin,
) (
W
q
=
) 4 8 ( 8
4
1
W
s
=
4 8
1
=
4
1
= 0.25 hours or 15 mins.
(c) Average number of cars in the system,
4 8
4
L
s
=
4
4
= 1 car.
Example 8: Arrivals at a telephone booth are considered to be Poisson distributed with
an average time of 10 minutes between one arrival and the next. The length of phone
call is assumed to be distributed exponentially, with mean 3 minutes.
(i) What is the probability that a person arriving at the booth will have to wait?
(ii) The telephone department will install a second booth when convinced that an arrival
would expect waiting for at least 3 minutes for phone call. By how much should the
flow of arrivals increase in order to justify a second booth?
(iii) What is the average length of the queue that forms from time to time?
(iv) What is the probability that it will take him more than 10 minutes altogether to wait
for the phone and complete his call?
(v) What is the probability that it will take him more than 10 minutes altogether to wait
for the phone and complete his call?
Solution: Given l = 1/10 = 0.10 person per minute.
m = 1/3 = 0.33 person per minute.
(i) Probability that a person arriving at the booth will have to wait,
P (w > 0) = 1 P
0
= 1 (1 - l / m) = l / m
=
33 . 0
10 . 0
= 0.3
(ii) The installation of second booth will be justified if the arrival rate is more than
the waiting time.
Expected waiting time in the queue will be,
) (
W
q
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Waiting Model
(Queuing Theory)
Where, E(w) = 3 and l = l (say ) for second booth. Simplifying we get
l = 0.16
Hence the increase in arrival rate is, 0.16-0.10 =0.06 arrivals per minute.
(iii) Average number of units in the system is given by,
3 . 0 1
3 . 0
1
L
s
= 0.43 customers
(iv) Probability of waiting for 10 minutes or more is given by
( ) ( )
( )
10
P W 10 dt e
a
m l
l
= m l
m
= ( ) ( )
0.23
10
0.3 0.23 dt e
a
0.23
10
0.069
0.23
t
e
a
-
=
-
= 0.03
This shows that 3 percent of the arrivals on an average will have to wait for 10 minutes
or more before they can use the phone.
Example 9: A bank has decided to open a single server drive-in banking facility at its
main branch office. It is estimated that 20 customers arrive each hour on an average.
The time required to serve a customer is 3 minutes on an average. Assume that arrivals
follow a Poisson distribution and the service rate follows an exponential probability
distribution.
The bank manager is interested in knowing the following:
(a) What will be the average waiting time of a customer to get the service?
(b) The proportion of time that the system will be idle.
(c) The space required to accommodate all the arrivals, on an average, the space
taken by each car is 10 feet that is waiting for service.
Solution: l = 20 Customers per hour, m =
25
60
= 2.4 customers per hour.
(a) Average waiting time of a customer to get the service,
) (
W
q
96
20
) 20 24 ( 24
20
1 P
0
24
20
1
= 0.166 hours or 10 mins.
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(c ) Average number of customers waiting in the queue,
) (
L
2
q
96
400
) 20 24 ( 24
20
2
= 4.66 customers.
10 feet is required for 1 customer. Hence, for 4.66 customers, the space required is
10 4.66 = 46.6 feet.
Example 10: In a Bank, customers arrive to deposit cash to a single counter server
every 15 minutes. The bank staff on an average takes 10 minutes to serve a customer.
The manager of the bank noticed that on an average at least one customer was waiting
at the counter. To eliminate the customer waiting time, the manager provided an automatic
currency counting machine to the staff. This decreased the service time to 5 minutes on
an average to every customer. Determine whether this rate of service will satisfy the
manager's interest. Also use computer with TORA for solving the problem.
Solution:
Case 1:
15
60
= 4 customers per hour,
10
60
= 60 = 6 customers per hour.
Average number of customers in the system,
s
L
2
4
4 6
4
= 2 customers.
Case 2: l = 4 ,
15
60
= 12 customers per hour.
Average number of customers in the system,
4 12
4
L
s
=
4
8
=
1
2
= 0.5, say, 1 customer.
Average number of customers in the queue
) (
L
2
q
96
16
) 4 12 ( 12
4
2
= 0.01 customers.
Since no customers are standing in the queue the manager's interest is satisfied.
The problem is worked out using TORA. Enter the values as shown in the input screen
below in Figure 9.7.
289
Waiting Model
(Queuing Theory)
Figure 9.7: Queuing Analysis Using TORA (Input Screen)
Press Solve and go to output screen. Select comparative analysis option in the
queuing output analysis menu. The following output screen is displayed (Figure 9.8).
Figure 9.8: Comparative Analysis of Queuing Output Analysis Using TORA (Output Screen)
Now, on comparing scenario 1 and scenario 2, under Ls i.e., the average number of
customers in the system is 2 and 0.5 respectively. In the first scenario, it means that in
the entire system, one customer will be waiting in the queue while others are being
served. In scenario 2, only one customer is in the system and being served, where on an
average no customer will be waiting.
Example 11: 12 counters are available in a computerized railway reservation system.
The arrival rate during peak hours is 90 customers per hour. It takes 5 minutes to serve
a customer on an average. Assume that the arrivals joining in a queue will not be jockeying
(i.e., move to another queue). How many counters have to be opened if the customers
need not to wait for more than 15 minutes?
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Solution: The problem is to be solved as one system comprising of 'n' number of single
server queuing model.
Arrival rate, l =90 customers per hour
Service rate, m =
5
60
=12 per hour
Average waiting time,
60
15
W
q
= 0.25 hours
Average waiting time,
) (
W
q
i.e., 0.25 =
( )
................................(i)
Let, number of counters be x,
Considering the single server queuing system, the number of counters required to serve
90 arrivals per hour,
x
90
substituting
x
90
in equation (i),
,
_
x
x
90
12 12
/ 90
25 . 0
( ) 90 12 12
90
25 . 0
x
= 0.3334 or 33.34%
(b) Probability that 1 customer is filling and no one is waiting in the queue,
1
]
1
1
]
1
1
]
1
1 P P
0 n
n n
1
]
1
1
]
1
30
20
1
30
20
P
1
1
= 0.6666 0.3334
= 0.2222 or 22.22%
(c) Probability that 1 customer is filling and 2 customers are waiting in the queue, i.e.,
there are 3 customers in the system,
1
]
1
1
]
1
30
20
1
30
20
P
3
3
= 0.2963 0.3334
= 0.09878 or 9.87 %
(d) Probability that more than 3 customers are in the system,
1
]
1
1
]
1
30
20
1
30
20
P
4
4
= 0.1975 0.334
= 0.6585 or 65.85%
The calculation made for the above problem is represented in the TORA output screen
shown below in Figure 9.9.
Figure 9.9: Queuing Analysis Using TORA (Output Screen)
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Check Your Progress 9.2
1. The assumption of queuing theory are so restrictive as to render behaviour
prediction of queuing system practically worthless Discuss.
2. Explain the meaning of a queue and state the object of queuing analysis.
Briefly describe with the help of hypothetical example the elements of the
queuing system.
3. Give examples of five situations/circumstances in which there in a limited a
finite waiting line.
4. Elaborate the vital operating characteristis of a queuing system.
5. What are the modules of the following queuing system? Draw and explains
the configuration of each
(a) General store
(b) Big Bazar
(c) Railway reservation
(d) Car wash at the service center.
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
9.8 LET US SUM UP
Queuers or waiting lines are very familiar in day to day life. In general quite often we
face the problem of long queues for a bus, a movie ticket, railway reservation, ATM
m/c and various, other situation. The queuing model are those where a facility perform a
service. A queuing problem arises when the current services rate of a facility fall short
of the current flow rate of customer. Thus if the service facility capable of servicing
customers arrive there will be no pitfalls. Thus the queuing theory is related with the
decision making process of the business unit which relates with the queue question and
makes decision relative to the number of service facilities which are operating.
9.9 LESSON-END ACTIVITY
As you are travelling from one place to another. You need a various mode of transportation
from one destination to other. These transportation are known as Bus, Train, Aeroplane
etc. While taking reservation of this particular transport. We have to go to the reservation
counter and book tickets and finally face a huge waiting line or queue of passengers.
Apply the waiting line theory to regulate this problem and find solution to make the
system stream-line.
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Waiting Model
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9.10 KEYWORDS
Balking : A customer may not like to join the queue seeing it very long
and he may not like to wait.
Reneging : He may leave the queue due to impatience after joining in
collusion several customers may collaborate and only one of
them may stand in queue.
Jockeying : If there are number of queues then one may leave one queue
to join another.
Queue length : No. of customers waiting in the queue.
Queuing system : System consisting arrival of customers, waiting in queue,
picked up for sevice according to a certain discipline, being
serviced and departure of customers.
Service station : Point where service is provided
Customer : Person or unit arriving at a station for service. Customer
may be a machine or person.
Waiting time : Time a customer spends in the queue before being serviced.
9.11 QUESTIONS FOR DISCUSSION
1. Write True or False against each statement:
(a) Parallel channel means, a number of channels providing identical services.
(b) Queuing theory is concerned with the decision making process.
(c) Customer decide not to joins the queue is Reneging.
(d) The line that form in front of service facilities is called a queue.
(e) Random arrival mean when there is how service point.
2. Briefly comment on the following statements:
(a) In designing a queuing system, the system should balance service to customers.
(b) Queuing theory deals with problem that involve waiting.
(c) Most of queuing models are quite complex and cannot be easily understood.
(d) In a single channel facility the output of the queue does not pose any problem.
(e) The object of the queuing theory is to achieve a good economic balance and
also to minimise the total waiting & service cost.
3. Fill in the blank:
(a) The arrival time for any customer is _____________
(b) The most common queue discipline _____________
(c) If there is queue then _____________ has to wait for same lines.
(d) Cost associated with service or the facility are known as _____________
(e) Waiting time is a time which customer spends in the _____________
4. Write Short Notes:
(a) Queue discipline
(b) Service mechanism is queuing theory
(c) Queuing system
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9.12 TERMINAL QUESTIONS
1. What is the queuing theory?
2. Define arrival rate and service rate.
3. Explain the characteristics of MM1 queuing model.
4. Briefly explain Service Mechanism and Queue Discipline.
5. What is system of steady-state?
Exercise Problems
1. A Bank operates a single facility ATM machine. Customers arrive at the rate of
10 customers per hour according to Poisson probability distribution. The time taken
for an ATM transaction is exponential which means 3 minutes on an average. Find
the following:
(a) Average waiting time of a customer before service.
(b) Average number of customers in the system.
(c) Probability that the ATM is idle.
2. At an average 12 cars per hour arrive at a single-server, drive-in teller. The average
service time for each customer is 4 minutes, and the arrivals and services are
Poisson and exponentially distributed respectively. Answer the following questions:
(a) What is the proportion that the teller is idle?
(b) What is the time spent by a customer to complete his transaction?
(c) What is the probability that an arriving car need not wait to take-up service?
3. At a single facility security check at an airport, passengers arrive at the check-
point on an average of 8 passengers per minute and follows a Poisson probability
distribution. The checking time for a customer entering security check area takes
10 passengers per minute and follows an exponential probability distribution.
Determine the following:
(a) On an average, how many passengers are waiting in queue to enter the check-
point?
(b) On an average, what is the time taken by a customer leaving the check-
point?
4. In a college computer lab, computers are interconnected to one laser printer. The
printer receives data files for printing from these 25 computers interconnected to
it. The printer prints the files received from these 25 computers at the rate of 5
data files per minute. The average time required to print a data file is 6 minutes.
Assuming the arrivals are Poisson distributed and service times are exponentially
distributed, determine
(a) What is the probability that the printer is busy?
(b) On an average, how much time must a computer operator wait to take a
print-out?
(c) On an average, what is the expected number of operators that will be waiting
to take a print-out?
5. Skyline pizza is a famous restaurant operating a number of outlets. The restaurant
uses a toll-free telephone number to book pizzas at any of its outlets. It was found
that an average of 15 calls are received per hour and the average time to handle
each call is 2.5 minutes. Determine the following:
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Waiting Model
(Queuing Theory)
(a) What is the average waiting time of an incoming caller?
(b) What is the probability that a caller gets connected immediately?
(c) If the restaurant manager feels that average waiting time of a caller is more
than 5 minutes, will lead to customer loss and the restaurant will have to go in
for a second toll free facility, what should be the new arrival rate in order to
justify another facility?
6. From historical data, a two-wheeler service station observe that bikes arrive only
for water wash is at the rate of 7 per hour per 8 hour shift. The manager has a
record that it takes 5 minutes for water service and another 2 minutes for greasing
and general check. Assuming that one bike is washed at a time, find the following:
(a) Average number of bikes in line.
(b) Average time a bike waits before it is washed.
(c) Average time a bike spends in the system.
(d) Utilization rate of the bike wash.
(e) Probability that no bikes are in the system.
7. In a department at store, an automated coffee vending machine is installed.
Customers arrive at a rate of 3 per minute and it takes average time of 10 seconds
to dispense a cup of coffee:
(a) Determine the number of customers in the queue.
(b) Determine the waiting time of a customer.
(c) Find the probability that there are exactly 10 customers in the system.
8. In a toll gate, vehicles arrive at a rate of 120 per hour. An average time for a
vehicle to get a pass is 25 seconds. The arrivals follow a Poisson distribution and
service times follow an exponential distribution. (a) Find the average number of
vehicles waiting and the idle time of the check-post. (b) If the idle time of the
check post is less than 10%, the check-post authorities will install a second gate.
Suggest whether a second gate is necessary ?
9. A hospital has an X-ray lab where patients (both in-patient and out-patient) arrive
at a rate of 5 per minute. Due to variation in requirement, the time taken for one
patient is 3 minutes and follows an exponential distribution. (a) What is the probability
that the system is busy? and (b) What is the probability that nobody is in the system?
10. In the production shop of a company breakdown of the machine is found to be
Poisson with an average rate of 3 machines per hour. Breakdown time at one
machine costs Rs. 40 per hour to the company. There are two choices before the
company for hiring the repairmen, one of the repairmen is slow but cheap, the
other is fast but expensive. The slow-cheap repairman demands Rs. 20 per hour
and will repair the breakdown machine exponentially at the rate of 4 per hour. The
fast expensive repairman demands Rs. 30 per hour and will repair exponentially on
an average rate of Rs.6 per hour. Which repairman should be hired?
9.13 MODEL ANSWERS TO QUESTIONS FOR
DISCUSSION
1. (a) True (b) True (c) False
(d) True (e) False
3. (a) unpredictable (b) [First come first serve (FCFS)]
(c) customer (d) service cost (e) queue
296
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9.14 SUGGESTED READINGS
T.L. Satty, Elements of Queuing, New York McGraw Hill Theory.
A.M. Lee, Applied Queuing thoery.
Cooper, R.B., Introduction to Queuing theory, New York MacMillan Co.
Morse, Philip M.Ques, Inventories & maintenance, New York John Wiley & Sons.
Panieo, J.A., Queuing Theory: A Study of Waiting Line of Business, Economics,
Science, Englewood, No. 3, Prentice-Hall.
Bhat, U.N. The Value of Queuing Theory A Rejoinder Interface, Vol. 8, No. 3
pp. 27-78.
Byrd. J., The value of queuing & Interfaces, Vol. 8, No. 3, pp. 22-26.
Render, B & Stain R.M., Cases & readings in quantitative analysis, Boston: Allyn &
Bacon, 1982.
Graff G, Simple Queuing thoery saves Unneccessary Equipment, Industrial
Engineering, Vol. 3.
Paul R.I., Stevens R.E., Staffing service activities with waiting the models decision,
Science, Vol. 2
Unit-IV
10.0 AIMS AND OBJECTIVES
The probability, theoretical probability distribution and probability distribution of random
variable in the three important interrelated trades which we are going to discuss in this
head (Unit IV). As we know that probability associated with the occurence of various
events are determined by specifying the condition of a random experiments.
10.1 INTRODUCTION
The concept of probability originated from the analysis of the games of chance in the
17th century. Now the subject has been developed to the extent that it is very difficult to
imagine a discipline, be it from social or natural sciences, that can do without it.
The theory of probability is a study of Statistical or Random Experiments. It is the
backbone of Statistical Inference and Decision Theory that are essential tools
of the analysis of most of the modern business and economic problems.
Often, in our day-to-day life, we hear sentences like 'it may rain today', 'Mr X has fifty-
fifty chances of passing the examination', 'India may win the forthcoming cricket match
against Sri Lanka', 'the chances of making profits by investing in shares of company A
are very bright', etc. Each of the above sentences involves an element of uncertainty.
LESSON
10
PROBABILITY
CONTENTS
10.0 Aims and Objectives
10.1 Introduction
10.2 Classical Definition of Probability
10.3 Counting Techniques
10.4 Statistical or Empirical Definition of Probability
10.5 Axiomatic or Modern Approach to Probability
10.6 Theorems on Probability-I
10.7 Theorems on Probability-II
10.8 Let us Sum Up
10.9 Lesson-end Activity
10.10 Keywords
10.11 Questions for Discussion
10.12 Terminal Questions
10.13 Model Answers to Questions for Discussion
10.14 Suggested Readings
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A phenomenon or an experiment which can result into more than one possible outcome,
is called a random phenomenon or random experiment or statistical experiment. Although,
we may be aware of all the possible outcomes of a random experiment, it is not possible
to predetermine the outcome associated with a particular experimentation or trial.
Consider, for example, the toss of a coin. The result of a toss can be a head or a tail,
therefore, it is a random experiment. Here we know that either a head or a tail would
occur as a result of the toss, however, it is not possible to predetermine the outcome.
With the use of probability theory, it is possible to assign a quantitative measure, to
express the extent of uncertainty, associated with the occurrence of each possible outcome
of a random experiment.
10.2 CLASSICAL DEFINITION OF PROBABILITY
This definition, also known as the mathematical definition of probability,
was given by J. Bernoulli. With the use of this definition, the probabilities associated with
the occurrence of various events are determined by specifying the conditions of a random
experiment. It is because of this that the classical definition is also known as 'a priori'
definition of probability.
Definition
If n is the number of equally likely, mutually exclusive and exhaustive outcomes of a
random experiment out of which m outcomes are favourable to the occurrence of an
event A, then the probability that A occurs, denoted by P(A), is given by :
( )
Number of outcomes favourable to
Number of exhaustive outcomes
A m
P A
n
Various terms used in the above definition are explained below :
1. Equally likely outcomes: The outcomes of random experiment are said to be
equally likely or equally probable if the occurrence of none of them is expected in
preference to others. For example, if an unbiased coin is tossed, the two possible
outcomes, a head or a tail are equally likely.
2. Mutually exclusive outcomes: Two or more outcomes of an experiment are said
to be mutually exclusive if the occurrence of one of them precludes the occurrence
of all others in the same trial. For example, the two possible outcomes of toss of a
coin are mutually exclusive. Similarly, the occurrences of the numbers 1, 2, 3, 4, 5,
6 in the roll of a six faced die are mutually exclusive.
3. Exhaustive outcomes: It is the totality of all possible outcomes of a random
experiment. The number of exhaustive outcomes in the roll of a die are six. Similarly,
there are 52 exhaustive outcomes in the experiment of drawing a card from a pack
of 52 cards.
4. Event: The occurrence or non-occurrence of a phenomenon is called an event.
For example, in the toss of two coins, there are four exhaustive outcomes, viz.
(H, H), (H, T), (T, H), (T, T). The events associated with this experiment can be
defined in a number of ways. For example, (i) the event of occurrence of head on
both the coins, (ii) the event of occurrence of head on at least one of the two coins,
(iii) the event of non-occurrence of head on the two coins, etc.
An event can be simple or composite depending upon whether it corresponds to a single
outcome of the experiment or not. In the example, given above, the event defined by (i)
is simple, while those defined by (ii) and (iii) are composite events.
Example 1: What is the probability of obtaining a head in the toss of an unbiased coin?
Solution: This experiment has two possible outcomes, i.e., occurrence of a head or tail.
These two outcomes are mutually exclusive and exhaustive. Since the coin is given to be
unbiased, the two outcomes are equally likely. Thus, all the conditions of the classical
definition are satisfied.
Probability
301
No. of cases favourable to the occurrence of head = 1
No. of exhaustive cases = 2
\ Probability of obtaining head
( )
1
2
P H
.
Example 2: What is the probability of obtaining at least one head in the simultaneous
toss of two unbiased coins?
Solution: The equally likely, mutually exclusive and exhaustive outcomes of the experiment
are (H, H), (H, T), (T, H) and (T, T), where H denotes a head and T denotes a tail.
Thus, n = 4.
Let A be the event that at least one head occurs. This event corresponds the first three
outcomes of the random experiment. Therefore, m = 3.
Hence, probability that A occurs, i.e.,
( )
3
4
P A
.
Example 3: Find the probability of obtaining an odd number in the roll of an unbiased
die.
Solution: The number of equally likely, mutually exclusive and exhaustive outcomes,
i.e., n = 6. There are three odd numbers out of the numbers 1, 2, 3, 4, 5 and 6. Therefore,
m = 3.
Thus, probability of occurrence of an odd number
3 1
6 2
= =
.
Example 4: What is the chance of drawing a face card in a draw from a pack of 52
well-shuffled cards?
Solution: Total possible outcomes n = 52.
Since the pack is well-shuffled, these outcomes are equally likely. Further, since only one
card is to be drawn, the outcomes are mutually exclusive.
There are 12 face cards, \ m = 12.
Thus, probability of drawing a face card
12 3
52 13
= =
.
Example 5: What is the probability that a leap year selected at random will contain 53
Sundays?
Solution: A leap year has 366 days. It contains 52 complete weeks, i.e, 52 Sundays. The
remaining two days of the year could be anyone of the following pairs :
(Monday, Tuesday), (Tuesday, Wednesday), (Wednesday, Thursday), (Thursday, Friday),
(Friday, Saturday), (Saturday, Sunday), (Sunday, Monday). Thus, there are seven
possibilities out of which last two are favourable to the occurrence of 53rd Sunday.
Hence, the required probability =
2
7
.
Example 6: Find the probability of throwing a total of six in a single throw with two
unbiased dice.
Solution: The number of exhaustive cases n = 36, because with two dice all the possible
outcomes are :
(1, 1), (1, 2), (1, 3), (1, 4), (1, 5), (1, 6),
(2, 1), (2, 2), (2, 3), (2, 4), (2, 5), (2, 6),
(3, 1), (3, 2), (3, 3), (3, 4), (3, 5), (3, 6),
(4, 1), (4, 2), (4, 3), (4, 4), (4, 5), (4, 6),
(5, 1), (5, 2), (5, 3), (5, 4), (5, 5), (5, 6),
(6, 1), (6, 2), (6, 3), (6, 4), (6, 5), (6, 6).
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Out of these outcomes the number of cases favourable to the event A of getting 6 are :
(1, 5), (2, 4), (3, 3), (4, 2), (5, 1). Thus, we have m = 5.
( )
5
36
\ = P A
Example 7: A bag contains 15 tickets marked with numbers 1 to 15. One ticket is
drawn at random. Find the probability that:
(i) the number on it is greater than 10,
(ii) the number on it is even,
(iii) the number on it is a multiple of 2 or 5.
Solution: Number of exhaustive cases n = 15
(i) Tickets with number greater than 10 are 11, 12, 13, 14 and 15. Therefore, m = 5 and
hence the required probability =
5
15
=
1
3
(ii) Number of even numbered tickets m = 7
\ Required probability =
7
15
.
(iii) The multiple of 2 are : 2, 4, 6, 8, 10, 12, 14 and the multiple of 5 are : 5, 10, 15.
\ m = 9 (note that 10 is repeated in both multiples will be counted only once).
Thus, the required probability =
9
15
=
3
5
10.3 COUNTING TECHNIQUES
Counting techniques or combinatorial methods are often helpful in the enumeration of
total number of outcomes of a random experiment and the number of cases favourable
to the occurrence of an event.
Fundamental Principle of Counting
If the first operation can be performed in any one of the m ways and then a second
operation can be performed in any one of the n ways, then both can be performed
together in any one of the m
n ways.
This rule can be generalised. If first operation can be performed in any one of the n
1
ways, second operation in any one of the n
2
ways, ...... kth operation in any one of the n
k
ways, then together these can be performed in any one of the n
1
n
2
...... n
k
ways.
Permutation
A permutation is an arrangement of a given number of objects in a definite order.
(a) Permutations of n objects: The total number of permutations of n distinct objects
is n!. Using symbols, we can write
n
P
n
= n!, (where n denotes the permutations of
n objects, all taken together).
Let us assume there are n persons to be seated on n chairs. The first chair can be
occupied by any one of the n persons and hence, there are n ways in which it can
be occupied. Similarly, the second chair can be occupied in n - 1 ways and so on.
Using the fundamental principle of counting, the total number of ways in which n
chairs can be occupied by n persons or the permutations of n objects taking all at a
time is given by :
n
P
n
= n(n 1)(n 2) ...... 3.2.1 = n!
(b) Permutations of n objects taking r at a time: In terms of the example, considered
above, now we have n persons to be seated on r chairs, where r n.
Thus,
n
P
r
= n(n 1)(n 2) ...... [n (r 1)] = n(n 1)(n 2) ...... (n r + 1).
Probability
303
On multiplication and division of the R.H.S. by (n - r)!, we get
n
r
P
n n n n r n r
n r
n
n r
1 2 1 b gb g b gb g
b g
.... !
!
!
( )!
(c) Permutations of n objects taking r at a time when any object may be repeated
any number of times: Here, each of the r places can be filled in n ways. Therefore,
total number of permutations is n
r
.
(d) Permutations of n objects in a circular order: Suppose that there are three
persons A, B and C, to be seated on the three chairs 1, 2 and 3, in a circular order.
Then, the following three arrangements are identical:
Figure 10.1
Similarly, if n objects are seated in a circle, there will be n identical arrangements of
the above type. Thus, in order to obtain distinct permutation of n objects in circular
order we divide
n
P
n
by n, where
n
P
n
denotes number of permutations in a row.
Hence, the number of permutations in a circular order
( )
!
1 !
n
n
n
(e) Permutations with restrictions: If out of n objects n
1
are alike of one kind, n
2
are
alike of another kind, ...... n
k
are alike, the number of permutations are
1 2
!
! ! .... !
k
n
n n n
Since permutation of n
i
objects, which are alike, is only one (i = 1, 2, ...... k).
Therefore, n! is to be divided by n
1
!, n
2
! .... n
k
!, to get the required permutations.
Example 8: What is the total number of ways of simultaneous throwing of (i) 3 coins,
(ii) 2 dice and (iii) 2 coins and a die ?
Solution:
(i) Each coin can be thrown in any one of the two ways, i.e, a head or a tail,
therefore, the number of ways of simultaneous throwing of 3 coins = 2
3
= 8.
(ii) Similarly, the total number of ways of simultaneous throwing of two dice is equal to
6
2
= 36 and
(iii) The total number of ways of simultaneous throwing of 2 coins and a die
is equal to 2
2
6 = 24.
Example 9: A person can go from Delhi to Port-Blair via Allahabad and Calcutta using
following mode of transport :
In how many different ways the journey can be planned?
Solution: The journey from Delhi to Port-Blair can be treated as three operations; From
Delhi to Allahabad, from Allahabad to Calcutta and from Calcutta to Port-Blair. Using
the fundamental principle of counting, the journey can be planned in 4
2 = 32 ways.
Delhi to Allahabad Allahabad to Calcutta Calcutta to Port-Blair
By Rail By Rail By Air
By Bus By Bus By Ship
By Car By Car
By Air By Air
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Example 10: In how many ways the first, second and third prize can be given to 10
competitors?
Solution: There are 10 ways of giving first prize, nine ways of giving second prize and
eight ways of giving third prize. Therefore, total no. ways is 10
8 = 720.
Alternative method:
Here n = 10 and r = 3, \
( )
10
3
10!
720
10 3 !
= =
-
P
Example 11:
(a) There are 5 doors in a room. In how many ways can three persons enter the room
using different doors?
(b) A lady is asked to rank 5 types of washing powders according to her preference.
Calculate the total number of possible rankings.
(c) In how many ways 6 passengers can be seated on 15 available seats.
(d) If there are six different trains available for journey between Delhi to Kanpur,
calculate the number of ways in which a person can complete his return journey by
using a different train in each direction.
(e) In how many ways President, Vice-President, Secretary and Treasurer of an
association can be nominated at random out of 130 members?
Solution:
(a) The first person can use any of the 5 doors and hence can enter the room in 5
ways. Similarly, the second person can enter in 4 ways and third person can enter
in 3 ways. Thus, the total number of ways is
5
3
5!
60
2!
= = P
.
(b) Total number of rankings are
5
5
5!
120
0!
= = P
. (Note that 0! = 1)
(c) Total number of ways of seating 6 passengers on 15 seats are
15
6
15!
9!
= = P
36,03,600.
(d) Total number of ways of performing return journey, using different train in each
direction are 6
.
Note: (a) Since
n
C
r
n
C
n r
, therefore,
n
C
r
is also equal to the combinations of n
objects taking (n - r) at a time.
(b) The total number of combinations of n distinct objects taking 1, 2, ...... n
respectively, at a time is
1 2
...... 2 1
n n n n
n
C C C + + + = - .
Example 16:
(a) In how many ways two balls can be selected from 8 balls?
(b) In how many ways a group of 12 persons can be divided into two groups of 7 and
5 persons respectively?
(c) A committee of 8 teachers is to be formed out of 6 science, 8 arts teachers and a
physical instructor. In how many ways the committee can be formed if
1. Any teacher can be included in the committee.
2. There should be 3 science and 4 arts teachers on the committee such that
(i) any science teacher and any arts teacher can be included, (ii) one particular
science teacher must be on the committee, (iii) three particular arts teachers
must not be on the committee?
Solution:
(a) 2 balls can be selected from 8 balls in
8
2
8!
28
2!6!
= = C ways.
(b) Since
n n
r n r
C C
-
=
, therefore, the number of groups of 7 persons out of 12 is also
equal to the number of groups of 5 persons out of 12. Hence, the required number
of groups is
12
7
12!
792
7!5!
= = C
.
Alternative Method: We may regard 7 persons of one type and remaining 5 persons
of another type. The required number of groups are equal to the number of
permutations of 12 persons where 7 are alike of one type and 5 are alike of another
type.
(c) 1. 8 teachers can be selected out of 15 in
15
8
15!
6, 435
8!7!
= = C
ways.
2. (i) 3 science teachers can be selected out of 6 teachers in
6
C
3
ways and 4
arts teachers can be selected out of 8 in
8
C
4
ways and the physical
instructor can be selected in
1
C
1
way. Therefore, the required number
of ways =
6 8 1
3 4 1
C C C = 20 70 1 = 1400.
Probability
307
(ii) 2 additional science teachers can be selected in
5
C
2
ways. The number
of selections of other teachers is same as in (i) above. Thus, the required
number of ways =
5 8 1
2 4 1
C C C = 10
70
1 = 700.
(iii) 3 science teachers can be selected in
6
C
3
ways and 4 arts teachers out
of remaining 5 arts teachers can be selected in
5
C
4
ways.
\ The required number of ways =
6 5
3 4
C C = 20
5 = 100.
Ordered Partitions
1. Ordered Partitions (distinguishable objects)
(a) The total number of ways of putting n distinct objects into r compartments
which are marked as 1, 2, ...... r is equal to r
n
.
Since first object can be put in any of the r compartments in r ways, second
can be put in any of the r compartments in r ways and so on.
(b) The number of ways in which n objects can be put into r compartments such
that the first compartment contains n
1
objects, second contains n
2
objects and
so on the rth compartment contains n
r
objects, where n
1
+ n
2
+ ...... + n
r
= n,
is given by
n!
n
1
!n
2
! ...... n
r
!
.
To illustrate this, let r = 3. Then n
1
objects in the first compartment can be put
in
n
C
n
1
ways. Out of the remaining n n
1
objects, n
2
objects can be put in the
second compartment in
n n
1
C
n
2
ways. Finally the remaining n n
1
n
2
= n
3
objects can be put in the third compartment in one way. Thus, the required
number of ways is
1
1 2
1 2 3
!
! ! !
-
=
n n n
n n
n
C C
n n n
2. Ordered Partitions (identical objects)
(a) The total number of ways of putting n identical objects into r compartments
marked as 1, 2, ...... r, is
n r 1
C
r 1
, where each compartment may have none
or any number of objects.
We can think of n objects being placed in a row and partitioned by the (r 1)
vertical lines into r compartments. This is equivalent to permutations of
(n + r 1) objects out of which n are of one type and (r 1) of another type.
The required number of permutations are
( )
( )
1 !
! 1 !
+ -
-
n r
n r
, which is equal to
( ) 1 n r
n
C
+
or
( )
( )
1
1
n r
r
C
+
.
(b) The total number of ways of putting n identical objects into r compartments is
( ) ( )
( )
1
1
n r r
r
C
+
or
( )
( )
1
1
n
r
C
1
1
n kr r
r
C ,
where k = 0, 1, 2, .... etc. such that
<
n
k
r
.
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Example 17: 4 couples occupy eight seats in a row at random. What is the probability
that all the ladies are sitting next to each other?
Solution: Eight persons can be seated in a row in 8! ways.
We can treat 4 ladies as one person. Then, five persons can be seated in a row in 5!
ways. Further, 4 ladies can be seated among themselves in 4! ways.
\ The required probability =
5!4! 1
8! 14
=
Example 18: 12 persons are seated at random (i) in a row, (ii) in a ring. Find the
probabilities that three particular persons are sitting together.
Solution:
(i) The required probability =
10!3! 1
12! 22
=
(ii) The required probability = =
9!3! 3
11! 55
.
Example 19: 5 red and 2 black balls, each of different sizes, are randomly laid down in
a row. Find the probability that
(i) the two end balls are black,
(ii) there are three red balls between two black balls and
(iii) the two black balls are placed side by side.
Solution: The seven balls can be placed in a row in 7! ways.
(i) The black can be placed at the ends in 2! ways and, in-between them, 5 red balls
can be placed in 5! ways.
\ The required probability =
2!5! 1
7! 21
=
.
(ii) We can treat BRRRB as one ball. Therefore, this ball along with the remaining two
balls can be arranged in 3! ways. The sequence BRRRB can be arranged in 2! 3!
ways and the three red balls of the sequence can be obtained from 5 balls in
5
C
3
ways.
\ The required probability =
5
3
3!2!3! 1
7! 7
= C
.
(iii) The 2 black balls can be treated as one and, therefore, this ball along with 5 red
balls can be arranged in 6! ways. Further, 2 black ball can be arranged in 2! ways.
\ The required probability =
6!2! 2
7! 7
=
Example 20: Each of the two players, A and B, get 26 cards at random. Find the
probability that each player has an equal number of red and black cards.
Solution: Each player can get 26 cards at random in
52
C
26
ways.
In order that a player gets an equal number of red and black cards, he should have 13
cards of each colour, note that there are 26 red cards and 26 black cards in
a pack of playing cards. This can be done in
26
C
13
26
C
13
ways. Hence, the required
probability =
26 26
13 13
52
26
C C
C
.
Probability
309
Example 21: 8 distinguishable marbles are distributed at random into 3 boxes marked
as 1, 2 and 3. Find the probability that they contain 3, 4 and 1 marbles respectively.
Solution: Since the first, second .... 8th marble, each, can go to any of the three boxes in
3 ways, the total number of ways of putting 8 distinguishable marbles into three
boxes is 3
8
.
The number of ways of putting the marbles, so that the first box contains 3 marbles,
second contains 4 and the third contains 1, are
8!
3! 4!1!
\ The required probability =
8
8! 1 280
3!4!1! 3 6561
=
.
Example 22: 12 'one rupee' coins are distributed at random among 5 beggars A, B, C,
D and E. Find the probability that :
(i) They get 4, 2, 0, 5 and 1 coins respectively.
(ii) Each beggar gets at least two coins.
(iii) None of them goes empty handed.
Solution: The total number of ways of distributing 12 one rupee coins among 5 beggars
are
12 5 1 16
5 1 4
1820
+ -
-
= = C C .
(i) Since the distribution 4, 2, 0, 5, 1 is one way out of 1820 ways, the required probability
=
1
1820
.
(ii) After distributing two coins to each of the five beggars, we are left with two coins,
which can be distributed among five beggars in
2 5 1 6
5 1 4
15
+ -
-
= = C C ways.
\ The required probability =
15
1820
=
3
364
(iii) No beggar goes empty handed if each gets at least one coin. 7 coins, that are left
after giving one coin to each of the five beggars, can be distributed among five
beggars in
7 5 1 11
5 1 4
330
+ -
-
= = C C ways.
\ The required probability =
330
1820
=
33
182
10.4 STATISTICAL OR EMPIRICAL DEFINITION OF
PROBABILITY
The scope of the classical definition was found to be very limited as it failed to determine
the probabilities of certain events in the following circumstances :
(i) When n, the exhaustive outcomes of a random experiment is infinite.
(ii) When actual value of n is not known.
(iii) When various outcomes of a random experiment are not equally likely.
(iv) This definition doesn't lead to any mathematical treatment of probability.
In view of the above shortcomings of the classical definition, an attempt was made to
establish a correspondence between relative frequency and the probability of an event
when the total number of trials become su1fficiently large.
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Definition (R. Von Mises)
If an experiment is repeated n times, under essentially the identical
conditions and, if, out of these trials, an event A occurs m times, then the probability that
A occurs is given by P(A) =
lim
x
m
n
. Similarly, if A = {e
1
, e
2
, ...... e
m
} is any subset of S consisting of m
elements, where m n, then
( ) ( )
1
m
i
i
P A P e
.Thus, the probability of a sample space
or an event is equal to the sum of probabilities of its elementary events.
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It is obvious from the above that the probability of an event can be determined if the
probabilities of elementary events, belonging to it, are known.
The Assignment of Probabilities to various Elementary Events
The assignment of probabilities to various elementary events of a sample space can be
done in any one of the following three ways :
1. Using Classical Definition: We know that various elementary events of a random
experiment, under the classical definition, are equally likely and, therefore, can be
assigned equal probabilities. Thus, if there are n elementary events in the sample
space of an experiment and in view of the fact that
( ) ( )
1
n
i
i
P S P e
= 1 (from
axiom II), we can assign a probability equal to
1
n
to every elementary event or,
using symbols, we can write P e
i
c h
1
n
for i = 1, 2, .... n.
Further, if there are m elementary events in an event A, we have,
P A a f
1
n
1
n
......
1
n
m times a f
m
n
n A i e number of elements in A
n S i e number of elements in S
b g
b g
, . . ,
, . . ,
We note that the above expression is similar to the formula obtained under classical
definition.
2. Using Statistical Definition: Using this definition, the assignment of probabilities
to various elementary events of a sample space can be done by repeating an
experiment a large number of times or by using the past records.
3. Subjective Assignment: The assignment of probabilities on the basis of the statistical
and the classical definitions is objective. Contrary to this, it is also possible to have
subjective assignment of probabilities. Under the subjective assignment, the
probabilities to various elementary events are assigned on the basis of the
expectations or the degree of belief of the statistician. These probabilities, also
known as personal probabilities, are very useful in the analysis of various business
and economic problems.
It is obvious from the above that the Modern Definition of probability is a general
one which includes the classical and the statistical definitions as its particular cases.
Besides this, it provides a set of mathematical rules that are useful for further
mathematical treatment of the subject of probability.
Check Your Progress 10.1
1 Explain Exhaustive outcomes with examples.
2. What are combinational methods?
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Probability
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10.6 THEOREMS ON PROBABILITY - I
Theorem 1: P( f ) = 0, where f is a null set.
Proof: For a sample space S of an experiment, we can write S S U .
Taking probability of both sides, we have P S P S U b g b g .
Since S and are mutually exclusive, using axiom III, we can write P(S) + P(f ) =
P(S). Hence, ( ) 0 P .
Theorem 2: P A d i 1 P A a f, where
A
is compliment of A.
Proof: Let A be any event in the sample space S. We can write
( ) ( ) or P = = U U A A S A A P S
Since A and
A
are mutually exclusive, we can write
( ) ( ) ( ) ( ) ( ) 1. Hence, P A 1 + = = = - P A P A P S P A .
Theorem 3: For any two events A and B in a sample space S
( ) ( ) ( ) = - I I P A B P B P A B
Proof: From the Venn diagram, we can write
( ) ( ) = I U I B A B A B or
( ) ( ) ( )
=
I U I P B P A B A B
Since A B I
d i and A B I b g are
mutually exclusive, we have
P B P A B P A B b g d i b g + I I
or P A B P B P A B I I
d i b g b g .
Similarly, it can be shown that
P A B P A P A B I I
d i b g b g
Theorem 4: (Addition of Probabilities):
P A B P A P B P A B U I b g b g b g b g +
Proof: From the Venn diagram, given above, we can write
A B A A B P A B P A A B U U I U U I
d i b g d i
or
Since A and A B I
d i are mutually exclusive, we can write
P A B P A P A B U I b g b g d i
+
Substituting the value of P A B I
d i from theorem 3, we get
P A B P A P B P A B U I b g b g b g b g +
Remarks :
1. If A and B are mutually exclusive, i.e., A B I , then according to theorem 1, we
have P A B I b g 0 . The addition rule, in this case, becomes P A B P A P B U b g b g b g + ,
which is in conformity with axiom III.
Figure. 10.2 Figure. 10.2 Figure. 10.2 Figure. 10.2 Figure. 10.2
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2. The event A B U denotes the occurrence of either A or B or both. Alternatively, it
implies the occurrence of at least one of the two events.
3. The event A B I is a compound event that denotes the simultaneous occurrence of
the two events.
4. Alternatively, the event A B U is also denoted by A + B and the event A B I by
AB.
Corollaries:
1. From the Venn diagram, we can write P A B P A B U I b g d i
1 , where P A B I
d i is
the probability that none of the events A and B occur simultaneously.
2. P A B P A B A B exactly one of and occurs b g d i d i
I U I
+ P A B P A B I I
d i d i
Since A B A B I U I
d i d i
+ P A P A B P B P A B b g b g b g b g I I (using theorem 3)
P A B P A B U I b g b g (using theorem 4)
3. The addition theorem can be generalised for more than two events. If A, B and C
are three events of a sample space S, then the probability of occurrence of at least
one of them is given by
P A B C P A B C U U U U b g b g + P A P B C P A B C b g b g b g U I U
+ P A P B C P A B A C b g b g b g b g U I U I
Applying theorem 4 on the second and third term, we get
+ + + P A P B P C P A B P A C P B C P A B C b g b g b g b g b g b g b g I I I I I .... (1)
Alternatively, the probability of occurrence of at least one of the three events can
also be written as
P A B C P A B C U U I I b g d i
1 .... (2)
If A, B and C are mutually exclusive, then equation (1) can be written as
P A B C P A P B P C U U b g b g b g b g + + .... (3)
If A
1
, A
2
, ...... A
n
are n events of a sample space S, the respective equations (1),
(2) and (3) can be modified as
P A A A P A P A A P A A A
n i i j i j k 1 2
U U I I I ... b g b g d i d i
+
+ 1
1 2
b g b g
n
n
P A A A I I I ... ( i j k , etc. ) .... (4)
P A A A P A A A
n n 1 2 1 2
1 U U U I I I ... ... b g d i
.... (5)
P A A A P A
n i
i
n
1 2
1
U U U ... b g b g
.... (6)
(if the events are mutually exclusive)
4. The probability of occurrence of at least two of the three events can be written as
P A B B C A C P A B P B C P A C I U I U I I I I b g b g b g b g b g b g + +
3P A B C P A B C I I I I b g b g +
+ + P A B P B C P A C P A B C I I I I I b g b g b g b g 2
Probability
315
5. The probability of occurrence of exactly two of the three events can be written as
P A B C A B C A B C P A B B C A C I I U I I U I I I U I U I
d i d i d i b g b g b g
P A B C I I b g (using corollary 2)
+ + P A B P B C P A C P A B C I I I I I b g b g b g b g 3 (using corollary 4)
6. The probability of occurrence of exactly one of the three events can be written as
P A B C A B C A B C I I U I I U I I
d i d i d i = P(at least one of the three events occur)
- P(at least two of the three events occur).
+ + + P A P B P C P A B P B C P A C P A B C b g b g b g b g b g b g b g 2 3 2 3 I I I I I .
Example 23: In a group of 1,000 persons, there are 650 who can speak Hindi, 400 can
speak English and 150 can speak both Hindi and English. If a person is selected at
random, what is the probability that he speaks (i) Hindi only, (ii) English only, (iii) only one
of the two languages, (iv) at least one of the two languages?
Solution: Let A denote the event that a person selected at random speaks Hindi and B
denotes the event that he speaks English.
Thus, we have n(A) = 650, n(B) = 400, n A B I b g 150 and n(S) = 1000, where
n(A), n(B), etc. denote the number of persons belonging to the respective event.
(i) The probability that a person selected at random speaks Hindi only, is given by
P A B
n A
n S
n A B
n S
I
I
d i
b g
b g
b g
b g
650
1000
150
1000
1
2
(ii) The probability that a person selected at random speaks English only, is given
by P A B
n B
n S
n A B
n S
I
I
d i
b g
b g
b g
b g
400
1000
150
1000
1
4
(iii) The probability that a person selected at random speaks only one of the languages,
is given by
P A B A B P A P B P A B I U I I
d i d i b g b g b g + 2 (see corollary 2)
n A n B n A B
n S
b g b g b g
b g
2 650 400 300
1000
3
4
I
(iv) The probability that a person selected at random speaks at least one of the languages,
is given by
P A B U b g
+
500 250
1000
3
4
(iv)
P A B U b g
+ +
26 4 2
52
7
13
Alternative Method: The given information can be written in the form of the following
table:
From the above, we can write
P A B P A B U I b g d i
1 1
24
52
7
13
Example 25: A pair of unbiased dice is thrown. Find the probability that (i) the sum of
spots is either 5 or 10, (ii) either there is a doublet or a sum less than 6.
Solution: Since the first die can be thrown in 6 ways and the second also in 6 ways,
therefore, both can be thrown in 36 ways (fundamental principle of counting). Since both
the dice are given to be unbiased, 36 elementary outcomes are equally likely.
(i) Let A be the event that the sum of spots is 5 and B be the event that their sum is
10. Thus, we can write
A = {(1, 4), (2, 3), (3, 2), (4, 1)} and B = {(4, 6), (5, 5), (6, 4)}
We note that A B I b g , i.e. A and B are mutually exclusive.
\ By addition theorem, we have
P A B P A P B U b g b g b g + +
4
36
3
36
7
36
.
(ii) Let C be the event that there is a doublet and D be the event that the sum is less
than 6. Thus, we can write
C = {(1, 1), (2, 2), (3, 3), (4, 4), (5, 5), (6, 6)} and
D = {(1, 1), (1, 2), (1, 3), (1, 4), (2, 1), (2, 2), (2, 3), (3, 1), (3, 2), (4, 1)}
Further, C D I b g = {(1, 1), (2, 2)}
By addition theorem, we have
P C D U b g +
6
36
10
36
2
36
7
18
.
B B Total
A 2 24 26
A 2 24 26
Total 4 48 52
Probability
317
Alternative Methods:
(i) It is given that n(A) = 4, n(B) = 3 and n(S) = 36. Also n A B I b g 0 . Thus, the
corresponding nine-square table can be written as follows :
B B Total
A
A
Total
0 4 4
3 29 32
3 33 36
From the above table, we have
P A B U b g 1
29
36
7
36
.
(ii) Here n(C) = 6, n(D) = 10, n C D I b g 2 and n(S) = 36. Thus, we have
C C Total
D
D
Total
2 8 10
4 22 26
6 30 36
Thus,
P C D P C D U I b g d i
1 1
22
36
7
18
.
Example 26: Two unbiased coins are tossed. Let A
1
be the event that the first coin
shows a tail and A
2
be the event that the second coin shows a head. Are A
1
and A
2
mutually exclusive? Obtain P A A
1 2
I b g and P A A
1 2
U b g . Further, let A
1
be the event that
both coins show heads and A
2
be the event that both show tails. Are A
1
and A
2
mutually
exclusive? Find P A A
1 2
I b g and P A A
1 2
U b g .
Solution: The sample space of the experiment is S = {(H, H), (H, T), (T, H), (T, T)}
(i) A
1
= {(T, H), (T, T)} and A
2
= {(H, H), (T, H)}
Also A A
1 2
I b g = {(T, H)}, Since
1 2
A A n , A
1
and A
2
are not mutually exclusive.
Further, the coins are given to be unbiased, therefore, all the elementary events are
equally likely.
\
P A P A P A A
1 2 1 2
2
4
1
2
2
4
1
2
1
4
b g b g b g , , I
Thus,
P A A
1 2
1
2
1
2
1
4
3
4
U b g +
.
(ii) When both the coins show heads; A
1
= {(H, H)}
When both the coins show tails; A
2
= {(T, T)}
Here A A A A
1 2 1 2
I , and are mutually exclusive.
Thus,
P A A
1 2
1
4
1
4
1
2
U b g +
.
Alternatively, the problem can also be attempted by making the following nine-
square tables for the two cases :
(i) A
2
A
2
Total
A
1
A
1
Total
1 1 2
1 1 2
2 2 4
(ii) A
2
A
2
Total
0 1 1
1 2 3
1 3 4
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Theorem 5: Multiplication or Compound Probability Theorem: A compound event
is the result of the simultaneous occurrence of two or more events. For convenience, we
assume that there are two events, however, the results can be easily generalised. The
probability of the compound event would depend upon whether the events are independent
or not. Thus, we shall discuss two theorems; (a) Conditional Probability Theorem, and
(b) Multiplicative Theorem for Independent Events.
(a) Conditional Probability Theorem: For any two events A and B in a sample space
S, the probability of their simultaneous occurrence, is given by
( ) ( ) ( ) I / P A B P A P B A
or equivalently =P(B)P(A/B)
Here, P(B/A) is the conditional probability of B given that A has already occurred.
Similar interpretation can be given to the term P(A/B).
Proof: Let all the outcomes of the random experiment be equally likely. Therefore,
P A B
n A B
n S
A B
I
I I
b g
b g
b g
b g
no. of elements in
no. of elements in sample space
For the event B/A, the sample space is the set of elements in A and out of these the
number of cases favourable to B is given by n A B I b g .
\ P B A
n A B
n A
/ b g
b g
b g
I
.
If we multiply the numerator and denominator of the above expression by
n(S), we get
P B A
n A B
n A
n S
n S
P A B
P A
/ b g
b g
b g
b g
b g
b g
b g
I I
or P A B P A P B A I b g b g b g . / .
The other result can also be shown in a similar way.
Note: To avoid mathematical complications, we have assumed that the elementary events
are equally likely. However, the above results will hold true even for the cases where the
elementary events are not equally likely.
(b) Multiplicative Theorem for Independent Events: If A and B are independent, the
probability of their simultaneous occurrence is given by P A B P A P B I b g b g b g . .
Proof: We can write A A B A B I U I b g d i .
Since A B I b g and A B I
d i are mutually exclusive, we have
P A P A B P A B b g b g d i
+ I I (by axiom III)
( ) ( ) ( ) ( )
. / . / P B P A B P B P A B +
If A and B are independent, then proportion of A's in B is equal to proportion of A's in
B s, i.e., P A/B a f P A/B d i .
Thus, the above equation can be written as
( )
600 30 400 5
200
100 100
n B
+
Probability
319
Substituting this value in the formula of conditional probability theorem, we get
P A B P A P B I b g b g b g . .
Corollaries:
1. (i) If A and B are mutually exclusive and P(A).P(B) > 0, then they cannot be
independent since P A B I b g 0 .
(ii) If A and B are independent and P(A).P(B) > 0, then they cannot be mutually
exclusive since P A B I b g > 0 .
2. Generalisation of Multiplicative Theorem :
If A, B and C are three events, then
P A B C P A P B A P C A B I I I b g b g b g b g . / . /
Similarly, for n events A
1
, A
2
, ...... A
n
, we can write
P A A A P A P A A P A A A
P A A A A
n
n n
1 2 1 2 1 3 1 2
2 1
I I I I
I I I
...
... ...
1
b g b g b g b g
b g
. / . /
/
Further, if A
1
, A
2
, ...... A
n
are independent, we have
P A A A P A P A P A
n n 1 2 1 2
I I I ... .... b g b g b g b g . .
3. If A and B are independent, then A and B , A and B, A and B
are also
independent.
We can write ( ) ( ) ( ) P A B P A P A B = - I I (by theorem 3)
P A a f P A a f. P B a f P A a f 1 P B a f P A a f. P B d i , which shows that A and B are
independent. The other results can also be shown in a similar way.
4. The probability of occurrence of at least one of the events A
1
, A
2
, ...... A
n
, is given
by ( ) ( )
1 2 1 2
.... 1 .... = - U U U I I I
n n
P A A A P A A A .
If A
1
, A
2
, ...... A
n
are independent then their compliments will also be independent,
therefore, the above result can be modified as
( ) ( ) ( ) ( )
1 2 1 2
.... 1 . .... = - U U U
n n
P A A A P A P A P A .
Pair-wise and Mutual Independence
Three events A, B and C are said to be mutually independent if the following conditions
are simultaneously satisfied :
( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) . , . , . = = = I I I P A B P A P B P B C P B P C P A C P A P C
( ) ( ) ( ) ( ) and . . = I I P A B C P A P B P C .
If the last condition is not satisfied, the events are said to be pair-wise independent.
From the above we note that mutually independent events will always be pair-wise
independent but not vice-versa.
Example 27: Among 1,000 applicants for admission to M.A. economics course in a
University, 600 were economics graduates and 400 were non-economics graduates;
30% of economics graduate applicants and 5% of non-economics graduate applicants
obtained admission. If an applicant selected at random is found to have been given
admission, what is the probability that he/she is an economics graduate?
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Solution: Let A be the event that the applicant selected at random is an economics
graduate and B be the event that he/she is given admission.
We are given n(S) = 1000, n(A) = 600, ( )
400 = n A
Also,
( )
600 30 400 5
200
100 100
n B
+
and ( )
600 30
180
100
= = I n A B
Thus, the required probability is given by ( )
( )
( )
180 9
/
200 10
= = =
I n A B
P A B
n B
Alternative Method: Writing the given information in a nine-square table, we have :
B B Total
A
A
Total
180 420 600
20 380 400
200 800 1000
From the above table we can write ( )
180 9
/
200 10
= = P A B
Example 28: A bag contains 2 black and 3 white balls. Two balls are drawn at random
one after the other without replacement. Obtain the probability that (a) Second ball is
black given that the first is white, (b) First ball is white given that the second is black.
Solution: First ball can be drawn in any one of the 5 ways and then a second ball can be
drawn in any one of the 4 ways. Therefore, two balls can be drawn in 5 4 = 20 ways.
Thus, n(S) = 20.
(a) Let A
1
be the event that first ball is white and A
2
be the event that second is black.
We want to find P A
2
/A
1
c h.
First white ball can be drawn in any of the 3 ways and then a second ball can be
drawn in any of the 4 ways, \ n(A
1
) = 3 4 = 12.
Further, first white ball can be drawn in any of the 3 ways and then a black ball can
be drawn in any of the 2 ways, \ n A A
1 2
3 2 6 I b g .
Thus,
( )
( )
( )
1 2
2 1
1
6 1
/
12 2
= = =
I n A A
P A A
n A
.
(b) Here we have to find P A
1
/A
2
c h.
The second black ball can be drawn in the following two mutually exclusive ways:
(i) First ball is white and second is black or
(ii) both the balls are black.
Thus, n(A
2
) = 32 + 21 = 8,
( )
( )
( )
1 2
1 2
2
6 3
/
8 4
= = =
I n A A
P A A
n A
.
Alternative Method: The given problem can be summarised into the following nine-
square table:
B B Total
A
A
Total
6 6 12
2 6 8
8 12 20
The required probabilities can be directly written from the above table.
Probability
321
Example 29: Two unbiased dice are tossed. Let w denote the number on the first die
and r denote the number on the second die. Let A be the event that w + r 4 and B be
the event that w + r 3. Are A and B independent?
Solution: The sample space of this experiment consists of 36 elements, i.e., n(S) = 36.
Also, A = {(1, 1), (1, 2), (1, 3), (2, 1), (2, 2), (3, 1)} and B = {(1, 1), (1, 2), (2, 1)}.
From the above, we can write
( ) ( )
6 1 3 1
,
36 6 36 12
= = = = P A P B
( ) ( )
3 1
Also {(1,1), (1, 2), (2,1)}
36 12
= \ = = I I A B P A B
Since P A B P A P B I b g b g b g , A and B are not independent.
Example 30: It is known that 40% of the students in a certain college are girls and 50%
of the students are above the median height. If 2/3 of the boys are above median height,
what is the probability that a randomly selected student who is below the median height
is a girl?
Solution: Let A be the event that a randomly selected student is a girl and B be the
event that he/she is above median height. The given information can be summarised into
the following table :
B B Total
A
A
Total
10 30 40
40 20 60
50 50 100
From the above table, we can write ( )
30
/ 0.6
50
= = P A B
.
Example 31: A problem in statistics is given to three students A, B and C, whose
chances of solving it independently are
1
2
,
1
3
and
1
4
respectively. Find the probability
that
(a) the problem is solved.
(b) at least two of them are able to solve the problem.
(c) exactly two of them are able to solve the problem.
(d) exactly one of them is able to solve the problem.
Solution: Let A be the event that student A solves the problem. Similarly, we can define
the events B and C. Further, A, B and C are given to be independent.
(a) The problem is solved if at least one of them is able to solve it. This probability is
given by
( ) ( ) ( ) ( )
1 2 3 3
1 . . 1
2 3 4 4
= - = - = U U P A B C P A P B P C
(b) Here we have to find ( ) ( ) ( ) I U I U I P A B B C A C 1
]
P A B B C A C P A P B P B P C P A P C
P A P B P C
I U I U I b g b g b g b g b g b g b g b g b g
b g b g b g
+ +
2
=
1 1 1 1 1 1 1 1 1 7
2.
2 3 3 4 2 4 2 3 4 24
+ + - =
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322
(c) The required probability is given by P A B C A B C A B C I I U I I U I I
d i d i d i
= ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) . . . 3 . . + + - P A P B P B P C P A P C P A P B P C
=
1 1 1 1
6 12 8 8
+ + -
=
1
4
.
(d) The required probability is given by
P A B C A B C A B C I I U I I U I I
d i d i d i
= P(A) + P(B) + P(C) 2P(A).P(B) 2P(B).P(C) 2P(A). P(C)
+ 3 P(A).P(B).P(C)
+ + +
1 1 1 1 1 1 1 11
.
2 3 4 3 6 4 8 24
Note that the formulae used in (a), (b), (c) and (d) above are the modified forms of
corollaries (following theorem 4) 3, 4, 5 and 6 respectively.
Example 32: A bag contains 2 red and 1 black ball and another bag contains 2 red and
2 black balls. One ball is selected at random from each bag. Find the probability of
drawing (a) at least a red ball, (b) a black ball from the second bag given that ball from
the first is red; (c) show that the event of drawing a red ball from the first bag and the
event of drawing a red ball from the second bag are independent.
Solution: Let A
1
be the event of drawing a red ball from the first bag and A
2
be the
event of drawing a red ball from the second bag. Thus, we can write:
n A A n A A
1 2 1 2
2 2 4 2 2 4 I I b g d i
, ,
n A A n A A
1 2 1 2
1 2 2 1 2 2 I I
d i d i
,
Also, n S n A A n A A n A A n A A b g b g d i d i d i
+ + +
1 2 1 2 1 2 1 2
12 I I I I
Writing the given information in the form of a nine-square table, we get
(a) The probability of drawing at least a red ball is given by
P A A
n A A
n S
1 2
1 2
1 1
2
12
5
6
U
I
b g
d i
b g
(b) We have to find P A
2
/A
1
d i
P A A
n A A
n A
2 1
1 2
1
4
8
1
2
/
d i
d i
b g
I
(c) A
1
and A
2
will be independent if P A A P A P A
1 2 1 2
I b g b g b g .
Now P A A
n A A
n S
1 2
1 2
4
12
1
3
I
I
b g
b g
b g
( ) ( )
( )
( )
( )
( )
1 2
1 2
8 6 1
. .
12 12 3
n A n A
P A P A
n S n S
Hence, A
1
and A
2
are independent.
2
A A Total
A
A
Total
2
1
1
4 4 8
2 2 4
6 6 12
Probability
323
Example 33: An urn contains 3 red and 2 white balls. 2 balls are drawn at random. Find
the probability that either both of them are red or both are white.
Solution: Let A be the event that both the balls are red and B be the event that both the
balls are white. Thus, we can write
n S C n A C n B C n A B b g b g b g b g
5
2
3
2
2
2
10 3 1 0 , , , also I
\ The required probability is P A B
n A n B
n S
U b g
b g b g
b g
3 1
10
2
5
Example 34: A bag contains 10 red and 8 black balls. Two balls are drawn at random.
Find the probability that (a) both of them are red, (b) one is red and the other is black.
Solution: Let A be the event that both the balls are red and B be the event that one is red
and the other is black.
Two balls can be drawn from 18 balls in
18
C
2
equally likely ways.
( )
18
2
18!
153
2!16!
n S C
(a) Two red balls can be drawn from 10 red balls in
10
C
2
ways.
( )
10
2
10!
45
2!8!
n A C
( )
( )
( )
45 5
Thus,
153 17
= = =
n A
P A
n S
(b) One red ball can be drawn in
10
C
1
ways and one black ball can be drawn in
8
C
1
ways.
( )
10 8
1 1
10 8 80 n B C C ( )
80
Thus,
153
= P B
Example 35: Five cards are drawn in succession and without replacement from an
ordinary deck of 52 well-shuffled cards :
(a) What is the probability that there will be no ace among the five cards?
(b) What is the probability that first three cards are aces and the last two cards are
kings?
(c) What is the probability that only first three cards are aces?
(d) What is the probability that an ace will appear only on the fifth draw?
Solution:
(a)
( )
48 47 46 45 44
there is no ace 0.66
52 51 50 49 48
P
(b)
first three card are aces and 4 3 2 4 3
0.0000009
the last two are kings 52 51 50 49 48
P
_
,
(c)
( )
4 3 2 48 47
only first three card are aces 0.00017
52 51 50 49 48
P
(d)
an ace appears only 48 47 46 45 4
0.059
on the fifth draw 52 51 50 49 48
P
_
,
Quantitative Techniques
for Management
324
Example 36: Two cards are drawn in succession from a pack of 52 well-shuffled
cards. Find the probability that :
(a) Only first card is a king.
(b) First card is jack of diamond or a king.
(c) At least one card is a picture card.
(d) Not more than one card is a picture card.
(e) Cards are not of the same suit.
(f) Second card is not a spade.
(g) Second card is not a spade given that first is a spade.
(h) The cards are aces or diamonds or both.
Solution:
( )
4 48 16
(a) only first card is a king .
52 51 221
P
( )
13 39 39 38 3
(f) second card is not a spade .
52 51 52 51 4
P
+
second card is not a spade 39 13
(g) .
given that first is spade 51 17
P
_
,
the cards are aces or 16 15 20
(h) .
diamonds or both 52 51 221
P
_
,
Example 37: The odds are 9 : 7 against a person A, who is now 35 years of age, living
till he is 65 and 3 : 2 against a person B, now 45 years of age, living till he is 75. Find the
chance that at least one of these persons will be alive 30 years hence.
Solution:
Note: If a is the number of cases favourable to an event A and a is the number of cases
favourable to its compliment event (a + a = n), then odds in favour of A are a : a and
odds against A are a : a.
Obviously
( ) ( )
and
a
P A P A
a a
a
= =
+ a + a
.
Let A be the event that person A will be alive 30 years hence and B be the event that
person B will be alive 30 years hence.
( ) ( )
7 7 2 2
and
9 7 16 3 2 5
P A P B
+ +
We have to find P A B U b g . Note that A and B are independent.
\
P A B U b g +
7
16
2
5
7
16
2
5
53
80
Probability
325
Alternative Method:
P A B U b g 1
9
16
3
5
53
80
Example 38: If A and B are two events such that
P A P A B b g d i
2
3
1
6
, and I
P A B I b g
1
3
,
find P(B), P A B U b g , P(A/B), P(B/A), P A B U
d i , P A B I
d i and P B d i.
Also examine whether the events A and B are : (a) Equally likely, (b) Exhaustive, (c)
Mutually exclusive and (d) Independent.
Solution: The probabilities of various events are obtained as follows :
P B P A B P A B b g d i b g + + I I
1
6
1
3
1
2
P A B U b g +
2
3
1
2
1
3
5
6
P A B
P A B
P B
/ b g
b g
b g
I 1
3
2
1
2
3
P B A
P A B
P A
/ b g
b g
b g
I 1
3
3
2
1
2
P A B P A P B P A B U I
d i d i b g d i
+ +
1
3
1
2
1
6
2
3
P A B P A B I U
d i b g 1 1
5
6
1
6
( ) ( )
1 1
1 1
2 2
P B P B
(a) Since P(A) P(B), A and B are not equally likely events.
(b) Since P A B U b g 1, A and B are not exhaustive events.
(c) Since P A B I b g 0 , A and B are not mutually exclusive.
(d) Since P A P B P A B b g b g b g I , A and B are independent events.
Example 39: Two players A and B toss an unbiased die alternatively. He who first
throws a six wins the game. If A begins, what is the probability that B wins the game?
Solution: Let A
i
and B
i
be the respective events that A and B throw a six in I
th
toss, i =
1, 2, .... . B will win the game if any one of the following mutually exclusive events
occur:
1 1 1 1 2 2 1 1 2 2 3 3
or or , etc. A B A B A B A B A B A B
Thus, ( )
5 1 5 5 5 1 5 5 5 5 5 1
B wins ......
6 6 6 6 6 6 6 6 6 6 6 6
P + + +
2 4
2
5 5 5 5 1 5
1 ......
36 6 6 36 11
5
1
6
1
_ _
+ + +
1
, ,
_ 1
]
,
Quantitative Techniques
for Management
326
Example 40: A bag contains 5 red and 3 black balls and second bag contains 4 red and
5 black balls.
(a) If one ball is selected at random from each bag, what is the probability that both of
them are of same colour?
(b) If a bag is selected at random and two balls are drawn from it, what is the probability
that they are of (i) same colour, (ii) different colours?
Solution:
(a) Required Probability =
1 1
+
1 1
] ]
Probability that ball Probability that balls
from both bags are red from both bags are black
5 4 3 5 35
8 9 8 9 72
+
(b) Let A be the event that first bag is drawn so that A
denotes the event that second
bag is drawn. Since the two events are equally likely, mutually exclusive and
exhaustive, we have ( ) ( )
1
2
= = P A P A
.
(i) Let R be the event that two drawn balls are red and B be the event that they
are black. The required probability is given by
( ) ( ) ( ) ( ) ( ) ( )
/ / / / P A P R A P B A P A P R A P B A
1 1 + + +
] ]
=
5 3 4 5
2 2 2 2
8 9
2 2
1 1 1 10 3 1 6 10 229
2 2 2 28 2 36 504
+ + + +
+ = + =
C C C C
C C
(ii) Let C denote the event that the drawn balls are of different colours. The
required probability is given by
( ) ( ) ( ) ( ) ( )
/ / = + P C P A P C A P A P C A
8 9
2 2
1 5 3 1 4 5 1 15 20 275
2 2 2 28 36 504 C C
1 1 1
+ +
1 1
1
]
] ]
Example 41: There are two urns U
1
and U
2
. U
1
contains 9 white and 4 red balls and U
2
contains 3 white and 6 red balls. Two balls are transferred from U
1
to U
2
and then a ball
is drawn from U
2
. What is the probability that it is a white ball?
Solution: Let A be the event that the two transferred balls are white, B be the event that
they are red and C be the event that one is white and the other is red. Further, let W be
the event that a white ball is drawn from U
2
. The event W can occur with any one of the
mutually exclusive events A, B and C.
( ) ( ) ( ) ( ) ( ) ( ) ( ) . / / / = + + P W P A P W A P B P W B P C P W C
=
9 4
2 2
13 13 13
2 2 2
5 3 9 4 4 57
11 11 11 143
+ + =
C C
C C C
Example 42: A bag contains tickets numbered as 112, 121, 211 and 222. One ticket is
drawn at random from the bag. Let E
i
(i = 1, 2, 3) be the event that i th digit on the ticket
is
2. Discuss the independence of E
1
, E
2
and E
3
.
Probability
327
Solution: The event E
1
occurs if the number on the drawn ticket 211 or 222, therefore,
( )
1
1
2
P E =
. Similarly
( )
2
1
2
P E =
and
( )
3
1
2
P E =
.
Now
P E E
i j
I
d i
1
4
(i, j = 1, 2, 3 and i j).
Since P E E P E P E
i j i j
I
d i b g d i
for i j, therefore E
1
, E
2
and E
3
are pair-wise independent.
Further,
P E E E P E P E P E
1 2 3 1 2 3
1
4
I I b g b g b g b g . .
, therefore, E
1
, E
2
and E
3
are not
mutually independent.
Example 43: Probability that an electric bulb will last for 150 days or more is 0.7 and
that it will last at the most 160 days is 0.8. Find the probability that it will last between 150
to 160 days.
Solution: Let A be the event that the bulb will last for 150 days or more and B be the
event that it will last at the most 160 days. It is given that P(A) = 0.7 and P(B) = 0.8.
The event A B U is a certain event because at least one of A or B is bound to occur.
Thus, P A B U b g 1. We have to find P A B I b g . This probability is given by
P A B P A P B P A B I U b g b g b g b g + + 07 08 10 05 . . . .
Example 44: The odds that A speaks the truth are 2 : 3 and the odds that B speaks the
truth are 4 : 5. In what percentage of cases they are likely to contradict each other on an
identical point?
Solution: Let A and B denote the respective events that A and B speak truth. It is given
that
( ) ( )
2 4
and
5 9
P A P B
.
The event that they contradict each other on an identical point is given by A B A B I U I
d i d i ,
where A B A B I I
d i d i
and are mutually exclusive. Also A and B are independent events.
Thus, we have
P A B A B P A B P A B P A P B P A P B I U I I I
d i d i d i d i b g d i d i b g + + . .
2 5 3 4 22
0.49
5 9 5 9 45
+
Hence, A and B are likely to contradict each other in 49% of the cases.
Example 45: The probability that a student A solves a mathematics problem is
2
5
and
the probability that a student B solves it is
2
3
. What is the probability that (a) the problem
is not solved, (b) the problem is solved, (c) Both A and B, working independently of each
other, solve the problem?
Solution: Let A and B be the respective events that students A and B solve the problem.
We note that A and B are independent events.
a P A B P A P B b g d i d i d i
I .
3
5
1
3
1
5
Quantitative Techniques
for Management
328
b P A B P A B b g b g d i
U I 1 1
1
5
4
5
c P A B P A P B b g b g b g b g I
2
5
2
3
4
15
Example 46: A bag contains 8 red and 5 white balls. Two successive drawings of 3
balls each are made such that (i) balls are replaced before the second trial, (ii) balls are
not replaced before the second trial. Find the probability that the first drawing will give 3
white and the second 3 red balls.
Solution: Let A be the event that all the 3 balls obtained at the first draw are white and
B be the event that all the 3 balls obtained at the second draw are red.
(a) When balls are replaced before the second draw, we have
( ) ( )
5 8
3 3
13 13
3 3
5 28
and
143 143
= = = =
C C
P A P B
C C
The required probability is given by P A B I b g , where A and B are independent.
Thus, we have
P A B P A P B I b g b g b g .
5
143
28
143
140
20449
(b) When the balls are not replaced before the second draw
We have
( )
8
3
10
3
7
/
15
= =
C
P B A
C
. Thus, we have
P A B P A P B A I b g b g b g . /
5
143
7
15
7
429
Example 47: Computers A and B are to be marketed. A salesman who is assigned the
job of finding customers for them has 60% and 40% chances respectively of succeeding
in case of computer A and B. The two computers can be sold independently. Given that
the salesman is able to sell at least one computer, what is the probability that computer A
has been sold?
Solution: Let A be the event that the salesman is able to sell computer A and B be the
event that he is able to sell computer B. It is given that P(A) = 0.6 and P(B) = 0.4. The
probability that the salesman is able to sell at least one computer, is given by
P A B P A P B P A B P A P B P A P B U I b g b g b g b g b g b g b g b g + + .
(note that A and B are given to be independent)
0.6 0.4 0.6 0.4 0.76 +
Now the required probability, the probability that computer A is sold given that the salesman
is able to sell at least one computer, is given by
P A A B /
.
.
. U b g
0 60
0 76
0 789
Example 48: Two men M
1
and M
2
and three women W
1
, W
2
and W
3
, in a big industrial
firm, are trying for promotion to a single post which falls vacant. Those of the same
sex have equal probabilities of getting promotion but each man is twice as likely to get
the promotion as any women.
Probability
329
(a) Find the probability that a woman gets the promotion.
(b) If M
2
and W
2
are husband and wife, find the probability that one of them gets the
promotion.
Solution: Let p be the probability that a woman gets the promotion, therefore 2p will be
the probability that a man gets the promotion. Thus, we can write, P(M
1
) = P(M
2
) = 2p
and P(W
1
) = P(W
2
) = P(W
3
) = p, where P(M
i
) denotes the probability that i th man gets
the promotion (i = 1, 2) and P(W
j
) denotes the probability that j th woman gets the
promotion.
Since the post is to be given only to one of the five persons, the events M
1
, M
2
, W
1
, W
2
and W
3
are mutually exclusive and exhaustive.
+ + + + P M M W W W P M P M P W P W P W
1 2 1 2 3 1 2 1 2 3
1 U U U U b g b g b g b g b g b g
1
2 2 1 or
7
p p p p p p + + + +
(a) The probability that a woman gets the promotion
P W W W P W P W P W
1 2 3 1 2 3
3
7
U U b g b g b g b g + +
(b) The probability that M
2
or W
2
gets the promotion
P M W P M P W
2 2 2 2
3
7
U b g b g b g +
Example 49: An unbiased die is thrown 8 times. What is the probability of getting a six
in at least one of the throws?
Solution: Let A
i
be the event that a six is obtained in the ith throw (i = 1, 2, ...... 8).
Therefore,
( )
1
6
i
P A =
.
The event that a six is obtained in at least one of the throws is represented by
A A A
1 2 8
U U U .... b g . Thus, we have
P A A A P A A A
1 2 8 1 2 8
1 U U U I I I .... .... b g d i
Since A
1
, A
2
, ...... A
8
are independent, we can write
P A A A P A P A P A
1 2 8 1 2 8
8
1 1
5
6
U U U .... .... b g d i d i d i
F
H
G
I
K
J
. .
.
Example 50: Two students X and Y are very weak students of mathematics and their
chances of solving a problem correctly are 0.11 and 0.14 respectively. If the probability
of their making a common mistake is 0.081 and they get the same answer, what is the
chance that their answer is correct?
Solution: Let A be the event that both the students get a correct answer, B be the event
that both get incorrect answer by making a common mistake and C be the event that
both get the same answer. Thus, we have
( ) ( ) ( ) I gets correct answer . gets correct answer P A C P X P Y
0.11 0.14 0.0154
(note that the two events are independent)
Similarly,
( ) ( ) ( ) I gets incorrect answer gets incorrect answer P B C P X P Y
( ) P and make a common mistake X Y
Quantitative Techniques
for Management
330
( )( ) 1 0.11 1 0.14 0.081 0.062
Further, C A C B C P C P A C P B C + I U I I I b g b g b g b g b g or , since A C I b g and B C I b g
are mutually exclusive. Thus, we have
( ) 0.0154 0.0620 0.0774 P C = + =
We have to find the probability that the answers of both the students are correct given
that they are same, i.e.,
P A C
P A C
P C
/
.
.
. b g
b g
b g
I 0 0154
0 0774
0199
Example 51: Given below are the daily wages (in rupees) of six workers of a factory :
77, 105, 91, 100, 90, 83
If two of these workers are selected at random to serve as representatives, what is the
probability that at least one will have a wage lower than the average?
Solution: The average wage
77 105 91 100 90 83
91
6
X
+ + + + +
= =
Let A be the event that two workers selected at random have their wages greater than
or equal to average wage.
( )
3
2
6
2
1
5
C
P A
C
\ = =
Thus, the probability that at least one of the workers has a wage less than the average
1 4
1
5 5
Example 52: There are two groups of subjects one of which consists of 5 science
subjects and 3 engineering subjects and the other consists of 3 science subjects and 5
engineering subjects. An unbiased die is cast. If the number 3 or 5 turns up, a subject
from the first group is selected at random otherwise a subject is randomly selected from
the second group. Find the probability that an engineering subject is selected ultimately.
Solution: Let A be the event that an engineering subject is selected and B be the event
that 3 or 5 turns on the die. The given information can be summarised into symbols, as
given below :
( ) ( ) ( )
1 3 5
, / , and /
3 8 8
P A P A B P A B
To find P(A), we write
P A P A B P A B P B P A B P B P A B b g b g d i b g b g d i d i
+ + I I . / . /
1 3 2 5 13
3 8 3 8 24
+
Example 53: Find the probability of obtaining two heads in the toss of two unbiased
coins when (a) at least one of the coins shows a head, (b) second coin shows a head.
Solution: Let A be the event that both coins show heads, B be the event that at least one
coin shows a head and C be the event that second coin shows a head. The sample space
and the three events can be written as :
Probability
331
S = {(H, H), (H, T), (T, H), (T, T)}, A = {(H, H)},
B = {(H, H), (H, T), (T, H)} and C = {(H, H), (T, H)}.
Further, A B H H A C H H I I , , b g m r b g m r and
Since the coins are given to be unbiased, the elementary events are equally likely, therefore
P A P B P C P A B P A C b g b g b g b g b g
1
4
3
4
1
2
1
4
, , , I I
(a) We have to determine P (A/B)
P A B
P A B
P B
/ b g
b g
b g
I
1
4
4
3
1
3
(b) We have to determine P(A/C)
P A C
P A C
P C
/ b g
b g
b g
I
1
4
2
1
1
2
Exercise with Hints:
1. What is the probability of drawing two aces at random from a deck of 52 well-
shuffled cards?
Hint: Two aces can be drawn from four aces in
4
C
2
ways.
2. Two cards are drawn at random from a deck of 52 well-shuffled cards. What is
the probability that one of them is an ace and the other is a queen?
Hint: Try as in question 1 above.
3. What is the probability of getting all the four heads in four throws of an unbiased
coin?
Hint: n(S) = 2
4
.
4. What is the probability of getting 5 on each of the two throws of a six faced
unbiased die?
Hint: Try as in question 3 above.
5. Four cards are drawn at random without replacement from a pack of 52 cards.
What is the probability that :
(a) All of them are aces?
(b) All of them are of different suits?
(c) All of them are picture cards or spades or both?
Hint: See example 36.
6. Find the probability of throwing an even number from a single throw of a pair of
unbiased dice.
Hint: An even number is obtained if both dice show either odd or even numbers.
7. A bag contains 50 balls serially numbered from 1 to 50. One ball is drawn at
random from the bag. What is the probability that the number on it is a multiple of
3 or 4?
Hint: The number of serial numbers that are multiple of 3 or 4 are integral part of
50
. . . 3 4 L C M of and
.
Quantitative Techniques
for Management
332
8. A bag contains 4 white and 5 red balls. Two balls are drawn in succession at
random. What is the probability that (a) both the balls are white, (b) both are red,
(c) one of them is red and the other is white?
Hint: See example 34.
9. A bag contains 5 red, 8 white and 3 blue balls. If three balls are drawn at random,
find the probability that (a) all the balls are blue, (b) each ball is of different colour,
(c) the drawn balls are in the order red, white and blue, (d) none of the balls are
white.
Hint: (b) This event is same as that of drawing one ball of each colour.
(c) n(S) = 16 15 14.
10. 4 cards are drawn at random from a pack of 52 well-shuffled cards. Find the
chance that (i) each card is of a different suit, (ii) they consist of a Jack, Queen,
King and an Ace, (iii) they are 4 honours of the same suit.
Hint: Honours of a suit are its Jack, Queen, King and Ace.
11. In how many ways the letters of the following words can be arranged?
MANAGEMENT, ASSESSMENT, COMMITTEE
Hint: See example 13.
12. How many distinct words can be formed from the letters of the word MEERUT?
How many of these words start at M and end at T?
Hint: Fixing M and T, determine the number of permutations of remaining letters.
13. In a random arrangement of letters of the word DROUGHT, find the probability
that vowels come together.
Hint: See example 15.
14. The letters of the word STUDENT are arranged at random. Find the probability
that the word, so formed;
(a) starts with S,
(b) starts with S and ends with T,
(c) the vowels occupy odd positions only,
(d) the vowels occupy even positions only.
Hint: See examples 14 and 15.
15. How many triangles can be formed by joining 12 points in a plane, given that 7
points are on one line.
Hint: No. of triangles =
12 7
3 3
C C .
16. In a random arrangement of 10 members of a committee, find the probability that
there are exactly 3 members sitting between the president and secretary when the
arrangement is done (i) in a row, (ii) in a ring.
Hint: Considering 5 members as one, there are 6 members. No. of permutations
(i)
8
3
2! 3! 6! C , (ii)
8
3
2! 3! 5! C
17. A six digit number is formed by the digits 5, 9, 0, 7, 1, 3; no digit being repeated.
Find the probability that the number formed is (i) divisible by 5, (ii) not divisible
by 5.
Hint: 0 cannot come at the sixth place of a six digit number.
18. If 30 blankets are distributed at random among 10 beggars, find the probability that
a particular beggar receives 5 blankets.
Hint: A particular beggar can receive 5 blankets in
30
C
5
ways and the remaining
9 beggars in 9
25
ways.
Probability
333
19. A statistical experiment consists of asking 3 housewives, selected at random, if
they wash their dishes with brand X detergent. List the elements of the sale space
S using the letter Y for 'yes' and N for 'no'. Also list the elements of the event : "The
second woman interviewed uses brand X'. Find the probability of this event if it is
assumed that all the elements of S are equally likely to occur.
Hint: The sample space would consist of eight 3-tuples of the type (Y,Y,Y), etc.
20. n persons are sitting in a row. If two persons are picked up at random, what is the
probability that they are sitting adjacent to each other?
Hint: Two adjacent persons can be picked up in (n - 1) ways.
21. A committee of 5 persons is to be formed out of 7 Indians and 5 Japanese. Find the
probability that (a) the committee is represented only by the Indians, (b) there are
at least two Japanese on the committee, (c) there are at least two Japanese and
two Indians on the committee.
Hint: See example 16.
22. 4 letters are placed at random in 4 addressed envelopes. Find the probability that all
the letters are not placed in right envelopes.
Hint: The letters can be placed in their respective envelopes in one way.
23. Find the probability that a family with 4 children has (a) 2 boys and 2 girls, (b) no
boy, (c) at the most two boys, (d) at least a girl. Assume equal probability for boys
and girls.
Hint: (a) The event can occur in
4
C
2
mutually exclusive ways each with
probability
1
2
4
.
24. One child is selected at random from each of the three groups of children, namely,
3 girls and 1 boy, 2 girls and 2 boys, 1 girl and 3 boys. Find the probability of
selecting 1 girl and 2 boys.
Hint: The event can occur in any one of the following mutually exclusive ways : BBG,
BGB, GBB.
25. A can hit a target in 3 out of 4 attempts while B can hit it in 2 out of 3 attempts. If
both of them try simultaneously, what is the probability that the target will be hit?
Hint: Find the probability of hitting the target at least once.
26. A and B played 12 chess matches out of which A won 6 matches, B won 4
matches and 2 resulted in draw. If they decide to play 3 more matches, what is the
probability that (a) A wins all the three matches, (b) two matches end in draw, (c)
B wins at least a match, (d) A wins at least a match, (e) A and B wins alternatively?
Hint: (b) P(two matches end in draw)
2 2 10
3
12 12 12
.
27. A and B who are equally perfect players of badminton, stopped playing a match
when their scores were 12 and 13 respectively. If 15 points are needed to win this
match, what are their respective probabilities of winning?
Hint: A can win in following mutually exclusive ways; AAA, BAAA, ABAA, AABA.
28. A problem in accountancy is given to five students. Their chances of solving it are
1
2
,
1
3
,
1
4
,
1
5
and
1
6
respectively. What is the probability that the problem will be
solved?
Hint: P A B C D E P A P B P C P D P E U U U U b g d i d i d i d i d i
1 . . . . .
Quantitative Techniques
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334
29. (a) A guard of 12 soldiers is to be formed out of n soldiers. Find the probability
that (i) two particular soldiers A and B are together on the guard, (ii) three
particular soldiers C, D and E are together on the guard. (iii) Also find n if A
and B are 3 times as often together on the guard as C, D and E.
(b) A has 6 shares in a lottery in which there are 3 prizes and 10 blanks. B has 2
shares in a lottery in which there are 4 prizes and 8 blanks. Which of them
has a better chance to win a prize?
Hint: (a) When A and B are on the guard, remaining 10 soldiers can be selected
in
2
10
n
C ways.
(b)
( )
10
6
13
6
1
C
P A
C
.
30. It is 8 to 5 against a person, who is now 40 years old, living till he is 70 and 4 to 3
against a person, now 50 years old, living till he is 80. Find the probability that at
least one of them would be alive 30 years hence.
Hint: See example 37.
31. A candidate is selected for interview for 3 posts. There are 3 candidates for the
first, 4 for the second and 2 for the third post. What are the chance of his getting at
least one post?
Hint: Probability that he gets the first post is
1
3
, etc.
32. A bag contains 6 Rupee and 9 Dollar coins. Two drawings of 4 coins each are
made without replacement. What is the probability that first draw will give 4 Rupee
coins and second 4 dollar coins?
Hint: See example 46.
33. Three tokens marked as 1, 2 and 3 are placed in a bag and one is drawn and
replaced. The operation being repeated three times. What is the probability of
obtaining a total of 6?
Hint: A total of 6 can be obtained if different number is obtained in each operation or 2
is obtained in all the three operations. There are 3! ways of obtaining different
numbers.
34. A certain player, say X, is known to win with probability 0.3 if the track is fast and
with probability 0.4 if the track is slow. On Monday, there is a 0.7 probability of a
fast track. What is the probability that X will win on Monday?
Hint: Let A be the event that the track is fast and B be the event that X wins, then
P B P A B P A B b g b g d i
+ I I
35. The probability that a vacuum-cleaner salesman will succeed in persuading a
customer on the first call is 0.4. If he fails, the probability of success on the second
call is 0.2. If he fails on the first two calls, the probability of success on the third
and last call is 0.1. Find the probability that the salesman makes a sale of vacuum-
cleaner to a customer.
Hint: Try as in exercise 34 above.
36. There are two contractors A and B, for the completion of a project. Contractor A
does the first part of the project and then contractor B, by doing the second part,
completes the project. B cannot start until A has finished. If A finishes on time, B
has 85% chance of completing the project on time. If A doesn't finish on time, then
Probability
335
B has only 30% chance of completing the project on time. If A
has 70% chance of finishing his work on time, what is the probability that the
project will be finished on time?
Hint: Find P A B P A B I I b g d i
+ .
37. The probability that a person stopping at a petrol pump will ask to have his tyres
checked is 0.12, the probability that he will ask to have his oil checked is 0.29 and
the probability that he will ask to have both of them checked is 0.07.
(i) What is the probability that a person stopping at the petrol pump will have
either tyres or oil checked?
(ii) What is the probability that a person who has tyres checked will also have oil
checked?
(iii) What is the probability that a person who has oil checked will also have tyres
checked?
Hint: See example 32.
38. There are three brands, say X, Y and Z, of an item available in the market. A
consumer chooses exactly one of them for his use. He never buys two or more
brands simultaneously. The probabilities that he buys brands X, Y and Z are 0.20,
0.16 and 0.45 respectively.
(i) What is the probability that he doesn't buy any of the brands?
(ii) Given that the consumer buys some brand, what is the probability that he
buys brand X?
Hint: (i) The required probability 1 P X Y Z U U b g,
where X, Y and Zare mutually
exclusive.
39. A person applies for the post of manager in two firms A and B. He estimates that
the probability of his being selected on firm A is 0.75, the probability of being
rejected in firm B is 0.45 and the probability of rejection in at least one of the firms
is 0.55. What is the probability that he will be selected in at least one of the firms?
Hint: P A B P A B I U b g d i
1 .
40. (a) A student is given a true-false examination with 10 questions. If he gets 8 or
more correct answers, he passes the examination. Given that he guesses at
an answer to each question, compute the probability that he passes the
examination.
(b) In a multiple choice question, there are four alternative answers out of which
one or more are correct. A candidate will get marks in the question only if he
ticks all the correct answers. If he is allowed up to three chances to answer
the question, find the probability that he will get marks in the question.
Hint:(a) n(S) = 2
10
. No. of favourable cases is
10 10 10
8 9 10
C C C + + .
(b) Total no. of ways in which the student can tick the answers in one attempt
= 2
4
- 1 (since at least one of the answer is correct, therefore, it is not possible
that he will leave all the answers unticked).
The total no. of ways of selecting three solutions from 15 is
15
C
3
. Note that it
will be in the interest of the candidate to select a different solution in each
attempt. Since out of 15 solutions, only one (way of marking the questions) is
correct, therefore, the no. of ways of selecting incorrect solutions is
14
C
3
.
Hence the required probability is given by
14
3
15
3
1
C
C
-
.
Quantitative Techniques
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336
41. 200 students were admitted to an under graduate course through an entrance test
out of which only 150 completed it successfully. On the examination of their
admission data, it was found that 70% of those who passed and 50% of those who
failed had a first division in their senior secondary examination. Find (a) the probability
that a student with first division in the senior secondary examination is successful
in the under graduate course, (b) the probability that a student without first division
in senior secondary examination, is successful in the under graduate course, (c) the
probability that an admitted student is a first divisioner in senior secondary
examination, (d) the probability that an admitted student is unsuccessful in the
under graduate course.
Hint: See example 27.
42. 300 employees of a firm were asked if they would favour increasing their working
day by one hour so that they could have a five day week. The results are given in
the following table :
Favour F a f Disfavour D a f Neutral N a f
Men M a f 102 90 48
Women W a f 42 6 12
Find (a) P(M), (b) P(W), (c) P(F), (d) P(D), (e) P(N), (f) P M F I b g ,
(g) P W F I b g , (h) P N M I b g , (i) P W N I b g , (j) P F/M a f , (k) P W/F a f ,
(l) P D/W a f , (m) P M/N a f , (n) P N/W a f , (o) P M F b g , (p) P W D U b g ,
(q) P M D U b g , (r) P F D U b g , (s) P M W U b g , (t) P M F D U U b g .
Hint: See example 27.
43. In a bridge game of playing cards, 4 players are distributed one card each by turn
so that each player gets 13 cards. What is the probability that a specified player
gets a black ace and a king?
Hint: No. of favourable cases are
2 4 46
1 1 11
C C C .
44. A bag contains 4 white and 2 black balls. Two balls are drawn successively one
after another without replacement. What is the probability that (a) the first ball is
white and the second is black, (b) the first is black and second is white.
Hint: Use conditional probability theorem.
45. (a) What is the probability that out of 3 friends, Ram, Shyam and Mohan, at least
two have the same birthday?
(b) What is the probability that out of a group of 4 persons, all born in the month
of April, at least three have same birthday?
Hint: Suppose that Ram states his birthday, then the probability of Shyam having a
different birthday is
364
365
and then the probability of Mohan having a different
birthday is
363
365
, etc. The required probability is
364 363
1
365 365
.
46. The probability that a man aged 70 years will die in a year is
2
3
. Find the probability
that out of 5 men A
1
, A
2
, A
3
, A
4
and A
5
, each aged 70 years, A
1
will die in a year
and will be the first to die.
Hint: P(A
1
dies first out of 5 men) =
1
5
. Multiply this by the probability that at least one
of them die in a year.
Probability
337
47. The probability of rain tomorrow is 0.65 and the probability that the temperature
will rise above 35C is 0.8. The probability there is no rain and temperature remaining
below 35C is 0.1.
(a) What is the probability of rain if temperature rises above 35C?
(b) What is the probability that temperature remains below 35C, given that there
is no rain?
Hint: Try as in exercise 38 above.
48. A bag contains 4 red and 2 black balls. Three men X, Y and Z draw a ball in
succession, without replacement, until a black ball is obtained. Find their respective
chances of getting first black ball.
Hint: X can get first black ball in the following two mutually exclusive ways: B or
WWWB, etc.
49. A and B are two candidates for admission to a certain course. The probability that
A is selected is 0.80 and the probability that both A and B are selected is at the
most 0.25. Is it possible that probability of selection of B is 0.50?
Hint: P A B U b g 1.
50. Delhi has three independent reserved sources of electric power to use to prevent a
blackout in the event that its regular source fails. The probability that any reserved
source is available when its regular source fails is 0.7. What is the probability of not
having a blackout if the regular source fails?
Hint: The required probability = 1 - the probability that power is not available from any
of the reserved sources.
51. In a locality, out of 5,000 people residing, 1,200 are above 30 years of age and 3,000
are females. Out of 1,200, who are above 30 years, 200 are females. If a person
selected at random is a female, what is the probability that she is above 30 years of
age?
Hint: See example 27.
52. The probability that both the events A and B occur simultaneously is
1
5
and the
probability of occurrence of neither of them is
4
15
. Find the probabilities P(A) and
P(B) on the assumption that the events are independent.
Hint: Let P(A) = x and P(B) = y. Use the equation 1 P A B P A B U I b g d i to find
x + y. Find x y from it by using the equation (x y)
2
= (x + y)
2
4xy.
53. Two factories A and B manufacture the same machine part. Each part is classified
as having 0, 1, 2 or 3 manufacturing defects. The joint probabilities are as follows:
(i) A part is observed to have no defects. What is the probability that it was
produced by factory A?
(ii) A part is known to have been produced by factory A. What is the probability
that the part has no defects?
(iii) A part is known to have two or more defects. What is the probability that it
was manufacture by factory A?
Factory A
Factory B
Number of defects
0 1 2 3
0.1250 0. 0625 0.1875 0.1250
0. 0625 0. 0625 0.1250 0. 2500
Quantitative Techniques
for Management
338
(iv) A part is known to have one or more defects. What is the probability that it
was manufactured by factory B?
Hint: See example 30.
54. A man is dealt 4 spade cards from an ordinary pack of 52 cards. If he is given
three more cards, find the probability that at least one of the additional cards is also
a spade.
Hint: The probability that no spade is obtained from the remaining 48 cards
is
39
C
3
48
C
3
.
55. An unbiased die is thrown three times. Find the probability of (a) throwing 4 on the
first die if the sum of numbers obtained in three throws is 15,
(b) obtaining a sum of 15 when first die shows 4.
Hint: (a) There are 10 ways of obtaining the sum 15 out of which 2 are favourable,
(b) there are 36 cases in which first die shows 4, out of which only two are
favourable.
56. A committee of 4 has to be formed from among 3 economists, 4 engineers, 2
statisticians and 1 doctor.
(i) What is the probability that each of the four professions are represented on
the committee?
(ii) What is the probability that the committee consists of doctor and at least one
economist?
Hint: (ii) The required probability is obtained by finding the probabilities of the following
mutually exclusive events : {1 doc, 1 eco, 2 others}, {1 doc, 2 eco, 1 other} and
{1 doc, 3 eco}.
57. Six persons toss a coin turn by turn. The game is won by the player who first
throws a head. Find the probability of success of the fifth player.
Hint: See example 39.
58. Find the probability that an assessee files his tax return and cheats on it, given that
70% of all the assessee files returns and 20%, of those who file, cheat.
Hint: See example 27.
59. Two persons A and B throw three unbiased dice. If A throws 14, find B's chances
of throwing a higher number.
Hint: The event that A throws 14 is independent of the event that B throws a higher
number.
60. A is one of 6 horses entered for a race and is to be ridden by one of the jockeys B
and C. It is 2 : 1 that B rides A, in which case all the horses are equally likely to
win; if C rides A, his chances are trebled; what are the odds against his winning?
Hint: P(A wins given that he is ridden by jockey B) =
1
6
P(A wins given that he is ridden by jockey C) =
3
6
61. What is the probability that over a two day period the number of requests would
either be 11 or 12 if at a motor garage the records of service requests alongwith
their probabilities are given below?
Hint: 11 requests can occur in 2 ways and 12 requests in 3 ways.
Daily demand : 5 6 7
Probability : 0. 25 0. 65 0.10
Probability
339
62. The probability that T.V. of a company fails during first month of its use is
0.02. Of those that do not fail during first month, the probability of failure in the
next five months is 0.01. Of those that do not fail during the first six months,
the probability of failure by the end of the first year is 0.001. The company
replaces, free of charge, any set that fails during its warranty period. If 2,000
sets are sold, how many will have to be replaced if the warranty period is (a)
six months, (b) one year?
Hint: Probability that a set fails during first year = 0.02 + 0.98 0.01 + 0.9902 0.001.
63. A salesman has 60% chances of making sales to each customer. The behaviour of
each successive customer is assumed to be independent. If two customers A and
B enter, what is the probability that the salesman will make sales to A or B?
Hint:
P A B P A B U I b g d i
1 .
64. A box contains 24 bulbs out of which 4 are defective. A customer draws a sample
of 3 bulbs at random in succession and rejects the box if the sample contains one or
more defectives. What is the probability that the box is rejected?
Hint: The box will be rejected if the sample contains at least one defective.
10.7 THEOREMS ON PROBABILITY - II
Theorem 5: (Bayes' Theorem or Inverse Probability Rule): The probabilities assigned
to various events on the basis of the conditions of the experiment or by actual
experimentation or past experience or on the basis of personal judgement are called
prior probabilities. One may like to revise these probabilities in the light of certain
additional or new information. This can be done with the help of Bayes' Theorem, which
is based on the concept of conditional probability. The revised probabilities, thus obtained,
are known as posterior or inverse probabilities. Using this theorem it is possible to
revise various business decisions in the light of additional information.
Bayes' Theorem
If an event D can occur only in combination with any of the n mutually exclusive and
exhaustive events A
1
, A
2
, ...... A
n
and if, in an actual observation, D is found to have
occurred, then the probability that it was preceded by a particular event A
k
is given by
( )
( ) ( )
( ) ( )
1
. /
/
. /
k k
k n
i i
i
P A P D A
P A D
P A P D A
Proof: Since A
1
, A
2
, ...... A
n
are n exhaustive events, therefore,
S A A A
n
1 2
U U . . . . . . .
Since D is another event that can occur in combination with any of the mutually exclusive
and exhaustive events A
1
, A
2
, ...... A
n
, we can write
D A D A D A D
n
1 2
I U I U U I b g b g b g ......
Taking probability of both sides, we get
P D P A D P A D P A D
n
b g b g b g b g + + +
1 2
I I I ......
We note that the events A D A D
1 2
I I b g b g , , etc. are mutually exclusive.
P D P A D P A P D A
i
i
n
i
i
n
i
b g b g b g b g
I
1 1
. /
.... (1)
Quantitative Techniques
for Management
340
The conditional probability of an event A
k
given that D has already occurred, is given by
P A D
P A D
P D
P A P D A
P D
k
k k k
/
. /
b g
b g
b g
b g b g
b g
I
.... (2)
Substituting the value of P(D) from (1), we get
( )
( ) ( )
( ) ( )
1
. /
/
. /
k k
k n
i i
i
P A P D A
P A D
P A P D A
.... (3)
Example 54: A manufacturing firm purchases a certain component, for its manufacturing
process, from three sub-contractors A, B and C. These supply 60%, 30% and 10% of
the firm's requirements, respectively. It is known that 2%, 5% and 8% of the items
supplied by the respective suppliers are defective. On a particular day, a normal shipment
arrives from each of the three suppliers and the contents get mixed. A component is
chosen at random from the day's shipment :
(a) What is the probability that it is defective?
(b) If this component is found to be defective, what is the probability that it was supplied
by (i) A, (ii) B, (iii) C ?
Solution: Let A be the event that the item is supplied by A. Similarly, B and C denote the
events that the item is supplied by B and C respectively. Further, let D be the event that
the item is defective. It is given that :
P(A) = 0.6, P(B) = 0.3, P(C) = 0.1, P(D/A) = 0.02
P(D/B) = 0.05, P(D/C) = 0.08.
(a) We have to find P(D)
From equation (1), we can write
( ) ( ) ( ) ( ) P D P A D P B D P C D = + + I I I
= ( ) ( ) ( ) ( ) ( ) ( ) / / / P A P D A P B P D B P C P D C + +
= 0.6 0.02 + 0.3 0.05 + 0.1 0.08 = 0.035
(b) (i) We have to find P(A/D)
( )
( ) ( )
( )
/ 0.6 0.02
/ 0.343
0.035
P A P D A
P A D
P D
Similarly, (ii)
( )
( ) ( )
( )
/ 0.3 0.05
/ 0.429
0.035
P B P D B
P B D
P D
and (iii)
( )
( ) ( )
( )
/ 0.1 0.08
/ 0.228
0.035
P C P D C
P C D
P D
Alternative Method: The above problem can also be attempted by writing various
probabilities in the form of following table :
D
D
0.035
A B C Total
Total
P A D P B D P C D
P A D P B D P C D
I I I
I I I
b g b g b g
d i d i d i
0 012 0 015 0 008
0588 0 285 0 092
0 965
0 600 0 300 0100 1000
. . .
. . .
.
. . . .
Probability
341
Thus
P A D /
.
.
b g
0 012
0 035
etc.
Example 55: A box contains 4 identical dice out of which three are fair and the fourth
is loaded in such a way that the face marked as 5 appears in 60% of the tosses. A die is
selected at random from the box and tossed. If it shows 5, what is the probability that it
was a loaded die?
Solution: Let A be the event that a fair die is selected and B be the event that the loaded
die is selected from the box.
Then, we have
( )
3
4
P A =
and
( )
1
4
P B =
.
Further, let D be the event that 5 is obtained on the die, then
( )
1
/
6
P D A = and ( )
6
/
10
P D B =
Thus, P(D) = P(A).P(D/A) + P(B).P(D/B)
3 1 1 6 11
4 6 4 10 40
+
We want to find P(B/D), which is given by
P B D
P B D
P D
/ b g
b g
b g
I
1
4
6
10
40
11
6
11
Example 56: A bag contains 6 red and 4 white balls. Another bag contains 3 red and 5
white balls. A fair die is tossed for the selection of bag. If the die shows 1 or 2, the first
bag is selected otherwise the second bag is selected. A ball is drawn from the selected
bag and is found to be red. What is the probability that the first bag was selected?
Solution: Let A be the event that first bag is selected, B be the event that second bag is
selected and D be the event of drawing a red ball.
Then, we can write
( )
1
3
P A =
, ( )
2
3
P B =
, ( )
6
/
10
P D A =
, ( )
3
/
8
P D B =
Further,
( )
1 6 2 3 9
3 10 3 8 20
P D +
.
P A D
P A D
P D
/ b g
b g
b g
I
1
3
6
10
20
9
4
9
Example 57: In a certain recruitment test there are multiple-choice questions. There
are 4 possible answers to each questio n out of which only one is correct. An intelligent
student knows 90% of the answers while a weak student knows only 20% of the answers.
(i) An intelligent student gets the correct answer, what is the probability that he was
guessing?
(ii) A weak student gets the correct answer, what is the probability that he was guessing?
Solution: Let A be the event that an intelligent student knows the answer, B be the
event that the weak student knows the answer and C be the event that the student gets
a correct answer.
(i) We have to find P A/C d i. We can write
( )
( )
( )
( ) ( )
( ) ( ) ( ) ( )
/
/
/ /
P A C P A P C A
P A C
P C P A P C A P A P C A
= =
+
I
.... (1)
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It is given that P(A) = 0.90,
( )
1
/ 0.25
4
P C A = =
and ( ) / 1.0 P C A =
From the above, we can also write
( )
0.10 P A =
Substituting these values, we get
( )
0.10 0.25 0.025
/ 0.027
0.10 0.25 0.90 1.0 0.925
P A C
+
(ii) We have to find P B/C d i. Replacing
A
by
B
, in equation (1), we can get this
probability.
It is given that P(B) = 0.20, ( )
/ 0.25 P C B = and ( ) / 1.0 P C B =
From the above, we can also write ( )
0.80 P B =
Thus, we get ( )
0.80 0.25 0.20
/ 0.50
0.80 0.25 0.20 1.0 0.40
P B C
= = =
+
Example 58: An electronic manufacturer has two lines A and B assembling identical
electronic units. 5% of the units assembled on line A and 10%of those assembled on line
B are defective. All defective units must be reworked at a significant increase in cost.
During the last eight-hour shift, line A produced 200 units while the line B produced 300
units. One unit is selected at random from the 500 units produced and is found to be
defective. What is the probability that it was assembled (i) on line A, (ii) on line B?
Answer the above questions if the selected unit was found to be non-defective.
Solution: Let A be the event that the unit is assembled on line A, B be the event that it
is assembled on line B and D be the event that it is defective.
Thus, we can write
( )
2
5
P A =
, ( )
3
5
P B =
,
( )
5
/
100
P D A =
and
( )
10
/
100
P D B =
Further, we have
P A D I b g
2
5
5
100
1
50
and
P B D I b g
3
5
10
100
3
50
The required probabilities are computed form the following table:
From the above table, we can write
( )
1 50 1
/
50 4 4
P A D
, ( )
3 50 3
/
50 4 4
P B D
( )
19 50 19
/
50 46 46
P A D
, ( )
27 50 27
/
50 46 46
P B D
A B Total
D
D
Total
1
50
3
50
4
50
19
50
27
50
46
50
20
50
30
50
1
Probability
343
Exercise with Hints:
1. An insurance company insured 2,000 scooter drivers, 4,000 car drivers and 6,000
truck drivers. The probability of an accident is 0.01, 0.03 and 0.15 in the respective
category. One of the insured driver meets an accident. What is the probability that
he is a scooter driver?
Hint: Apply Bayes' Rule.
2. When a machine is set correctly, it produces 25% defectives, otherwise it produces
60% defectives. From the past knowledge and experience, the manufacturer knows
that the chance that the machine is set correctly or wrongly is 50 : 50. The machine
was set before the commencement of production and 1 piece was taken out and
found to be defective. What is the probability of the machine set up being correct?
If the selected piece was found to be non-defective, what is the probability of the
machine set up being wrong?
Hint: Apply Bayes' Rule.
3. Each of the three identical jewellery boxes has 2 drawers. In each drawer of the
first box there is a gold watch. In each drawer of the second box there is a silver
watch. In one drawer of the third box there is a gold watch while in the other
drawer there is a silver watch. If we select a box at random, open one of the
drawers and find it to contain a silver watch, what is the probability that the other
drawer has a gold watch?
Hint:
( ) ( ) ( )
1 2 3
1
3
P B P B P B = = =
, ( )
1
/ 0, P S B = ( )
2
/ 1, P S B = ( )
3
1
/
2
P S B =
.
4. In a factory producing bolts, Machines A, B and C manufacture 25%, 35% and
40% of total output. Of their output, 5%, 4% and 2% are defective respectively. A
bolt is drawn at random from the product and is found to be defective. What is the
probability that it was manufactured by machine A?
Hint: Apply Bayes' Rule.
5. Consider a population of consumers consisting of two types. The upper class of
consumers comprise 35% of the population and each member has a probability 0.8
of purchasing brand A of a product. Each member of the rest of the population has
a probability 0.3 of purchasing brand A of the product. A consumer, chosen at
random, is found to be buyer of brand A. What is the probability that the buyer
belongs to the middle and lower class of consumers?
Hint: Apply Bayes' Rule.
6. At an electric plant, it is known from the past experience that the probability is 0.86
that new worker who has attended the company's training programme will meet
his production quota and that the corresponding probability is 0.35 for a new worker
who has not attended the company's training programme. If 80% of the new workers
attend the training programe, what is the probability that new worker will meet his
production quota?
Hint: Apply
( ) ( ) ( ) ( ) ( ) . / . / P D P A P D A P B P D B = +
7. A talcum powder manufacturing company had launched a new type of
advertisement. The company estimated that a person who comes across the
advertisement will buy their product with a probability of 0.7 and those who does
not see the advertisement will buy the product with a probability of 0.3. If in an
area of 1,000 people, 70% had come across the advertisement, what is the probability
that a person who buys the product (a) has not come across the advertisement (b)
has come across the advertisement?
Hint: Apply Bayes' Rule.
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344
8. There are two boxes, of identical appearance, each containing 4 sparkplugs. It is
known that box I contains only one defective sparkplug, while all the four sparkplugs
of box II are non-defective. A sparkplug is drawn at random from a box, selected
at random, is found to be non-defective. What is the probability that it came from
box I?
Hint: Apply Bayes' Rule.
9. A man has 5 one rupee coins and one of them is known to have two heads. He
takes out a coin at random and tosses it 5 times; it always falls head upward. What
is the probability that it is a coin with two heads?
Hint: Apply Bayes' Rule.
Check Your Progress 10.2
1 Give Statistical or Empirical Definition of Probablity?
2. Explain Permutation with restrictions.
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
10.8 LET US SUM UP
Probability distributions are a fundamental concept in statistics. They are used both on a
theoretical level and a practical level. Formally, a probability is a bundle of four things: a
universe which is a set of all possible results, a number which is an extension of a
Boolean truth value, a constraint which matches the logical law of the excluded middle
along with the few operations an arithmetical operations correspond to the standard
logical operation of Boolean logic.
At last we can say that a probability is a measure of the likelihood of an event. It can be
elucidate as a decimal or a percentage. Every probability must be between 0 and 1
(100%) inclusive P=0 indicate an impossible event, P=1 or 100% indicates a certainty
1. (a) The number of permutations of n objects taking n at a time are n!
(b) The number of permutations of n objects taking r at a time, are
( )
!
!
n
r
n
P
n r
(c) The number of permutations of n objects in a circular order are (n 1)!
(d) The number of permutations of n objects out of which n
1
are alike, n
2
are
alike, ...... n
k
are alike, are
n!
n
1
!n
2
! ... n
k
!
Probability
345
(e) The number of combinations of n objects taking r at a time are
( )
!
! !
n
r
n
C
r n r
2. (a) The probability of occurrence of at least one of the two events A and B is
given by : P A B P A P B P A B P A B U I I b g b g b g b g d i
+ 1 .
(b) The probability of occurrence of exactly one of the events A or B is given by:
P A B P A B P A B P A B I I U I
d i d i b g b g + or
3. (a) The probability of simultaneous occurrence of the two events A and B is
given by: P A B P A P B A P B P A B I b g b g b g b g b g . / . / or
(b) If A and B are independent P A B P A P B I b g b g b g . .
4. Bayes' Theorem :
( )
( ) ( )
( ) ( )
1
. /
/ , ( 1, 2, ...... )
. /
k k
k n
i i
i
P A P D A
P A D k n
P A P D A
Here A
1
, A
2
, ...... A
n
are n mutually exclusive and exhaustive events.
10.9 LESSON-END ACTIVITY
Apply the concept of probability in predicting the sensex in different stock exchanges
like National Stock Exchange, Delhi Stock Exchange and Bombay Stock Exchange.
10.10 KEYWORDS
Probability
Event
Outcome
Occurrence
Combination
Inverse probability
10.11 QUESTIONS FOR DISCUSSION
1. Fill in the blank
(a) The theory of probability is a study of ....................... or .......................
experiments.
(b) ....................... is a arrangement of a given number of objects in a definite
order.
(c) Counting techniques are often helpful in ....................... of total no. of
outcomes.
(d) Modern approach was introduced by ....................... mathematical.
(e) Bayes' Theorem is also called .......................
2. Distinguish between
(a) Favourable outcomes and Exhaustive outcomes
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(b) Permutation and Combination
(c) Prior possibilities or Inverse possibilities
3. Write True or False against each of the statement:
(a) It is not possible to predetermine the outcome association with a particular
experimentation.
(b) The total no. of permutations of n distinct objects is n!
(c) Each element of the set is called sample point.
(d) A compound event is simultaneous occurrence of only two events.
(e) The assignment of probabilities on basis of statistical and classical events is
objective.
10.12 TERMINAL QUESTIONS
1. Define the term 'probability' by (a) The Classical Approach, (b) The Statistical
Approach. What are the main limitations of these approaches?
2. Discuss the axiomatic approach to probability. In what way it is an improvement
over classical and statistical approaches?
3. Distinguish between objective probability and subjective probability. Give one
example of each concept.
4. State and prove theorem of addition of probabilities for two events when
(a) they are not independent, (b) they are independent.
5. Explain the meaning of conditional probability. State and prove the multiplication
rule of probability of two events when (a) they are not independent, (b) they are
independent.
6. Explain the concept of independence and mutually exclusiveness of two events A
and B. If A and B are independent events, then prove that A and B are also
independent.
For two events A and B it is given that P A P B p P A B b g b g b g 04 06 . , , . U
(i) Find the value of p so that A and B are independent.
(ii) Find the value of p so that A and B are mutually exclusive.
7. Explain the meaning of a statistical experiment and corresponding sample space.
Write down the sample space of an experiment of simultaneous toss of two coins
and a die.
8. State and prove Bayes' theorem on inverse probability.
9. What is the probability of getting exactly two heads in three throws of an unbiased
coin?
10. What is the probability of getting a sum of 2 or 8 or 12 in single throw of two
unbiased dice?
11. Two cards are drawn at random from a pack of 52 cards. What is the probability
that the first is a king and second is a queen?
12. What is the probability of successive drawing of an ace, a king, a queen and a jack
from a pack of 52 well shuffled cards? The drawn cards are not replaced.
13. 5 unbiased coins with faces marked as 2 and 3 are tossed. Find the probability of
getting a sum of 12.
Probability
347
14. If 15 chocolates are distributed at random among 5 children, what is the probability
that a particular child receives 8 chocolates?
15. A and B stand in a ring with 10 other persons. If arrangement of 12 persons is at
random, find the chance that there are exactly three persons between A and B.
16. Two different digits are chosen at random from the set 1, 2, 3, 4, 5, 6, 7, 8. Find the
probability that sum of two digits exceeds 13.
17. From each of the four married couples one of the partner is selected at random.
What is the probability that they are of the same sex?
18. A bag contains 5 red and 4 green balls. Two draws of three balls each are done
with replacement of balls in the first draw. Find the probability that all the three
balls are red in the first draw and green in the second draw.
19. Two die are thrown two times. What is the probability of getting a sum 10 in the
first and 11 in the second throw?
20. 4 cards are drawn successively one after the other without replacement. What is
the probability of getting cards of the same denominations?
21. A bag contains 4 white and 2 black balls. Two balls are drawn one after another
without replacement. What is the probability that first ball is white and second is
black or first is black and second is white?
22. A bag contains 4 white and 3 red balls. Another bag contains 3 white and 5 red
balls. One ball is drawn at random from each bag. What is the probability that (a)
both balls are white, (b) both are red, (c) one of them is white and the other is red?
23. What is the probability of a player getting all the four aces, when playing cards are
uniformly distributed among the four players?
24. A bag contains 10 white and 6 red balls. Two balls are drawn one after another
with replacement. Find the probability that both balls are red.
25. Three persons A, B and C successively draw one card from a pack of 52 cards
with replacement of the card drawn earlier. The first to obtain a card of spade
wins. What are their respective chances of winning?
26. A bag contains 6 red and 4 green balls. A ball is drawn at random and replaced and
a second ball is drawn at random. Find the probability that the two balls drawn are
of different colours.
27. The letters of the word GANESHPURI are arranged at random. Find the probability
that in the word, so formed;
(a) The letter G always occupies the first place.
(b) The letter P and I respectively occupy first and last places.
(c) The vowels are always together.
(d) The letters E, H, P are never together.
(e) The vowels always occupy even places (i.e., 2nd, 4th, etc.)
28. 5-letter words are formed from the letters of the word ORDINATES. What is the
probability that the word so formed consists of 2 vowels and 3 consonants?
29. Maximum number of different committees are formed out of 100 teachers, including
principal, of a college such that each committee consists of the same number of
members. What is the probability that principal is a member of any committee?
30. Letters of the word INTERMEDIATE are arranged at random to form different
words. What is the probability that :
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(a) First letter of the word is R?
(b) First letter is M and last letter is E?
(c) All the vowels come together?
(d) The vowels are never together?
Hint: (d) The event will occur if the letters are arranged as VCVCVCVCVCVCV
where V and C denote vowels and consonants respectively. 6 places for vowels
can be chosen in
7
C
6
.
31. Five persons entered the lift cabin on the ground floor of an 8-floor building. Suppose
that each of them independently and with equal probability can leave the floor
beginning with first. Find out the probability of all the persons leaving at different
floors.
Hint: There are 7 floors along with ground floor.
32. A team of first eleven players is to be selected at random from a group of 15
players. What is the probability that (a) a particular player is included, (b) a particular
player is excluded?
33. Out of 18 players of a cricket club there are 2 wicket keepers, 5 bowlers and rest
batsmen. What is the probability of selection of a team of 11 players including one
wicket keeper and at least 3 bowlers?
34. Four persons are selected at random from a group consisting of 3 men, 2 women
and 4 children. Find the chance that exactly 2 of them are children.
35. A committee of 6 is chosen from 10 men and 7 women so as to contain at least 3
men and 2 women. Find the probability that 2 particular women don't serve on the
same committee.
36. If n persons are seated around a round table, find the probability that in no two
ways a man has the same neighbours.
37. 6 teachers, of whom 2 are from science, 2 from arts and 2 from commerce, are
seated in a row. What is the probability that the teachers of the same discipline are
sitting together?
38 (a) If P(A) = 0.5, P(B) = 0.4 and P A B U
d i
0 7 . , find P(A/B) and P A B U b g ,
where A is compliment of A. State whether A and B are independent.
(b) If
( )
1
3
P A =
,
( )
1
2
P B =
,
( )
1
/
6
P A B =
, find P(B/A) and P B A /
d i .
(c) If A, B and C are three mutually exclusive events, find P(B) if
( ) ( ) ( )
1 1
3 2
P C P A P B = =
.
39. Let A be the event that a business executive selected at random has stomach ulcer
and B be the event that he has a heart disease. Interpret the following events :
( ) , ( ) , ( ) , ( ) , ( ) i ii iii iv v A A A A A B A B A B
c c c c
c
U I I I I b g ,
where c stands for compliment.
40. Let A, B and C be three events. Write down the following events in usual set
notations :
(i) A and B occur together, (ii) Both A and B occur but not C, (iii) all the three
events occur, (iv) at least one event occur and (v) at least two events occur.
Probability
349
41. The records of 400 examinees are given below :
If an examinee is selected at random from this group, find
(i) the probability that he is a commerce graduate,
(ii) the probability that he is a science graduate, given that his score is above 60
and
(iii) the probability that his score is below 50, given that he is B.A.
42. It is given that
( ) ( ) ( )
5 1 1
, and ,
6 3 2
P A B P AB P B +
where
P B d i
stands for
the probability that event B doesn't happen. Determine P(A) and P(B). Hence,
show that the events A and B are independent.
43. A can solve 75% of the problems in accountancy while B can solve 70% of the
problems. Find the probability that a problem selected at random from an
accountancy book;
(a) will be solved by both A and B,
(b) will be solved by A or B,
(c) will be solved by one of them.
44. (a) One card is drawn from each of two ordinary sets of 52 cards. Find the
probability that at least one of them will be the ace of hearts.
(b) Two cards are drawn simultaneously from a set of 52 cards. Find the
probability that at least one of them will be the ace of hearts.
45. An article manufactured by a company consists of two parts X and Y. In the
process of manufacture of part X, 9 out of 104 parts may be defective. Similarly, 5
out of 100 are likely to be defective in the manufacture of part Y. Compute the
probability that the assembled product will not be defective.
46. A salesman has 80% chance of making a sale to each customer. The behaviour of
each customer is independent. If two customers A and enter, what is the probability
that the salesman will make a sale to A or B?
47. A problem in economics is given to 3 students whose chances of solving it are
2
3
,
3
4
and
4
5
respectively. What is the probability that the problem will be solved?
48. A man and a woman appear in an interview for two vacancies in the same post.
The probability of man's selection is
1
4
and that of woman's selection is
1
3
. What is
the probability that
(a) both of them will be selected?
(b) only one of them will be selected?
(c) none of them will be selected?
(d) at least one of them will be selected?
Score
Educational Qualification
B A B Sc B Com
Total
Below
Between and
Above
Total
90 30 60
. . . . . .
50 180
50 60 20 70 70 160
60 10 30 20 60
120 130 150 400
Quantitative Techniques
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49. What is the chance that a non-leap year selected at random will contain 53 Sundays?
50. In a group of equal number of men and women 15% of men and 30% of women
are unemployed. What is the probability that a person selected at random is
employed?
51. An anti-aircraft gun can take a maximum of four shots at enemy plane moving
away from it. The probabilities of hitting the plane at first, second, third and fourth
shot are 0.4, 0.3, 0.2 and 0.1 respectively. What is the probability that the gun hits
the plane?
52. A piece of equipment will function only when all the three components A, B, C are
working. The probability of A failing during one year is 0.15 and that of B failing is
0.05 and of C failing is 0.10. What is the probability that the equipment will fail
before the end of the year?
53. A worker attends three machines each of which operates independently of the
other two. The probabilities of events that machines will not require operator's
intervention during a shift are p
1
= 0.4, p
2
= 0.3 and p
3
= 0.2. Find the probability
that at least one machine will require worker's intervention during a shift.
54. The probability that a contractor will get a plumbing contract is 2/3 and the probability
that he will not get a electric contract is 5/9. If the probability of getting at least one
of the contract is 4/5, what is the probability that he will get both?
55. An M.B.A. applies for job in two firms X and Y. The probability of his being
selected in firm X is 0.7 and being rejected in the firm Y is 0.5. The probability of
at least one of his application being rejected is 0.6. What is the probability that he
will be selected in one of the firms?
56. A researcher has to consult a recently published book. The probability of its being
available is 0.5 for library A and 0.7 for library B. Assuming the two events to be
statistically independent, find the probability of book being available in library A
and not available in library B.
57. An investment consultant predicts that the odds against the price of certain stock
will go up next week are 2:1 and odds in favour of price remaining same are 1:3.
What is the probability that price of the stock will go down during the week?
58. In a random sample of 1,000 residents of a city 700 read newspaper A and 400
read newspaper B. If the habit of reading newspaper A and B is independent,
what is the probability that a person selected at random would be reading
(a) both the papers, (b) exactly one of the papers, (c) at least one of the
papers? Also find the absolute number of persons in each of the cases (a), (b) and
(c).
59. The odds that a book will be reviewed favourably by three independent experts are
5 to 2, 4 to 3 and 3 to 4 respectively. What is the probability that of the three
reviews a majority will be favourable?
60. In a certain city two newspapers, A and B, are published. It is known that 25% of
the city population reads A and 20% reads B while 8% reads both A and B. It is
also known that 30% of those who read A but not B look into advertisements and
40% of those who read B but not A look into advertisements while 50% of those
who read both A and B look into advertisements. What is percentage of population
who reads an advertisement?
61. The probability that a new entrant to a college will be a student of economics is
1/3, that he will be a student of political science is 7/10 and that he will not be a
student of economics and political science is 1/5. If one of the new entrants is
selected at random, what is the probability that (a) he will be a student of economics
and political science, (b) he will be a student of economics if he is a student of
Probability
351
political science? Comment upon the independence of two events : a student of
economics and a student of political science.
62. 20% of all students at a university are graduates and 80% are undergraduates.
The probability that a graduate student is married is 0.5 and the probability that an
undergraduate student is married is 0.1. One student is selected at random.
(a) What is probability that he is married?
(b) What is the probability that he is a graduate if he is found to be married?
63. In a city three daily news papers X, Y and Z are published. 40% of the people of
the city read X, 50% read Y, 30% read Z, 20% read both X and Y, 15% read X and
Z, 10% read Y and Z and 24% read all the 3 papers. Calculate the percentage of
people who do not read any of the 3 newspapers.
64. A bag contains 4 red and 3 blue balls. Two drawings of 2 balls are made. Find the
probability of drawing first 2 red balls and the second 2 blue balls
(i) if the balls are returned to the bag after the first draw,
(ii) if the balls are not returned after the first draw.
65. A die is loaded in such a way that each odd number is twice as likely to occur as
each even number. Find (i) the probability that the number rolled is a perfect square
and (ii) the probability that the number rolled is a perfect square provided it is
greater than 3.
66. There are 100 students in a college class of which 36 boys are studying statistics
and 13 girls are not studying statistics. If there are 55 girls in all, find the probability
that a boy picked at random is not studying statistics.
67. If a pair of dice is thrown, find the probability that
(i) the sum is neither 7 nor 11
(ii) the sum is neither 8 nor 10
(iii) the sum is greater than 12.
68. Three horses A, B and C are in race. A is twice as likely to win as B, and B is
twice as likely to win as C. What are the respective probabilities of winning?
69. A sample of 3 items is selected at random from a box containing 12 items of which
3 are defective. Find the possible number of defective combinations of the said 3
selected items along with their respective probabilities.
70. In an examination 30% of students have failed in mathematics, 20% of the students
have failed in chemistry and 10% have failed in both mathematics and chemistry.
A student is selected at random.
(i) What is the probability that the student has failed either in mathematics or in
chemistry?
(ii) What is the probability that the student has failed in mathematics if is known
that he has failed in chemistry?
71. There are two bags. The first contains 2 red and 1 white balls whereas the second
bag contains 1 red and 2 white balls. One ball is taken out at random from the first
bag and is being put in the second. Then, a ball is chosen at random from the
second bag. What is the probability that this ball is red?
72. From the sale force of 150 people, one will be chosen to attend a special meeting.
If 52 are single and 72 are college graduates, and 3/4 of 52 that are single are
college graduates, what is the probability that a sales person, selected at random,
will be neither single nor a college graduate?
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73. Data on readership of a certain magazine indicate that the proportion of male
readers over 30 years old is 0.20. The proportion of male readers under 30 is 0.40.
If the proportion of readers under 30 is 0.70, what is the proportion of subscribers
that are male? Also find the probability that a randomly selected male subscriber is
under 30.
74. Two union leaders and 10 directors of a company sit randomly to decide upon the
wage hike as demanded by the union. Find the probability that there will be exactly
three directors between the two union leaders.
75. Suppose a company hires both MBAs and non-MBAs for the same kind of
managerial task. After a period of employment some of each category are promoted
and some are not. Table below gives the proportion of company's managers among
the said classes :
Calculate P(A/B) andP(B/A), and find out whether A and B are independent events?
76. Each of A, B and C throws with two dice for a prize. The highest throw wins, but
if equal highest throws occur the player with these throw continue. If A throws
10 find his chance of winning.
77. The probability of a man hitting a target is 1/4. How many times must he fire so
that probability of hitting the target at least once is greater than 2/3?
78. Find the probability that an assessee files his tax return and cheats on it, given that
70% of all assessee file returns and 25% of those who file, cheat.
79. The probability of an aircraft engine failure is 0.10. With how many engines should
the aircraft be equipped to be 0.999 sure against an engine failure? Assume that
only one engine is needed for successful operation of the aircraft.
80. A market research firm is interested in surveying certain attitude in small community.
There are 125 house holds broken down according to income, ownership of a
telephone and ownership of a T.V.
. 1, 00, 000 . 1, 00, 000
Telephone Telephone
No Telephone No Telephone
subscriber subscriber
Own T.V. set 59 10 40
No T.V. set 2 4
Households with Households with
annual income of annual income
Rs or less above Rs
5
4 1
(a) If a person is selected at random, what is the probability that he is a T.V.
owner?
(b) If the person selected at random is found to be having income greater than
100,000 and a telephone subscriber, what is the probability that he is a T.V.
owner?
(c) What is the conditional probability of drawing a household that owns a T.V.,
given that he is a telephone subscriber?
Promotional
Status
Academic Qualification
MBA
(A)
Non - MBA
(A)
Total
Promoted (B)
0.42
0.18
Not Promoted(B) 0.28 0.12
Total 0.70 0.30
0 60
0 40
100
.
.
.
Probability
353
81. An investment firm purchases three stocks for one week trading purposes. It
assesses the probability that the stock will increase in value over the week as 0.8,
0.7 and 0.6 respectively. What is the chance that (a) all the three stocks will increase,
and (b) at least two stocks will increase? (Assume that the movements of these
stocks is independent.)
82. A company has two plants to manufacture scooters. Plant I manufactures 70% of
the scooters and plant II manufactures 30%. At plant I 80% of the scooters are
rated standard quality and at plant II 90% of the scooters are rated standard quality.
A scooter is picked up at random and is found to be standard quality. What is the
chance that it has been produced by plant I?
83. A person has 4 coins each of a different denomination. How many different sums
of money can be formed?
84. Two sets of candidate avoid touching for the position of Board of Directors of a
company. The probabilities of winning are 0.7 and 0.3 for the two. If the first set
wins, they will introduce a new product with the probability 0.4. Similarly, the
probability that the second set will introduce a new product is 0.8. If the new
product has been introduced, what is the chance that the first set of candidates has
won?
85. By examining the chest X-ray, the probability that T.B. is detected when a person
is actually suffering is 0.99. The probability that the doctor diagnoses incorrectly,
that a person has T.B., on the basis of X-ray is 0.001. In a certain city, 1 in 1000
persons suffers from T.B. A person selected at random is diagnosed to have T.B.
What is the chance that he actually has T.B.?
86. The compressors used in refrigerators are manufactured by XYZ company at
three factories located at Pune, Nasik and Nagpur. It is known that the Pune
factory produces twice as many compressors as Nasik one, which produces the
same number as the Nagpur one (during the same period). Experience also shows
that 0.2% of the compressors produced at Pune and Nasik and 0.4% of those
produced at Nagpur are defective.
A quality control engineer while maintaining a refrigerator finds a defective
compressor. What is the probability that Nasik factory is not to be blamed?
87. A company estimates that the probability of a person buying its product after seeing
the advertisement is 0.7. If 60% of the persons have come across the advertisement,
What is the probability that the person, who buys the product, has not come across
the advertisement?
88. In an automobile factory, certain parts are to be fixed to the chassis in a section
before it moves into another section. On a given day, one of the three persons A, B
or C carries out this task. A has 45%, B has 35% and C has 20% chance of
doing it. The probabilities that A, B or C will take more than the allotted time are
1
16
,
1
10
and
1
20
respectively. If it is found that one of them has taken more time,
what is the probability that A has taken more time?
89. The probabilities of X, Y and Z becoming managers are
4
9
,
2
9
and
1
3
respectively.
The probabilities that the Bonus Scheme will be introduced if X, Y or Z become
manager are
3
10
,
1
2
and
4
5
respectively.
(a) What is the probability that the Bonus Scheme will be introduced?
(b) What is the probability that X was appointed as manager given that the Bonus
Scheme has been introduced?
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354
90. There are 3 bags. The first bag contains 5 red and 3 black balls, the second contains
4 red and 5 black balls and the third contains 3 red and 4 black balls. A bag is
selected at random and the two balls drawn, at random, are found to be red. Revise
the probabilities of selection of each bag in the light of this observation.
91. On an average, 20% of the persons going to a handicraft emporium are foreigners
and the remaining 80% are local persons. 75% of foreigners and 50% of local
persons are found to make purchases. If a bundle of purchased items is sent to the
cash counter, what is the probability that the purchaser is a foreigner?
92. The chance that doctor A will diagnose disease B correctly is 60%. The chance
that a patient will die by his treatment after correct diagnosis is 40% and the chance
of death by wrong diagnosis is 70%. A patient of doctor A, who had disease B,
died. What is the chance that his disease was correctly diagnosed?
93. A company has four production sections S
1
, S
2
, S
3
and S
4
which contribute 30%,
20%, 28% and 22%, respectively, to the total output. It was observed that these
sections produced 1%, 2%, 3% and 4% defective units respectively. If a unit is
selected at random and found to be defective, what is the probability that it has
come from either S
1
or S
4
?
94. A factory produces certain type of output by three machines. The respective daily
production figures are : machine A = 3,000 units, machine B = 2,500 units, machine
C = 4,500 units. Past experience shows that 1 % of the output produced by machine
A is defective. The corresponding fractions of defectives for the other two machines
are 1.2 and 2% respectively. An item is selected at random from a day's production
and is found to be defective. What is the probability that it came from the output of
(i) machine A, (ii) machine B, (iii) machine C?
95. It is known that 20% of the males and 5% of the females are unemployed in a
certain town consisting of an equal number of males and females. A person selected
at random is found to be unemployed. What is the probability that he/she is a (i)
male, (ii) female?
96. In a typing-pool, three typists share the total work in the ratio 30%, 35% and 35%
of the total work. The first, second and the third typist spoil the work to the extent
of 3%, 4% and 5% respectively. A completed work is selected at random and
found to be spoiled. What is the probability that the work was done by the third
typist?
97. An organisation dealing with consumer products, wants to introduce a new product
in the market. Based on their past experience, it has a chance of 65% of being
successful and 35% of not being successful. In order to help them to make a
decision on the new product, i.e., whether to introduce the new product or not, it
decides to get additional information on consumers' attitude towards the product.
For this purpose, the organisation decides to conduct a survey. In the past, when
the product of this type were successful, the surveys yielded favourable indications
85% of the times, whereas unsuccessful products received favourable indications
30% of the time. Determine the probability of the product being a success given
the survey information.
98. In a class of 75 students, 15 were considered to be very intelligent, 45 as medium
and the rest below average. The probability that a very intelligent student fails in a
viva-voce examination is 0.005; the medium student failing has a probability 0.05;
and the corresponding probability for a below average student is 0.15. If a student
is known to have passed the viva-voce examination, what is the probability that he
is below average?
Probability
355
99. Comment on the following statements :
(a) Since accident statistics show that the probability that a person will be involved
in a road accident is 0.02, the probability that he will be involved in 2 accidents
in that year is 0.0004.
(b) For three mutually exclusive events A, B and C of a sample space S, where
( )
1
,
3
P A =
( )
3
5
P B =
and
( )
1
5
P C =
.
(c) A and B are two events in a sample space S where
P A a f
5
6
,
P B a f
2
3
and
P A B I b g
2
5
.
(d) Four persons are asked the same question by an interviewer. If each has,
independently, probability of 1/6 of answering correctly, the probability that at
least one answers correctly is
1 2
4
6 3
.
(e) The probability that A and B, working independently, will solve a problem is
2
3
and probability that A will solve the problem
1
3
.
(f) For a biased dice the probabilities for different faces to turn up are as given in
the following table:
(g) If the probability of A to fail in an examination is 0.15 and that for B is 0.27,
then the probability that either A or B fails in examination is 0.42.
(h) If the probability that Congress wins from a constituency is 0.40 and that
B.J.P. wins from the same constituency is 0.42, than the probability that either
Congress or B.J.P. wins from that constituency is 0.82.
(i) The probability of occurrence of event A is 0.6 and the probability of
occurrence of at least one of the four events A, B, C and D is 0.5.
100. Four alternative answers are given to each question. Point put the correct
answer :
(a) If A and B are any two events of a sample space S, then P A B U b g +P A B I b g
equals
(i) ( ) ( ) P A P B +
(ii) 1 P A B I
d i
(iii) 1 P A B U
d i
(iv) none of the above.
(b) If A and B are independent and mutually exclusive events, then
(i) ( ) ( ) / P A P A B =
(ii) ( ) ( ) / P B P B A =
Number on
the dice
1 2 3 4 5 6
Probability 0.15 0. 30 0.17 0. 25 0. 08 0. 07
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(iii) either P(A) or P(B) or both must be zero.
(iv) none of the above.
(c) If A and B are independent events, then P A B I b g equals
(i) ( ) ( ) P A P B +
(ii) P A a f. P B/A a f
(iii) P B a f. P A/B a f
(iv) P A a f. P B a f
(d) If A and B are independent events, then P A B U b g equals
(i) P A a f. P B a f P B a f
(ii) P A a f. P B d i P B a f
(iii) P A d i. P B d i P A a f
(iv) none of the above.
(e) If A and B are two events such that
P A B U b g
5
6
,
P A B I b g
1
3
,
( )
1
3
P A =
,
the events are
(i) dependent
(ii) independent
(iii) mutually exclusive
(iv) none of the above.
101. Which of the following statements are TRUE or FALSE :
(i) The probability of an impossible event is always zero.
(ii) The number of permutations is always greater than the number of combinations.
(iii) If two events are independent, then they will also be mutually exclusive.
(iv) If P(A) and P(B) are non-zero and A and B are independent, then they
cannot be mutually exclusive.
(v) If P(A) and P(B) are non-zero and A and B are mutually exclusive, then they
may be independent.
(vi) The probability that the roof of a room will fall on the floor can be determined
with the help of Classical definition.
(vii) Personal judgement or experience cannot be used in the assignment of
probabilities.
(viii) Revision of the past probabilities of various events is possible on the basis of
the outcome of the experiment.
(ix) The probability of occurrence of an event cannot be a negative number.
(x) The probability of occurrence of an event that is sure to occur can be greater
than unity.
102. Objective Type Questions :
(a) The probability of getting a number greater than 4 from the throw of an
unbiased dice is
Probability
357
(i)
1
2
(ii)
1
3
(iii)
1
4
(iv) none of these.
(b) The probability of getting exactly one tail in the toss of two unbiased coins is
(i)
1
2
(ii)
2
3
(iii)
1
4
(iv) none of these.
(c) If odds in favour of an event A are 3 : 5, then the probability of non-occurrence
of A is
(i)
3
5
(ii)
3
8
(iii)
5
8
(iv) none of these.
(d) Four dice and six coins are tossed simultaneously. The number of elements in
the sample space are
(i) 4
6
6
2
(ii) 2
6
6
2
(iii) 6
4
2
6
(iv) none of these.
(e) Two cards are drawn successively without replacement from a well-shuffled
pack of 52 cards. The probability that one of them is king and the other is
queen is
(i)
8
13 51
(ii)
4
13 51
(iii)
1
13 17
(iv) none of these.
(f) Two unbiased dice are rolled. The chance of obtaining an even sum is
(i)
1
4
(ii)
1
2
(iii)
1
3
(iv) none of these.
(g) Two unbiased dice are rolled. The chance of obtaining a six only on the
second die is
(i)
5
6
(ii)
1
6
(iii)
1
4
(iv) none of these.
(h) If P A a f
4
5
, then odds against A are
(i) 1 : 4 (ii) 5 : 4 (iii) 4 : 5 (iv) none of these.
(i) The probability of occurrence of an event A is 0.60 and that of B is 0.25. If A
and B are mutually exclusive events, then the probability of occurrence of
neither of them is
(i) 0.35 (ii) 0.75 (iii) 0.15 (iv) none of these.
(j) The probability of getting at least one head in 3 throws of an unbiased coin is
(i)
1
8
(ii)
7
8
(iii)
3
8
(iv) none of these.
10.13 MODEL ANSWERS TO QUESTIONS FOR
DISCUSSION
1. (a) Statistical, Random (b) Permutation (c) enumeration
(d) Russian (e) Inverse Probability
2. (a) True (b) True (c) True (d) False (e) True
10.14 SUGGESTED READINGS
W. Feller, An introduction to probability theory and its applications, Volume 1, John
Willy & Sons.
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358
I Csiszar, I divergence geometry of probability distributions and minimization
problems, The Annals of probability, Vol 3, No 1, pp. 146-158.
Sheldon M. Ross, A first course in probability, Prentice Hall.
Morris H. Degroot, Mark J, Schervish, "Probability and Statistics," Addison-Wesley,
2001
William Mendenhall, Robert, J. Beaver, Barbara, M. Beaver, Introduction to Probability
and Statistics.
11.0 AIMS AND OBJECTIVES
After studying the probability in the previous lesson the next step is the probability
distributions. Probability distributions are fundamental concepts of statistics. It is used
both in theoretical aspects as well as practical aspects.
11.1 INTRODUCTION
Usual manager is forced to make decisions when there is uncertainty as to what will
happen after the decisions are made. In this situation the mathematical theory of probability
furnishes a tool that can be of great help to the decision maker. A probability function is
a rule that assigns probabilities to each element of a set of events that may occur.
Probability distribution can either discrete or continuous. A discrete probability distribution
is sometimes called a probability mass function and a continuous one is called a probability
density function.
LESSON
11
THEORETICAL PROBABILITY DISTRIBUTIONS
CONTENTS
11.0 Aims and Objectives
11.1 Introduction
11.2 Probability Distribution
11.3 Binomial Distribution
11.4 Hypergeometric Distribution
11.5 Pascal Distribution
11.6 Geometrical Distribution
11.7 Uniform Distribution (Discrete Random Variable)
11.8 Poisson Distribution
11.9 Exponential Distribution
11.10 Uniform Distribution (Continuous Variable)
11.11 Normal Distribution
11.12 Let us Sum Up
11.13 Lesson-end Activity
11.14 Keywords
11.15 Questions for Discussion
11.16 Terminal Questions
11.17 Model Answers to Questions for Discussion
11.18 Suggested Readings
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11.2 PROBABILITY DISTRIBUTION
The study of a population can be done either by constructing an observed (or empirical)
frequency distribution, often based on a sample from it, or by using a theoretical distribution.
We have already studied the construction of an observed frequency distribution and its
various summary measures. Now we shall learn a more scientific way to study a
population through the use of theoretical probability distribution of a random variable. It
may be mentioned that a theoretical probability distribution gives us a law according to
which different values of the random variable are distributed with specified probabilities.
It is possible to formulate such laws either on the basis of given conditions (a prior
considerations) or on the basis of the results (a posteriori inferences) of an experiment.
If a random variable satisfies the conditions of a theoretical probability distribution, then
this distribution can be fitted to the observed data.
The knowledge of the theoretical probability distribution is of great use in
the understanding and analysis of a large number of business and economic
situations. For example, with the use of probability distribution, it is possible to test a
hypothesis about a population, to take decision in the face of uncertainty, to make forecast,
etc.
Theoretical probability distributions can be divided into two broad categories, viz. discrete
and continuous probability distributions, depending upon whether the random variable is
discrete or continuous. Although, there are a large number of distributions in each category,
we shall discuss only some of them having important business and economic applications.
11.3 BINOMIAL DISTRIBUTION
Binomial distribution is a theoretical probability distribution which was given by James
Bernoulli. This distribution is applicable to situations with the following characteristics :
1. An experiment consists of a finite number of repeated trials.
2. Each trial has only two possible, mutually exclusive, outcomes which are termed as
a 'success' or a 'failure'.
3. The probability of a success, denoted by p, is known and remains constant from
trial to trial. The probability of a failure, denoted by q, is equal to 1 - p.
4. Different trials are independent, i.e., outcome of any trial or sequence of trials has
no effect on the outcome of the subsequent trials.
The sequence of trials under the above assumptions is also termed as Bernoulli
Trials.
Probability Function or Probability Mass Function
Let n be the total number of repeated trials, p be the probability of a success in a trial and
q be the probability of its failure so that q = 1 - p.
Let r be a random variable which denotes the number of successes in n trials. The
possible values of r are 0, 1, 2, ...... n. We are interested in finding the probability of r
successes out of n trials, i.e., P(r).
To find this probability, we assume that the first r trials are successes and remaining n -
r trials are failures. Since different trials are assumed to be independent, the probability
of this sequence is
p p p q q q
r times n r times
. . . . .... ....
1 2 4 3 4 1 2 4 3 4
b g
i.e. p
r
q
n-r
.
Since out of n trials any r trials can be success, the number of sequences showing any r
trials as success and remaining (n - r) trials as failure is
n
C
r
, where the probability of r
successes in each trial is p
r
q
n-r
. Hence, the required probability is
P(r)
n
C
r
p
r
q
n r
, where
r = 0, 1, 2, ...... n.
Theoretical Probability
Distributions
361
Writing this distribution in a tabular form, we have
It should be noted here that the probabilities obtained for various values of r are the
terms in the binomial expansion of (q + p)
n
and thus, the distribution is termed as Binomial
Distribution.
( )
n r n r
r
P r C p q
-
=
is termed as the probability function or probability mass
function (p.m.f.) of the distribution.
Summary Measures of Binomial Distribution
(a) Mean: The mean of a binomial variate r, denoted by , is equal to E(r), i.e.,
0 1
( ) ( ) .
n n
n r n r
r
r r
E r rP r r C p q
(note that the term for r = 0 is 0)
( )
( )
( ) ( )
1 1
. 1 ! . !
. .
! ! 1 ! !
n n
r n r r n r
r r
n n r n
p q p q
r n r r n r
- -
= =
-
= =
- - -
( )
( ) ( )
( )
1
1
1
1 !
.
1 ! !
n
n
r n r
r
n
np p q np q p
r n r
+
np = Qq p + 1
(b) Variance: The variance of r, denoted by
s
2
, is given by
( ) [ ]
2 2
2 2 2 2
2 E r E r E r np E r npr n p 1 1 +
] ]
( ) ( ) ( )
2 2 2 2 2 2 2 2
2 2 E r npE r n p E r n p n p + +
( )
2 2 2
E r n p .... (1)
Thus, to find
2
1 +
]
( )
2 1
1 .
n n
n
r n r n r n r
r r
r r
r r C p q r C p q
+
( )
( ) 2
1 !
.
! !
n
r n r
r
r r n
p q np
r n r
( ) ( ) 2
!
.
2 ! !
n
r n r
r
n
p q np
r n r
( ) ( )
( ) ( ) 2
1 . 2 !
.
2 ! !
n
r n r
r
n n n
p q np
r n r
( )
( )
( ) ( )
2 2
2
2 !
1 .
2 ! !
n
r n r
r
n
n n p p q np
r n r
( ) ( ) ( )
2
2 2
1 1
n
n n p q p np n n p np
+ + +
Substituting this value in equation (1), we get
( ) ( )
2 2 2 2
1 1 n n p np n p np p + npq =
Or the standard deviation npq =
Remarks:
2
npq mean q , which shows that
2
mean <
, since 0 < q <1.
r n Total
P r C p q C p q C p q C p q
n n n n n n n
n
n
0 1 2
1
0
0
1
1
2
2 2 0
KK
KK ( )
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(c) The values of
3
,
4
,
1
and
2
The above result shows that the distribution is symmetrical when
p = q =
1
2
, negatively skewed if q < p, and positively skewed if q > p
( ) ( )
2 2 2
4
2 2 2 2 2
2
3 1 6 1 6
3
n p q npq pq pq
n p q npq
+
+
The above result shows that the distribution is leptokurtic if 6pq < 1, platykurtic
if 6pq > 1 and mesokurtic if 6pq = 1.
(d) Mode: Mode is that value of the random variable for which probability is maximum.
If r is mode of a binomial distribution, then we have
P(r 1) P(r) P(r + 1)
Consider the inequality P(r)
P(r + 1)
or
1 1
1
n r n r n r n r
r r
C p q C p q
+
+
or
( ) ( ) ( )
1 1
! !
! ! 1 ! 1 !
r n r r n r
n n
p q p q
r n r r n r
+
+
or
( ) ( )
1 1
. . or
1
q p qr q np pr
n r r
+
+
Solving the above inequality for r, we get
( ) 1 1 r n p + .... (1)
Similarly, on solving the inequality P(r 1)
000 0.00 0
1.0000 80 Total
Theoretical Probability
Distributions
367
The values of these coefficients, for various values of n, can be obtained directly
by using Pascal's triangle.
PASCAL'S TRIANGLE
We can note that it is very easy to write this triangle. In the first row, both the coefficients
will be unity because
1 1
0 1
C C = . To write the second row, we write 1 in the beginning
and the end and the value of the middle coefficients is obtained by adding the coefficients
of the first row. Other rows of the Pascal's triangle can be written in a similar way.
4. (a) The shape and location of binomial distribution changes as the value of p
changes for a given value of n. It can be shown that for a given value of n, if
p is increased gradually in the interval (0, 0.5), the distribution changes from
a positively skewed to a symmetrical shape. When p = 0.5, the distribution is
perfectly symmetrical. Further, for larger values of p the distribution tends to
become more and more negatively skewed.
(b) For a given value of p, which is neither too small nor too large, the distribution
becomes more and more symmetrical as n becomes larger and larger.
Uses of Binomial Distribution
Binomial distribution is often used in various decision-making situations in business.
Acceptance sampling plan, a technique of quality control, is based on this distribution.
With the use of sampling plan, it is possible to accept or reject a lot of items either at the
stage of its manufacture or at the stage of its purchase.
11.4 HYPERGEOMETRIC DISTRIBUTION
The binomial distribution is not applicable when the probability of a success p does not
remain constant from trial to trial. In such a situation the probabilities of the various
values of r are obtained by the use of Hypergeometric distribution.
Let there be a finite population of size N, where each item can be classified as either a
success or a failure. Let there be k successes in the population. If a random sample of
size n is taken from this population, then the probability of r successes is given by
( )
( )( )
k N k
r n r
N
n
C C
P r
C
-
-
= . Here r is a discrete random variable which can take values
0, 1, 2, ...... n. Also n
k.
It can be shown that the mean of r is np and its variance is
.
1
N n
npq
N
_
,
, where
p
k
N
and q = 1 p.
Example 11: A retailer has 10 identical television sets of a company out which 4 are
defective. If 3 televisions are selected at random, construct the probability distribution of
the number of defective television sets.
Solution: Let the random variable r denote the number of defective televisions. In terms
of notations, we can write N = 10, k = 4 and n = 3.
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Thus, we can write
( )
4 6
3
10
3
, 0,1, 2, 3
r r
C C
P r r
C
The distribution of r is hypergeometric. This distribution can also be written in a tabular
form as given below :
Binomial Approximation to Hypergeometric Distribution
In sampling problems, where sample size n (total number of trials) is less than 5% of
population size N, i.e., n < 0.05N, the use of binomial distribution will also
give satisfactory results. The reason for this is that the smaller the sample size
relative to population size, the greater will be the validity of the requirements of independent
trials and the constancy of p.
Example 12: There are 200 identical radios out of which 80 are defective. If 5 radios
are selected at random, construct the probability distribution of the number of defective
radios by using (i) hypergeometric distribution and (ii) binomial distribution.
Solution:
(i) It is given that N = 200, k = 80 and n = 5.
Let r be a hypergeometric random variable which denotes the number of defective
radios, then
( )
80 120
5
200
5
, 0,1, 2, 3, 4, 5
r r
C C
P r r
C
The probabilities for various values of r are given in the following table :
(ii) To use binomial distribution, we find p = 80/200 = 0.4.
P r a f
5
C
r
0. 4 a f
r
0. 6 a f
5 r
, r 0, 1, 2, 3, 4, 5
The probabilities for various values of r are given in the following table :
We note that these probabilities are in close conformity with the hypergeometric
probabilities.
Check Your Progress 11.1
1 Write the characterstics of Binomial Distribution.
2. What is the use of Hypergeometric Distribution?
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
r 0 1 2 3 4 5 Total
P r a f 0. 0752 0. 2592 0. 3500 0. 2313 0. 0748 0. 0095 1
r 0 1 2 3 4 5 Total
P r a f 0. 0778 0. 2592 0. 3456 0. 2304 0. 0768 0. 0102 1
r 0 1 2 3 Total
P r a f
5
30
15
30
9
30
1
30
1
Contd....
Theoretical Probability
Distributions
369
(c) This Chek Your Progress will help you to understand the lesson better.
Try to write answers for them, but do not submit your answers to the
university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
11.5 PASCAL DISTRIBUTION
In binomial distribution, we derived the probability mass function of the number of
successes in n (fixed) Bernoulli trials. We can also derive the probability mass function
of the number of Bernoulli trials needed to get r (fixed) successes. This distribution is
known as Pascal distribution. Here r and p become parameters while n becomes a
random variable.
We may note that r successes can be obtained in r or more trials i.e. possible values of
the random variable are r, (r + 1), (r + 2), ...... etc. Further, if n trials are required to get
r successes, the nth trial must be a success. Thus, we can write the probability mass
function of Pascal distribution as follows :
( )
( )
( )
1
1
Probability of r successes
Probability of a success
P n
in nth trial
out of n trials
-
=
-
1 1 1
1 1
n r n r n r n r
r r
C p q p C p q
- - - - -
- -
= = , where n = r, (r + 1), (r + 2), ... etc.
It can be shown that the mean and variance of Pascal distribution are
2
and
r rq
p p
respectively.
This distribution is also known as Negative Binomial Distribution because various
values of P(n) are given by the terms of the binomial expansion of p
r
(1 - q)
- r
.
11.6 GEOMETRICAL DISTRIBUTION
When r = 1, the Pascal distribution can be written as
( )
1 1 1
0
, where 1, 2, 3, .....
n n n
P n C pq pq n
Here n is a random variable which denotes the number of trials required to get a success.
This distribution is known as geometrical distribution. The mean and variance of the
distribution are
1
p
and
q
p
2
respectively.
11.7 UNIFORM DISTRIBUTION (DISCRETE RANDOM
VARIABLE)
A discrete random variable is said to follow a uniform distribution if it takes various
discrete values with equal probabilities.
If a random variable X takes values X
1
, X
2
, ...... X
n
each with probability
1
n
, the distribution
of X is said to be uniform.
Quantitative Techniques
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370
Exercise with Hints
1. The probability that a secretary will not put the correct postage on a letter is 0.20.
What is the probability that this secretary will not put the correct postage:
(i) On 3 of 9 letters? (ii) On at least 3 of 9 letters? (iii) On at the most 3 of 9 letters?
Hint: Use binomial distribution.
2. (a) The mean of a binomial distribution is 4 and its standard deviation is
3
. What
are the values of n, p and q?
(b) The mean and variance of a binomial distribution are 3 and 2 respectively.
Find the probability that the variate takes values (i) less than or equal to 2 (ii)
greater than or equal to 7.
Hint: Mean = np and Variance = npq.
3. (a) The probability of a man hitting a target is
1
4
. (i) If he fires 7 times, what is
the probability of his hitting the target at least twice? (ii) How many times
must he fire so that the probability of his hitting the target at least once is
greater than
2
3
?
(b) How many dice must be thrown so that there is better than even chance of
obtaining at least one six?
Hint: (a) (ii) Probability of hitting the target at least once in n trials is
3
1
4
n
-
.
Find n such that this value is greater than
2
3
. (b) Find n so that
5 1
1
6 2
n
- >
.
4. A machine produces an average of 20% defective bolts. A batch is accepted if a
sample of 5 bolts taken from the batch contains no defective and rejected if the
sample contains 3 or more defectives. In other cases, a second sample is taken.
What is the probability that the second sample is required?
Hint: A second sample is required if the first sample is neither rejected nor accepted.
5. A multiple choice test consists of 8 questions with 3 answers to each question (of
which only one is correct). A student answers each question by throwing a balanced
die and checking the first answer if he gets 1 or 2, the second answer if he gets 3
or 4 and the third answer if he gets 5 or 6. To get a distinction, the student must
secure at least 75% correct answers. If there is no negative marking, what is the
probability that the student secures a distinction?
Hint: He should attempt at least 6 questions.
6. What is the most probable number of times an ace will appear if a die is tossed (i)
50 times, (ii) 53 times?
Hint: Find mode.
7. Out of 320 families with 5 children each, what percentage would be expected to
have (i) 2 boys and 3 girls, (ii) at least one boy, (iii) at the most one girl? Assume
equal probability for boys and girls.
Hint: Multiply probability by 100 to obtain percentage.
8. Fit a binomial distribution to the following data :
Hint: See example 10.
X
f
:
:
0 1 2 3 4
28 62 46 10 4
Theoretical Probability
Distributions
371
9. A question paper contains 6 questions of equal value divided into two sections of
three questions each. If each question poses the same amount of difficulty to Mr.
X, an examinee, and he has only 50% chance of solving it correctly, find the answer
to the following :
(i) If Mr. X is required to answer only three questions from any one of the two
sections, find the probability that he will solve all the three questions correctly.
(ii) If Mr. X is given the option to answer the three questions by selecting one
question out of the two standing at serial number one in the two sections, one
question out of the two standing at serial number two in the two sections and
one question out of the two standing at serial number three in the two sections,
find the probability that he will solve all three questions correctly.
Hint: (i) A section can be selected in
2
C
1
ways and the probability of attempting all the
three questions correctly is
3
C
3
1
2
F
H
I
K
3
. (ii) The probability of attempting correctly,
one question out of two is
2
C
1
1
2
F
H
I
K
2
10. A binomial random variable satisfies the relation 9P(X = 4) = P(X = 2) for n = 6.
Find the value of the parameter p.
Hint: ( )
6 2 4
2
2 P X C p q = = etc.
11. Three fair coins are tossed 3,000 times. Find the frequency distributions of the
number of heads and tails and tabulate the results. Also calculate mean and standard
deviation of each distribution.
Hint: See example 9.
12. Take 100 sets of 10 tosses of an unbiased coin. In how many cases do you expect
to get (i) 6 heads and 4 tails and (ii) at least 9 heads?
Hint: Use binomial distribution with n = 10 and p = 0.5.
13. In a binomial distribution consisting of 5 independent trials, the probabilities of 1 and
2 successes are 0.4096 and 0.2048 respectively. Find the probability of success.
Hint: Use the condition P(1) = 2P(2).
14. For a binomial distribution, the mean and variance are respectively 4 and 3. Calculate
the probability of getting a nonzero value of this distribution.
Hint: Find P(r 0).
15. (a) There are 300, seemingly identical, tyres with a dealer. The probability of a
tyre being defective is 0.3. If 2 tyres are selected at random, find the probability
that there is non defective tyre.
(b) If instead of 300 tyres the dealer had only 10 tyres out of which 3 are defective,
find the probability that no tyre is defective in a random sample of 2 tyres.
(c) Write down the probability distribution of the number of defectives in each
case.
Hint: Use (a) binomial (b) hypergeometric distributions.
16. Write down the mean and variance of a binomial distribution with parameters n and
p. If the mean and variance are 4 and 8/3 respectively, find the values of n and p.
State whether it is symmetric for these values?
Hint: Binomial distribution is symmetric when p = 0.5.
Quantitative Techniques
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372
17. Evaluate k if f(x) = k, when x = 1, 2, 3, 4, 5, 6 and = 0 elsewhere, is a probability
mass function. Find its mean and standard deviation.
Hint: ( ) 1 f x
.
18. If a die is thrown 6 times, calculate the probability that :
(i) a score of 3 or less occurs on exactly 2 throws;
(ii) a score of more than 2 occurs on exactly 3 throws;
(iii) a score of 5 or less occurs at least once;
(iv) a score of 2 or less occurs on at least 5 throws.
Hint: Use binomial distribution with n = 6 and a different value of p in each case.
19. If we take 1,280 sets each of 10 tosses of a fair coins, in how many sets should we
expect to get 7 heads and 3 tails?
Hint: See example 9.
20. If a production unit is made up from 20 identical components and each component
has a probability of 0.25 of being defective, what is the average number of defective
components in a unit? Further, what is the probability that in a unit (i) less than 3
components are defective? (ii) exactly 3 components are defective?
Hint: Take n = 20 and p = 0.25.
21. It is known from the past experience that 80% of the students in a school do their
home work. Find the probability that during a random check of 10 students
(i) all have done their home work,
(ii) at the most 2 have not done their home work,
(iii) at least one has not done the home work.
Hint: Take n = 10 and p = 0.8.
22. There are 24 battery cells in a box containing 6 defective cells that are randomly
mixed. A customer buys 3 cells. What is the probability that he gets one defective
cell?
Hint: Use hypergeometric distribution.
23. There are 400 tyres in the stock of a wholesaler among which 40 tyres, having
slight defects, are randomly mixed. A retailer purchases 6 tyres from this stock.
What is the probability that he gets at least 4 non defective tyres?
Hint: n is less than 5% of N.
11.8 POISSON DISTRIBUTION
This distribution was derived by a noted mathematician, Simon D. Poisson, in 1837. He
derived this distribution as a limiting case of binomial distribution, when the number of
trials n tends to become very large and the probability of success in a trial p tends to
become very small such that their product np remains a constant. This distribution is
used as a model to describe the probability distribution of a random variable defined over
a unit of time, length or space. For example, the number of telephone calls received per
hour at a telephone exchange, the number of accidents in a city per week, the number of
defects per meter of cloth, the number of insurance claims per year, the number
breakdowns of machines at a factory per day, the number of arrivals of customers at a
shop per hour, the number of typing errors per page etc.
Theoretical Probability
Distributions
373
Poisson Process
Let us assume that on an average 3 telephone calls are received per 10 minutes at a
telephone exchange desk and we want to find the probability of receiving a telephone
call in the next 10 minutes. In an effort to apply binomial distribution, we can divide the
interval of 10 minutes into 10 intervals of 1 minute each so that the probability of receiving
a telephone call (i.e., a success) in each minute (i.e., trial) becomes 3/10 ( note that p =
m/n, where m denotes mean). Thus, there are 10 trials which are independent, each with
probability of success = 3/10. However, the main difficulty with this formulation is that,
strictly speaking, these trials are not Bernoulli trials. One essential requirement of such
trials, that each trial must result into one of the two possible outcomes, is violated here.
In the above example, a trial, i.e. an interval of one minute, may result into 0, 1, 2, ......
successes depending upon whether the exchange desk receives none, one, two, ......
telephone calls respectively.
One possible way out is to divide the time interval of 10 minutes into a large number of
small intervals so that the probability of receiving two or more telephone calls in an
interval becomes almost zero. This is illustrated by the following table which shows that
the probabilities of receiving two calls decreases sharply as the number of intervals are
increased, keeping the average number of calls, 3 calls in 10 minutes in our example, as
constant.
Using symbols, we may note that as n increases then p automatically declines in such a
way that the mean m (= np) is always equal to a constant. Such a process is termed as
a Poisson Process. The chief characteristics of Poisson process can be summarised as
given below :
1. The number of occurrences in an interval is independent of the number of
occurrences in another interval.
2. The expected number of occurrences in an interval is constant.
3. It is possible to identify a small interval so that the occurrence of more than one
event, in any interval of this size, becomes extremely unlikely.
Probability Mass Function
The probability mass function (p.m.f.) of Poisson distribution can be derived as a limit of
p.m.f. of binomial distribution when n such that m (= np) remains constant. Thus,
we can write
( ) 1
r n r
n
r
m m
P r lim C
n n
n
_ _
, ,
( )
!
1
! !
r n r
n m m
lim
r n r n n
n
_ _
, ,
=
( )( ) ( )
1
. 1 2 .... 1 . . 1
!
n r
r
r
n
m m
lim n n n n r
r n n
1
_
+
1
,
1
]
=
( ) 1
1 2
1 1 .... 1 1
.
!
1
n
r
r
n
r
n m
n n n n n
m
lim
r
m
n
1
_
_ _ _
1
, , ,
1 ,
1
_
1
1
,
]
n P one call is received a f P two calls are received a f
10 0. 3 0. 09
100 0. 03 0. 0009
1, 000 0. 003 0. 000009
10, 000 0. 0003 0. 00000009
Quantitative Techniques
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374
1
!
n
r
n
m m
lim
r n
_
,
, since each of the remaining terms will tend to unity as
n
.
!
r m
m e
r
-
=
, since
n
lim
1
n
m
n
- =
n
lim
1
m
n
m
m
m
e
n
-
- =
.
Thus, the probability mass function of Poisson distribution is
( )
.
, where 0,1, 2, ......
!
m r
e m
P r r
r
.
Here e is a constant with value = 2.71828... . Note that Poisson distribution is a discrete
probability distribution with single parameter m.
Total probability
2 3
0
.
1 ....
! 1! 2! 3!
m r
m
r
e m m m m
e
r
_
+ + + +
,
. 1
m m
e e
-
= =
.
Summary Measures of Poisson Distribution
(a) Mean: The mean of a Poisson variate r is defined as
( )
0
.
.
!
m r
r
e m
E r r
r
( )
3 4
2
1
....
1 ! 2! 3!
r
m m
r
m m m
e e m m
r
- -
=
= = + + + +
-
2 3
1 ....
2! 3!
m m m
m m
me m me e m
- -
= + + + + = =
(b) Variance: The variance of a Poisson variate is defined as
Var(r) = E(r - m)
2
= E(r
2
) - m
2
Now
( ) ( ) ( ) ( )
2 2
0 0
1
r r
E r r P r r r r P r
1 +
]
=
( ) ( ) ( )
0 0
1
r r
r r P r r P r
1 +
]
( )
( ) 2 2
.
1
! 2 !
m r r
m
r r
e m m
r r m e m
r r
1 + +
]
4 5
2 3
....
2! 3!
m
m m
m e m m
_
+ + + + +
,
2 3
2 2
1 ....
2! 3!
m
m m
m m e m m m
_
+ + + + + +
,
Thus, Var(r) = m + m
2
- m
2
= m.
Also standard deviation
m
.
(c) The values of
3
,
4
,
1
and
2
Since m is a positive quantity, therefore,
1
b is always positive and hence the Poisson
distribution is always positively skewed. We note that
1
b 0 as m , therefore
the distribution tends to become more and more symmetrical for large values of m.
Further,
2
4
2 2 2
2
3 1
3 3 as
m m
m
m m
+
+
. This result shows that the
distribution becomes normal for large values of m.
(d) Mode: As in binomial distribution, a Poisson variate r will be mode if
( ) ( ) ( ) 1 1 P r P r P r +
The inequality ( ) ( ) 1 P r P r can be written as
( )
1
. .
1
1 ! !
m r m r
e m e m m
r m
r r r
.... (1)
Similarly, the inequality ( ) ( ) 1 P r P r + can be shown to imply that
r m - 1 .... (2)
Combining (1) and (2), we can write m - 1 r m.
Case I: When m is not an integer
The integral part of m will be mode.
Case II: When m is an integer
The distribution is bimodal with values m and m - 1.
Example 13: The average number of customer arrivals per minute at a super bazaar is
2. Find the probability that during one particular minute (i) exactly 3 customers
will arrive, (ii) at the most two customers will arrive, (iii) at least one customer will
arrive.
Solution: It is given that m = 2. Let the number of arrivals per minute be denoted by the
random variable r. The required probability is given by
(i) ( )
2 3
.2 0.13534 8
3 0.18045
3! 6
e
P r
(ii)
( )
2 2
2
0
.2 4
2 1 2 0.13534 5 0.6767.
! 2
r
r
e
P r e
r
1
+ +
1
]
(iii) ( ) ( )
2 0
.2
1 1 0 1 1 0.13534 0.86464.
0!
e
P r P r
Example 14: An executive makes, on an average, 5 telephone calls per hour at a cost
which may be taken as Rs 2 per call. Determine the probability that in any hour the
telephone calls' cost (i) exceeds Rs 6, (ii) remains less than Rs 10.
Solution: The number of telephone calls per hour is a random variable with mean = 5.
The required probability is given by
Quantitative Techniques
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376
(i)
( ) ( )
5 3
0
.5
3 1 3 1
!
r
r
e
P r P r
r
>
5
25 125 236
1 1 5 1 0.00678 0.7349.
2 6 6
e
1
+ + +
1
]
(ii)
( )
5 4
5
0
.5 25 125 625
4 1 5
! 2 6 24
r
r
e
P r e
r
1
+ + + +
1
]
1569
0.00678 0.44324.
24
Example 15: A company makes electric toys. The probability that an electric toy is
defective is 0.01. What is the probability that a shipment of 300 toys will contain exactly
5 defectives?
Solution: Since n is large and p is small, Poisson distribution is applicable. The random
variable is the number of defective toys with mean m = np = 300 0.01 = 3.
The required probability is given by
( )
3 5
.3 0.04979 243
5 0.10082.
5! 120
e
P r
Example 16: In a town, on an average 10 accidents occur in a span of 50 days. Assuming
that the number of accidents per day follow Poisson distribution, find the probability that
there will be three or more accidents in a day.
Solution: The random variable denotes the number accidents per day. Thus, we have .
10
0.2
50
m = = .The required probability is given by
( ) ( )
( )
2
0.2
0.2
3 1 2 1 1 0.2 1 0.8187 1.22 0.00119.
2!
P r P r e
1
1 + +
1
]
Example 17: A car hire firm has two cars which it hire out every day. The number of
demands for a car on each day is distributed as a Poisson variate with mean 1.5. Calculate
the proportion of days on which neither car is used and the proportion of days on which
some demand is refused. [ e
-1.5
= 0.2231]
Solution: When both car are not used, r = 0
\ ( )
1.5
0 0.2231 P r e
-
= = = . Hence the proportion of days on which neither car is used
is 22.31%.
Further, some demand is refused when more than 2 cars are demanded, i.e., r > 2
\ ( ) ( )
( )
1.5
2
0
1.5
2 1 2 1
!
r
r
e
P r P r
r
-
=
> = - = -
( )
2
1.5
1 0.2231 1 1.5 0.1913.
2!
= - + + =
Hence the proportion of days is 19.13%.
Example 18: A firm produces articles of which 0.1 percent are usually defective. It
packs them in cases each containing 500 articles. If a wholesaler purchases 100 such
cases, how many cases are expected to be free of defective items and how many are
expected to contain one defective item?
Solution: The Poisson variate is number of defective items with mean
1
500 0.5.
1000
m
Theoretical Probability
Distributions
377
Probability that a case is free of defective items
( )
0.5
0 0.6065. P r e
1
+ + + +
1
]
1569
0.00678 0.44324.
24
Quantitative Techniques
for Management
378
Poisson Approximation to Binomial
When n, the number of trials become large, the computation of probabilities by using the
binomial probability mass function becomes a cumbersome task. Usually, when n 20
and p 0.05, Poisson distribution can be used as an approximation to binomial with
parameter m = np.
Example 21: Find the probability of 4 successes in 30 trials by using (i) binomial distribution
and (ii) Poisson distribution. The probability of success in each trial is given to be 0.02.
Solution:
(i) Here n = 30 and p = 0.02
\
( ) ( ) ( )
4 26
30
4
4 0.02 0.98 P r C = = 27405 0.00000016 0.59 0.00259. = =
(ii) Here m = np = 30 0.02 = 0.6
\ ( )
( )
4
0.6
0.6
0.5488 0.1296
4 0.00296.
4! 24
e
P r
Fitting of a Poisson Distribution
To fit a Poisson distribution to a given frequency distribution, we first compute its mean
m. Then the probabilities of various values of the random variable r are computed by
using the probability mass function ( )
.
.
!
m r
e m
P r
r
4.
17. The number of accidents in a year attributed to taxi drivers in a city follows Poisson
distribution with mean 3. Out of 1,000 taxi drivers, find approximately the number
of drivers with (i) no accident in a year, (ii) more than 3 accidents in a year.
[Given e
-1
= 0.3679, e
- 2
= 0.1353, e
- 3
= 0.0498].
Hint: Number of drivers = probability 1000.
18. A big industrial plant has to be shut down for repairs on an average of 3 times in a
month. When more than 5 shut downs occur for repairs in a month, the production
schedule cannot be attained. Find the probability that production schedule cannot
be attained in a given month, assuming that the number of shut downs are a Poisson
variate.
Hint: Find P(r 5).
Theoretical Probability
Distributions
381
19. A manager receives an average of 12 telephone calls per 8-hour day. Assuming
that the number of telephone calls received by him follow a Poisson variate, what
is the probability that he will not be interrupted by a call during a meeting lasting
2 hours?
Hint: Take m = 3.
20. Assuming that the probability of a fatal accident in a factory during a year is
1/1200, calculate the probability that in a factory employing 300 workers, there will
be at least two fatal accidents in a year. [Given e
- 0.25
= 0.7788].
Hint: The average number of accidents per year in the factory = 0.25.
21. If 2% of electric bulbs manufactured by a certain company are defective, find the
probability that in a sample of 200 bulbs (i) less than 2 bulbs are defective (ii) more
than 3 bulbs are defective. [Given e
-4
= 0.0183].
Hint: m = 4.
22. If for a Poisson variate X, P(X = 1) = P(X = 2), find P(X = 1 or 2). Also find its
mean and standard deviation.
Hint: Find m from the given condition.
23. If 5% of the families in Calcutta do not use gas as a fuel, what will be the probability
of selecting 10 families in a random sample of 100 families who do not use gas as
a fuel? You may assume Poisson distribution. [Given e
-5
= 0.0067].
Hint: m = 5, find P(r = 10).
24. The probability that a Poisson variate X takes a positive value is 1 - e
-1.5
. Find the
variance and also the probability that X lies between 1.5 and 1.5.
Hint: 1- e
-1.5
= P(r > 0). Find P(-1.5 < X < 1.5) = P(X = 0) + P(X = 1).
25. 250 passengers have made reservations for a flight from Delhi to Mumbai. If the
probability that a passenger, who has reservation, will not turn up is 0.016, find the
probability that at the most 3 passengers will not turn up.
Hint: The number of passengers who do not turn up is a Poisson variate.
11.9 EXPONENTIAL DISTRIBUTION
The random variable in case of Poisson distribution is of the type ; the number of arrivals
of customers per unit of time or the number of defects per unit length of cloth, etc.
Alternatively, it is possible to define a random variable, in the context of Poisson Process,
as the length of time between the arrivals of two consecutive customers or the length of
cloth between two consecutive defects, etc. The probability distribution of such a random
variable is termed as Exponential Distribution.
Since the length of time or distance is a continuous random variable, therefore exponential
distribution is a continuous probability distribution.
Probability Density Function
Let t be a random variable which denotes the length of time or distance between the
occurrence of two consecutive events or the occurrence of the first event and m be the
average number of times the event occurs per unit of time or length. Further, let A be the
event that the time of occurrence between two consecutive events or the occurrence of
the first event is less than or equal to t and f(t) and F(t) denote the probability density
function and the distribution (or cumulative density) function of t respectively.
We can write ( ) ( )
1 P A P A + = or ( ) ( )
1. F t P A + = Note that, by definition,F (t) = P(A)
Further, P A d i is the probability that the length of time between the occurrence of two
consecutive events or the occurrence of first event is greater than t. This is also equal to
Quantitative Techniques
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382
the probability that no event occurs in the time interval t. Since the mean number of
occurrence of events in time t is mt, we have , by Poisson distribution,
( ) ( )
( )
0
0
0!
mt
mt
e mt
P A P r e
.
Thus, we get F(t) + e
-mt
= 1
or P(0 to t) = F(t) = 1 e
mt
. .... (1)
To get the probability density function, we differentiate equation (1) with respect to t.
Thus, f(t) = F'(t) = me
mt
when t > 0
= 0 otherwise.
It can be verified that the total probability is equal to unity
Total Probability
0 0
0
. . 0 1 1.
mt
mt mt
e
m e dt m e
m
Mean of t
The mean of t is defined as its expected value, given by
( )
0
1
. .
mt
E t t m e dt
m
Example 25: The distribution of life, in hours, of a bulb is known to be exponential with
mean life of 600 hours. What is the probability that (i) it will not last more than 500 hours,
(ii) it will last more than 700 hours?
Solution: Since the random variable denote hours, therefore
1
600
m =
(i) P(t 500) = F(500)
1
500
0.833
600
1 1 0.5653. e e
(ii) P(t > 700) = 1 - F(700)
700
1.1667
600
0.3114. e e
Theoretical Probability
Distributions
383
11.10 UNIFORM DISTRIBUTION (CONTINUOUS
VARIABLE)
A continuous random variable X is said to be
uniformly distributed in a close interval
(a, b) with probability density function p(X)
if
( )
1
p X
for a X b and = 0
Otherwise The uniform distribution is
alternatively known as rectangular distribution.
The diagram of the probability density function is shown in the figure 19.1.
Note that the total area under the curve is unity, i.e. ,
1 1
1 dX X
Further,
E X X dX
X
b g
+
z
1 1
2 2
2
.
E X X dX
2 2
3 3
2 2
1
3
1
3
d i
b g
d i
+ +
z
.
\ ( ) ( )
( ) ( )
2 2
2 2
1
3 4 12
Var X
+
+ +
Example 26: The buses on a certain route run after every 20 minutes. If a person
arrives at the bus stop at random, what is the probability that
(a) he has to wait between 5 to 15 minutes,
(b) he gets a bus within 10 minutes,
(c) he has to wait at least 15 minutes.
Solution: Let the random variable X denote the waiting time, which follows a uniform
distribution with p.d.f.
( )
1
20
f X =
for
0 X 20
(a) ( ) ( )
15
5
1 1 1
5 15 15 5
20 20 2
P X dX
(b) ( )
1 1
0 10 10
20 2
P X
(c) ( )
20 15 1
15 20 .
20 4
P X
11.11 NORMAL DISTRIBUTION
The normal probability distribution occupies a place of central importance in Modern
Statistical Theory. This distribution was first observed as the normal law of errors by
the statisticians of the eighteenth century. They found that each observation X involves
an error term which is affected by a large number of small but independent chance
factors. This implies that an observed value of X is the sum of its true value and the net
effect of a large number of independent errors which may be positive or negative each
with equal probability. The observed distribution of such a random variable was found to
be in close conformity with a continuous curve, which was termed as the normal curve
of errors or simply the normal curve.
Figure 11.1
p(X)
X
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Since Gauss used this curve to describe the theory of accidental errors of measurements
involved in the calculation of orbits of heavenly bodies, it is also called as Gaussian
curve.
The Conditions of Normality
In order that the distribution of a random variable X is normal, the factors affecting its
observations must satisfy the following conditions :
(i) A large number of chance factors: The factors, affecting the observations of a
random variable, should be numerous and equally probable so that the occurrence
or non-occurrence of any one of them is not predictable.
(ii) Condition of homogeneity: The factors must be similar over the relevant population
although, their incidence may vary from observation to observation.
(iii) Condition of independence: The factors, affecting observations, must act
independently of each other.
(iv) Condition of symmetry: Various factors operate in such a way that the deviations
of observations above and below mean are balanced with regard to their magnitude
as well as their number.
Random variables observed in many phenomena related to economics, business and
other social as well as physical sciences are often found to be distributed normally. For
example, observations relating to the life of an electrical component, weight of packages,
height of persons, income of the inhabitants of certain area, diameter of wire, etc., are
affected by a large number of factors and hence, tend to follow a pattern that is very
similar to the normal curve. In addition to this, when the number of observations become
large, a number of probability distributions like Binomial, Poisson, etc., can also be
approximated by this distribution.
Probability Density Function
If X is a continuous random variable, distributed normally with mean m and standard
deviation , then its p.d.f. is given by
( )
2
1
2
1
.
2
X
p X e
,
where < X < .
Here p and s are absolute constants with values 3.14159.... and 2.71828.... respectively.
It may be noted here that this distribution is completely known if the values of mean m
and standard deviation s are known. Thus, the distribution has two parameters, viz.
mean and standard deviation.
Shape of Normal Probability Curve
For given values of the parameters, m and s, the shape of the curve corresponding to
normal probability density function p(X) is as shown in Figure. 11.2
Figure 11.2
Theoretical Probability
Distributions
385
It should be noted here that although we seldom encounter variables that have a range
from - to , as shown by the normal curve, nevertheless the curves generated by the
relative frequency histograms of various variables closely resembles the shape of normal
curve.
Properties of Normal Probability Curve
A normal probability curve or normal curve has the following properties :
1. It is a bell shaped symmetrical curve about the ordinate at X =
. The ordinate is
maximum at X =
.
2. It is unimodal curve and its tails extend infinitely in both directions, i.e., the curve is
asymptotic to X axis in both directions.
3. All the three measures of central tendency coincide, i.e.,
mean = median = mode
4. The total area under the curve gives the total probability of the random variable
taking values between - to
,
< <
5. Since median = m, the ordinate at X =
6. The value of p(X) is always non-negative for all values of X, i.e., the whole curve
lies above X axis.
7. The points of inflexion (the point at which curvature changes) of the curve are
at X =
.
8. The quartiles are equidistant from median, i.e., M
d
- Q
1
= Q
3
- M
d
, by virtue of
symmetry. Also Q
1
=
- 0.6745 , Q
3
=
2n
= (2n - 1)
2
2n - 2
for = 1, 2, 3, ......
11. The value of moment coefficient of skewness
1
is zero.
12. The coefficient of kurtosis
4
4
2 2 4
2
3
3.
Note that the above expression makes use of property 10.
13. Additive or reproductive property
If X
1
, X
2
, ...... X
n
are n independent normal variates with means
1 2 n
, , KK and
variances
1
2
2
2 2
, , KK
n
, respectively, then their linear combinationa
1
X
1
+ a
2
X
2
+ ...... + a
n
X
n
is also a normal variate with mean
1
n
i i
i
a
and variance
2 2
1
n
i i
i
a
.
In particular, if a
1
= a
2
= ...... = a
n
= 1, we have
i
X
and variance
2
i
We note that
( ) ( )
1
0
X
E z E E X
_
1
]
,
and
( ) ( ) ( )
2 2
1 1
1.
X
Var z Var Var X Var X
_
,
Further, from the reproductive property, it follows that the distribution of z is also normal.
Figure 11.4
Theoretical Probability
Distributions
387
Thus, we conclude that if X is a normal variate with mean m and standard deviation
s, then
X
z
and
2
2
X
z
_
< <
,
On locating the value of z corresponding to an area 0.4772 (0.5000 - 0.0228), we can
write
4500
2 or 4500 2
.... (1)
Similarly, it is also given that
( )
7500
7500 0.1587 or 0.1587 P X P z
_
> >
,
Locating the value of z corresponding to an area 0.3413 (0.5000 - 0.1587), we can write
7500
1 or 7500
.... (2)
Solving (1) and (2) simultaneously, we get
m = Rs 6,500 and s = Rs 1,000.
Example 32: Marks in an examination are approximately normally distributed with
mean 75 and standard deviation 5. If the top 5% of the students get grade A and the
bottom 25% get grade F, what mark is the lowest A and what mark is the highest F?
Solution: Let A be the lowest mark in grade A and F be the highest mark in grade F.
From the given information, we can write
P X A P z
A
F
H
G
I
K
J
b g 0 05
75
5
0 05 . . or
On locating the value of z corresponding to an area 0.4500 (0.5000 - 0.0500), we can
write
A
A
75
5
1645 83 225 . .
Further, it is given that
P X F P z
F
F
H
G
I
K
J
b g 0 25
75
5
0 25 . . or
Theoretical Probability
Distributions
391
On locating the value of z corresponding to an area 0.2500 (0.5000 0.2500),
we can write
F
F
75
5
0 675 71625 . .
Example 33: The mean inside diameter of a sample of 200 washers produced by a
machine is 5.02 mm and the standard deviation is 0.05 mm. The purpose for which these
washers are intended allows a maximum tolerance in the diameter of 4.96 to 5.08 mm,
otherwise the washers are considered as defective. Determine the percentage of defective
washers produced by the machine on the assumption that diameters are normally
distributed.
Solution: Let X denote the diameter of the washer. Thus, X ~ N (5.02, 0.05).
The probability that a washer is defective = 1 P(4.96 X 5.08)
4.96 5.02 5.08 5.02
1
0.05 0.05
P z
1 _ _
1
, , ]
( ) ( ) 1 1.2 1.2 1 2 0 1.2 P z P z = 1 20.3849 = 0.2302
Thus, the percentage of defective washers = 23.02.
Example 34: The average number of units produced by a manufacturing concern per
day is 355 with a standard deviation of 50. It makes a profit of Rs 1.50 per unit. Determine
the percentage of days when its total profit per day is (i) between Rs 457.50 and
Rs 645.00, (ii) greater than Rs 682.50 (assume the distribution to be normal). The area
between z = 0 to z = 1 is 0.34134, the area between z = 0 to z = 1.5 is 0.43319 and the
area between z = 0 to z = 2 is 0.47725, where z is a standard normal variate.
Solution: Let X denote the profit per day. The mean of X is 3551.50 = Rs 532.50 and
its S.D. is 501.50 = Rs 75. Thus, X ~ N (532.50, 75).
(i) The probability of profit per day lying between Rs 457.50 and Rs 645.00
( )
457.50 532.50 645.00 532.50
457.50 645.00
75 75
P X P z
_
,
( ) ( ) ( ) 1 1.5 0 1 0 1.5 P z P z P z + = 0.34134 + 0.43319 = 0.77453
Thus, the percentage of days = 77.453
(ii)
( ) ( )
682.50 532.50
682.50 2
75
P X P z P z
_
,
( ) 0.5000 0 2 0.5000 0.47725 0.02275 P z
Thus, the percentage of days = 2.275
Example 35: The distribution of 1,000 examinees according to marks percentage is
given below :
Assuming the marks percentage to follow a normal distribution, calculate the mean and
standard deviation of marks. If not more than 300 examinees are to fail, what should be
the passing marks?
Solution: Let X denote the percentage of marks and its mean and S.D. be m and s
respectively. From the given table, we can write
% Marks less than 40 40 - 75 75 or more Total
No. of examinees 430 420 150 1000
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P(X < 40) = 0.43 and P(X
.... (1)
and
75
1.04 or 75 1.04
.... (2)
Solving the above equations simultaneously, we get m = 45.04 and s = 28.81.
Let X
1
be the percentage of marks required to pass the examination.
Then we have
( )
1
1
45.04
0.3 or 0.3
28.81
X
P X X P z
-
< = < =
\
1
1
45.04
0.525 29.91 or 30% (approx.)
28.81
X
X
Example 36: In a certain book, the frequency distribution of the number of words per
page may be taken as approximately normal with mean 800 and standard deviation 50. If
three pages are chosen at random, what is the probability that none of them has between
830 and 845 words each?
Solution: Let X be a normal variate which denotes the number of words per page.
It is given that X ~ N(800, 50).
The probability that a page, select at random, does not have number of words between
830 and 845, is given by
( )
830 800 845 800
1 830 845 1
50 50
P X P z
- -
- < < = - < <
( ) ( ) ( ) 1 0.6 0.9 1 0 0.9 0 0.6 P z P z P z = - < < = - < < + < <
= 1- 0.3159 + 0.2257 = 0.9098 0.91
Thus, the probability that none of the three pages, selected at random, have number of
words lying between 830 and 845 = (0.91)
3
= 0.7536.
Example 37: At a petrol station, the mean quantity of petrol sold to a vehicle is 20 litres
per day with a standard deviation of 10 litres. If on a particular day, 100 vehicles took 25
or more litres of petrol, estimate the total number of vehicles who took petrol from the
station on that day. Assume that the quantity of petrol taken from the station by a vehicle
is a normal variate.
Solution: Let X denote the quantity of petrol taken by a vehicle. It is given that
X ~ N(20, 10).
\
( ) ( )
25 20
25 0.5
10
P X P z P z
_
,
05000 0 05 05000 01915 03085 . . . . . P z b g
Let N be the total number of vehicles taking petrol on that day.
\ 0.3085 N = 100 or N = 100/0.3085 = 324 (approx.)
Theoretical Probability
Distributions
393
Normal Approximation to Binomial Distribution
Normal distribution can be used as an approximation to binomial distribution when n is
large and neither p nor q is very small. If X denotes the number of
successes with probability p of a success in each of the n trials, then X will be distributed
approximately normally with mean np and standard deviation npq .
Further,
( ) ~ 0,1 .
X np
z N
npq
-
=
It may be noted here that as X varies from 0 to n, the standard normal variate z would
vary from - to because
when X = 0,
lim
n
np
npq
_
,
np
q
_
,
and when
X = n
,
lim
n
n np
npq
-
=
lim
n
nq
npq
=
lim
n
nq
p
=
Correction for Continuity
Since the number of successes is a discrete variable, to use normal approximation, we
have make corrections for continuity. For example,
P(X
1
X X
2
) is to be corrected as 1 2
1 1
2 2
P X X X
_
+
,
, while using normal
approximation to binomial since the gap between successive values of a binomial variate
is unity. Similarly, P(X
1
< X
< X
2
) is to be corrected as 1 2
1 1
2 2
P X X X
_
+
,
,
since X
1
< X does not include X
1
and X
< X
2
does not include X
2
.
Note: The normal approximation to binomial probability mass function is good when
n 50 and neither p nor q is less than 0.1.
Example 38: An unbiased die is tossed 600 times. Use normal approximation to binomial
to find the probability obtaining
(i) more than 125 aces,
(ii) number of aces between 80 and 110,
(iii) exactly 150 aces.
Solution: Let X denote the number of successes, i.e., the number of aces.
\
1 1 5
600 100 and 600 9.1
6 6 6
np npq
(i) To make correction for continuity, we can write
P(X > 125) = P(X > 125 + 0.5)
Thus,
( ) ( )
125.5 100
125.5 2.80
9.1
P X P z P z
_
,
( ) 0.5000 0 2.80 0.5000 0.4974 0.0026. P z
Quantitative Techniques
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394
(ii) In a similar way, the probability of the number of aces between 80 and 110 is given
by
( )
79.5 100 110.5 100
79.5 110.5
9.1 9.1
P X P z
_
,
( ) ( ) ( ) 2.25 1.15 0 2.25 0 1.15 P z P z P z +
= 0.4878 + 0.3749 = 0.8627
(iii) P(X = 120) = P(119.5 X 120.5) =
19.5 20.5
9.1 9.1
P z
_
,
= P(2.14 z 2.25) = P(0 z 2.25) - P(0 z 2.14)
= 0.4878 - 0.4838 = 0.0040
Normal/ Approximation to Poisson Distribution
Normal distribution can also be used to approximate a Poisson distribution when its
parameter m 10. If X is a Poisson variate with mean m, then, for m 10, the distribution
of X can be taken as approximately normal with mean m and standard deviation m so
that
X m
z
m
-
=
is a standard normal variate.
Example 39: A random variable X follows Poisson distribution with parameter 25.
Use normal approximation to Poisson distribution to find the probability that X is greater
than or equal to 30.
Solution: P(X 30) = P(X 29.5) (after making correction for continuity).
F
H
G
I
K
J
P z P z
29 5 25
5
0 9
.
. b g
= 0.5000 - P(0 z 0.9) = 0.5000 - 0.3159 = 0.1841
Fitting a Normal Curve
A normal curve is fitted to the observed data with the following objectives :
1. To provide a visual device to judge whether it is a good fit or not.
2. Use to estimate the characteristics of the population.
The fitting of a normal curve can be done by
(a) The Method of Ordinates or
(b) The Method of Areas.
(a) Method of Ordinates: In this method, the ordinate f(X) of the normal curve, for
various values of the random variate X are obtained by using the table of ordinates for a
standard normal variate.
We can write ( ) ( )
2
2
1
1
2
2
1 1 1
2 2
X
z
f X e e z
,
where
( )
2
1
2
1
and z .
2
z
X
z e
The expected frequency corresponding to a particular value of X is given by
( ) ( ) .
N
y N X z
and therefore, the expected frequency of a class = y h, where
h is the class interval.
Theoretical Probability
Distributions
395
Class Intervals : 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 Total
Frequency : 2 11 24 33 20 8 2 100
( )
( )
-
*
( )
( )
10-20 15 2.34 0.0258 0.2081 2
20-30 25 1.53 0.1238 0.9984 10
30-40 35 0.73 0.3056 2.4645 25
40-50 45 0.08 0.3977 3.2073 32
50-60 55 0.89 0.2685
e
z Class Mid values X N
z y z f
Intervals X
from table
2.1653 22
60-70 65 1.69 0.0957 0.7718 8
70-80 75 2.50 0.0175 0.1411 1
Example 40: Fit a normal curve to the following data :
Solution: First we compute mean and standard deviation of the given data.
Note: If the class intervals are not continuous, they should first be made so.
\
10
45 10 44
100
and
F
H
G
I
K
J
10
156
100
10
100
10 155 12 4
2
. .
Table for the fitting of Normal Curve
(b) Method of Areas: Under this method, the probabilities or the areas of the random
variable lying in various intervals are determined. These probabilities are then multiplied
by N to get the expected frequencies. This procedure is explained below for the data of
the above example.
*Expected frequency approximated to the nearest integer.
2
- 45
( ) ( ) 10
10-20 15 2 3 6 18
20-30 25 11 2 22 44
30-40 35 24 1 24 24
40-50 45 33 0 0 0
50-60 55 20 1 20 20
60-70 65 8 2 16 32
70-80 75 2 3 6 18
100
Class Mid values Frequency X
d fd fd
Intervals X f
Total
-
=
- -
- -
- -
10 156 -
44
*
( ) 0 12.4
10-20 10 2.74 0.4969 0.0231 2
20-30 20 1.94 0.4738 0.1030 10
30-40 30 1.13 0.3708 0.2453 25
40-50 40 0.32 0.1255 0
e
Class Lower Limit Area from Area under X
z f
Intervals X to z the class
-
=
-
-
-
- .3099 31
50-60 50 0.48 0.1844 0.2171 22
60-70 60 1.29 0.4015 0.0806 8
70-80 70 2.10 0.4821 0.0160 2
80 2.90 0.4981
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Exercise with Hints
1. In a metropolitan city, there are on the average 10 fatal road accidents in a month
(30 days). What is the probability that (i) there will be no fatal accident tomorrow,
(ii) next fatal accident will occur within a week?
Hint: Take m = 1/3 and apply exponential distribution.
2. A counter at a super bazaar can entertain on the average 20 customers per hour.
What is the probability that the time taken to serve a particular customer will be
(i) less than 5 minutes, (ii) greater than 8 minutes?
Hint: Use exponential distribution.
3. The marks obtained in a certain examination follow normal distribution with mean
45 and standard deviation 10. If 1,000 students appeared at the examination, calculate
the number of students scoring (i) less than 40 marks, (ii) more than 60 marks and
(iii) between 40 and 50 marks.
Hint: See example 30.
4. The ages of workers in a large plant, with a mean of 50 years and standard deviation
of 5 years, are assumed to be normally distributed. If 20% of the workers are
below a certain age, find that age.
Hint: Given P(X < X
1
) = 0.20, find X
1
.
5. The mean and standard deviation of certain measurements computed from a large
sample are 10 and 3 respectively. Use normal distribution approximation to answer
the following:
(i) About what percentage of the measurements lie between 7 and 13 inclusive?
(ii) About what percentage of the measurements are greater than 16?
Hint: Apply correction for continuity.
6. There are 600 business students in the post graduate department of a university
and the probability for any student to need a copy of a particular text book from the
university library on any day is 0.05. How many copies of the book should be kept
in the library so that the probability that none of the students, needing a copy, has to
come back disappointed is greater than 0.90? (Use normal approximation to binomial.)
Hint: If X
1
is the required number of copies, P(X X
1
) 0.90.
7. The grades on a short quiz in biology were 0, 1, 2, 3, ...... 10 points, depending upon
the number of correct answers out of 10 questions. The mean grade was 6.7 with
standard deviation of 1.2. Assuming the grades to be normally distributed, determine
(i) the percentage of students scoring 6 points, (ii) the maximum grade of the
lowest 10% of the class.
Hint: Apply normal approximation to binomial.
8. The following rules are followed in a certain examination. "A candidate is awarded
a first division if his aggregate marks are 60% or above, a second division if his
aggregate marks are 45% or above but less than 60% and a third division if the
aggregate marks are 30% or above but less than 45%. A candidate is declared
failed if his aggregate marks are below 30% and awarded a distinction if his
aggregate marks are 80% or above."
At such an examination, it is found that 10% of the candidates have failed, 5%
have obtained distinction. Calculate the percentage of students who were placed in
the second division. Assume that the distribution of marks is normal. The areas
under the standard normal curve from 0 to z are :
Hint: First find parameters of the distribution on the basis of the given information.
z : 1. 28 1. 64 0. 41 0. 47
Area : 0. 4000 0. 4500 0.1591 0.1808
Theoretical Probability
Distributions
397
9. For a certain normal distribution, the first moment about 10 is 40 and the fourth
moment about 50 is 48. What is the mean and standard deviation of the distribution?
Hint: Use the condition b
2
= 3, for a normal distribution.
10. In a test of clerical ability, a recruiting agency found that the mean and standard
deviation of scores for a group of fresh candidates were 55 and 10 respectively.
For another experienced group, the mean and standard deviation of scores were
found to be 62 and 8 respectively. Assuming a cut-off scores of 70, (i) what
percentage of the experienced group is likely to be rejected, (ii) what percentage
of the fresh group is likely to be selected, (iii) what will be the likely percentage of
fresh candidates in the selected group? Assume that the scores are normally
distributed.
Hint: See example 33.
11. 1,000 light bulbs with mean life of 120 days are installed in a new factory. Their
length of life is normally distributed with standard deviation of 20 days. (i) How
many bulbs will expire in less than 90 days? (ii) If it is decided to replace all the
bulbs together, what interval should be allowed between replacements if not more
than 10 percent bulbs should expire before replacement?
Hint: (ii) P(X X
1
) = 0.9.
12. The probability density function of a random variable is expressed as
( )
( )
2
2 3
2
X
p X e
,
, ( - < X < )
(i) Identify the distribution.
(ii) Determine the mean and standard deviation of the distribution.
(iii) Write down two important properties of the distribution.
Hint: Normal distribution.
13. The weekly wages of 2,000 workers in a factory are normally distributed with a
mean of Rs 200 and a variance of 400. Estimate the lowest weekly wages of the
197 highest paid workers and the highest weekly wages of the 197 lowest paid
workers.
Hint: See example 32.
14. Among 10,000 random digits, in how many cases do we expect that the digit 3
appears at the most 950 times. (The area under the standard normal curve for
z = 1.667 is 0.4525 approximately.)
Hint: m = 100000.10 and s
2
= 10000.9.
15. Marks obtained by certain number of students are assumed to be normally distributed
with mean 65 and variance 25. If three students are taken at random, what is the
probability that exactly two of them will have marks over 70?
Hint: Find the probability (p) that a student gets more than 70 marks.
Then find
3
C
2
p
2
q
.
16. The wage distribution of workers in a factory is normal with mean Rs 400 and
standard deviation Rs 50. If the wages of 40 workers be less than Rs 350, what is
the total number of workers in the factory? [ given ( )
1
0
0.34 t dt
, where t ~ N
(0,1).]
Hint: N Probability that wage is less than 350 = 40.
Quantitative Techniques
for Management
398
17. The probability density function of a continuous random variable X is given by
f(X) = kX(2 - X), 0 < X < 2
= 0 elsewhere.
Calculate the value of the constant k and E(X).
Hint: To find k, use the fact that total probability is unity.
18.
( )
2
25
5
,
X
f X e X
2
2
1
2
1
2
Exponential . 0
1
(v) Normal and
2
1
(vi) S.Normal 0 and 1
2
mt
X
z
m e t m
e X
e z
< <
< <
< <
Quantitative Techniques
for Management
400
Normal Distribution
Exponential Distribution
Functions
11.15 QUESTIONS FOR DISCUSSION
1. Fill in the blanks:
(a) Poisson distribution is used where no. of trials are ......................
(b) Poisson distribution is a ...................... distribution.
(c) Normal distribution was first identified as ......................
(d) Normal probability curve is ...................... shaped.
2. Write True or False against each statement:
(a) Binomial distribution assumption has Bernoulli Trials.
(b) Standard deviation is equal to npq
(c) Poisson distribution is not used as a model.
(d) The curve used to describe the accidental errors is Gaussion curve.
3. Write short notes on:
(a) Fitting of Binomial Distribution
(b) Pascal Distribution
(c) Poisson Distribution
(d) Geometrical Distribution
(e) Normal Distribution
11.16 TERMINAL QUESTIONS
1. What do you understand by a theoretical probability distribution? How it is useful in
business decision-making?
2. Define a binomial distribution. State the conditions under which binomial probability
model is appropriate.
3. What are the parameters of a binomial distribution? Obtain expressions for mean
and variance of the binomial variate in terms of these parameters.
4. What is a 'Poisson Process'? Obtain probability mass function of Poisson variate
as a limiting form of the probability mass function of binomial variate.
5. Obtain mean and standard deviation of a Poisson random variate. Discuss some
business and economic situations where Poisson probability model is appropriate.
6. How will you use Poisson distribution as an approximation to binomial? Explain
with the help of an example.
7. Under what conditions will a random variable follow a normal distribution? State
some important features of a normal probability curve.
8. What is a standard normal distribution? Discuss the importance of normal distribution
in statistical theory.
9. State clearly the assumptions under which a binomial distribution tends to Poisson
and to normal distribution.
Theoretical Probability
Distributions
401
10. Assume that the probability that a bomb dropped from an aeroplane will strike a
target is 1/5. If six bombs are dropped, find the probability that (i) exactly two will
strike the target, (ii) at least two will strike the target.
11. An unbiased coin is tossed 5 times. Find the probability of getting (i) two heads, (ii)
at least two heads.
12. An experiment succeeds twice as many times as it fails. Find the probability that in
6 trials there will be (i) no successes, (ii) at least 5 successes, (iii) at the most
5 successes.
13. In an army battalion 60% of the soldiers are known to be married and
remaining unmarried. If p(r) denotes the probability of getting r married soldiers
from 5 soldiers, calculate p(0), p(1), p(2), p(3), p(4) and p(5). If there are 500 rows
each consisting of 5 soldiers, approximately how many rows are expected to contain
(i) all married soldiers, (ii) all unmarried soldiers?
14. A company has appointed 10 new secretaries out of which 7 are trained. If a
particular executive is to get three secretaries, selected at random, what is the
chance that at least one of them will be untrained?
15. The overall pass rate in a university examination is 70%. Four candidates take up
such examination. What is the probability that (i) at least one of them will pass (ii)
at the most 3 will pass (iii) all of them will pass, the examination?
16. 20% of bolts produced by a machine are defective. Deduce the probability distribution
of the number of defectives in a sample of 5 bolts.
17. 25% employees of a firm are females. If 8 employees are chosen at random, find
the probability that (i) 5 of them are males (ii) more than 4 are males (iii) less than
3 are females.
18. A supposed coffee connoisseur claims that he can distinguish between a cup of
instant coffee and a cup of percolator coffee 75% of the times. It is agreed that his
claim will be accepted if he correctly identifies at least 5 of the 6 cups. Find, (i) his
chance of having the claim accepted if he is in fact only guessing and,
(ii) his chance of having the claim rejected when he does not have the ability he
claims.
19. It is known that 10% of the accounts of a firm contain errors. An auditor selects 5
accounts of the firm at random and finds that 3 of them contain errors. What is the
probability of this result? What do you conclude on the basis of this result?
20. The incidence of an occupational disease in an industry is such that the workers
have a 20% chance of suffering from it. What is the probability that out of 6
workmen, 4 or more will contract the disease?
21. A local politician claims that the assessed value of houses, for house tax purposes
by the Municipal Corporation of Delhi, is not correct in 90% of the cases. Assuming
this claim to be true, what is the probability that out of a sample of 4 houses selected
at random (i) at least one will be found to be correctly assessed (ii) at least one will
be found to be wrongly assessed?
22. There are 64 beds in a garden and 3 seeds of a particular type are sown in each
bed. The probability of a flower being white is 0.25. Find the number of beds with
3, 2, 1 and 0 white flowers.
23. Suppose that half the population of a town are consumers of rice. 100 investigators
are appointed to find out its truth. Each investigator interviews 10 individuals. How
many investigators do you expect to report that three or less of the people interviewed
are consumers of rice?
24. If the probability of a success in a trial is 0.2, find (a) mean, (b) variance, (c)
moment coefficient of skewness and kurtosis of the number of successes in 100
trials.
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25. There are 5 machines in a factory which may require adjustment from time to time
during a day of their use. Two of these machines are of type I, each having a
probability of 1/5 of needing adjustment during a day and 3 are of type II, having
corresponding probability of 1/10.
Assuming that no machine needs adjustment twice on the same day, find the
probability that on a particular day
(i) Just 2 machines of type II and none of type I need adjustment.
(ii) If just 2 machines need an adjustment, they are of the same type.
26. Fit a binomial distribution to the following data :
27. Five coins were tossed 100 times and the outcomes are recorded as given below.
Compute the expected frequencies.
28. The administrator of a large airport is interested in the number of aircraft departure
delays that are attributable to inadequate control facilities. A random sample of 10
aircraft take off is to be thoroughly investigated. If the true proportion of such
delays in all departures is 0.40, what is the probability that 4 of the sample departures
are delayed because of control inadequacies? Also find mean, variance and mode
of the random variable.
29. A company makes T.Vs., of which 15% are defective. 15 T.Vs. are shipped to a
dealer. If each T.V. assembled is considered an independent trial, what is the
probability that the shipment of 15 T.Vs. contain (i) no defective (ii) at the most one
defective T.V.?
30. If 2% bulbs manufactured by a company are defective and the random variable
denotes the number of defective bulbs, find mean, variance, measures of moment
coefficient of skewness and kurtosis in a total of 50 bulbs.
31. 4096 families having just 4 children were chosen at random. Assuming the probability
of a male birth equal to 1/2, compute the expected number of families having 0, 1,
2, 3 and 4 male children.
32. If the number of telephone calls an operator receives from 9.00 A.M. to 9.30 A.M.
follows a Poisson distribution with mean, m = 2, what is the probability that the
operator will not receive a phone call in the same interval tomorrow?
33. (a) Write down the probability mass function of a Poisson distribution with
parameter 3. What are the values of mean and variance of the corresponding
random variable?
(b) If X is a Poisson variate with parameter 2, find P(3 X 5).
(c) The standard deviation of a Poisson variate is 2, find P(1 X < 2).
34. Suppose that a telephone switch board handles 240 calls on the average during a
rush hour and that the board can make at the most 10 connections per minute.
Using Poisson distribution, estimate the probability that the board will be over taxed
during a given minute.
35. An automatic machine makes paper clips from coils of a wire. On the average, 1 in
400 paper clips is defective. If the paper clips are packed in boxes of 100, what is
the probability that any given box of clips will contain (i) no defective (ii) one or
more defectives, (iii) less than two defectives?
x : 0 1 2 3 4
f : 28 62 46 10 4
No. of heads : 0 1 2 3 4 5
Observed frequency : 2 10 24 38 18 8
Theoretical Probability
Distributions
403
36. Certain mass produced articles, of which 0.5% are defective, are packed in cartons
each containing 100 articles. What proportions of the cartons are expected to be
free from defective articles and what proportion contain, 2 or more defective
articles?
37. A certain firm uses large fleet of delivery vehicles. Their records over a long
period of time (during which their fleet size utilisation may be assumed to have
remained constant) show that the average number of vehicles serviced per day is
3. Estimate the probability that on a given day
(i) no vehicle will be serviceable.
(ii) at the most 3 vehicles will be serviceable.
(iii) more than 2 vehicles will be unserviceable.
38. Suppose that a local electrical appliances shop has found from experience that the
demand for tube lights is distributed as Poisson variate with a mean of 4 tube lights
per week. If the shop keeps 6 tube lights during a particular week, what is the
probability that the demand will exceed the supply during that week?
39. In a Poisson distribution, the probability of zero success is 15%. Find its mean and
standard deviation.
40. Four unbiased coins are tossed 1,600 times. Using Poisson distribution, find the
approximate probability of getting 4 heads r times.
41. The number of road accidents on a highway during a month follows a Poisson
distribution with mean 6. Find the probability that in a certain month the number of
accidents will be (i) not more than 3, (ii) between 2 and 4.
42. A random variable X follows Poisson law such that P(X = k) = P(X = k + 1).
Find its mean and variance.
43. The probability that a man aged 45 years will die with in a year is 0.012. What is
the probability that of 10 such men at least 9 will reach their 46th birthday?
(Given e
- 0.12
= 0.88692).
44. During a period, persons arrive at a railway booking counter at the rate of 30 per
hour. What is the probability that two or less persons will arrive in a period of 5
minutes?
45. An insurance company insures 4,000 people against loss of both eyes in a car
accident. Based upon previous data, the rate were computed on the assumption
that on the average 10 persons in 1,00,000 will have car accidents each year with
this type of injury. What is the probability that more than 3 of the insured will collect
on their policy in a given year?
46. A manufacturer, who produces medicine bottles, finds that 0.1% of the bottles are
defective. The bottles are packed in boxes containing 500 bottles. A drug
manufacturer buys 100 boxes from the producer of the bottles. Use Poisson
distribution to find the number of boxes containing (i) no defective bottles (ii) at
least two defective bottles.
47. A factory turning out lenses, supplies them in packets of 1,000. The packet is
considered by the purchaser to be unacceptable if it contains 50 or more defective
lenses. If a purchaser selects 30 lenses at random from a packet and adopts the
criterion of rejecting the packet if it contains 3 or more defectives, what is the
probability that the packet (i) will be accepted, (ii) will not be accepted?
48. 800 employees of a company are covered under the medical group insurance scheme.
Under the terms of coverage, 40 employees are identified as belonging to 'High
Risk' category. If 50 employees are selected at random, what is the probability that
Quantitative Techniques
for Management
404
(i) none of them is in the high risk category, (ii) at the most two are in the high risk
category? (You may use Poisson approximation to Binomial).
49. In Delhi with 100 municipal wards, each having approximately the same population,
the distribution of meningitis cases in 1987 were recorded as follows:
Fit a Poisson distribution to the above data.
50. The following table gives the number of days in 50 day-period during which
automobile accidents occurred in a certain part of the city. Fit a Poisson distribution
to the data.
51. A sample of woollen balls has a mean weight of 3.2 oz. and standard deviation of
1 oz. Assuming that the weight of woollen balls is distributed normally,
(i) How many balls are expected to weigh between 2.7 and 3.7 oz., (ii) what is the
probability that weight of a ball is less than 1.5 oz. and (iii) what is the probability
that the weight of the ball will exceed 4.7 oz.?
52. The weekly wages of 2,000 workers are normally distributed. Its mean and standard
deviation are Rs 140 and Rs 10 respectively. Estimate the number of workers with
weekly wages
(i) Between Rs 120 and Rs 130.
(ii) More than Rs 170.
(iii) Less than Rs 165.
53. Find the probability that the value of an item drawn at random from a normal
distribution with mean 20 and standard deviation 10 will be between (i) 10 and 15,
(ii) 5 and 10 and (iii) 15 and 25.
54. In a manufacturing organisation the distribution of wages was perfectly normal
and the number of workers employed in the organisation were 5,000. The mean
wages of the workers were calculated as Rs 800 p.m. and the standard
deviation was worked out to be Rs 200. Estimate
(i) the number of workers getting wages between Rs 700 and Rs 900.
(ii) the percentage of workers getting wages above Rs 1,000.
(iii) the percentage of workers getting wages below Rs 600.
55. Suppose that the waist measurements W of 800 girls are normally distributed with
mean 66 cms and standard deviation 5 cms. Find the number of girls
with waists;
(i) between 65 and 70 cms. (ii) greater than or equal to 72 cms.
56. (a) A normal distribution has 77.0 as its mean. Find its standard deviation if 20%
of the area under the curve lies to the right of 90.0.
(b) A random variable has a normal distribution with 10 as its standard deviation.
Find its mean if the probability that the random variable takes on a value less
than 80.5 is 0.3264.
57. In a particular examination an examinee can get marks ranging from 0 to 100. Last
year, 1,00,000 students took this examination. The marks obtained by them followed
a normal distribution. What is the probability that the marks obtained by a student
selected at random would be exactly 63?
No. of Cases : 0 1 2 3 4
No. of Wards : 63 28 6 2 1
No. of accidents : 0 1 2 3 4
No. of days : 19 18 8 4 1
Theoretical Probability
Distributions
405
58. A collection of human skulls is divided into three classes according to the value of
a 'length breadth index' x. Skulls with x < 75 are classified as 'long', those with
75 < x < 80 as 'medium' and those with x > 80 as 'short'. The percentage of skulls
in the three classes in this collection are respectively 58, 38 and 4. Find, approximately,
the mean and standard deviation of x on the assumption that it is normally distributed.
59. A wholesale distributor of a fertiliser product finds that the annual demand for one
type of fertiliser is normally distributed with a mean of 120 tonnes and standard
deviation of 16 tonnes. If he orders only once a year, what quantity should be
ordered to ensure that there is only a 5% chance of running short?
60. A multiple choice quiz has 200 questions, each with 4 possible answers of which
only one is correct. What is the probability (using normal approximation to binomial
distribution) that sheer guess work yields from 25 to 30 correct answers for 80
questions (out of 200 questions) about which the student has no knowledge?
61. In a normal distribution 31% of the items are under 45 and 8% are over 64. Find
the mean and standard deviation of the distribution.
62. The mean life of the bulbs manufactured by a company is estimated to be 2,025
hours. By using normal approximation to Poisson distribution, estimate the
percentage of bulbs that are expected to last for (i) less than 2,100 hours, (ii)
between 1,900 and 2,000 hours and (iii) more than 2,000 hours.
63. Find mean and standard deviation if a score of 51 is 2 standard deviation above
mean and a score of 42 is 1 standard deviation below mean. Assume that the
scores are normally distributed.
64. (a) A manufacturer requires washers with specification of its inner diameter as
3.30 0.04 mm. If the inner diameters of the washers supplied by some
suppliers are distributed normally with mean m = 3.31 mm. and s = 0.02 mm.,
what percentage of the washers, supplied in the a lot, are expected to meet
the required specification?
(b) A cylinder making machine has = 0.5 mm. At what value of m should the
machine be set to ensure that 2.5% of the cylinders have diameters of
25.48 mm. or more?
65. The mean life of a pair of shoes manufactured by a company is estimated to be
2.59 years with a standard deviation of 3 months. What should be fixed as guarantee
period so that the company has not to replace more than 5% of the pairs?
66. In a large group of men, it is found that 5% are under 60 inches and 40% are
between 60 and 65 inches in height. Assuming the distribution to be exactly normal,
find the mean and standard deviation of the height. The values of z for area equal
to 0.45 and 0.05 between 0 to z are 1.645 and 0.125 respectively.
67. Packets of a certain washing powder are filled with an automatic machine with an
average weight of 5 kg. and a standard deviation of 50 gm. If the weights of
packets are normally distributed, find the percentage of packets having weight
above 5.10 kg.
68. For a normal distribution with mean 3 and variance 16, find the value of y such that
the probability of the variate lying in the interval (3, y) is 0.4772.
69. The mean income of people working in an industrial city is approximated by a
normal distribution with a mean of Rs 24,000 and a standard deviation of
Rs 3,000. What percentage of the people in this city have income exceeding
Rs 28,500? In a random sample of 50 employed persons of this city, about how
many can be expected to have income less than Rs 19,500?
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70. The burning time of an experimental rocket is a random variable which has normal
distribution with
i = 1, 2, ...... n and
(ii)
( )
1
1
n
i
i
p X
Remarks:
1. When X is a continuous random variable, there are an infinite number of points in
the sample space and thus, the probability that X takes a particular value is always
defined to be zero even though the event is not regarded as impossible. Hence, we
always talk of the probability of a continuous random variable lying in an interval.
2. The concept of a probability distribution is not new. In fact it is another way of
representing a frequency distribution. Using statistical definition, we can treat the
relative frequencies of various values of the random variable as the probabilities.
Example 2: Two unbiased die are thrown. Let the random variable X denote the sum of
points obtained. Construct the probability distribution of X.
Solution: The possible values of the random variable are :
2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12
The probabilities of various values of X are shown in the following table :
Probability Distribution of X
Example 3: Three marbles are drawn at random from a bag containing 4 red and 2
white marbles. If the random variable X denotes the number of red marbles drawn,
construct the probability distribution of X.
Solution: The given random variable can take 3 possible values, i.e., 1, 2 and 3. Thus,
we can compute the probabilities of various values of the random variable as given
below :
P(X = 1, i.e., 1R and 2 W marbles are drawn)
4 2
1 2
6
3
4
20
C C
C
X 2 3 4 5 6 7 8 9 10 11 12 Total
p X a f
1
36
2
36
3
36
4
36
5
36
6
36
5
36
4
36
3
36
2
36
1
36
1
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P(X = 2, i.e., 2R and 1W marbles are drawn)
4 2
2 1
6
3
12
20
C C
C
P(X = 3, i.e., 3R marbles are drawn)
4
3
6
3
4
20
C
C
Note: In the event of white balls being greater than 2, the possible values of the random
variable would have been 0, 1, 2 and 3.
12.2.2 Cumulative Probability Function or Distribution Function
This concept is similar to the concept of cumulative frequency. The distribution function
is denoted by F(x).
For a discrete random variable X, the distribution function or the cumulative probability
function is given by F(x) = P(X
x).
If X is a random variable that can take values, say 0, 1, 2, ......, then
F(1) = P(X = 0) + P(X =1), F(2) = P(X = 0) + P(X =1) +P(X = 2), etc.
Similarly, if X is a continuous random variable, the distribution function or cumulative
probability density function is given by
( ) ( ) ( )
x
F x P X x p X dX
.
The mean of a random variable or its probability distribution is often denoted by
, i.e.,
E(X) = .
Remarks: The mean of a frequency distribution can be written as
1 2
1 2
. . ...... .
n
n
f f f
X X X
N N N
+ + +
, which is identical to the expression for expected value.
Variance: The concept of variance of a random variable or its probability distribution is
also similar to the concept of the variance of a frequency distribution.
The variance of a frequency distribution is given by
( ) ( )
2 2
2
1
.
i
i i i
f
f X X X X
N N
= Mean of X
i
X d i
2
values.
The expression for variance of a probability distribution with mean mcan be written in a
similar way, as given below :
( ) ( ) ( )
2 2
2
1
n
i i
i
E X X p X
( ) ( )
2 2
2
. ( ) E X X p X dX
Moments
The rth moment of a discrete random variable about its mean is defined as:
( ) ( )
1
( )
n
r r
r i i
i
E X X p X
Similarly, the rth moment about any arbitrary value A, can be written as
( ) ( )
1
( )
n
r r
r i i
i
E X A X A p X
The expressions for the central and the raw moments, when X is a continuous random
variable, can be written as
( ) ( ) . ( )
r r
r
E X X p X dX
and ( ) ( ) . ( )
r r
r
E X A X A p X dX
respectively.
12.4 THEOREMS ON EXPECTATION
Theorem 1: Expected value of a constant is the constant itself, i.e., E(b) = b, where b is
a constant.
Proof: The given situation can be regarded as a probability distribution in which the
random variable takes a value b with probability 1 and takes some other real value, say
a, with probability 0.
Thus, we can write E(b) = b 1 + a 0 = b
Theorem 2: E(aX) = aE(X), where X is a random variable and a is constant.
Proof: For a discrete random variablze X with probability function p(X), we have :
E(aX) = aX
1
.p(X
1
) + aX
2
.p(X
2
) + ...... + aX
n
.p(X
n
)
( ) ( )
1
.
n
i i
i
a X p X aE X
.
Now,
( )
2
1 3 3 1
0 1 4 9 3
8 8 8 8
E X + + +
Thus, Var(X) = 3 - (1.5)
2
= 0.75
(b) The probability distribution of X in example 2 was obtained as
X 0 1 2 3
p X a f
1
8
3
8
3
8
1
8
X 2 3 4 5 6 7 8 9 10 11 12 Total
p X a f
1
36
2
36
3
36
4
36
5
36
6
36
5
36
4
36
3
36
2
36
1
36
1
Probability Distribution
of a Random Variable
415
1 2 3 4 5 6
( ) 2 3 4 5 6 7
36 36 36 36 36 36
E X + + + + +
5 4 3 2 1 252
8 9 10 11 12 7
36 36 36 36 36 36
+ + + + +
Further,
2
1 2 3 4 5 6
( ) 4 9 16 25 36 49
36 36 36 36 36 36
E X + + + + +
5 4 3 2 1 1974
64 81 100 121 144 54.8
36 36 36 36 36 36
+ + + + +
Thus, Var(X) = 54.8 - 49 = 5.8
(c) The probability distribution of X in example 3 was obtained as
From the above, we can write
4 12 4
( ) 1 2 3 2
20 20 20
E X + +
and
2
4 12 4
( ) 1 4 9 4.4
20 20 20
E X + +
\ Var(X) = 4.4 - 4 = 0.4
Expected Monetary Value (EMV)
When a random variable is expressed in monetary units, its expected value is often
termed as expected monetary value and symbolised by EMV.
Example 5: If it rains, an umbrella salesman earns Rs 100 per day. If it is fair, he loses
Rs 15 per day. What is his expectation if the probability of rain is 0.3?
Solution: Here the random variable X takes only two values, X
1
= 100 with probability
0.3 and X
2
= 15 with probability 0.7.
Thus, the expectation of the umbrella salesman
= 100 0.3 15 0.7 = 19.5
The above result implies that his average earning in the long run would be
Rs 19.5 per day.
Example 6: A person plays a game of throwing an unbiased die under the condition that
he could get as many rupees as the number of points obtained on the die. Find the
expectation and variance of his winning. How much should he pay to play in order that
it is a fair game?
Solution: The probability distribution of the number of rupees won by the person is given
below :
Thus,
E X Rs ( ) + + + + + 1
1
6
2
1
6
3
1
6
4
1
6
5
1
6
6
1
6
7
2
and
2
1 1 1 1 1 1 91
( ) 1 4 9 16 25 36
6 6 6 6 6 6 6
E X + + + + +
2
2
91 7 35
2.82
6 2 12
_
,
. Note that the unit of s
2
will be (Rs)
2
.
X Rs
p X
( )
( )
1 2 3 4 5 6
1
6
1
6
1
6
1
6
1
6
1
6
X 1 2 3
p(X)
4
20
12
20
4
20
Quantitative Techniques
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Since E(X) is positive, the player would win Rs 3.5 per game in the long run. Such a
game is said to be favourable to the player. In order that the game is fair, the expectation
of the player should be zero. Thus, he should pay Rs 3.5 before the start of the game so
that the possible values of the random variable become 1 - 3.5 = - 2.5, 2 - 3.5 = - 1.5,
3 - 3.5 = - 0.5, 4 - 3.5 = 0.5, etc. and their expected value is zero.
Example 7: Two persons A and B throw, alternatively, a six faced die for a prize of
Rs 55 which is to be won by the person who first throws 6. If A has the first throw, what
are their respective expectations?
Solution: Let A be the event that A gets a 6 and B be the event that B gets a 6. Thus,
1
( )
6
P A =
and
1
( )
6
P B =
.
If A starts the game, the probability of his winning is given by :
( wins) ( ) ( ). ( ). ( ) ( ). ( ). ( ). ( ). ( ) .... P A P A P A P B P A P A P B P A P B P A = + + +
1 5 5 1 5 5 5 5 1
..... .
6 6 6 6 6 6 6 6 6
+ + +
2 4
1 5 5 1 1 1 36 6
1 ......
25
6 6 6 6 6 11 11
1
36
_
1
_ _
+ + +
1
, ,
1
]
,
Similarly, ( wins) ( ). ( ) ( ). ( ). ( ). ( ) .... P B P A P B P A P B P A P B = + +
5 1 5 5 5 1
. . . . . .
6 6 6 6 6 6
+ +
2 4
5 1 5 5 5 1 36 5
1 ......
6 6 6 6 6 6 11 11
1
_ _
+ + +
1
, ,
1
]
Expectation of A and B for the prize of Rs 55
Since the probability that A wins is
6
11
, therefore, the random variable takes a value 55
with probability
6
11
and value 0 with probability
5
11
.Hence,
E A ( ) + 55
6
11
0
5
11
30 Rs
Similarly, the expectation of B is given by
6 5
( ) 55 0 .30
11 11
E B Rs +
Example 8: An unbiased die is thrown until a four is obtained. Find the expected value
and variance of the number of throws.
Solution: Let X denote the number of throws required to get a four. Thus, X will take
values 1, 2, 3, 4, ...... with respective probabilities.
2
1 5 1 5 1
, , ,
6 6 6 6 6
_
,
3
5 1
......
6 6
_
,
etc.
2 3
1 5 1 5 1 5 1
( ) 1. 2. . 3. . 4. . ......
6 6 6 6 6 6 6
E X
_ _
+ + +
, ,
2 3
1 5 5 5
1 2. 3. 4. ......
6 6 6 6
= + + + +
Let S
2 3
5 5 5
1 2. 3. 4. ......
6 6 6
= + + + +
Probability Distribution
of a Random Variable
417
Multiplying both sides by
5
6
, we get
5
6
S =
2 3 4
5 5 5 5
2. 3. 4. ......
6 6 6 6
+ + + +
2 3
5 5 5 5
1 (2 1) (3 2) (4 3) ......
6 6 6 6
S S
_ _
+ + + +
, ,
2 3
1 5 5 5 1
1 ...... 6
5
6 6 6 6
1
6
S
= + + + + = =
-
.... (1)
Thus, S = 36 and hence E(X) =
1
6
36 = 6.
Further, to find variance, we first find E(X
2
)
2 3
2 2 2 2
1 5 1 5 1 5 1
( ) 1. 2 . . 3 . . 4 . . ......
6 6 6 6 6 6 6
E X
= + + +
2 3
2 2 2
1 5 5 5
1 2 . 3 . 4 . ......
6 6 6 6
= + + + +
Let
2 3
2 2 2
5 5 5
1 2 . 3 . 4 . ......
6 6 6
S
= + + + +
Multiply both sides by
5
6
and subtract from S, to get
( ) ( ) ( )
2 3
2 2 2 2 2
1 5 5 5
1 2 1 3 2 4 3 ......
6 6 6 6
S
= + - + - + - +
2 3
5 5 5
1 3 5 7 ......
6 6 6
= + + + +
Further, multiply both sides by
5
6
and subtract
( ) ( ) ( )
2 3
1 5 5 5 5
1 3 1 5 3 7 5 ......
6 36 6 6 6
S S
- = + - + - + - +
2
1 5 5 5 5
1 2 1 ...... 1 6 11
36 6 6 6 3
S
= + + + + = + =
.... (2)
\ S = 36 11 and E(X
2
) =
1
6
36 11 = 66
Hence, Variance = E(X
2
) - [E(X)]
2
= 66 - 36 = 30
Generalisation: Let p be the probability of getting 4, then from equation (1) we can
write 2
1 1 1
or
1
pS S
q p p
= = =
-
Therefore, 2
1 1
( ) E X p
p p
= =
Similarly, equation (2) can be written as
2
2
1
q
p S
p
= +
2 3
1 2
or
q
S
p p
= +
3
2 p q
p
+
=
Therefore,
( )
2
3 2
2 2
.
p q p q
E X p
p p
+ +
= =
and Var(X) = 2 2 2
2 1 p q q
p p p
+
- =
Quantitative Techniques
for Management
418
12.5 JOINT PROBABILITY DISTRIBUTION
When two or more random variables X and Y are studied simultaneously on a sample
space, we get a joint probability distribution. Consider the experiment of throwing two
unbiased dice. If X denotes the number on the first and Y denotes
the number on the second die, then X and Y are random variables having a joint probability
distribution. When the number of random variables is two, it is called a bi-variate
probability distribution and if the number of random variables become more than two,
the distribution is termed as a multivariate probability distribution.
Let the random variable X take values X
1
, X
2
, ...... X
m
and Y take values
Y
1
, Y
2
, ...... Y
n
. Further, let p
ij
be the joint probability that X takes the value X
i
and Y
takes the value Y
j
, i.e., P[X = X
i
and Y = Y
j
] = p
ij
(i = 1 to m and j = 1 to n). This bi-
variate probability distribution can be written in a tabular form as follows :
12.5.1 Marginal Probability Distribution
In the above table, the probabilities given in each row are added and shown in the last
column. Similarly, the sum of probabilities of each column are shown in the last row of
the table. These probabilities are termed as marginal probabilities. The last column of the
table gives the marginal probabilities for various values of random variable X. The set
of all possible values of the random variable X along with their respective marginal
probabilities is termed as the marginal probability distribution of X. Similarly, the marginal
probabilities of the random variable Y are given in the last row of the above table.
Remarks: If X and Y are independent random variables, then by multiplication theorem
of probability we have
P(X = X
i
and Y = Y
i
) = P(X = X
i
).P(Y = Y
i
)
i and j
Using notations, we can write .
ij i j
p P P
The above relation is similar to the relation between the relative frequencies of independent
attributes.
12.5.2 Conditional Probability Distribution
Each column of the above table gives the probabilities for various values of the random
variable X for a given value of Y, represented by it. For example, column 1 of the table
represents that P(X
1
,Y
1
) = p
11
, P(X
2
,Y
1
) = p
21
, ...... P(X
m
,Y
1
) = p
m1
, where P(X
i
,Y
1
) =
p
i1
denote the probability of the event that X = X
i
(i = 1 to m) and Y = Y
1
. From the
conditional probability theorem, we can write
( )
1
1
1
/
ij
i
i
j
p
Joint probability of X and Y
P X X Y Y
Marginal probability of Y P
for
= E(X).E(Y).
The above result can be generalised. If there are k independent random variables X
1
, X
2
,
...... X
k
, then
E(X
1
. X
2
. ...... X
k
) = E(X
1
).E(X
2
). ...... E(X
k
)
12.5.4 Expectation of a Function of Random Variables
Let ( ) , X Y be a function of two random variables X and Y. Then we can write
( ) ( )
1 1
, ,
m n
i j ij
i j
E X Y X Y p
1
]
I. Expression for Covariance
As a particular case, assume that ( ) ( )( )
,
i j i X j Y
X Y X Y
, where
( ) and ( )
X Y
E X E Y
Thus, ( )( ) ( )( )
1 1
m n
X Y i X j Y ij
i j
E X Y X Y p
1
]
Quantitative Techniques
for Management
422
The above expression, which is the mean of the product of deviations of values from
their respective means, is known as the Covariance of X and Y denoted as Cov(X, Y) or
XY
. Thus, we can write
( ) ( )( ) ,
X Y
Cov X Y E X Y 1
]
An alternative expression of Cov(X, Y)
{ }{ } ( , ) ( ) ( ) Cov X Y E X E X Y E Y 1
]
{ } { } . ( ) ( ). ( ) E X Y E Y E X Y E Y 1
]
[ ] . . ( ) ( . ) ( ). ( ) E X Y X E Y E X Y E X E Y
Note that E[{Y - E(Y)}] = 0, the sum of deviations of values from their arithmetic mean.
Remarks: If X and Y are independent random variables, the right hand side of the
above equation will be zero. Thus, covariance between independent variables is always
equal to zero.
II. Mean and Variance of a Linear Combination
Let ( ) , Z X Y aX bY + be a linear combination of the two random variables X and
Y, then using the theorem of addition of expectation, we can write
( ) ( ) ( ) ( )
Z X Y
E Z E aX bY aE X bE Y a b + + +
Further, the variance of Z is given by
[ ] [ ] ( ) ( )
2 2 2
2
( )
Z X Y X Y
E Z E Z E aX bY a b E a X b Y 1 + +
]
( ) ( ) ( )( )
2 2
2 2
2
X Y X Y
a E X b E Y abE X Y + +
2 2 2 2
2
X Y XY
a b ab + +
Remarks:
1. The above results indicate that any function of random variables is also a random
variable.
2. If X and Y are independent, then s
XY
0,
2 2 2 2 2
Z X Y
a b +
3. If Z = aX - bY, then we can write
2 2 2 2 2
2
Z X Y XY
a b ab + . However,
2 2 2 2 2
Z X Y
a b + , if X and Y are independent.
4. The above results can be generalised. If X
1
, X
2
, ...... X
k
are k independent random
variables with means
1 2
, , ......
k
and variances
2 2 2
1 2
, , ......
k
respectively,
then
( )
1 2 1 2
.... ....
k k
E X X X t t t t t t
and ( )
2 2 2
1 2 1 2
.... ....
k k
Var X X X t t t + + +
Notes:
1. The general result on expectation of the sum or difference will hold even if the
random variables are not independent.
2. The above result can also be proved for continuous random variables.
Probability Distribution
of a Random Variable
423
Example 11: A random variable X has the following probability distribution :
(i) Find the value of p.
(ii) Calculate E(X + 2) and E(2X
2
+ 3X + 5).
Solution: Since the total probability under a probability distribution is equal to unity, the
value of p should be such that
1 1 1
1
6 4 6
p p + + + + =
.
This condition gives
5
24
p =
Further,
1 5 1 5 1
( ) 2. 1. 0. 1. 2. 0
6 24 4 24 6
E X = - - + + + =
,
2
1 5 1 5 1 7
( ) 4. 1. 0. 1. 4.
6 24 4 24 6 4
E X = + + + + =
,
( 2) ( ) 2 0 2 2 E X E X + = + = + =
and
2 2
7
(2 3 5) 2 ( ) 3 ( ) 5 2. 0 5 8.5
4
E X X E X E X + + + + + +
Example 12: A dealer of ceiling fans has estimated the following probability distribution
of the price of a ceiling fan in the next summer season :
If the demand (x) of his ceiling fans follows a linear relation x = 6000 - 4P, find expected
demand of fans and expected total revenue of the dealer.
Solution: Since P is a random variable, therefore, x = 6000 - 4P, is also a random variable.
Further, Total Revenue TR = P.x = 6000P - 4P
2
is also a random variable.
From the given probability distribution, we have
E(P) = 800 0.15 + 825 0.25 + 850 0.30 + 875 0.20 + 900 0.10
=Rs 846.25 and
E(P
2
) = (800)
2
0.15 + (825)
2
0.25 + (850)
2
0.30 + (875)
2
0.20 +
(900)
2
0.10 = 717031.25
Thus, E(X) = 6000 - 4E(P) = 6000 - 4 846.25 = 2615 fans.
And E(TR) = 6000E(P) - 4E(P
2
)
= 6000 846.25 - 4 717031.25 = Rs 22,09,375.00
Example 13: A person applies for equity shares of Rs 10 each to be issued at a premium
of Rs 6 per share; Rs 8 per share being payable along with the application and the
balance at the time of allotment. The issuing company may issue 50 or 100 shares to
those who apply for 200 shares, the probability of issuing 50 shares being 0.4 and that of
issuing 100 shares is 0.6. In either case, the probability of an application being selected
for allotment of any shares is 0.2 The allotment usually takes three months and the
market price per share is expected to be Rs 25 at the time of allotment. Find the expected
rate of return of the person per month.
Solution: Let A be the event that the application of the person is considered for allotment,
B
1
be the event that he is allotted 50 shares and B
2
be the event that he is allotted 100
shares. Further, let R
1
denote the rate of return (per month) when 50 shares are allotted,
R
2
be the rate of return when 100 shares are allotted and R = R
1
+ R
2
be the combined
rate of return.
Price ( P) : 800 825 850 875 900
Probability ( p) : 0. 15 0. 25 0. 30 0. 20 0. 10
X : 2 1 0 1 2
Probability :
1
6
p
1
4
p
1
6
Quantitative Techniques
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424
We are given that P(A) = 0.2, P(B
1
/A) = 0.4 and P(B
2
/A) = 0.6.
(a) When 50 shares are allotted
The return on investment in 3 months = (25 - 16)50 = 450
\ Monthly rate of return
450
150
3
= =
The probability that he is allotted 50 shares
P A B P A P B A I
1 1
02 04 008 b g b g b g . / . . .
Thus, the random variable R
1
takes a value 150 with probability 0.08 and it takes a
value 0 with probability 1 - 0.08 = 0.92
\ E(R
1
) = 150 0.08 + 0 = 12.00
(b) When 100 shares are allotted
The return on investment in 3 months = (25 - 16).100 = 900
\ Monthly rate of return
900
300
3
= =
The probability that he is allotted 100 shares
P A B P A P B A I
2 2
02 06 012 b g b g b g . / . . .
Thus, the random variable R
2
takes a value 300 with probability 0.12 and it takes a
value 0 with probability 1 - 0.12 = 0.88
\ E(R
2
) = 300 0.12 + 0 = 36
Hence, E(R) = E(R
1
+ R
2
) = E(R
1
) + E(R2) = 12 + 36 = 48
Example 14: What is the mathematical expectation of the sum of points on n unbiased
dice?
Solution: Let X
i
denote the number obtained on the i th die. Therefore, the sum of points
on n dice is S = X
1
+ X
2
+ ...... + X
n
and
E(S) = E(X
1
) + E(X
2
) + ...... + E(X
n
).
Further, the number on the i th die, i.e., X
i
follows the following distribution :
\ ( ) ( )
1 7
1 2 3 4 5 6
6 2
i
E X = + + + + + =
(i = 1, 2, .... n)
Thus, ( )
7 7 7 7
.... ( times)
2 2 2 2
n
E S n = + + + =
Example 15: If X and Y are two independent random variables with means 50 and 120
and variances 10 and 12 respectively, find the mean and variance of Z = 4X + 3Y.
Solution: E(Z) = E(4X + 3Y) = 4E(X) + 3E(Y) = 4 50 + 3 120 = 560
Since X and Y are independent, we can write
Var(Z) = Var(4X + 3Y) = 16Var(X) + 9Var(Y) = 16 10 + 9 12 = 268
Example 16: It costs Rs 600 to test a machine. If a defective machine is installed, it
costs Rs 12,000 to repair the damage resulting to the machine. Is it more profitable to
install the machine without testing if it is known that 3% of all the machines produced are
defective? Show by calculations.
Solution: Here X is a random variable which takes a value 12,000 with probability 0.03
and a value 0 with probability 0.97.
\ E(X) = 12000 0.03 + 0 0.97 = Rs 360.
Since E(X) is less than Rs 600, the cost of testing the machine, hence, it is more profitable
to install the machine without testing.
X
i
: 1 2 3 4 5 6
p(X
i
) :
1
6
1
6
1
6
1
6
1
6
1
6
Probability Distribution
of a Random Variable
425
Exercise with Hints
1. A man draws two balls at random from a bag containing three white and five black
balls. If he is to receive Rs 14 for every white ball that he draws and
Rs 7 for every black ball, what should be his expectation of earning in the game?
Hint: Random variable takes 3 values 14, 21 and 28.
2. ABC company estimates the net profit on a new product, that it is launching, to be
Rs 30,00,000 if it is successful, Rs 10,00,000 if it is moderately successful and a
loss of Rs 10,00,000 if it is unsuccessful. The firm assigns the following probabilities
to the different possibilities : Successful 0.15, moderately successful 0.25 and
unsuccessful 0.60. Find the expected value and variance of the net profits.
Hint: See example 5.
3. There are 4 different choices available to a customer who wants to buy a transistor
set. The first type costs Rs 800, the second type Rs 680, the third type Rs 880 and
the fourth type Rs 760. The probabilities that the customer will buy these types are
1 1 1 1
, , and
3 6 4 4
respectively. The retailer of these sets gets a commission @ 20%,
12%, 25% and 15% on the respective sets. What is the expected commission of
the retailer?
Hint: Take commission as random variable.
4. Three cards are drawn at random successively, with replacement, from a well
shuffled pack of cards. Getting a card of diamond is termed as a success. Tabulate
the probability distribution of the number successes (X). Find the mean and variance
of X.
Hint: The random variable takes values 0, 1, 2 and 3.
5. A discrete random variable can take all possible integral values from 1 to k each
with probability
1
k
. Find the mean and variance of the distribution.
Hint:
( ) ( )
( )( )
2 2 2 2
1 2 1 1 1
1 2 ....
6
k k k
E X k
k k
+ +
= + + + =
.
6. An insurance company charges, from a man aged 50, an annual premium of Rs 15
on a policy of Rs 1,000. If the death rate is 6 per thousand per year for this age
group, what is the expected gain for the insurance company?
Hint: Random variable takes values 15 and - 985.
7. On buying a ticket, a player is allowed to toss three fair coins. He is paid number of
rupees equal to the number of heads appearing. What is the maximum amount the
player should be willing to pay for the ticket.
Hint: The maximum amount is equal to expected value.
8. The following is the probability distribution of the monthly demand of calculators :
Calculate the expected demand for calculators. If the cost c of producing x calculators
is given by the relation c = 4x
2
- 15x + 200, find expected cost.
Hint: See example 12.
Demand (x) : 15 16 17 18 19 20
Probability p(x) : 0.10 0.15 0. 35 0. 25 0. 08 0. 07
Quantitative Techniques
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426
9. Firm A wishes to bid for the supply of 800 chairs to an educational institution at the
rate of Rs 500 per chair. The firm, which has two competitors B and C, has estimated
that the probability that firm B will bid less than Rs 500 per chair is 0.4 and that the
firm C will bid less than Rs 500 per chair is 0.6. If the lowest bidder gets business
and the firms bid independently, what is the expected value of the contract to
firm A?
Hint: The random variable takes value 0 with probability 0.4 0.6 and it takes value
500 800 with probability 1 - 0.4 0.6.
10. A game is played by throwing a six faced die for which the incomplete probability
distribution of the number obtained is given below :
The conditions of the game are : If the die shows an even number, the player gets
rupees equal to the number obtained; if the die shows 3 or 5, he loses rupees equal
to the number obtained, while if 1 is obtained the player neither gains or loses.
Complete the probability distribution if the game is given to be fair.
Hint: E(X) = 0 for a fair game.
11. There are three bags which contain 4 red and 3 black, 6 red and 4 black and 8 red
and 2 black balls respectively. One ball is drawn from each urn. What is the expected
number of red balls obtained?
Hint: Find the expected number of red balls from each urn and add.
12. A survey conducted over last 25 years indicated that in 10 years the winter was
mild, in 8 years it was cold and in the remaining 7 years it was very cold. A
company sells 1,000 woollen coats in mild cold year, 1,300 in a cold year and 2,000
in a very cold year.
You are required to find the yearly expected profit of the company if a woollen
coat costs Rs 173 and is sold to stores for Rs 248.
Hint: The random variable can take 3 possible values.
13. You have been offered the chance to play a dice game in which you will
receive Rs 20 each time the point total of a toss of two dice is 6. If it costs you
Rs 2.50 per toss to participate, should you play or not? Will it make any difference
in your decision if it costs Rs 3.00 per toss instead of Rs 2.50?
Hint: Compare the cost of participation with the expected value of the receipt.
14. The probability that a house of a certain type will be on fire in a year is 0.005.
An insurance company offers to sell the owner of such a house Rs 1,00,000 one
year term insurance policy for a premium of Rs 600. What is the expected
gain of the company?
Hint: See exercise 6.
15. Three persons A, B and C in that order draw a ball, without replacement, from a
bag containing 2 red and 3 white balls till someone is able to draw a red ball. One
who draws a red ball wins Rs 400. Determine their expectations.
Hint: A wins if he gets a red ball on the first draw or all the three get white ball in their
respective first draws, etc.
16. A coin is tossed until a head appears. What is the expected number and standard
deviation of tosses?
Hint: The random variable takes values 1, 2, 3, .... with respective probabilities p,
(1 - p)p, (1 - p)
2
p, etc., where p is the probability of getting a head.
X : 1 2 3 4 5 6
p(X) : 0. 09 0. 30 m n 0. 28 0. 09
Probability Distribution
of a Random Variable
427
17. A box contains 8 tickets. 3 of the tickets carry a prize of Rs 5 each and the remaining
5 a prize of Rs 2 each.
(i) If one ticket is drawn at random, what is the expected value of the prize?
(ii) If two tickets are drawn at random, what is the expected value of the prize?
Hint: (i) The random variable can take values 5 or 2, (ii) It can take values 4, 7 or 10.
18. 4 unbiased coins are tossed 256 times. Find the frequency distribution of heads and
tabulate the result. Calculate the mean and standard deviation of the number of
heads.
Hint: the random variable takes values 0, 1, 2, 3 and 4.
19. Throwing two unbiased coins simultaneously, Mr X bets with Mrs X that he will
receive Rs 4 from her if he gets 2 heads and he will give Rs 4 to her
otherwise. Find Mr X's expectation.
Hint: The random variable takes values 4 and 4.
20. A man runs an ice cream parlor in a holiday resort. If the summer is mild, he can
sell 2,500 cups of ice cream; if it is hot, he can sell 4,000 cups; if it is very hot, he
can sell 5,000 cups. It is known that for any year the probability of the summer to
be mild is
1
7
and to be hot is
4
7
. A cup of ice cream costs Rs 2 and sold
for Rs 3.50. What is his expected profit?
Hint: See example 5.
21. Comment on the validity of the following statement :
For a random variable X, ( ) ( )
2
E X E X .
Hint: s
2
= E(X
2
) - [E(X)]
2
.
Check Your Progress 12.1
1 What is Stochastic variable?
2. How bi-variate probability is different from multi variable probability distribution?
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Check Your Progress will help you to understand the lesson
better. Try to write answers for them, but do not submit your answers
to the university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Quantitative Techniques
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428
12.6 DECISION ANALYSIS UNDER CERTAINTY
Decision-making is needed whenever an individual or an organisation (private or public)
is faced with a situation of selecting an optimal (or best in view of certain objectives)
course of action from among several available alternatives. For example, an individual
may have to decide whether to build a house or to purchase a flat or live in a rented
accommodation; whether to join a service or to start own business; which company's
car should be purchased, etc. Similarly, a business firm may have to decide the type of
technique to be used in production, what is the most appropriate method of advertising its
product, etc.
The decision analysis provides certain criteria for the selection of a course of action
such that the objective of the decision-maker is satisfied. The course of action selected
on the basis of such criteria is termed as the optimal course of action.
Every decision problem has four basic features, mentioned below:
1. Alternative Courses of Action or Acts: Every decision-maker is faced with a set
of several alternative courses of action A
1
, A
2
, ...... A
m
and he has to select one of
them in view of the objectives to be fulfilled.
2. States of Nature: The consequences of selection of a course of action are dependent
upon certain factors that are beyond the control of the decision-maker. These
factors are known as states of nature or events. It is assumed that the decision-
maker is aware of the whole list of events S
1
, S
2
, ...... S
n
and exactly one of them
is bound to occur. In other words, the events S
1
, S
2
, ...... S
n
are assumed to be
mutually exclusive and collective exhaustive.
3. Consequences: The results or outcomes of selection of a particular course of
action are termed as its consequences. The consequence, measured in quantitative
or value terms, is called payoff of a course of action. It is assumed that the payoffs
of various courses of action are known to the decision-maker.
4. Decision Criterion: Given the payoffs of various combinations of courses of action
and the states of nature, the decision-maker has to select an optimal course of
action. The criterion for such a selection, however, depends upon the attitude of
the decision-maker.
If X
ij
denotes the payoff corresponding to a combination of a course of action and
a state of nature, i.e., (A
i
, S
j
), i = 1 to m and j = 1 to n, the above elements of a
decision problem can be presented in a matrix form, popularly known as the Payoff
Matrix.
Payoff Matrix
Given the payoff matrix for a decision problem, the process of decision-making depends
upon the situation under which the decision is being made. These situations can be
classified into three broad categories : (a) Decision-making under certainty, (b) Decision
-making under uncertainty and (c) Decision-making under risk.
... ...
... ...
... ...
... ...
... ...
Events
Actions
S S S S
A X X X X
A X X X X
A X X X X
A X X X X
j n
j n
j n
i i i ij in
m m m mj mn
B
1 2
1 11 12 1 1
2 21 22 2 2
1 2
1 2
M M M M M
M M M M M
Probability Distribution
of a Random Variable
429
Decision-making under Certainty
The conditions of certainty are very rare particularly when significant decisions are
involved. Under conditions of certainty, the decision-maker knows which particular state
of nature will occur or equivalently, he is aware of the consequences of each course of
action with certainty. Under such a situation, the decision-maker should focus on the
corresponding column in the payoff table and choose a course of action with optimal
payoff.
12.7 DECISION-MAKING UNDER UNCERTAINTY
A situation of uncertainty arises when there can be more than one possible consequences
of selecting any course of action. In terms of the payoff matrix, if the decision-maker
selects A
1
, his payoff can be X
11
, X
12
, X
13
, etc., depending upon which state of nature
S
1
, S
2
, S
3
, etc., is going to occur. A decision problem, where a decision-maker is aware
of various possible states of nature but has insufficient information to assign any
probabilities of occurrence to them, is termed as decision-making under uncertainty.
There are a variety of criteria that have been proposed for the selection of an optimal
course of action under the environment of uncertainty. Each of these criteria make an
assumption about the attitude of the decision-maker.
1. Maximin Criterion: This criterion, also known as the criterion of pessimism, is
used when the decision-maker is pessimistic about future. Maximin implies the
maximisation of minimum payoff. The pessimistic decision-maker locates the
minimum payoff for each possible course of action. The maximum of these minimum
payoffs is identified and the corresponding course of action is selected. This is
explained in the following example :
Example 17: Let there be a situation in which a decision-maker has three possible
alternatives A
1
, A
2
and A
3
, where the outcome of each of them can be affected by the
occurrence of any one of the four possible events S
1
, S
2
, S
3
and S
4
. The monetary
payoffs of each combination of A
i
and S
j
are given in the following table :
Payoff Matrix
Solution: Since 17 is maximum out of the minimum payoffs, the optimal action is A
2
.
2. Maximax Criterion: This criterion, also known as the criterion of optimism, is
used when the decision-maker is optimistic about future. Maximax implies the
maximisation of maximum payoff. The optimistic decision-maker locates the
maximum payoff for each possible course of action. The maximum of these payoffs
is identified and the corresponding course of action is selected. The optimal course
of action in the above example, based on this criterion, is A
3
.
3. Regret Criterion: This criterion focuses upon the regret that the decision-maker
might have from selecting a particular course of action. Regret is defined as the
difference between the best payoff we could have realised, had we known which
state of nature was going to occur and the realised payoff. This difference, which
measures the magnitude of the loss incurred by not selecting the best alternative, is
also known as opportunity loss or the opportunity cost.
1 2 3 4
1
2
3
. .
27 12 14 26 12 27
45 17 35 20 17 45
29 52 36 15 15 52
Events
S S S S Min Payoff Max Payoff
Actions
A
A
A
Quantitative Techniques
for Management
430
From the payoff matrix (given in 12.6), the payoffs corresponding to the actions
A
1
, A
2
, ...... A
n
under the state of nature S
j
are X
1i
, X
2j
, ...... X
nj
respectively. Of
these assume that X
2j
is maximum. Then the regret in selecting A
i
, to be denoted
by R
ij
is given by X
2j
- X
ij
, i = 1 to m. We note that the regret in selecting A
2
is zero.
The regrets for various actions under different states of nature can also be computed
in a similar way.
The regret criterion is based upon the minimax principle, i.e., the decision-maker
tries to minimise the maximum regret. Thus, the decision-maker selects the
maximum regret for each of the actions and out of these the action which
corresponds to the minimum regret is regarded as optimal.
The regret matrix of example 17 can be written as given below:
Regret Matrix
From the maximum regret column, we find that the regret corresponding to the
course of action is A
3
is minimum. Hence, A
3
is optimal.
4. Hurwicz Criterion: The maximax and the maximin criteria, discussed above,
assumes that the decision-maker is either optimistic or pessimistic. A more realistic
approach would, however, be to take into account the degree or index of optimism
or pessimism of the decision-maker in the process of decision-making. If a, a
constant lying between 0 and 1, denotes the degree of optimism, then the degree of
pessimism will be 1 - a. Then a weighted average of the maximum and minimum
payoffs of an action, with a and 1 - a as respective weights, is computed. The
action with highest average is regarded as optimal.
We note that a nearer to unity indicates that the decision-maker is optimistic while
a value nearer to zero indicates that he is pessimistic. If a = 0.5, the decision-
maker is said to be neutralist.
We apply this criterion to the payoff matrix of example 17. Assume that the index
of optimism a = 0.7.
Since the average for A
3
is maximum, it is optimal.
5. Laplace Criterion: In the absence of any knowledge about the probabilities of
occurrence of various states of nature, one possible way out is to assume that all of
them are equally likely to occur. Thus, if there are n states of nature, each can be
assigned a probability of occurrence = 1/n. Using these probabilities, we compute
the expected payoff for each course of action and the action with maximum expected
value is regarded as optimal.
Events
Actions
S S S S Max. Regret
A
A
A
B
1 2 3 4
1
2
3
25 24 21 0 25
7 19 0 6 19
0 0 6 11 11
1
2
3
. .
27 12 27 0.7 12 0.3 22.5
45 17 45 0.7 17 0.3 36.6
52 15 52 0.7 15 0.3 40.9
Action Max Payoff Min Payoff Weighted Average
A
A
A
+
+
+
Probability Distribution
of a Random Variable
431
12.8 DECISION-MAKING UNDER RISK
In case of decision-making under uncertainty the probabilities of occurrence of various
states of nature are not known. When these probabilities are known or can be estimated,
the choice of an optimal action, based on these probabilities, is termed as decision-
making under risk.
The choice of an optimal action is based on The Bayesian Decision Criterion according
to which an action with maximum Expected Monetary Value (EMV) or minimum
Expected Opportunity Loss (EOL) or Regret is regarded as optimal.
Example 18: The payoffs (in Rs) of three Acts A
1
, A
2
and A
3
and the possible states
of nature S
1
, S
2
and S
3
are given below :
The probabilities of the states of nature are 0.3, 0.4 and 0.3 respectively. Determine the
optimal act using the Bayesian Criterion.
Solution:
Computation of Expected Monetary Value
From the above table, we find that the act A
1
is optimal.
The problem can alternatively be attempted by finding minimum EOL, as shown below:
Computation of Expected Opportunity Loss
This indicates that the optimal act is again A
1
.
12.9 EXPECTED VALUE WITH PERFECT INFORMATION
(EVPI)
The expected value with perfect information is the amount of profit foregone due to
uncertain conditions affecting the selection of a course of action.
Given the perfect information, a decision-maker is supposed to know which particular
state of nature will be in effect. Thus, the procedure for the selection of an optimal
course of action, for the decision problem given in example 18, will be as follows :
If the decision-maker is certain that the state of nature S
1
will be in effect, he would
select the course of action A
3
, having maximum payoff equal to Rs 200.
1 2 3
1
2
3
20 50 200
200 100 50
400 600 300
Acts
A A A
States of Nature
S
S
S
1 2 3
1
2
3
( ) 0.3 0.4 0.3
20 200 400 20 0.3 200 0.4 400 0.3 194
50 100 600 50 0.3 100 0.4 600 0.3 125
200 50 300 200 0.3 50 0.4 300 0.3 130
S S S
P S EMV
A
A
A
+ +
+
+
1 2 3
1
2
3
( ) 0.3 0.4 0.3
220 0 200 220 0.3 0 0.4 200 0.3 126
250 300 0 250 0.3 300 0.4 0 0.3 195
0 250 300 0 0.3 250 0.4 300 0.3 190
S S S
P S EOL
A
A
A
+ +
+ +
+ +
Quantitative Techniques
for Management
432
Similarly, if the decision-maker is certain that the state of nature S
2
will be in effect, his
course of action would be A
1
and if he is certain that the state of nature S
3
will be in
effect, his course of action would be A
2
. The maximum payoffs associated with the
actions are Rs 200 and Rs 600 respectively.
The weighted average of these payoffs with weights equal to the probabilities of respective
states of nature is termed as Expected Payoff under Certainty (EPC).
Thus,
200 0.3 200 0.4 600 0.3 320 EPC + +
The difference between EPC and EMV of optimal action is the amount of profit foregone
due to uncertainty and is equal to EVPI.
Thus, EVPI = EPC - EMV of optimal action = 320 - 194 = 126
It is interesting to note that EVPI is also equal to EOL of the optimal action.
Cost of Uncertainty
This concept is similar to the concept of EVPI. Cost of uncertainty is the difference
between the EOL of optimal action and the EOL under perfect information.
Given the perfect information, the decision-maker would select an action with minimum
opportunity loss under each state of nature. Since minimum opportunity loss under each
state of nature is zero, therefore,
EOL under certainty
0 0.3 0 0.4 0 0.3 0 + +
.
Thus, the cost of uncertainty = EOL of optimal action = EVPI
Example 19: A group of students raise money each year by selling souvenirs outside
the stadium of a cricket match between teams A and B. They can buy any of three
different types of souvenirs from a supplier. Their sales are mostly dependent on which
team wins the match. A conditional payoff (in Rs.) table is as under :
(i) Construct the opportunity loss table.
(ii) Which type of souvenir should the students buy if the probability of team A's winning
is 0.6?
(iii) Compute the cost of uncertainty.
Solution:
(i) The Opportunity Loss Table
(ii) EOL of buying type I Souvenir
0 0.6 850 0.4 340 +
EOL of buying type II Souvenir
400 0.6 400 0.4 400. +
EOL of buying type III Souvenir
900 0.6 0 0.4 540. +
Since the EOL of buying Type I Souvenir is minimum, the optimal decision is to buy
Type I Souvenir.
(iii) Cost of uncertainty = EOL of optimal action = Rs. 340
1200 800 300
250 700 1100
Type of Souvenir I II III
Team A wins
Team B wins
0 400 900
850 400 0
Actions Type of Souvenir bought
Events I II III
Team A wins
Team B wins
Probability Distribution
of a Random Variable
433
Example 20: The following is the information concerning a product X :
(i) Per unit profit is Rs 3.
(ii) Salvage loss per unit is Rs 2.
(iii) Demand recorded over 300 days is as under :
Find : (i) EMV of optimal order.
(ii) Expected profit presuming certainty of demand.
Solution:
(i) The given data can be rewritten in terms of relative frequencies, as shown below:
From the above probability distribution, it is obvious that the optimum order would
lie between and including 5 to 9.
Let A denote the number of units ordered and D denote the number of units
demanded per day.
If , D A profit per day = 3A, and if D < A, profit per day = 3D 2(A D)
= 5D 2A.
Thus, the profit matrix can be written as
From the above table, we note that the maximum EMV = 19.00, which corresponds
to the order of 7 or 8 units. Since the order of the 8th unit adds nothing to the EMV,
i.e., marginal EMV is zero, therefore, order of 8 units per day is optimal.
(ii) Expected profit under certainty
+ + + + 5 0.10 6 0.20 7 0.30 8 0.25 9 0.15 3 Rs 21.45 b g
Alternative Method: The work of computations of EMV's, in the above example, can
be reduced considerably by the use of the concept of expected marginal profit. Let p be
the marginal profit and
l
be the marginal loss of ordering an additional unit of the
product. Then, the expected marginal profit of ordering the Ath unit, is givenby
( ) ( ) ( ) ( ) . . . . 1 P D A P D A P D A P D A 1 <
]
( ) ( ) .P D A + .... (1)
Units demanded : 5 6 7 8 9
No. of days : 30 60 90 75 45
Units demanded
No of days
: 5 6 7 8 9
. : . . . . . 0 1 0 2 0 3 0 25 0 15
5 6 7 8 9
0.10 0.20 0.30 0.25 0.15
( )
5 15 15 15 15 15 15.00
6 13 18 18 18 18 17.50
7 11 16 21 21 21 19.00
8 9 14 19 24 24 19.00
9 7 12 17 22 27 17.75
Units Demanded
Probability
EMV
Action units ordered
Quantitative Techniques
for Management
434
The computations of EMV, for alternative possible values of A, are shown in the following
table :
In our example, = 3 and
= 2
Thus, the expression for the expected marginal profit of the Ath unit
( ) ( ) ( ) 3 2 2 5 2. P D A P D A +
Table for Computations
* This column represents the 'more than type' cumulative probabilities.
Since the expected marginal profit (EMP) of the 8th unit is zero, therefore, optimal order
is 8 units.
Marginal Analysis
Marginal analysis is used when the number of states of nature is considerably large.
Using this analysis, it is possible to locate the optimal course of action without the
computation of EMV's of various actions.
An order of A units is said to be optimal if the expected marginal profit of the Ath unit is
non-negative and the expected marginal profit of the (A + 1)th unit is negative. Using
equation (1), we can write
( ) ( ) 0 P D A + and .... (2)
( ) ( ) 1 0 P D A + + < .... (3)
From equation (2), we get
( ) P D A
+
or ( ) 1 P D A
<
+
or ( ) 1 P D A
<
+
or ( ) 1 P D A
+
.... (4)
[P(D
<
+
.
( ) ( )
( ) * 5 2
5 1.00 5 1.00 2 3.00 5 3.00 15.00
6 0.90 5 0.90 2 2.50 15.00 2.50 17.50
7 0.70 5 0.70 2 1.50 17.50 1.50 19.00
8 0.40 5 0.40 2 0.00 19.00 0.00 19.00
9 0.15 5 0.15
Total profit or
Action A P D A EMP P D A
EMV
+
+
+
2 1.25 19.00 1.25 17.75
Probability Distribution
of a Random Variable
435
Writing the probability distribution, given in example 20, in the form of less than type
cumulative probabilities which is also known as the distribution function F(D), we get
We are given
3 p =
and
2 l =
, \
3
0.6
5
p
p l
= =
+
Since the next cumulative probability, i.e., 0.85, corresponds to 8 units, hence, the optimal
order is 8 units.
12.10 USE OF SUBJECTIVE PROBABILITIES IN
DECISION-MAKING
When the objective probabilities of the occurrence of various states of nature are not
known, the same can be assigned on the basis of the expectations or the degree of belief
of the decision-maker. Such probabilities are known as subjective or personal probabilities.
It may be pointed out that different individuals may assign different probability values to
given states of nature.
This indicates that a decision problem under uncertainty can always be converted into a
decision problem under risk by the use of subjective probabilities. Such an approach is
also termed as Subjectivists' Approach.
Example 21: The conditional payoff (in Rs) for each action-event combination are as
under:
(i) Which is the best action in accordance with the Maximin Criterion?
(ii) Which is the best action in accordance with the EMV Criterion, assuming that all
the events are equally likely?
Solution:
(i) The minimum payoffs for various actions are :
Action 1 = 5
Action 2 = 2
Action 3 = 2
Action 4 = 3
Since the payoff for action 3 is maximum, therefore, A
3
is optimal on the basis of
maximin criterion.
(ii) Since there are 5 equally likely events, the probability of each of them would be
1
5
.
Thus, the EMV of action 1, i.e.,
1
4 0 5 3 6 8
1.6
5 5
EMV
+ - + +
= = =
Similarly,
2
20
4.0
5
EMV = =
,
3
19
3.8
5
EMV = = and
4
17
3.4
5
EMV = =
Thus, action 2 is optimal.
Units demanded(D) : 5 6 7 8 9
F(D) : 0.1 0. 3 0. 6 0. 85 1. 00
1 2 3 4
4 2 7 8
0 6 3 5
5 9 2 3
3 1 4 5
6 6 3 2
Action
Event
A
B
C
D
E
Quantitative Techniques
for Management
436
12.11 USE OF POSTERIOR PROBABILITIES IN
DECISION-MAKING
The probability values of various states of nature, discussed so far, were prior probabilities.
Such probabilities are either computed from the past data or assigned subjectively. It is
possible to revise these probabilities in the light of current information available by using
the Bayes' Theorem. The revised probabilities are known as posterior probabilities.
Example 22: A manufacturer of detergent soap must determine whether or not to
expand his productive capacity. His profit per month, however, depend upon the potential
demand for his product which may turn out to be high or low. His payoff matrix is given
below:
On the basis of past experience, he has estimated the probability that demand for his
product being high in future is only 0.4
Before taking a decision, he also conducts a market survey. From the past experience he
knows that when the demand has been high, such a survey had predicted it correctly
only 60% of the times and when the demand has been low, the survey predicted it
correctly only 80% of the times.
If the current survey predicts that the demand of his product is going to be high in future,
determine whether the manufacturer should increase his production capacity or not?
What would have been his decision in the absence of survey?
Solution: Let H be the event that the demand will be high. Therefore,
( ) 0.4 and ( ) 0.6 P H P H = =
Note that H and
H
are the only two states of nature.
Let D be the event that the survey predicts high demand. Therefore,
( / ) 0.60 and ( / ) 0.80 P D H P D H = =
We have to find
P(H/D) and P(H/D)
. For this, we make the following table:
From the above table, we can write
0.24 2 0.12 1
( / ) and ( / )
0.36 3 0.36 3
P H D P H D = = = =
The EMV of the act 'don't expand'
+ 5000
2
3
5000
1
3
Rs 5,000
and the EMV of the act 'expand'
+ 7500
2
3
2100
1
3
Rs 5,700
Since the EMV of the act 'expand' > the EMV of the act 'don't expand', the manufacturer
should expand his production capacity.
It can be shown that, in the absence of survey the EMV of the act 'don't expand' is Rs
5,000 and the EMV of the act expand is Rs 4,260. Hence, the optimal act is 'don't
expand'.
Do not Expand Expand
High Demand
Low Demand
Rs 5,000 Rs 7,500
Rs 5,000 Rs 2,100
0.4 0.6
0.12 0.36
0.24
0.6 0.8
0.16 0.64
0.48
0.40 0.60 1.00
H H Total
D
D
Total
Probability Distribution
of a Random Variable
437
Decision Tree Approach
The decision tree diagrams are often used to understand and solve a decision problem.
Using such diagrams, it is possible to describe the sequence of actions and chance
events. A decision node is represented by a square and various action branches stem
from it. Similarly, a chance node is represented by a circle and various event branches
stem from it. Various steps in the construction of a decision tree can be summarised as
follows :
(i) Show the appropriate action-event sequence beginning from left to right of the
page.
(ii) Write the probabilities of various events along their respective branches stemming
from each chance node.
(iii) Write the payoffs at the end of each of the right-most branch.
(iv) Moving backward, from right to left, compute EMV of each chance node, wherever
encountered. Enter this EMV in the chance node. When a decision node is
encountered, choose the action branch having the highest EMV. Enter this EMV in
the decision node and cutoff the other action branches.
Following this approach, we can describe the decision problem of the above example as
given below:
Case I: When the survey predicts that the demand is going to be high
Thus, the optimal act to expand capacity.
Case II: In the absence of survey
Thus, the optimal act is not to expand capacity.
Quantitative Techniques
for Management
438
Exercise with Hints
1. The probability of the demand for lorries for hire on any day in a given district is as
follows :
Lorries have a fixed cost of Rs 90 each day to keep and the daily hire charge (net
of variable costs of running) is 200. If the lorry-hire company owns 4 lorries, what
is its daily expectations? If the lorry-hire company is about to go into business and
currently has no lorries, how many lorries should it buy?
Hint: Take = 110 and
= 90.
2. A management is faced with the problem of choosing one of the products for
manufacturing. The potential demand for each product may turn out to be good,
moderate or poor. The probabilities for each of the states of nature were estimated
as follows :
The profit or loss (in Rs) under the three states is estimated as
Prepare the expected value table and advise the management about the choice of
product.
Hint: Compute expected profit for each commodity.
3. A pig breeder can either produce 20 or 30 pigs. The total production of his
competitors can be either 5,000 or 10,000 pigs. If they produce 5,000 pigs, his profit
per pig is Rs 60; if they produce 10,000 pigs, his profit per pig is Rs 45 only.
Construct a payoff table and also state what should the pig breeder decide?
Hint: This is a decision problem under uncertainty where the courses of actions are to
produce 20 or 30 pigs while the states of nature are the production of 5,000 or
10,000 pigs by his competitors.
4. Mr X quite often flies from town A to town B. He can use the airport bus which
costs Rs 13 but if he takes it, there is a 0.08 chance that he will miss the flight. A
hotel limousine costs Rs. 27 with a 0.96 chance of being on time for the flight. For
Rs 50 he can use a taxi which will make 99 of 100 flights. If Mr X catches the flight
on time, he will conclude a business transaction which will produce a profit of Rs
1,000; otherwise he will lose it. Which mode of transportation should Mr X use?
Answer on the basis of EMV criterion.
Hint: EMV of using airport bus = (1000 13) 0.92 13 0.08, etc.
5. A distributor of a certain product incurs holding cost of Rs 100 per unit per week
and a shortage cost of Rs 300 per unit. The data on the sales of the product are
given below :
Find his optimal stock.
Hint: Take p = 300 and l = 100.
No. of lorries demanded : 0 1 2 3 4
Probability : 0.1 0. 2 0. 3 0. 2 0. 2
X
Y
Z
30 000 20 000 10 000
60 000 30 000 20 000
40 000 10 000 15 000
, , ,
, , ,
, , ,
Weekly Sales : 0 1 2 3 4 5 6 7 8
No. of Weeks : 0 0 5 10 15 15 5 0 0
0.70 0.20 0.10
0.50 0.30 0.20
0.40 0.50 0.10
Nature of Demand
Good Moderate Poor
Product
X
Y
Z
Probability Distribution
of a Random Variable
439
Check Your Progress 12.2
1 Distinguish between Hurwicz Criterion is different from Laplace Criterion.
2. What is the use of subjective and posterior probabilities in decision-making?
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Check Your Progress will help you to understand the lesson
better. Try to write answers for them, but do not submit your answers
to the university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
12.12 LET US SUM UP
In this chapter you would be able to understand probability distribution of a random
variable and also mean and variance. In this various theorems on expectation to find out
expected value. And taking decisions on the basis of various probabilistic distribution.
1. Mean of a discrete random variable is
1
( ) . ( )
n
i i
i
E X X p X
m and n > m.
(ii) Assume that he manufactures 12 pieces. Using the results in (i) above, find
his net profit or loss for each level of demand.
(iii) Using the probability distribution, calculate his expected net profit or loss if he
manufactures 12 pieces.
(iv) Calculate the expected profit or loss for each of the levels of manufacture
(10
15).
(v) How many pieces should be manufactured so that his expected profit is
maximum?
29. A physician purchases a particular vaccine on Monday of each week. The vaccine
must be used in the current week, otherwise it becomes worthless. The vaccine
costs Rs 2 per dose and the physician charges Rs 4 per dose. In the past 50 weeks,
the physician has administered the vaccine in the following quantities :
Determine the number of doses the physician should buy every week.
30. The marketing staff of a certain industrial organisation has submitted the following
payoff table, giving profits in million rupees, concerning a proposal depending upon
the rate of technological advance in the next three years :
The probabilities are 0.2, 0.5 and 0.3 for Much, Little and None technological
advance respectively. What decision should be taken?
No. of pieces demanded : 10 11 12 13 14 15
Probability : 0. 07 0.10 0. 23 0. 38 0.12 0.10
Doses per week : 20 25 40 60
No. of weeks : 5 15 25 5
Technological
advance
Accept
Proposal
Reject
Proposal
Much 2 3
Little 5 2
None 1 4
State of Nature Probability Decision
Do not
Expand
Expand
units
Expand
units
High Demand
Medium Demand
Low Demand
200 400
0 4
0 4
0 2
2500 3500 5000
2500 3500 2500
2500 1500 1000
.
.
.
Quantitative Techniques
for Management
444
31. A newspaper distributor assigns probabilities to the demand for a magazine as
follows:
A copy of magazine sells for Rs 7 and costs Rs 6. What can be the maximum
possible expected monetary value (EMV) if the distributor can return the unsold
copies for Rs 5 each? Also find EVPI.
32. A management is faced with the problem of choosing one of the three products for
manufacturing. The potential demand for each product may turn out to be good,
fair or poor. The probabilities for each type of demand were estimated as follows:
The estimated profit or loss (in Rs) under the three states of demand in respect of
each product may be taken as :
Prepare the expected value table and advise the management about the choice of
the product.
33. The payoffs of three acts A, B and C and the states of nature P, Q and R are given
as :
The probabilities of the states of nature are 0.5, 0.1 and 0.4 respectively. Tabulate
the Expected Monetary Values for the above data and state which can be chosen
as the best act? Calculate expected value of perfect information also.
34. A manufacturing company is faced with the problem of choosing from four products
to manufacture. The potential demand for each product may turn out to be good,
satisfactory or poor. The probabilities estimated of each type of demand are given
below :
The estimated profit (in Rs) under different states of demand in respect of each
product may be taken as :
Prepare the expected value table and advise the company about the choice of
product to manufacture.
A 35, 000 15, 000 5, 000
B 50, 000 20, 000 3, 000
C 60, 000 30, 000 20, 000
Payoffs in Rs
States of Nature
P
Q
R
A B C
( )
35 120 100
250 350 200
550 650 700
Probabilities of type of demand
Product
A
B
C
D
Good Satisfactory Poor
0. 60 0. 20 0. 20
0.75 0.15 0.10
0. 60 0. 25 0.15
0. 50 0. 20 0. 30
A 40, 000 10, 000 1, 100
B 40, 000 20, 000 7, 000
C 50, 000 15, 000 8, 000
D 40, 000 18, 000 15, 000
0.75 0.15 0.10
0.60 0.30 0.10
0.50 0.30 0.20
Demand
Good Fair Poor
Product
A
B
C
Copies Demanded : 1 2 3 4
Probability : 0. 4 0. 3 0. 2 0.1
Probability Distribution
of a Random Variable
445
Demand : 0 1 2 3 4 5 6
Probability : 0.14 0. 27 0. 27 0.18 0. 09 0. 04 0. 01
No. of cases sold : 15 16 17 18
No. of days : 12 24 48 36
35. A shopkeeper at a local stadium must determine whether to sell ice cream or
coffee at today's game. The shopkeeper believes that the profit will depend upon
the weather. The payoff table is as follows :
Based upon his past experience at this time of the year, the shopkeeper estimates
the probability of warm weather as 0.60. Prior to making his decision, the shopkeeper
decides to hear forecast of the local weatherman. In the past, when it has been
cool, the weatherman has forecast cool weather 80% times. When it has been
warm, the weatherman has forecast warm weather 70% times. If today's forecast
is for cool weather, using Bayesian decision theory and EMV criterion, determine
whether the shopkeeper should sell ice cream or coffee?
36. A producer of boats has estimated the following distribution of demand for a particular
kind of boat :
Each boat costs him Rs 7,000 and he sells them for Rs 10,000 each. Any boats that
are left unsold at the end of the season must be disposed off for Rs 6,000 each.
How many boats should be kept in stock to maximise his expected profit?
37. A retailer purchases berries every morning at Rs 5 a case and sells for Rs 8
a case. Any case remaining unsold at the end of the day can be disposed of the
next day at a salvage value of Rs 2 per case (thereafter they have no
value). Past sales have ranged from 15 to 18 cases per day. The following is the
record of sales for the past 120 days :
Find how many cases the retailer should purchase per day to maximise his profit?
38. State whether the following statements are True or False :
(i) A random variable takes a value corresponding to every element of the sample
space.
(ii) The probability of a given value of the discrete random variable is obtained by
its probability density function.
(iii) Distribution function is another name of cumulative probability function.
(iv) Any function of a random variable is also a random variable.
(v) The expected value of the sum of two or more random variables is equal to
the sum of their expected values only if the are independent.
(vi) In the process of decision-making, the decision-maker can also assign
probabilities to various states of nature based upon his degree of belief.
39. Fill in blanks :
(i) The probability that a ........ random variable takes a particular value is always
zero.
(ii) The mean of a random variable is also termed as its ........ value.
(iii) Any function of random variable is also a ........ .
Event Action
Cool Weather
Warm Weather
Sell Coffee Sell Ice cream
Rs Rs
Rs Rs
40 20
55 80
Quantitative Techniques
for Management
446
(iv) If the conditional distribution of X given Y is same as the marginal distribution
of X, then X and Y are ........ random variables.
(v) The selection of a particular decision criterion depends upon the ........ of the
decision-maker.
(vi) An action with maximum EMV or minimum EOL is regarded as ....... .
12.17 MODEL ANSWERS TO QUESTIONS FOR
DISCUSSION
1. (a) Expected Monetary Value (EMV) (b) Joint (c) (X + Y)
(d) Possible (e) Expected Value with Perfect Information (EVPI)
2. (a) True (b) True (c) False (d) True (e) True
12.18 SUGGESTED READINGS
Lerry Gonick and Woollcott Smith, The Cartoon Guide to Statistics, Harpercollins,
New York 1994.
Bernard W. Lindgren, Statistical Theory, Macmillan, third edition 1976.
Siegrried Graf, Harold Luschgy, Foundations of quantizations for probability
distributions, Springes Motorola Univ. Pr (April 1993)
Edger H. Callaway, David A. Hill, Jerome V. Scholle, Probability Distribution, Motorola
Univ. April 1993
Gejza Wimmes, Gabriel Altmann, Thesaurus of Universe Discrete Probability
Distribution, Stany, Jan. 1999
Unit-V
13.0 AIMS AND OBJECTIVES
In this lesson we are going to talk about the inventory control and how to minimised the
total cost of inventory. The inventory control system offers comprehensive report
capabilities to keep you on top of inventory status. It can facilitate in bringing about the
creating of new or improved purchasing policies, save policies, pricing modelling and
even enhanced customer service.
13.1 INTRODUCTION
The inventory means a physical stocks of good which is kept in hand for smooth and
efficient running of future affairs of an organisation at the minimum costs of funds blocked
in inventories. In a manufacturing organisation, inventory control plays a significant role
because the total investment in inventories of various kinds is quite substantious. In this
chapter we are going to discuss the meaning of inventory, need to control inventory,
advantage of material control, essential factor, of material control, the ABC analysis
techniques, process of inventory control.
LESSON
13
INVENTORY MODEL
CONTENTS
13.0 Aims and Objectives
13.1 Introduction
13.2 Need of Inventory Control
13.3 Advantages of Material Controls
13.4 Essential Factors of Material Control
13.5 ABC Analysis Technique
13.6 Process of Inventory Control
13.7 Minimum Stock Level
13.8 Maximum Stock Level
13.9 Ordering Level or Re-order Level
13.10 Average Stock level
13.11 Danger Level
13.12 Let us Sum Up
13.13 Lesson-end Activities
13.14 Keywords
13.15 Questions for Discussion
13.16 Terminal Questions
13.17 Model Answers to Questions for Discussion
13.18 Suggested Readings
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Inventory can be defined as the stock of goods, commodities or other resources that are
stored at any given period for future production. In real, inventory control is a process
itself, with the help of which, the demand of items, scheduling, purchase receiving,
inspection, storage and despatch are arranged in such a manner that at minimum cost
and in minimum time, the goods can be despatched to production department. Inventory
control makes use of available capital in a most effective way and ensures adequate
supply of goods for production.
13.2 NEED OF INVENTORY CONTROL
The main objectives of Inventory Control are as follows:
1. For Effective Cost Accounting System: Cost accounting system is useful only
when there is a tight control over cost and inventory cost is a major part of total
production cost.
2. To Check Waste and Wastage: Inventory control not just only ensures uninterrupted
material supply to production department but also ensures the control from purchasing
to supply of finished goods to customers. So in this way it checks waste and wastage
whether it is about time, money or material.
3. To Check Embezzlement and Theft: Inventory control is to maintain necessary
records for protecting theft and embezzlement.
4. For the Success of Business: Customers satisfaction is very much important for
the success of business and customers satisfaction is directly related to the goods
supplied to them. If the goods supplied to customers are low in cost with good
quality at right time, it ensures the success of business. Inventory Control helps in
achieving this goal.
5. For the Life of the Business: In absence of Inventory Control there are many
risks of losses.
6. To Check National Wastage: Inventory control checks the wastage of nations
resources such as raw minerals, ores, etc.
13.3 ADVANTAGES OF MATERIAL CONTROLS
They are as follows:
1. It helps to minimise loss by obsolescence, deterioration damage etc.
2. It helps to protect against thefts, wastages, etc.
3. It helps managers in decision making.
4. To minimise capital investment in inventory.
5. To minimise cost of material purchasing.
6. To increase the storing capacity.
7. To maintain reasonable stocks of materials.
8. To facilitates regular and timely supply to customers.
9. To ensures smooth production operations.
10. To check national wastage.
13.4 ESSENTIAL FACTORS OF MATERIAL CONTROL
For the success of material control following factors should be kept in mind.
1. Proper Co-ordination: There should be a proper co-ordination between all the
departments who uses materials, such as purchase department, store department
inspection department, accounts department, production department and sales
department, so that there is neither a scarcity of material nor excess of material.
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Inventory Model
2. Centralisation of Purchasing: The important requirement of a successful inventory
control system is the appointment of intelligent and experienced personnel in
purchase department, these personnel should be expert in their field and negotiating
the deals.
3. Proper Scheduling: All the requisitions made by production department should be
scheduled, so material could be issued them by time and production should not be
stopped.
4. Proper Classification: Classification and identification of inventories by allotting
proper code number to each item and group should be done, to facilitate prompt
recordings, locating and dealing.
5. Use of Standard Forms: Standards forms should be used so that any information
can be send to all department within no time.
6. Internal Check System: Audit should be done by an independent party to check
effectiveness of inventory control system.
7. Proper Storing System: Adequate and well organised warehouse facilities with
well-equipped proper handling facilities must be there. Such facilities will reduce
the wastage due to leakage, wear and tear, sustained dust and mishandling of
materials. Store location should be in between the purchase department and
production department, so that cost of internal transportation can be minimised.
8. Proper Store Accounting: An efficient inventory control necessitates maintenance
of proper inventory records. Any typical information regarding any particular item
of inventory may be taken from such records.
9. Proper Issuing System: There should be a well organised issuing system of material
so that production process do not suffer.
10. Perpetual Inventory System: Daily stock position should be taken in this system.
11. Fixing of Various Stock Levels: Minimum stock level, maximum stock level, reorder
point, safety level etc, should be pre-determined to ensure the continuity of smooth
production.
12. Determination of Economic Order Quantity: Economic order quantity should
be determined to minimised the cost of inventory.
13. Regular Reporting System: The information regarding the stock position, materials
quantity etc, should be available to management regularly.
13.5 ABC ANALYSIS TECHNIQUE
Where there are a large number of items in the inventory, it becomes essential to have
an efficient control over all items of stores. However comparatively, great care should
be given to items of higher value. The movements of certain manufacturing concerns
may consist of a small number of items representing a major portion of inventory value
and a large number of items may represent a minor portion of inventory value. In such
cases, a selective approach for inventory control should be followed.
The most modern technique for controlling the inventory is a value item analysis popularly
known as ABC analysis which attempts to relate, how the inventory value is concentrated
among the individual item. This analysis is based on Paretos law. Paretos law states
that a fewer items of higher usage having high investment value should be paid more
attention than a bulk of items having low usage value and having a low investment in
capital. Under this analysis, all items of stores are divided into three main categories
A, B and C. Category A includes the most important items which represent about 60 to
70 per cent of the value of stores but constitute only 10 to 15 percent items. These items
are recognised for special attention category B includes lesser important items representing
an investment value of 20 to 25 percent and constitute a similar percentage of items of
stores. Category C consists of the least important items of stores and constituted 60 to
70 percent of stores items representing only a capital investment between 10 to 15
percent. Close attention is paid to items falling in category A and the best items of
category C. This classification of items into A, B and C categories is based upon value,
usage, rate and criticality of items and these variables are given due weightage in
categorising the items the term ABC implies Always Better Control.
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Quantitative Techniques
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Steps in ABC Analysis
Though no definite procedure can be laid down for classifying the inventories into A, B
and C categories as this will depend upon a number of factors such as nature and
varieties of items specific requirements of the business place of items in the production
etc. These factors vary from business to business to business and items to item. However,
following procedure can be followed:
(i) First, the quality of each material expected to be used in a given period should be
estimated.
(ii) Secondly, the money value of the items of materials, so chosen should be calculated
by multiplying the quantity of each item with the price.
(iii) Thirdly, the items should be rearranged in the descending order of their value
irrespective of their quantities.
(iv) Fourthly, a running total of all the values and items will then be taken and then the
figure so obtained should be converted into percentage of the gross total.
(v) Fifthly and lastly, it will be found that a small number of a first few items may
amount to a large percentage of the total value of the items. the management, then,
will have to take a decision as to percentage of the total value or the total number
of items which have to be covered by A, B and C categories.
Advantages of ABC Analysis
These are as follows:
1. Increase in Profitability: ABC analysis ensures a close control over the items of
A, B and C categories and due to control over A category items, the capital
investment over inventory reduces.
2. Other Uses: The technique of ABC analysis is based on the principle of
management by exception and can be used in areas like, distribution, sales, etc.
13.6 PROCESS OF INVENTORY CONTROL
For the convenience to understand the topic, the inventory control system may be divided
into three parts:
(i) Process of Purchasing of Materials.
(ii) Inventory Storing Procedure.
(iii) Process of Issue of Materials.
Process of Purchasing of Materials
Its steps are as follows:
1. Establishment of Purchase Department: A different department should be
established for purchase of materials. This department not only ensure the availability
of raw material but also, machines, stationary etc. are purchased by this department.
Purchase of materials should be centralised. All purchase should be under a single
department. Control centralised purchase is generally possible only in these industries,
which are located at a single place only and nature of production is of same type.
But if an industry has different production centre at different places, then it becomes
compulsory to follow decentralised purchase system. Thus it is compulsory to have
a complete knowledge about he nature of production, capacity of locality etc.
2. Preparation of Purchasing Budge: First of all the production target of the company
should be determined, on the basis of which the budget for purchasing of material
is prepared.
Following points should be kept in mind while preparing purchase budget:
(i) System to receive the materials.
(ii) The quantity and quality of the material according to the production
requirements.
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Inventory Model
(iii) Source of supply.
(iv) Present balance of materials and predictions to receive the materials ordered.
(v) Available cash for debtors.
(vi) On which date the indent is made by concerned department.
(vii) The conditions regarding the value of the material and rebate or discount on
it.
3. Preparation of Purchase Requisition Slip: The initiations of purchase begins
with the formal request from the various sections or departments to the purchase
department to order goods. The request is made in a prescribed form to the purchase
department by the departments needing the goods, authorising the purchase
department for procuring the goods as per the specifications given in the slip by the
date mentioned on it.
Specimen of a PRS
No. Pr ............................. Date: .............................
Cost Centre .............................
Katech Corporation Ltd
Purchase Requisition Slip
Pealse purchase for ............................. department
Item No. Code No. Description Quantity Required Remark
Required by ........................ Checked by ........................ Approved by
........................
For use of department issuing For use of Purchased department
this requisition
Item No. Quantity Consumption Quantity Purchase Supplier Delivery
in stock per day/month required order no. Date
Store keeper ........................
The requisitions are generally prepared in triplicate the original copy is sent to the
purchase department, the second copy is retained by the store or the department
initiating the purchase requisition and third are is sent to the costing department.
4. Obtaining the Tender: After the decision for purchase tenders are invited from
the prospective suppliers on studying the terms of supply and the quantity and
quality of the goods. Vendor is selected out of the tenderers for the comparative
study of tenderers. Following type of table may be used:
Type of Specimen of Tenderer Table
Katech Corporation Ltd.
Schedule of Quotations
Material ........................ Date ........................ S.No ........................
Name of Quantity Rate/Unit Terms Time of Mode of Remarks
the party offered delivery delivery
Store keeper ........................ Date ........................
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Quantitative Techniques
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5. Sending Purchase Order: After comparing the difference tenderers, the best
vendor is decided and the order of required material quotation is placed to him.
Purchase order is prepared in prescribed form by the purchase department and
sent to the vendor authorising him to supply a specified quantity and quality of the
materials at the stipulated terms at the time and place mentioned therein. Generally
purchase order has the following information:
(i) Name of the purchaser, serial no. and date of order.
(ii) Name of vendor and address.
(iii) Full details of materials quantity etc.
(iv) Value, rebate and terms of payment etc.
(v) Time and place of delivery.
(vi) Directions regarding packing and despatching.
(vii) Signature of purchaser.
(viii) Method of follow-up.
Specimen of a Purchase Order
Katech Corporation Ltd.
Cable ........................ S. No. ........................
To, Telephone ........................
M/s ........................ Date ........................
........................ Reg. No. ........................
........................ Our Ref. ........................
Please supply the following items in accordance with the terms and conditions
mentioned herein ........................
Item Description Quantity Price Unit Amount Remarks
No.
Terms and conditions:
Delivery at ........................ Sales Tax ........................
Discount ........................ Freight ........................
Excise Duty ........................ Terms of Payment .................
For Katech Corporation Ltd.
(Signature)
Acknowledgement
Kindly acknowledge the receipt of this order:
Received on ........................
Date of Delivery ........................
Challan ........................ Date ........................
Invoice No. ........................ Date ........................
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Inventory Model
Specimen of Goods Received Note
Katech Corporation Ltd.
Goods Received Note
From
M/s (Supplier) ........................ No. VRN ........................
........................ Date ........................
........................
6. Receiving and Inspection of Materials: When goods arrive they are taken delivery
of and parcels or packet unpacked and the contents of the packages are checked
by the receiving clerk with the order placed by the purchasing department to the
vendor. After proper checking goods should be delivered to the laboratory or
inspection department. Goods received note is prepared here.
7. Returning the Materials: On checking if any discrepancy is found as regards to
quality and quantity. It should immediately be referred to the purchasing department
so that the discrepancy may be adjusted or steps may be taken to return the defective
or damaged goods in exchange of proper quality material on credit note.
8. Payment of Purchased Material: After required inspection etc. final report is
sent to purchase officer, who sent it to payment officer after placing required
entries in the report. After checking the ledger, payment officer authorise accounts
clerk for payment.
Process of Issue of Materials
To control the issue of materials following procedure is followed:
1. Issue of Materials: When a foreman of any production department needs materials
from store, he prepares three copies of goods requisition slip. If the material is
costly and important then factory manager also sign these copies. One copy of
requisition slip is kept by foreman itself and other two copies are given to stores.
According to the requisition slip the store-keeper issues the materials to foreman.
Foreman signs the two copy of stores requisition slips to verify that he has received
the materials. then storekeeper makes the required entries in the bin card. After
signing both the copies of requisition slip storekeeper sent one copy to accountant
of store. After recording the issue of materials, store accountant sent this copy to
costing department.
Sigma Corporation Ltd.
Material Requisition Slip
To .......................... No ..........................
.......................... Date ..........................
Deliver following material to .......................... Fore order No. ..........................
and Job No. ..........................
Goods Quantity No. of
Packets etc.
Order
No.
Delivery
Note No.
Demanded
by
department
Remarks Inspection
Descrip-
tion
Code Qty.
rejected
Reason
Carrier Received by Store A
ledger
A/c &
ref.
Inspectors signature
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Quantitative Techniques
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Sigma Corporation Ltd.
Materials Requisition Slip
Job No. ....................... Material Requisition Slip No. .......................
Department ....................... Date .......................
Please send the following materials.
Foreman .................... Bin No. ....................
Store Ledger Folio .................... Returned ....................
Storekeeper .................... Cost Clerk ....................
* Both these entries are to be done by cost clerk.
4. Inter Departmental Transfer of Materials: (For details see Inventory Storing
Procedure)
ABC Co. Ltd.
Materials Transfer Slips
Issuing Department .................... Serial No. ....................
Receiving Department .................... Date ....................
Please receive the following materials.
.................... .................... ....................
Foreman Transfer Foreman Transferee Cost Clerk
* To be filled by Cost Clerk.
5. To Prepare Material Abstract: (For details see Inventory Storing System).
Sigma Corporation Ltd.
Material Abstract
Week ending on ....................
Quantity Unit Description Code No. Office use only
Rate
Amount
Issued by
.
Remarks
Authorised
by .
Store
Ledger
No..
Issued
by
Received
by .
Cost office Ref.
No
Price by
Quantity Code or Symbol Description of Materials Rate* Amount*
Quantity Code or
Symbol
Description
of Materials
Rate* Amount Reason for
Transfer
Materials Requisition
Slips
Job Numbers
Slip No. Amount N
1
N
2
N
3
N
4
N
5
N
6
Total
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Inventory Model
6. Periodical Checking of Materials: To control the issue of materials this is very
much necessary that bin cards, store control records and store ledgers are checked
regularly and if any discrepancy is found, proper corrective actions should be taken.
7. Physical Stock Checking of Materials: Physical stock checking in stores should
be done to prevent materials loss, material damage and theft. This checking can be
done weekly, monthly etc. Physical stock checking means the verification of actual
quantity in stores. This checking should be done surprisingly or at random basis. If
any discrepancy is found and corrective actions should be taken to reduce or eliminate
them the possible reasons may be wear and tear of materials, absorption of moisture,
evaporation, waste, breakage, theft or wrong recordings. This is assumed to be the
best method of inventory control.
Inventory Storing Procedure
Inventory storing procedure is an important part of inventory control management or
materials management. Following procedure is followed in inventory storing:
1. Receipt of Material in Store: The storekeeper receives the material alongwith
the goods received note from the receiving section. The material are then classified
according to the nature of the material. The material should be arranged in bins
especially meant for the materials. A bin card is attached with each bin or rack
displaying the identification mark or code, minimum, maximum and ordering levels
of materials and receipts, issues and balance of materials in hand, so that the exact
position may be known at any time whenever desired.
Specimen of Bin Card
ABC Co. Ltd.
BIN CARD
Description ......................... Maximum Level .........................
Material code ......................... Minimum Level .........................
Location code ......................... Danger Level .........................
Bin No. ......................... Ordering Level .........................
Store Ledger Folio No. ......................... Re-order Quantity .........................
2. Issue of Material from Store: The store undertakes the responsibility of issuing
the material to the using departments. In order to prevent malpractices, the materials
must be issued only against the properly authorised requisition slips. These requisition
must be properly checked and scrutinised to avoid overissue of materials. All
requisition received must be posted immediately or daily on the bin cards and on
the stock control cards. Generally three copies of requisition slips are prepared
first two copies are given to the stores and third copy kept with the demanding
department. Store incharge keeps one copy of requisition slip for himself and other
copy he sent to accounts department.
Receipts Issues Balance Audit
Date G.R.N.
No.
Qty. Date Rege. Qty. Qty. Date Initial
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3. Return of Material to Store: If a department uses less material to its demand then
it return the material to stores. Goods return slips are sent along with the materials.
The same specifications and details of materials are given in goods return slips as
they were mentioned in requisition slips. Three copies of goods return slips are
prepared. First two copies are sent to stores department and third copy is kept by
the goods returning department itself. Store keeper sent one copy to accounts
department. The colour of both requisition slip and return slips are kept different to
identify them easily.
4. Transfer of Material: The transfer of materials from one department to another
department is generally not appreciated, because it creates problems in material
control process. But sometime when there is emergency, the transfer of material
from one department to other department is allowed. The department transferring
the materials makes four copies of material transfer slips. First copy is sent to the
needy department along with material. Second and third copies are sent to stores
department and accounts department for their information.
5. Material Abstract: In big industries where the large quality of materials are received,
issued and transferred daily, material abstract is prepared weekly or fortnightly
to control the inventory. A physical verification of quantity in stores and other
departments is done by material abstract.
It any discrepancy is found in physical verification of quantity in store or other
department. It is brought into the notice of top management this type of check
plays a very important role in inventory control. Thus material abstract is a summary
of materials received, issued and transferred, for a given time period.
Check Your Progress 13.1
1 What are the main objectives of having Inventory Control?
2. Discuss ABC analysis techniques.
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson suxb-head thoroughly you will get your
answers in it.
(c) This Check Your Progress will help you to understand the lesson
better. Try to write answers for them, but do not submit your answers
to the university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
13.7 MINIMUM STOCK LEVEL
The minimum stock level represents the lowest quantitative balance of materials in hand
which must be maintained in hand at all times so that the assembly time may not be
stopped on accounts of non-availability of materials.
The minimum stock level may be calculated by the use of the following formula:
Minimum Stock Level = Re-ordered level (Average rate of consumption Lead time)
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Inventory Model
Factors Affecting Minimum Stock Level
These are as follows:
1. Lead Time: This is the time lag required to obtain the delivery of fresh supplies. If
this time is more than the minimum inventory level will be high.
2. Inland or Importable Inventory: If the material is to be import then the lead time
will be more implying minimum inventory level is to be kept high.
3. Availability of Inventory: If the material is not easily available then the minimum
stock level to be kept high.
4. Possibility of Interruption in Production: If the production process is smooth
then it is easy to determine the minimum stock level, but, if production is not smooth
due to some reasons such as strike, power, etc. Then it is not easy to find out exact
level of minimum stock.
5. Nature of the Material: Materials that are regularly stored must maintain a minimum
level. If on customers order a special item of material is to be purchased, no
minimum level is required to be fixed for that.
6. The Maximum Time Required from the Date of Order to the Date of Actual
Delivery: It is known as the Lead Time. The longer the lead time the lower is the
minimum level, provided the reorder point remains constant.
7. Rate of Consumption of the Material: The minimum rate, the maximum rate and
the normal rate of consumption are to be taken into consideration.
13.8 MAXIMUM STOCK LEVEL
Maximum stock level represents the maximum quantity of inventory which can be kept
in store at any time. This quantity is fixed keeping in view of disadvantages of over-
stocking.
Computation of Maximum Stock Level: The following formula is used:
Maximum Level = Re- order level + Re-order quantity Minimum consumption
Minimum Re-order period
Or
= Re-order level + Re-order Quantity (Average rate of usage Lead Time)
Factors Affecting the Maximum Stock Level
These are as follows:
1. Rate of consumption of the material.
2. The lead time.
3. The maximum requirement of the material at any point of time.
4. Nature of the Material: The materials which deteriorate quickly are stored as
minimum as possible.
5. Storage space available for the material.
6. Price Economy: Seasonal materials are cheap during the harvesting reasons. So
maximum purchase is made during that season and as a result the maximum level
is high.
7. Cost of storage and insurance.
8. Cost of the material and the finance available. When the material is costly the
maximum level is likely to be relatively low. If the price is likely to go up maximum
level should be high.
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Quantitative Techniques
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9. Inventory Turnover: In case of slow moving materials the maximum level is low
and in case of quick moving material it is high.
10. Nature of Supply: If the supply is uncertain the maximum level should be as high
as possible.
11. Economic Order Quantity (EOQ): Maximum level largely depends in economic
order quantity, because unless otherwise contra indicated the economic order
quantity decides the quantity ordered and hence decides the maximum level.
13.9 ORDERING LEVEL OR RE-ORDER LEVEL
This is the fixed point between the maximum stock level and minimum stock levels at
which time the order for next supply of materials from vendor is to be done.
This is mainly depends upon two factors:
1. Rate of Maximum usage.
2. Maximum Re-order period or Maximum Delivery Time.
Computation of Ordering Level or Re-order Level. The formula is as follows:
Ordering level or Re-order level
= Maximum usage per day Maximum Re-order period or Maximum Delivery Time
Or
= Maximum Level + (Normal usage of Average rate of consumption Average
Re-order period or Average Delivery Time)
Assumptions of Re-order point
1. The time of delivery remains fixed.
2. Load time remains fixed.
3. The average rate of consumption of materials does not changes.
13.10 AVERAGE STOCK LEVEL
Average stock level is the average quantity of stock for a given time of period.
Computation of Average Stock Level. The formula is as follows:
Average stock level =
2
1
[Minimum Level + Maximum level]
or Average stock level = Minimum level +
2
1
[Re-order Quantity]
or Average stock level =
2
quantity order - Re ) level Minimum ( 2 +
13.11 DANGER LEVEL
In addition to the minimum, the maximum and recording levels there is another level
called Danger Level. This level is below the minimum level and when the actual stock
reaches this level immediate measure is to be taken to replenish stock. When the normal
lead time is not available, the purchase quantity cannot be accurately determined. So, it
is fixed in such a way that the actual stock does not fall below danger level by the actual
lead time. This means, that the minimum level contains a cushion to cover contingencies.
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Inventory Model
Some concerns fix danger level below the re-ordering level but above the minimum
level. If action for purchase is taken as soon as the stock reaches the re-ordering level,
the danger level bears no importance except that, when the stock reaches the danger
level (but not yet the minimum level) a reference may be made to the purchase department
to ensure that delivery is received before the actual stock reaches the minimum level.
When the danger level is fixed below the minimum, it being reaches by the actual stock,
the defect in the system is identified and corrective measure becomes necessary. When
the danger level is fixed above the minimum, it being reached by the actual stock, preventive
measure is to be taken so that the stock may not go below the minimum level.
It is the point or level of stock which the material stock should never be allowed to
reduce. It is generally a level below the minimum level. As soon as the stock of material
reaches this point, urgent action is needed for replenishment of stock.
Determination of Danger Level. This done as follows:
Danger Level = Two days of normal consumption
Re-order Quantity: The quantity which is ordered at re-order point is called re-order
quantity. This is determined on the basis of minimum stock level and maximum stock
level. This is normally used in notation of economic order quantity.
Check Your Progress 13.2
1 Differentiate:
(a) Minimum stock level and Maximum stock level
(b) Average Stock level and Danger Stock level
2. What is Re-order level? Write assumptions for ascertaining Re-order point.
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Check Your Progress will help you to understand the lesson
better. Try to write answers for them, but do not submit your answers
to the university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Numerical Solved Examples
Example 1: Calculate (i) Re-order Level; (ii) Minimum Level; and (iii) Maximum Level
for each Component A and from the following information:
Normal Usage 50 Units per week each
Minimum Usage 25 Units per week each
Maximum Usage 75 Units per week each
Re-order Quantity A: 300 Units; B : 500 Units
Re-order Period A : 4 to 6 weeks; B : 2 to 4 weeks
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Quantitative Techniques
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Solution:
(i) Re-order Level = Maximum Usage Maximum Re-order Period
For Component A = 75 6 = 450 Units
For Component B = 75 4 = 300 Units
(ii) Minimum Level = Re-order Level (Normal Usage Average Re-order Period)
For Component A = 450 (50 5) = 200 Units
For Component B = 300 (50 3) = 150 Units
Note: Average Re-order Period for Component A =
2
6 4 +
= 5
Average Re-order Period for Component B =
2
4 2 +
= 3
(iii) Maximum Level = (Re-order Level + Re-order Quantity (Minimum Usage
Minimum Re-order Period)
For Component A = (450 + 300) (25 4)
= 650 Units
For Component B = (300 + 500) (25 2)
= 750 Units
Example 2: From the following particulars, calculate: (a) Re-order Level (b) Minimum
Level, (c) Maximum Level, (d) Average Level:
Normal Usage 100 units per day
Minimum Usage 60 units per day
Maximum Usage 130 units per day
Economic Order Qunatity 5,000 units
Re-order Period 25 to 30 days
Solution:
(a) Re-order Level = Maximum Usage Maximum Re-order Period
= 130 30 = 3,900 units
(b) Minimum Level = Re-order Level (Normal Usage Average Re-order Period)
= 3,900 (100 27.5) = 1.150 units
Note: Average Re-order Period =
2
30 25+
= 27.5 days
(c) Maximum Level = (Re-order Level + Re-order Quantity Or EOQ)
(Minimum Usage Minimum Re-order Period)
= (3,900 + 5,000) 60 25)
= 7,400 Units
(d) Average Level =
2
Level Maximum Level Minimum +
= 27.5
=
2
400 , 7 150 , 1 +
= 4, 275 Units
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Inventory Model
Example 3: A manufacturer buys costing equipment from out side suppliers Rs. 30 per
unit. Total annual needs are 800 units. The following data is available:
Annual Return on Investment 10%
Rent, Insurance etc. per unit per year Re. 1
Cost of Placing an order Rs. 100
Determine Economic Order Quantity.
Solution:
EOQ =
H
p
C
C R 2
Where, EOQ = Economic Order Qunatity
R = Annual Requirement of Inventory
C
p
= Cost of placing an order
C
H
= Annual holding Or Carrying cost per unit per year.
Given : R = 800 units, C
p
= Rs. 100, C
H
= Rs. 4
EOQ = 000 , 40
4
00 1 00 8 2
=
= 200 Equipments
= 10 % of Rs. 30 + Re 1 = Rs. 3 + Re. 1 = Rs. 4.
Example 4: Fair Deal Limited uses Rs. 1,00,000 materials per year. The administration
cost per purchase in Rs. 100 and the carrying cost is 20% of the average inventory. The
company has a purchase policy on the basis of economic order quantity but has been
offered a discount of 0.5% in the case of purchase five times per year. Advise the
company whether it should accept new offer or not?
Solution: Given: R(in Rs.) = 1,00,000, C
p
= Rs. 100, P = Re. 1.00,
C
H
= 1.00 20% = Re. 0.20
E.O.Q. (in Rs.) =
H
p
C
C R 2
=
0.20
00 1 000 , 00 , 1 2
= 000 , 00 , 00 , 10
= Rs. 10,000
Total Inventory Cost in case of each order is placed of Rs. 10,000:
(i) Cost of Materials Rs. 1,00,000
(ii) Ordering Cost =
100
10,000
1,00,000
C
q
R
P
0
=
Rs. 1,000
(iii) Carrying Cost = 2 . 0
2
10,000
C
2
q
H
0
= Rs. 1,000
Total Cost Rs, 1,02,000
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Quantitative Techniques
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Total Cost in case of each order is placed or Rs. 19,900 i.e., Rs. 20,000 0.5% discount:
(i) Cost of Materials (19,900 5) Rs. 99,500.00
(ii) Ordering Cost =
p
0
C
q
R
=
100
900 , 19
500 , 99
500.00
(iii) Carrying Cost =
H
0
C
2
q
=
2
900 , 19
0.199 1,980.05
Total Inventory Cost 1,01,980.05
[Note: Here P = Re. 1, 0.5% or Re. 1 = Re. 1 = Re. 0.95, C
H
= 0.95 20% = Re. 0.199]
On the basis of above analysis the offer should be accepted as it will save
Rs. 1,02,000 1,01,980.05 = Rs. 19.95.
Example 5: A pharmaceutical factory consumes annually 6,000 kgms. of a chemical
costing Rs. 5 per kgm. Placing each order costs Rs. 25 and the carrying cost is 6% per
year per kgm. of average inventory. Find the Economic Order Quantity and the total
inventory cost.
The factory works for days in a year. If the procurement time is 15 days and safety
stock 200 kgms., find the re-order point and maximum and average inventories levels.
If the supplier offers a discount of 5% on the cost price for a single order of annual
requirement, should the factory accept it?
Solution: Given: R = 6,000 kgms.; P = Rs. 5 per kgm. C
p
= Rs. 25; CH = 6% per kgm.
per year of average inventory; No. of working days in a year = 300; Procurement time
= 15 days; Safety Stock = 200 kgms.
E.O.Q. =
H
p
C
C R 2
=
30 .
000 , 00 , 3
.30
5 2 000 , 0 6 2
=
= 000 , 00 , 10 = 1,000 kgms.
C
H
= 6% of Average inventory i.e.,
100
6 5
= Re. 30
T.I.C =
+
H
0
H
0
C
2
q
C
q
R
P) (R
=
+ 30 .
2
000 , 1
25
000 , 1
000 , 6
) 5 000 , 6 (
= 30,000 + 150 + 140 = Rs. 30,000
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Inventory Model
Re-order Point =
Stock Safety t time Procuremen
days Working of No.
R
+
=
6, 000 15
200
300 1
+
= 300 + 200 = 500 kgms.
Maximum Stock Level = (Re-order Point + Re-order Quantity or EOQ)
(Minimum Usage Minimum Re-order Period)
= (500 + 1,000) (20 15)
= 1,500 300 = 1,200 kgms.
or Maximum Stock Level = q
0
+ Safety Stock
= 1,000 + 200 = 1,200 kgms.
Minimum Stock Level = Re-order Level (Normal usage Average Re-order period)
= 500 (20* 15)
= 500 300 = 200 kgms.
* Normal Usage =
days Working of No.
R
=
300
6,000
= 20 kgms.
Average Stock Level =
+
2
Level Stock Maximum Level Stock Minimum
=
2
400 , 1
2
200 , 1 200
=
+
= 700 kgms.
Or Average Stock Level=
2
q
0
+ Safety Stock
=
2
1,000
+ 200 = 700 kgms.
TIC if a single order of 6,000 kgms is placed:
Given: P = Rs. 5 5% of Rs. 5 i.e., 5 .25 = Rs. 4.75
C
H
= 6% of Average Inventory i.e., 4.75
100
6
= Re. 285;
C
p
= Rs. 25; R = 6,000 kgms; q
0
= 6,000 kgms.
TIC =
+
H
0
p
0
C
2
q
C
q
R
P) (R
=
+ 25 .
2
000 , 6
25
000 , 6
000 , 6
) 75 . 4 000 , 6 (
= 28,500 + 25 + 855 = Rs. 29,380.
The company should accept the offer of 5% discount in purchase price by placing a
single order of 6,000 kgms. because the total inventory cost in this case is less by Rs.
30,300 Rs. 29,380 = Rs. 920 as compared to total inventory cost without discount
offer.
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Quantitative Techniques
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Example 6: A trading company expects to sell 15,000 mixers during the coming year.
The cost per mixer is Rs. 200. The cost of storing a mixer for 1 year is Rs. 5 and the
ordering cost is Rs. 540 per order. Find the Economic Order Quantity. Would it be
profitable to the company to accept a discount offer of 30% on a single order per year.
The storing cost continuing to be Rs. 5 per mixer per year.
Solution:
E.O.Q =
H
P
C
C R 2
Given R = 15,000 units, C
P
= 540, C
H
= Rs.
E.O.Q =
5
540 000 , 15 2
= 000 , 40 , 32 = 1,800 units
Total Inventory Cost if q
0
= 1,800 units:
T.I.C =
+
H
0
P
0
C
2
q
C
q
R
P) (R
=
+ 5
2
800 , 1
540
800 , 1
000 , 15
) 200 000 , 15 (
= 30,00,000 + 4,500 + 4,500
= Rs. 30,09,000
T.I.C. if a single order is placed at 30% discount in price:
T.I.C =
+
H
0
P
0
C
2
q
C
q
R
P) (R
=
+ 5
2
000 , 15
540
000 , 15
000 , 15
) 140 000 , 15 (
= 21,00,000 + 540 + 37,500
= Rs. 21,38,040
The company should accept the offer of 30% discount as it will save Rs. 30,09,000
21,38,040 = Rs. 8,70,960.
Example 7: A manufacturer requires 1,000 units of a raw material, per month. The
ordering cost is Rs. 15 per order. The carrying cost in addition to Rs. 2 per unit, is
estimated to be 15% of average inventory per unit per year. The purchase price of the
raw material is Rs. 10 per unit. Find the Economic Lot Size and the total cost.
The manufacturer is offered as 5% discount in purchase price for order for 2,000 units
or more but less than 5,000 units. A further 2% discount is available for order of 5,000 or
more units. Which of the three ways of purchase he should adopt?
Solution:
Given: R = 1,000 units per month or 12,000 units per annum;
C
p
= Rs. 15 per order;
467
Inventory Model
P = (i) Rs. 10 per unit in case of order for less than 2,000 units.
(ii) Rs. 10 5% of Rs. 10 i.e., Rs. 9.50 in case of order for 2,000 or more
units but less than 5,000 units.
(iii) Rs. 10 7% of Rs. 10 i.e., Rs. 9.30 in case of order for 5,000 or more
units.
C
H
= (i) Rs. 2 + 15% of Rs. 2 of Average inventory i.e., Rs. 2 + 1.50 = Rs. 3.50
per unit per annum in case of order for less than 2,000 units.
(ii) Rs. 2 + 15% of Rs. 9.50 = Rs. 2 + 1.425 = Rs. 3.425 per unit per
annum in case of order for 2,000 units or more but less than 5,000 units.
(iii) Rs. 2 + 15% of Rs. 9.70 = Rs. 2 + 1.395 = Rs. 3.395 per unit per
annum in case of order for 5,000 or more units.
Alternative I: In case of order for less than 2,000 units:
E.O.Q. (q
0
) =
H
P
C
C R 2
=
50 . 3
000 , 60 , 3
50 . 3
15 000 , 12 2
=
= 857 , 02 , 1 = 320.7 or 321 units
T.I.C. =
+
H
0
P
0
C
2
q
C
q
R
P) (R
=
3 +
+ 50 .
2
321
15
321
000 , 12
) 10 000 , 12 (
= 1,20,000 + 561 + 562
= Rs. 1,21,123 (nearest to Rupee)
Alternative II: In case of order for 2,000 or more units but less than 5,000 units:
E.O.Q. (q
0
) =
H
P
C
C R 2
=
425 , 3
000 , 60 , 3
3,425
5 1 000 , 2 1 2
=
= 45 . 109 , 05 , 1 = 324 units
As the Economic Lot size (324 units) is less than minimum ordering quantity (2,000
units), the company should order at least 2,000 units to get 5% discount in purchase price
Thus, T.I.C. if q
0
= 2000 units:
T.I.C. =
+
H
0
P
0
C
2
q
C
q
R
P) (R
=
+ 425 . 3
2
000 , 2
15
000 , 2
000 , 12
) 50 . 9 000 , 12 (
= 1,14,000 + 90 + 3,425 = Rs. 1,17,515.
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Quantitative Techniques
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Alternative III: In case of orders of 5,000 or more units:
Economic Lot size (q
0
) =
H
P
C
C R 2
=
395 . 3
000 , 60 , 3
3.395
15 000 , 12 2
=
= 29 . 038 , 06 , 1 = 325.6
Or = 326 units
As the Economic Lot Size (326 units) is less than the minimum ordering quantity 5,000
units, the company should order at least 5,000 units to get 7% discount in purchase price.
Thus T.I.C. if q
0
= 5,000 units:
T.I.C. =
+
H
0
P
0
C
2
q
C
q
R
P) (R
=
+ 395 . 3
2
000 , 5
15
000 , 5
000 , 12
) 30 . 9 000 , 12 (
= 1,11,600 + 36 + 8,487.50 = 1,20,123.50
On the basis of above analysis we find that the T.I.C. is minimum (Rs. 1,17,515) in
second alternative. Hence the company should adopt this alternative.
13.12 LET US SUM UP
In this chapter the more emphasis is given on the role of inventory control. The certain
technique such as ABC Analysis have been illustrated with the help of specimen format
and illustration.
13.13 LESSON-END ACTIVITIES
1. Successful well-organised business relies heavily on the inventory control to make
certain they have adequate inventory levels to satisfy their customers. As we know
that inventory control offers comprehensive reporting capabilities to keep you on
top of inventory status. Take any manufacturing company like Pepsi or Coca-Cola
which can help to bring about the creation of new or improved purchasing policies,
sales policies, pricing methods and even enhanced customer service.
2. Take a case of a automobile industry where the inventory control had played a vital
role like quickly locate parts, product lines, purchase orders, account payable vendor
and general ledger account.
13.14 KEYWORDS
Lead Time : Time between ordering & receiving the good.
Inventory Control System: Is a technique to maintain inventory at a desired level.
Maximum Level : Level of inventory beyond which inventory is not
allowed.
Minimum Level : Level of inventory beyond which inventory is allowed.
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Inventory Model
Opportunity Cost : The next best alternative cost.
Reorder Level : The stock level which is sufficient for the lead time
consumption.
13.15 QUESTIONS FOR DISCUSSION
1. Write True or False against each statement:
(a) Inventory can be defined as the state of goods.
(b) ABC analysis ensure the close control over the items of A, B and C categories.
(c) Head line represent the maximum quantity of inventory.
(d) Material control help to minimise loose by obsolescence.
2. Write short notes on following:
(a) Re-order level
(b) Minimum stock level
(c) Maximum stock level
(d) Danger level
(e) Average stock level
(f) EOQ
3. Briefly comment on the following statements:
(a) Modem technique be controlling the inventory in a value item analysis known
on ABC.
(b) When the material is costly the maximum level is likely to be relatively low?
(c) Danger level is fixed above the minimum.
(d) There should be well organised issuing system of material.
13.16 TERMINAL QUESTIONS
1. What do you understand by inventory control?
2. Discuss the objectives of inventory control.
3. Discuss the various factors which determine the level of inventory control.
4. What is an ABC analysis? What are the steps in ABC analysis?
5. Explain the process of inventory control with example.
6. In manufacturing a commodity two components X and Y are used as follows:
Normal usage 100 units per week each
Minimum usage 50 units per week each
Maximum usage 150 units per week each
Ordering Quantities X : 600 units; Y : 1,000 units
Delivery Period X : 4 to 6 weeks
Y : 2 to 4 weeks
7. From the following information determine the Re-order point, Minimum Stock Level
and Maximum Stock Level:
(a) Minimum consumption 500 units per day
(b) Maximum consumption 875 units per day
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Quantitative Techniques
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(c) Normal consumption 625 units per day
(d) Re-order Quantity 8,800 units
(e) Minimum period for receiving goods 7 days
(f) Maximum period for receiving goods 15 days
(g) Normal period for receiving goods 10 days
8. A manufacturers requirement for raw materials is 12,800 kgms. per annum. The
purchase price of it is Rs. 50 per kgm. Ordering cost is Rs. 100 per order and
carrying cost is 8% of average inventory. The manufacturer can procure its annual
requirement of raw material higher in one single lot or by ordering of 400, 800, 1600
or 3,200 kgms. quantity. Find which of these order quantities is the Economic Order
Quantity using tabular method.
9. The annual requirement of a product in a firm is 1,000 units. The purchase price
per unit is Rs. 50; ordering cost is Rs. 150 per order and the carrying cost per unit
of average of inventory is 15%. The firm can procure its annual requirement either
in one single lot or in various alternative losts of 100, 200, 250 or 500 units. Determine
the Economic Order Quantity by Graphical method and with the help of the three
curves, show at EOQ level ordering and carrying costs are equal and total cost is
minimum.
10. Calculate Economic Order Quantity from the following information by using Tabular
method, Graphical method and mathematical method:
Annual usage 10,000 units
Buying cost per order Rs. 10
Cost per unit Rs. 50
Cost of carrying inventory 10% of Average Inventory
11. A company requires annually 12,000 lbs. of a chemical which costs Rs. 250 per lb.
Placing each order costs the company Rs. 22.50, and the carrying cost is 15% of
the cost of average inventory per annum.
(i) Find Economic Order Quantity and total expenses on the chemical.
(ii) If in addition, the company decides to maintain a stock of 300 lbs. find the
maximum as well as average inventory.
12. Calculate the Economic Order Quantity from the following information. Also state
what will be the number of orders during the whole year:
Requirement of material per annum 1,250 units
Cost of material per unit Rs. 200
Cost of placing per order Rs. 100
Holding cost per unit per annum 8% of average inventory.
13. A manufacturers requirement for a raw material is 2,000 units per year. The
ordering costs are Rs. 10 per order while carrying costs are 16 paise per year per
unit of a average inventory. The purchase price of raw material is Re. 1 per unit.
(a) Find the Economic Order quantity and the total inventory cost.
(b) If a discount of 5% is available for orders of 1,000 units, should the
manufacturer accepts this offer?
(The carrying cost per unit per annum remains unchanged.)
14. A business unit expect to sell 60,500 units of a commodity during the coming year.
The ordering cost per order is Rs. 840 and the cost per unit of the commodity is Rs.
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Inventory Model
200. The carrying cost per unit per annum is 0.5% of the average inventory. Find
out Economic Order Quantity. Would it be profitable to the business unit to accepts
a discount offer of 1% on a single order per year. In this case the storing cost per
unit per year will increase to 0.75% of the average inventory.
15. A manufacturer requires 2,500 units of a raw material per month. The ordering
cost is Rs. 20 per order. The carrying cost in addition to Rs. 3 per unit, is estimated
to be 10% of average inventory per unit per year. The purchase price of the raw
material is Rs. 4 per unit. Find the Economic Lot Size and the Total Inventory Cost.
The manufacturer is offered a discount in purchase price for order of 1,000 units or
more but less than 2,000 units. A further discount is available for orders of 2,000 or
more units. Which of the three ways of purchase he should adopt?
13.17 MODEL ANSWERS TO QUESTIONS FOR
DISCUSSION
3. (a) True (b) True (c) False (d) True
13.18 SUGGESTED READINGS
M.P. Gupta & J.K. Sharma, Operation Research for Management, National Publishing
House.
Mustafi C.K., Operation Research Methods & Practice, Wiley Eastern Ltd.
Peterson & E.A. Silver, Decision System for Inventory Management Production
Planning, Wiley New York.
Stan M.K.D.W. Miller, Inventory Control Theory & Practices, Prentice Hall of India.
Tana H.A., Operation Research Introduction, Macmillan Publishing Company.
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14.0 AIMS AND OBJECTIVES
In this lesson we are going to discuss about the various strategies of players. This is done
through games theory. A game refers to the situation in which two three players are
competing.
14.1 INTRODUCTION
Game theory applies to those competitive situations which are technically known as
competitive games or in general known an games. As the game is a competition involving
two or more decisions makers each of whom is keen to win. The basic aim of this
chapter is to study about how the optimal strategies are formulated in the conflict. Thus
we can say that game theory is not related with finding an optimum or winning strategy
for a particular conflict situation. Afterwards we can say that the theory of game is
simply the logic of rational decisions. After reading this unit, you should be able to know
how to take decision under the cut-throat competition and know that outcome of our
business enterprise depends on what the competitor will do.
In todays business world, decisions about many practical problems are made in a
competitive situation, where two or more opponents are involved under the conditions of
LESSON
14
GAME THEORY
CONTENTS
14.0 Aims and Objectives
14.1 Introduction
14.2 Two-person Zero-sum Game
14.3 Pure Strategies: Game with Saddle Point
14.4 Mixed Strategies: Games without Saddle Point
14.5 Dominance Property
14.6 Solving Problem on the Computer with TORA
14.7 Solving LP Model Games Graphically using Computer
14.8 Let us Sum Up
14.9 Lesson-end Activity
14.10 Keywords
14.11 Questions for Discussion
14.12 Terminal Questions
14.13 Model Answers to Questions for Discussion
14.14 Suggested Readings
473
Game Theory
competition and conflict situations. The outcome does not depend on the decision alone
but also the interaction between the decision-maker and the competitor.
The objective, in theory, of games is to determine the rules of rational behaviour in game
situations, in which the outcomes are dependent on the actions of the interdependent
players. A game refers to a situation in which two or more players are competing. A
player may be an individual, a group or an organization. Game Theory has formulated
mathematical models that can be useful in decision-making in competitive situations. To
get a better insight of the concept, we consider an example of a simple game.
Let us assume that there are only two car manufacturers, company A and company B.
The two companies have market shares for their product. Company A is planning to
increase their market share for the next financial year. The vice-president of company
A has come up with two strategies. One strategy is to modify the outer shape of the car
and to advertise on TV. Company B, knowing that if these strategies are adopted by
company A, it may lead to decrease in its market share, develops similar strategies to
modify the shape of their car and to advertise on TV. Table 14.1 below, gives the pay off
if both the companies adopt these strategies.
Table 14.1: The Pay Off if Both Companies Modify Shape & Advertise on TV
The pay off given is with respect to company A and represents company A. Company
Bs pay off is the opposite of each element. For example, it means that for modification
strategy, Company A wins 4 and company B loses 4.
In a game, each player has a set of strategies available. A strategy of a player is the list
of all possible actions (course of action) that are taken for every pay-off (outcome). The
players also know the outcome in advance. The players in the game strive for optimal
strategies. An optimal strategy is the one, which provides the best situation (maximum
pay-off) to the players.
Payoff Matrix: Company A has strategies A
1
, A
2
,, A
m
, and Company B has strategies
B
1
,B
2
,.,B
n
. The number of pay-offs or outcomes is m n. The pay-off a
mn
represents
company As gains from Company B, if company A selects strategy m and company B
selects strategy n. At the same time, it is a loss for company B (a
mn
). The pay-off
matrix is given (Table 14.2) with respect to company A.
The game is zero-sum because the gain of one player is equal to the loss of other and
vice-versa.
Table 14.2: Pay-off Matrix
Company B Strategies
B
1
B
2
B
3
.. B
n
A
1
A
2
A
3
.
.
a
11
a
21
a
31
.
.
a
12
a
22
a
32
.
.
a
13
a
23
a
33
.
.
..
..
..
..
..
a
1n
a
2n
a
3n
.
.
Company A
Strategies
A
m
a
m1
a
m2
a
m3
.. a
mn
Company B
Modify shape Advertise
Modify shape 4 6
Company A Advertise 8 5
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14.2 TWO-PERSON ZERO-SUM GAME
In a game with two players, if the gain of one player is equal to the loss of another player,
then the game is a two person zero-sum game.
A game in a competitive situation possesses the following properties:
i. The number of players is finite.
ii. Each player has finite list of courses of action or strategy.
iii. A game is played when each player chooses a course of action (strategy) out of
the available strategies. No player is aware of his opponents choice until he decides
his own.
iv. The outcome of the play depends on every combination of courses of action. Each
outcome determines the gain or loss of each player.
14.3 PURE STRATEGIES: GAME WITH SADDLE POINT
The aim of the game is to determine how the players must select their respective
strategies such that the pay-off is optimized. This decision-making is referred to as the
minimax-maximin principle to obtain the best possible selection of a strategy for the
players.
In a pay-off matrix, the minimum value in each row represents the minimum gain for
player A. Player A will select the strategy that gives him the maximum gain among the
row minimum values. The selection of strategy by player A is based on maximin principle.
Similarly, the same pay-off is a loss for player B. The maximum value in each column
represents the maximum loss for Player B. Player B will select the strategy that gives
him the minimum loss among the column maximum values. The selection of strategy by
player B is based on minimax principle. If the maximin value is equal to minimax value,
the game has a saddle point (i.e., equilibrium point). Thus the strategy selected by player
A and player B are optimal.
Example 1: Consider the example to solve the game whose pay-off matrix is given in
Table 14.3 as follows:
Table 14.3: Game Problem
The game is worked out using minimax procedure. Find the smallest value in each row
and select the largest value of these values. Next, find the largest value in each column
and select the smallest of these numbers. The procedure is shown in Table 14.4.
Table 14.4: Minimax Procedure
Player B
1 2
1 1 3
Player A 2 1 6
Player B
1 2 Row Min
1 1 3
Player A
2 1 6 1
Col Max 6
1
1
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Game Theory
If Maximum value in row is equal to the minimum value in column, then saddle point
exists.
Max Min = Min Max
1 = 1
Therefore, there is a saddle point.
The strategies are,
Player A plays Strategy A
1
, (A A
1
).
Player B plays Strategy B
1
, (B B
1
).
Value of game = 1.
Example 2: Solve the game with the pay-off matrix for player A as given in
Table 14.5.
Table 14.5: Game Problem
Solution: Find the smallest element in rows and largest elements in columns as shown in
Table 14.6.
Table 14.6: Minimax Procedure
Select the largest element in row and smallest element in column. Check for the minimax
criterion,
Max Min = Min Max
1 = 1
Therefore, there is a saddle point and it is a pure strategy.
Optimum Strategy:
Player A A
2
Strategy
Player B B
1
Strategy
The value of the game is 1.
Example 3: Check whether the following game is given in Table 14.7, determinable and
fair.
Player B
B
1
B
2
B
3
A
1
4 0 4
Player A A
2
1 4 2
A
3
1 5 3
Player B
B
1
B
2
B
3
Row min
Player A A
1
4 0 4 4
A
2
1 4 2 1
A
3
1 5 3 3
Column Max 1 5 4
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Table 14.7: Game Problem
Player B
1 2
1 7 0
Player A
2 0 8
Solution: The game is solved using maximin criteria as shown in Table 14.8.
Table 14.8: Maximin Procedure
Player B
1 2 Row Min
1 7 0 0
Player A
2 0 8 0
Column Max 7 8
Max Min Min Max
i.e., 0 7
The game is strictly neither determinable nor fair.
Example 4: Identify the optimal strategies for player A and player B for the game,
given below in Table 14.9. Also find if the game is strictly determinable and fair.
Table 14.9: Game Problem
Player B
1 2 Row Min
1 4 0 0
Player A
2 1 3 3
Col Max 4 0
Max Min = Min Max
0 = 0
The game is strictly determinable and fair. The saddle point exists and the game has a
pure strategy. The optimal strategies are given in Table 14.10 (a, b).
Table 14.10: Optimal Strategies
1 2 1 2
p
1
p
2
q
1
q
2
(a) S
A
and (b) S
B
1 0 0 1
Example 5 : Solve the game with the pay off matrix given in Table 14.11 and determine
the best strategies for the companies A and B and find the value of the game for them.
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Game Theory
Table 14.11: Game Problem
Company B
2 4 2
Company A 1 5 4
2 6 2
Solution: The matrix is solved using maximin criteria, as shown in Table 14.12 below.
Table 14.12: Maximin Procedure
Company B
1 2 3 Row Min
1 2 4 2 2
Company A 2 1 5 4 5
3 2 6 2 2
Column Max 2 6 2
Max Min = Min Max
2 = 2
Therefore, there is a saddle point.
Optimum strategy for company A is A
1
and
Optimum strategy for company B is B
1
or B
3
.
Check Your Progress 14.1
1 Discuss two-person zero-sum game.
2. What is minimax-minimin principle?
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Check Your Progress will help you to understand the lesson
better. Try to write answers for them, but do not submit your answers
to the university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
14.4 MIXED STRATEGIES: GAMES WITHOUT SADDLE
POINT
For any given pay off matrix without saddle point the optimum mixed strategies are
shown in Table 14.13.
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Table 14.13: Mixed Strategies
Player B
B
1
B
2
A
1
a
11
a
12
Player A
A
2
a
21
a
22
Let p
1
and p
2
be the probability for Player A.
Let q
1
and q
2
be the probability for Player B.
Let the optimal strategy be S
A
for player A and S
B
for player B.
Then the optimal strategies are given in Tables 14.14 a & b.
Table 14.14 (a), (b): Optimum Strategies
A
1
A
2
B
1
B
2
(a) S
A
= and (b) S
B
=
p
1
p
2
q
1
q
2
p
1
and p
2
are determined by using the formulae,
p
1
=
( ) ( )
22 21
11 22 12 21
a a
a a a a + +
and p
2
= 1 p
1
q
1
=
( ) ( )
22 12
11 22 12 21
a a
a a a a + +
and q
2
= 1- q
1
and the value of the game w.r.t. player A is given by,
a
11
a
22
a
12
a
21
Value of the game, v =
(a
11
+a
22
) (a
12
+a
21
)
Example 6: Solve the pay-off given Table 14.15 matrix and determine the optimal
strategies and the value of game.
Table 14.15: Game Problem
Player B
1 2
1 5 2
Player A
2 3 4
Solution: Let the optimal strategies of S
A
and S
B
be as shown in Tables 14.16 (a, b).
Table 14.16(a) and (b): Optimal Strategies
A
1
A
2
B
1
B
2
(a) S
A
= and (b) S
B
=
p
1
p
2
q
1
q
2
The given pay-off matrix is shown below in Table 14.17.
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Game Theory
Table 14.17: Pay-off Matrix or Maximin Procedure
Player B
1 2 Row Min
1 5 2 2
Player A
2 3 4 3
Column Max 5 4
Max Min Min Max
3 4
Therefore, there is no saddle point and hence it has a mixed strategy.
Applying the probability formula,
p
1
=
( ) ( )
22 21
11 22 12 21
a a
a a a a + +
=
( ) ( )
4 3
5 4 2 3
+ +
=
1
9 5
=
4
1
p
2
= 1 p
1
= 1 =
q
1
=
( ) ( )
22 12
11 22 12 21
a a
a a a a + +
=
( ) ( ) 3 2 4 5
2 4
+ +
=
5 9
2
=
4
2
=
2
1
q
2
= 1 q
1
= 1
2
1
=
2
1
Value of the game, v =
( ) ( )
11 22 12 21
11 22 12 21
a a a a
a a a a + +
=
( ) ( )
( ) ( )
5 4 2 3
5 4 2 3
+ +
The optimum mixed strategies are shown in Table 14.18 (a, b) below.
Table 14.18(a) and (b): Optimum Mixed Strategies
A
1
A
2
B
1
B
2
(a) S
A
= and (b) S
B
=
Value of the game = 3.5
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14.5 DOMINANCE PROPERTY
In case of pay-off matrices larger than 2 2 size, the dominance property can be used
to reduce the size of the pay-off matrix by eliminating the strategies that would never be
selected. Such a property is called a dominance property.
Example 7: Solve the game given below in Table 14.19 after reducing it to 2 2 game:
Table 14.19: Game Problem
Player B
1 2 3
1 1 7 2
Player A 2
6 2 7
3 5 1 6
Solution: Reduce the matrix by using the dominance property. In the given matrix for
player A, all the elements in Row 3 are less than the adjacent elements of Row 2.
Strategy 3 will not be selected by player A, because it gives less profit for player A. Row
3 is dominated by Row 2. Hence delete Row 3, as shown in Table 14.20.
Table 14.20: Reduced the Matrix by Using Dominance Property
Player B
1 2 3
1 1 7 2
2 6 2 7
For Player B, Column 3 is dominated by column 1 (Here the dominance is opposite
because Player B selects the minimum loss). Hence delete Column 3. We get the reduced
2 2 matrix as shown below in Table 14.21.
Table 14.21: Reduced 2 2 Matrix
Player B
1 2
1 1 7
Player A
2 6 2
Now, solve the 2 2 matrix, using the maximin criteria as shown below in Table 14.22.
Table 14.22: Maximin Procedure
Player B
1 2 Row Min
1 1 7 1
Player A
2 6 2 2
Column Max 6 7
Max Min Min Max
2 6
Player A
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Game Theory
Therefore, there is no saddle point and the game has a mixed strategy.
Applying the probability formula,
p
1
( ) ( ) 6 7 2 1
6 2
+ +
=
13 3
4
=
10
4
=
5
2
=
q
1
5
2
1 =
5
3
=
q
1
( ) ( ) 6 7 2 1
7 2
+ +
=
13 3
5
=
10
5
=
2
1
=
q
2
= 1 q
1
2
1
1 =
2
1
=
Value of the game, v
( ) ( )
( ) ( ) 6 7 2 1
6 7 2 1
+ +
=
13 3
42 2
=
10
40
=
= 4
The optimum strategies are shown in Table 14.23 (a, b)
Table14.23 (a, b): Optimum Strategies
A
1
A
2
A
3
B
1
B
2
B
3
(a) S
A
= and (b) S
B
=
2
/
5
3
/
5
0 0
Value of the game, v = 4
Example 8: Is the following two-person zero-sum game stable? Solve the game given
below in Table 14.24.
Table 14.24: Two-person Zero-sum Game Problem
Player B
1 2 3 4
1
5 10 9 0
Player A 2
6 7 8 1
3 8 7 15 1
4 3 4 1 4
Solution: Solve the given matrix using the maximin criteria as shown in Table 14.25.
Table 14.25: Maximin Procedure
Player B
1 2 3 4 Row Min
1 5 10 9 0 10
Player A 2 6 7 8 1 1
3 8 7 15 1 1
4 3 4 1 4 1
Column Max 8 7 15 4
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Max Min Min Max
3 1
Therefore, there is no saddle point and hence it has a mixed strategy.
The pay-off matrix is reduced to 22 size using dominance property. Compare the rows
to find the row which dominates other row. Here for Player A, Row 1 is dominated by
Row 3 (or row 1 gives the minimum profit for Player A), hence delete Row 1. The
matrix is reduced as shown in Table 14.26.
Table 14.26: Use Dominance Property to Reduce Matrix (Deleted Row 1)
Player B
1 2 3 4
2
6 7 8 1
Player A 3 8 7 15 1
4 3 4 -1 4
When comparing column wise, column 2 is dominated by column 4. For Player B, the
minimum profit column is column 2, hence delete column 2. The matrix is further reduced
as shown in Table 14.27.
Table 14.27: Matrix Further Reduced to 33 (2 Deleted Column)
Player B
1 3 4
2 6 8 1
Player A 3 8 15 1
4 3 1 4
Now, Row 2 is dominated by Row 3, hence delete Row 2, as shown in Table 14.28.
Table 14.28: Reduced Matrix (Row 2 Deleted)
Player B
1 3 4
Player A 3 8 15 1
4 3 1 4
Now, as when comparing rows and columns, no column or row dominates the other.
Since there is a tie while comparing the rows or columns, take the average of any two
rows and compare. We have the following three combinations of matrices as shown in
Table 14.29(a) (b) and (c).
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Game Theory
Table 14.29 (a, b, c): Matrix Combinations
(a) B (b) B (c) B
2
R R
3 1
+
R
3
R
1
2
R R
4 3
+
R
2
2
R R
4 1
+
11.5 1 8 8 15 4.5
A A A
1 4 3 1.5 1 3.5
When comparing column 1 and the average of column 3 and column 4, column 1 is
dominated by the average of column 3 and 4. Hence delete column 1. Finally, we get the
2 2 matrix as shown in Table 14.30.
Table 14.30: 22 Matrix After Deleting Column 1
Player B
3 4
Player A 3 15 1
4 1 4
The strategy for the arrived matrix is a mixed strategy; using probability formula, we find
p
1
, p
2
and q
1
, q
2
.
p
1
( )
( ) ( ) ( )
4 1
15 4 1 1
=
+ +
19
5
=
p
2
= 1
9
5
9
14
=
q
1
19
1 4
=
19
3
=
q
2
= 1
19
3
19
16
=
Value of the game, v
( ) ( ) ( )
( ) ( ) ( ) 1 1 4 15
1 1 4 15
+ +
=
19
1 60 +
=
19
61
=
The optimum mixed strategies are given below in Table 14.31 (a, b)
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Quantitative Techniques
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Table 14.31(a) and (b): Optimum Mixed Strategies
A
1
A
2
A
3
A
4
B
1
B
2
B
3
B
4
(a) S
A
= and (b) S
B
=
0 0
5
/
19
14
/
19
0 0
3
/
19
16
/
19
14.6 SOLVING PROBLEM ON THE COMPUTER WITH
TORA
Pure strategy problem
Example 9: is solved using computer with TORA. From Main menu of TORA package
select Zero-sum Games option. Click Go to Input Screen Enter the input values of
the problem as shown in the Figure 14.1.
Figure 14.1: Solving Pure Strategy Problem Using TORA (Input Screen)
Now, go to Solve menu and click. Another screen appears with Solved Problem Select
solve problem and click LP-based. Then select the output format screen and click Go to
Output Screen. The following output screen is displayed, as shown in Figure 14.2.
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Game Theory
Figure 14.2: Solving Pure Strategy Problem Using TORA (Output Screen)
The results of the problem can be read directly from the output screen.
Value of the Game to Player A = 1.00
Player A optimal strategies:
Strategies: A
1
A
2
A
3
Probability: 0 1 0
Player B optimal strategies:
Strategies: B
1
B
2
B
3
Probability: 1 0 0
The output also includes the linear programming formulation for Player A.
Mixed Strategy Problem
Table 14.32
Player B
1 2
Player A 1 5 2
2 3 4
The output screen for the problem is shown in Figure 14.3
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Quantitative Techniques
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Figure 14.3: Solving Mixed Strategy Problems Using TORA (Output Screen)
Here the players play both the strategies in what turns out to be a mixed strategy game.
A
1
A
2
B
1
B
2
Player A : 0.25 0.75 Player B : 0.5 0.5
Value of the game, v = 3.50.
Example 10: Solve the following 2 3 game given below in Table 14.33 graphically,
using computer.
Table 14.33: Game Problem
Player B
B
1
B
2
B
3
A
1
1 3 10
A
2
9 5 2
Solution: The game does not possess any saddle point and hence the solution has mixed
strategies.
As expected payoffs against Bs pure moves are given by
Table 14.34: Mixed Strategies Compared
Bs pure strategy As expected payoffs
B
1
p
1
+ 9 (1 p
1
) = 8p
1
+ 9
B
2
3p
1
+ 5 (1 p
1
) = 2p
1
+ 5
B
3
10p
1
+ 2 (1 p
1
) = 8p
1
+ 2
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Game Theory
The expected payoff equations are plotted as functions of p
1
which show the payoffs of
each column represented as points on two vertical axis. Strategy B
1
is plotted by joining
value 1 on axis 2 with the value 9 on axis 1. Similarly, other equations are drawn. The
output using TORA is given in the Figure 14.4 below:
Figure 14.4: Graphical Solution of Game Using TORA (Output Screen)
Player A always wants to maximize his minimum expected payoff. Consider the highest
point of intersection I on lower envelope of As expected payoff equation. The lines B
2
and B
3
passing through I, are the strategies that B needs to play. Therefore the given
matrix is reduced to 22 matrix as shown in Table 14.35.
Table 14.35: Reduced 22 Matrix
B
2
B
3
A
1
3 10
A
2
5 2
Solving the 2x2 matrix, the optimal strategies are obtained using the usual method
Table 14.36: Optimal Strategies
A
1
A
2
B
1
B
2
B
3
(a) S
A
= and (b) S
B
=
0.30 0.70 0 0.80 0.20
The value of the game, v = 4.40.
14.7 SOLVING LP MODEL GAMES GRAPHICALLY
USING COMPUTER
Example 11: Solve the following game shown in Table 14.37, by linear programming.
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Table 14.37: Game Problem
Player B
B
1
B
2
B
3
A
1
4 1 4
Player A A
2
3 4 2
The linear programming formulation is given by,
For player A,
Maximize, z = v
Subject to the constraints,
v 4x
1
+ 3x
2
< 0 ......................(i)
v + x
1
- 4x
2
< 0 ......................(ii)
v + 4x
1
+ x
2
< 0 ......................(iii)
x
1
+ x
2
= 1 ......................(iv)
where, x
1
, x
2
> 0
v is unrestricted.
For Player B,
Minimize, z = v
Subject to constraints,
v 4y
1
+ y
2
+ 4y
3
> 0 ......................(v)
v + 3y
1
4y
2
+ y
3
> 0 ......................(vi)
y
1
+ y
2
+ y
3
= 1 ......................(vii)
where, y
1
, y
2
, y
3
> 0
v is unrestricted.
The problem can be solved by using linear programming. This can also be solved by
using two-person zero-sum game. The output result is given in Figure 14.5 below:
Figure 14.5: Two-person Zero-sum Game, Output Result Using TORA
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Game Theory
The optimal strategies are,
A
1
A
2
Player A : 0.11 0.89
B
1
B
2
B
3
Player B : 0.22 0 0.78
Value of the game, v = 2.22
Check Your Progress 14.2
Take a type of business problem of your choice in which game theory will be
helpful.
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Check Your Progress will help you to understand the lesson
better. Try to write answers for them, but do not submit your answers
to the university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
__________________________________________________________________
14.8 LET US SUM UP
At the outset, a comprehensive overview of games theory has been applicable to those
competitive situation which are technically known as competitive games. If we
elaborately go into the depth of the word competitions it is a watchword of contemporary
life and competitive situation exists if two or more individually are making decisions in a
circumstances that involves conflicting interests and in which the result is controlled by
the decision of all parties concerned. The initial discussion study with the zero person
game and moves to saddle point further principle of dominance applicable to reduce
the size of matrix and their is a 2n of M2 games which can be solved with the help
of graphical method. In short, the game theory facilitates us to learn how to approves
and comprehend a conflict circumstance and to enhance the decision procedure.
14.9 LESSON-END ACTIVITY
Apply the game theory approach of two television vendor line LG & Samsung for their
advertising strategy.
14.10 KEYWORDS
Two Person Game : A game that only has two players.
Zero Sum Game : A game in which one player wins and other player loses.
Dominance : A process by which the size of the game will be reduced.
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Strategy : The strategy of a player is the list of all possible actions that
he takes for every pay-off. The strategy is classified into
pure strategy and mixed strategy.
Pure Strategy : Pure strategy is always selecting a particular course of action
with the probability of 1. For example, in case of two
strategies, probability of selecting the strategies for players
A is p
1
= 0 and p
2
= 1.
Mixed Strategy : Mixed strategy is to choose at least two courses of action.
The probability of selecting an individual strategy will be less
than 1, but the sum of the strategies will be 1. For example,
if player A plays a mixed strategy, then the probability of
selection of mixed strategy is p
1
= 0.45 and p
2
= 0.55. But
the sum of the strategies is 0.45 + 0.55 = 1.
Saddle Point : Saddle point is a situation where both the players are facing
pure strategies. When there is no saddle point, it indicates
the players will play both the strategies.
Minimax Criterion : Minimax criterion is selecting the strategies that minimize
the loss for each player. In other words, the player always
anticipates worst possible outcome and chooses the strategy
to get maximum for profit and minimum for loss.
Value of the Game : The Value of the game is the expected gain of player A if
both players use their best strategies. The best strategy is
arrived at using minimax criterion.
14.11 QUESTIONS FOR DISCUSSION
1. Write True or False against each statement:
(a) Graphical method can only be used in games with no saddle point.
(b) Concept of dominance is very useful for expanding the size of the matrix.
(c) Saddle point in a pay off matrix is one which is smallest value in its row and
the largest value in its column.
(d) In two-person zero-sum game there will be more than two choices.
2. Briefly comment on the following:
(a) Dominance occurs in the pay-off matrix.
(b) Best strategic are mixed strategies if there is no involvement of saddle point.
(c) Graphical method is feasible for Small values.
(d) When the game have no saddle point & also cannot be reduced by dominance.
(e) In game theory we determine the best strategies for each player.
(f) A saddle point is an element of the matrix.
3. Fill in the blank:
(a) Game theory applies to those _________ situation which are technically
known as competitive game.
(b) Strategy could be _________ or one.
(c) A game involving n-players is called a _________ game.
(d) Every course of action is a _________ strategy.
(e) In game theory all players act _________.
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Game Theory
4. Write short Notes on following:
(a) The value of a game
(b) The sum & non-zero-sum games.
(c) Maximum & Minimum strategy
(d) Concept of dominance.
(e) Pure strategy
(f) Mixed strategy
(g) Pay-off matrix
(h) Saddle point
(i) Optimum strategies.
14.12 TERMINAL QUESTIONS
1. What are the properties of Two-person Zero-sum game?
2. Define Pure strategy and Mixed strategy.
3. What is meant by the saddle point?
4. What is meant by a Fair Game?
5. Explain how games can be solved using the dominance property.
Exercise Problems
1. Using maximin criteria, identify whether the players play pure strategy or mixed
strategies
(a) Player B
1 2
1 7 3
2 5 2
(b) Player B
1 2
1 7 2
2 1 5
2. Solve the game and determine whether it is strictly determinable.
(a) Player B
B
1
B
2
B
3
A
1
3 1 2
Player A A
2
2 5 7
A
3
2 3 5
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(b) Player B
B
1
B
2
B
3
A
1
6 10 8
Player A A
2
4 10 14
A
3
4 6 10
3. Determine the optimum strategies of players.
4. Solve the game.
Company B Company B
(a) B
1
B
2
B
3
(b) B
1
B
2
B
3
A
1
15 25 35 A
1
7 5 2
Company A A
2
5 10 45 Company A A
2
1 3 2
A
3
65 55 35 A
3
4 3 7
5. Consider the payoff matrix of player A and solve.
Player B
1 2 3 4 5 6
1 6 3 7 4 6 8
Player A
2 7 11 8 4 7 9
6. Solve the following sequence game using dominance property.
Company A
I II III IV
A 14 4 8 18
Company B B 8 3 2 12
C 8 7 6 16
D 6 5 12 10
B B
1 2 3 4 1 2 3 4
1 10 30 20 40 1 1 2 2 1
A 2 5 5 10 15 A 2 3 2 0 1
3 20 20 30 10 3 4 2 3 2
4 5 10 20 15 4 0 1 3 2
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Game Theory
7. Use dominance property to solve the following game.
B
1
B
2
B
3
B
4
B
5
A
1
4 4 2 4 6
A
2
8 6 8 4 0
A
3
10 2 4 0 12
8. Solve the following two-person zero-sum game to find the value of the game.
Company B
1 2 3 4
1 2 2 4 1
Company A 2 6 1 12 3
3 -3 2 0 6
4 2 3 7 7
9. Solve the game whose payoff matrix is given for a 2 2 matrix.
(a) 5 2 (b) 2 5
1 7 2 2
10. Solve the game graphically.
B
B
1
B
2
B
3
B
4
A
1
4 -2 3 1
A
A
2
1 2 0 1
11. Use dominance property to reduce the matrix and solve it graphically
Player B
A B C D
1 18 4 6 4
Player A 2 6 2 13 7
3 11 5 17 3
4 7 6 12 2
12. Formulate a linear programming model for the following game.
Player B
1 2 3 4 5
1 6 15 30 21 6
Player A 2 3 3 6 6 4
3 12 12 24 36 3
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14.13 MODEL ANSWERS TO QUESTIONS FOR
DISCUSSION
1. (a) True (b) False (c) True (d) False
3. (a) competitive (b) pure, mixed (c) n-person (d) pure
(e) intelligently.
14.14 SUGGESTED READINGS
Davis. M, Game Theory: A Nontechnical Introduction, New York; Basic Books, Inc.
Lucas, An Overview of the Mathematical Theory of Game Management Science
Vol. 8, No. 8, Part-II.
Luce R.D. & Raiffa. H, Game & Decisions, New York, John Wiley & Sam.
Rapport, A., Two Person Game Theory, Anne Arbric, Michiger: The University of
Nichigan Press, 1966.
Shubik. M, The Uses & Methods of Game Theory, New York; American Elsevier.
Van Neumain, J. & Morgen Stan. O, Theory of Games & Economic Behaviour.
LESSON
15
SIMULATION
CONTENTS
15.0 Aims and Objectives
15.1 Introduction
15.2 Advantages and Disadvantages of Simulation
15.3 Monte Carlo Simulation
15.4 Simulation of Demand Forecasting Problem
15.5 Simulation of Queuing Problems
15.6 Simulation of Inventory Problems
15.7 Let us Sum Up
15.8 Lesson-end Activities
15.9 Keywords
15.10 Questions for Discussion
15.11 Terminal Questions
15.12 Model Answers to Questions for Discussion
15.13 Suggested Readings
15.0 AIMS AND OBJECTIVES
This is the last lesson of the QT which will discuss about the Mathematical analysis and
mathematical technique simulation technique is considered as a valuable tool because
wide area of applications.
15.1 INTRODUCTION
In the previous chapters, we formulated and analyzed various models on real-life problems.
All the models were used with mathematical techniques to have analytical solutions. In
certain cases, it might not be possible to formulate the entire problem or solve it through
mathematical models. In such cases, simulation proves to be the most suitable method,
which offers a near-optimal solution. Simulation is a reflection of a real system,
representing the characteristics and behaviour within a given set of conditions.
In simulation, the problem must be defined first. Secondly, the variables of the model are
introduced with logical relationship among them. Then a suitable model is constructed.
After developing a desired model, each alternative is evaluated by generating a series of
values of the random variable, and the behaviour of the system is observed. Lastly, the
results are examined and the best alternative is selected the whole process has been
summarized and shown with the help of a flow chart in the Figure 90.
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Simulation technique is considered as a valuable tool because of its wide area of application.
It can be used to solve and analyze large and complex real world problems. Simulation
provides solutions to various problems in functional areas like production, marketing,
finance, human resource, etc., and is useful in policy decisions through corporate planning
models. Simulation experiments generate large amounts of data and information using a
small sample data, which considerably reduces the amount of cost and time involved in
the exercise.
For example, if a study has to be carried out to determine the arrival rate of customers at
a ticket booking counter, the data can be generated within a short span of time can be
used with the help of a computer.
Figure 15.1: Simulation Process
15.2 ADVANTAGES AND DISADVANTAGES OF
SIMULATION
Advantages
l Simulation is best suited to analyze complex and large practical problems when it is
not possible to solve them through a mathematical method.
l Simulation is flexible, hence changes in the system variables can be made to select
the best solution among the various alternatives.
l In simulation, the experiments are carried out with the model without disturbing the
system.
l Policy decisions can be made much faster by knowing the options well in advance
and by reducing the risk of experimenting in the real system.
Disadvantages
l Simulation does not generate optimal solutions.
l It may take a long time to develop a good simulation model.
l In certain cases simulation models can be very expensive.
l The decision-maker must provide all information (depending on the model) about
the constraints and conditions for examination, as simulation does not give the
answers by itself.
Problem Definition
Introduction of Variables
Construction of Simulation Model
Testing of variables with values
Simulate
Examination of results
Selection of best alternative
Not Acceptable Not Acceptable
Acceptable
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Simulation
15.3 MONTE CARLO SIMULATION
In simulation, we have deterministic models and probabilistic models. Deterministic
simulation models have the alternatives clearly known in advance and the choice is
made by considering the various well-defined alternatives. Probabilistic simulation model
is stochastic in nature and all decisions are made under uncertainty. One of the probabilistic
simulation models is the Monte Carlo method. In this method, the decision variables are
represented by a probabilistic distribution and random samples are drawn from probability
distribution using random numbers. The simulation experiment is conducted until the
required number of simulations are generated. Finally, the best course of action is selected
for implementation. The significance of Monte Carlo Simulation is that decision variables
may not explicitly follow any standard probability distribution such as Normal, Poisson,
Exponential, etc. The distribution can be obtained by direct observation or from past
records.
Procedure for Monte Carlo Simulation:
Step 1: Establish a probability distribution for the variables to be analyzed.
Step 2: Find the cumulative probability distribution for each variable.
Step 3: Set Random Number intervals for variables and generate random numbers.
Step 4: Simulate the experiment by selecting random numbers from random numbers
tables until the required number of simulations are generated.
Step 5: Examine the results and validate the model.
15.4 SIMULATION OF DEMAND FORECASTING
PROBLEM
Example 1: An ice-cream parlor's record of previous months sale of a particular variety
of ice cream as follows (see Table 15.1).
Table 15.1: Simulation of Demand Problem
Simulate the demand for first 10 days of the month
Solution: Find the probability distribution of demand by expressing the frequencies in
terms of proportion. Divide each value by 30. The demand per day has the following
distribution as shown in Table 15.2.
Table 15.2: Probability Distribution of Demand
Find the cumulative probability and assign a set of random number intervals to various
demand levels. The probability figures are in two digits, hence we use two digit random
numbers taken from a random number table. The random numbers are selected from
the table from any row or column, but in a consecutive manner and random intervals are
set using the cumulative probability distribution as shown in Table 15.3.
Demand (No. of Ice-creams) No. of days
4 5
5 10
6 6
7 8
8 1
Demand Probability
4 0.17
5 0.33
6 0.20
7 0.27
8 0.03
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Table 15.3: Cumulative Probability Distribution
To simulate the demand for ten days, select ten random numbers from random number
tables. The random numbers selected are,
17, 46, 85, 09, 50, 58, 04, 77, 69 and 74
The first random number selected, 7 lies between the random number interval 17-49
corresponding to a demand of 5 ice-creams per day. Hence, the demand for day one
is 5. Similarly, the demand for the remaining days is simulated as shown in Table 15.4.
Table 15.4: Demand Simulation
Example 2: A dealer sells a particular model of washing machine for which the probability
distribution of daily demand is as given in Table 15.5.
Table 15.5: Probability Distribution of Daily Demand
Find the average demand of washing machines per day.
Solution: Assign sets of two digit random numbers to demand levels as shown in
Table 15.6.
Table 15.6: Random Numbers Assigned to Demand
Ten random numbers that have been selected from random number tables are 68, 47, 92,
76, 86, 46, 16, 28, 35, 54. To find the demand for ten days see the Table 15.7 below.
Table 15.7: Ten Random Numbers Selected
Day 1 2 3 4 5 6 7 8 9 10
Random Number
17 46 85 09 50 58 04 77 69 74
Demand 5 5 7 4 6 6 4 7 6 7
Demand/day - 0 1 2 3 4 5
Demand - 0.05 0.25 0.20 0.25 0.10 0.15
Demand Probability Cumulative Probability Random Number Intervals
0 0.05 0.05 00-04
1 0.25 0.30 05-29
2 0.20 0.50 30-49
3 0.25 0.75 50-74
4 0.10 0.85 75-84
5 0.15 1.00 85-99
Trial No Random Number Demand / day
1 68 3
2 47 2
3 92 5
4 76 4
5 86 5
6 46 2
7 16 1
8 28 1
9 35 2
10 54 3
Total Demand 28
Demand Probability Cumulative Probability Random Number Interval
4 0.17 0.17 00-16
5 0.33 0.50 17-49
6 0.20 0.70 50-69
7 0.27 0.97 70-96
8 0.03 1.00 97-99
499
Simulation
Average demand =28/10 =2.8 washing machines per day.
The expected demand /day can be computed as,
Expected demand per day =
=
n
i
i i
X P
0
.......................(1)
where, p
i
= probability and x
i
= demand
= (0.05 0) + (0.25 1) + (0.20 2) + (0.25 3) + (0.1 4) + (0.15 5)
= 2.55 washing machines.
The average demand of 2.8 washing machines using ten-day simulation differs significantly
when compared to the expected daily demand. If the simulation is repeated number of
times, the answer would get closer to the expected daily demand.
Example 3: A farmer has 10 acres of agricultural land and is cultivating tomatoes on
the entire land. Due to fluctuation in water availability, the yield per acre differs. The
probability distribution yields are given below:
a. The farmer is interested to know the yield for the next 12 months if the same water
availability exists. Simulate the average yield using the following random numbers
50, 28, 68, 36, 90, 62, 27, 50, 18, 36, 61 and 21, given in Table 15.8.
Table 15.8: Simulation Problem
b. Due to fluctuating market price, the price per kg of tomatoes varies from Rs. 5.00
to Rs. 10.00 per kg. The probability of price variations is given in the Table 216
below. Simulate the price for next 12 months to determine the revenue per acre.
Also find the average revenue per acre. Use the following random numbers 53, 74,
05, 71, 06, 49, 11, 13, 62, 69, 85 and 69.
Table 15.9: Simulation Problem
Solution:
Table 15.10: Table for Random Number Interval for Yield
Yield of tomatoes per acre (kg) Probability
200 0.15
220 0.25
240 0.35
260 0.13
280 0.12
Price per kg (Rs) Probability
5.50 0.05
6.50 0.15
7.50 0.30
8.00 0.25
10.00 0.15
Yield of tomatoes
per acre
Probability Cumulative Probability Random Number
Interval
200
220
240
260
280
0.15
0.25
0.35
0.13
0.12
0.15
0.40
0.75
0.88
1.00
00 14
15 39
40 74
75 87
88 99
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Quantitative Techniques
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Table 15.11: Table for Random Number Interval for Price
Table 15.12: Simulation for 12 months period
Average revenue per acre = 21330 / 12
= Rs. 1777.50
Example 4: J.M Bakers has to supply only 200 pizzas every day to their outlet situated
in city bazaar. The production of pizzas varies due to the availability of raw materials and
labor for which the probability distribution of production by observation made is as follows:
Table 15.13: Simulation Problem
Simulate and find the average number of pizzas produced more than the requirement
and the average number of shortage of pizzas supplied to the outlet.
Solution: Assign two digit random numbers to the demand levels as shown in
Table 15.14
Table 15.14: Random Numbers Assigned to the Demand Levels
Price Per Kg Probability Cumulative Probability Random Number Interval
5.00
6.50
7.50
8.00
10.00
0.05
0.15
0.30
0.25
0.25
0.05
0.20
0.50
0.75
1.00
00 04
05 19
20 49
50 74
75 99
Month
(1)
Yield
(2)
Price
(3)
Revenue / Acre (4) = 2 3 (Rs)
1
2
3
4
5
6
7
8
9
10
11
12
240
220
240
220
250
240
220
240
220
220
240
220
8.00
8.00
6.50
8.00
6.50
7.50
6.50
6.50
8.00
8.00
10.00
8.00
1960
1760
1560
1760
1820
1800
1430
1560
1760
1760
2400
1760
Production per day 196 197 198 199 200 201 202 203 204
Probability 0.06 0.09 0.10 0.16 0.20 0.21 0.08 0.07 0.03
Demand Probability Cumulative Probability No of Pizzas shortage
196 0.06 0.06 00-05
197 0.09 0.15 06-14
198 0.10 0.25 15-24
199 0.16 0.41 25-40
200 0.20 0.61 41-60
201 0.21 0.82 61-81
202 0.08 0.90 82-89
203 0.07 0.97 90-96
204 0.03 1.00 97-99
501
Simulation
Selecting 15 random numbers from random numbers table and simulate the production
per day as shown in Table 15.15 below.
Table 15.15: Simulation of Production Per Day
The average number of pizzas produced more than requirement
= 12/15
= 0.8 per day
The average number of shortage of pizzas supplied
= 4/15
= 0.26 per day
Check Your Progress 15.1
1. Discuss the role of simulation in demand forecasting.
2. What is Monte Carlo simulation?
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Check Your Progress will help you to understand the lesson
better. Try to write answers for them, but do not submit your answers
to the university for assessment. These are for your practice only.
_____________________________________________________________________
____________________________________________________________________________________________________________________
_____________________________________________________________________
__________________________________________________________________
_____________________________________________________________
15.5 SIMULATION OF QUEUING PROBLEMS
Example 5: Mr. Srinivasan, owner of Citizens restaurant is thinking of introducing
separate coffee shop facility in his restaurant. The manager plans for one service counter
for the coffee shop customers. A market study has projected the inter-arrival times at
the restaurant as given in the Table 15.16. The counter can service the customers at the
following rate:
Trial Number Random Number Production Per
day
No of Pizzas over
produced
No of pizzas
shortage
1 26 199 - 1
2 45 200 - -
3 74 201 1 -
4 77 201 1 -
5 74 201 1 -
6 51 200 - -
7 92 203 3 -
8 43 200 - -
9 37 199 - 1
10 29 199 - 1
11 65 201 1 -
12 39 199 - 1
13 45 200 - -
14 95 203 3 -
15 93 203 3 -
Total 12 4
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Quantitative Techniques
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Table 15.16: Simulation of Queuing Problem
Mr. Srinivasan will implement the plan if the average waiting time of a customers in the
system is less than 5 minutes.
Before implementing the plan, Mr. Srinivasan would like to know the following:
i. Mean waiting time of customers, before service.
ii. Average service time.
iii. Average idle time of service.
iv. The time spent by the customer in the system.
Simulate the operation of the facility for customer arriving sample of 20 cars when the
restaurant starts at 7.00 pm every day and find whether Mr. Srinivasan will go for the
plan.
Solution: Allot the random numbers to various inter-arrival service times as shown in
Table 15.17.
Table 15.17: Random Numbers Allocated to Various Inter-Arrival Service Times
i. Mean waiting time of customer before service = 20/20 = 1 minute
ii. Average service idle time = 17/20 = 0.85 minutes
iii. Time spent by the customer in the system = 3.6 + 1 = 4.6 minutes.
Example 6: Dr. Strong, a dentist schedules all his patients for 30 minute appointments.
Some of the patients take more or less than 30 minutes depending on the type of dental
work to be done. The following Table 15.18 shows the summary of the various categories
of work, their probabilities and the time actually needed to complete the work.
Waiting Time Sl.
No.
Random
Number
(Arrival)
Inter
Arrival
Time
(Min)
Arrival
Time at
Service
Starts at
Random
Number
(service)
Service
Time
(Min)
Service
Ends at
Customer
Service
(Min)
1 87 6 7.06 7.06 36 4 7.10 - 6
2 37 3 7.09 7.10 16 3 7.13 1 -
3 92 6 7.15 7.15 81 5 7.20 - 2
4 52 4 7.19 7.20 08 2 7.22 1 -
5 41 4 7.23 7.23 51 4 7.27 - 1
6 05 2 7.25 7.27 34 3 7.30 2 -
7 56 4 7.29 7.30 88 6 7.36 1 -
8 70 5 7.34 7.36 88 6 7.42 2 -
9 70 5 7.39 7.42 15 3 7.45 3 -
10 07 2 7.41 7.45 53 4 7.49 4 -
11 86 6 7.47 7.49 01 2 7.51 2 -
12 74 5 7.52 7.52 54 4 7.56 - 1
13 31 3 7.55 7.56 03 2 7.58 1 -
14 71 5 8.00 8.00 54 4 8.04 1 2
15 57 4 8.04 8.04 56 4 8.08 - -
16 85 6 8.10 8.10 05 2 8.12 - 2
17 39 3 8.13 8.13 01 2 8.15 - 1
18 41 4 8.17 8.17 45 4 8.21 - 2
19 18 3 8.20 8.21 11 3 8.24 1 -
20 38 3 8.23 8.24 76 5 8.29 1 -
Total 83 72 20 17
Interarrival times Service times
Time between two
consecutive arrivals (minutes)
Probability
Service time
(minutes)
Probability
2 0.15 2 0.10
3 0.25 3 0.25
4 0.20 4 0.30
5 0.25 5 0.2
6 0.15 6 0.15
503
Simulation
Table 15.18: Simulation Problem
Simulate the dentists clinic for four hours and determine the average waiting time for
the patients as well as the idleness of the doctor. Assume that all the patients show up at
the clinic exactly at their scheduled arrival time, starting at 8.00 am. Use the following
random numbers for handling the above problem: 40,82,11,34,25,66,17,79.
Solution: Assign the random number intervals to the various categories of work as
shown in Table 15.19.
Table 15.19: Random Number Intervals Assigned to the Various Categories
Assuming the dentist clinic starts at 8.00 am, the arrival pattern and the service category
are shown in Table 15.20.
Table 15.20: Arrival Pattern of the Patients
Table 15.21: The arrival, departure patterns and patients waiting time are tabulated.
Category of work Probability Cumulative probability Random Number Interval
Filling 0.40 0.40 00-39
Crown 0.15 0.55 40-54
Cleaning 0.15 0.70 55-69
Extraction 0.10 0.80 70-79
Check-up 0.20 1.00 80-99
Patient Number Scheduled Arrival Random Number Service category Service Time
1 8.00 40 Crown 60
2 8.30 82 Check-up 15
3 9.00 11 Filling 45
4 9.30 34 Filling 45
5 10.00 25 Filling 45
6 10.30 66 Cleaning 15
7 11.00 17 Filling 45
8 11.30 79 Extraction 45
Time Event (Patient Number) Patient Number (Time to go) Waiting (Patient Number)
8.00 1 arrives 1 (60) -
8.30 2 arrives 1 (30) 2
9.00 1 departure, 3 arrives 2 (15) 3
9.15 2 depart 3 (45) -
9.30 4 arrive 3 (30) 4
10.00 3 depart, 5 arrive 4 (45) 5
10.30 6 arrive 4 (15) 5,6
10.45 4 depart 5 (45) 6
11.00 7 arrive 5 (30) 6,7
11.30 5 depart, 8 arrive 6 (15) 7,8
11.45 6 depart 7 (45) 8
12.00 End 7 (30) 8
Category Time required (minutes) Probability of category
Filling 45 0.40
Crown 60 0.15
Cleaning 15 0.15
Extraction 45 0.10
Check-up 15 0.20
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Quantitative Techniques
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The dentist was not idle during the simulation period. The waiting times for the patients
are as given in Table 15.22 below.
Table 15.22: Patient's Waiting Time
The average waiting time of patients = 285/8
= 35.625 minutes.
15.6 SIMULATION OF INVENTORY PROBLEMS
A dealer of electrical appliances has a certain product for which the probability distribution
of demand per day and the probability distribution of the lead-time, developed by past
records are as shown in Table 15.23 and 10.24 respectively
Table 15.23: Probability distribution of lead demand
Table 15.24: Probability distribution of lead time
The various costs involved are,
Ordering Cost = Rs. 50 per order
Holding Cost = Rs.1 per unit per day
Shortage Cost = Rs. 20 per unit per day
The dealer is interested in having an inventory policy with two parameters, the reorder
point and the order quantity, i.e., at what level of existing inventory should an order be
placed and the number of units to be ordered. Evaluate a simulation plan for 35 days,
which calls for a reorder quantity of 35 units and a re-order level of 20 units, with a
beginning inventory balance of 45 units.
Solution: Assigning of random number intervals for the demand distribution and lead-
time distribution is shown in Tables 15.25 and 15.26 respectively.
Table 15.25: Random Numbers Assigned for Demand Per Day
Demand (Units) 2 3 4 5 6 7 8 9 10
Probability 0.05 0.07 0.09 0.15 0.20 0.21 0.10 0.07 0.06
Lead Time (Days) 1 2 3 4
Probability 0.20 0.30 0.35 0.15
Patient Arrival Time Service Starts Waiting time (minutes)
1 8.00 8.00 0
2 8.30 9.00 30
3 9.00 9.15 15
4 9.30 10.00 30
5 10.00 10.45 45
6 10.30 11.30 60
7 11.00 11.45 45
8 11.30 12.30 60
Total 285
Demand per day Probability Cumulative probability Random Number Interval
2 0.05 0.05 00-04
3 0.07 0.12 05-11
4 0.09 0.21 12-20
5 0.15 0.36 21-35
6 0.20 0.56 36-55
7 0.21 0.77 56-76
8 0.10 0.87 77-86
9 0.07 0.94 87-93
10 0.06 1.00 94-99
505
Simulation
Table 15.26: Random Numbers Assigned for Lead-time
Table 15.27: Simulation Work-sheet for Inventory Problem (Case 1)
Reorder Quantity = 35 units, Reorder Level = 20 units, Beginning Inventory = 45 units
Lead Time (Days) Probability Cumulative probability Random Number Interval
1 0.20 0.20 00-19
2 0.30 0.50 20-49
3 0.35 0.85 50-84
4 0.15 1.00 85-99
Day
Random
Number
(Demand)
Demand
Random
Number
(Lead
Time)
Lead
Time
(Days)
Inventory
at end of
day
Qty.
Recei-
ved
Order-
ing
Cost
Holding
Cost
Short-
age
Cost
0 - - - - 45 - - - -
1 58 7 - - 38 - - 38 -
2 45 6 - - 32 - - 32 -
3 43 6 - - 26 - - 26 -
4 36 6 73 3 20 - 50 20 -
5 46 6 - - 14 - - 14 -
6 46 6 - - 8 - - 8 -
7 70 7 - - 1 35 - 36 -
8 32 5 - - 31 - - 31 -
9 12 4 - - 27 - - 27 -
10 40 6 - - 21 - - 21 -
11 51 6 21 2 15 - 50 15 -
12 59 7 - - 8 - - 8 -
13 54 6 - - 37 35 - 37 -
14 16 4 - - 33 - - 33 -
15 68 7 - - 26 - - 26 -
16 45 6 45 2 20 - 50 20 -
17 96 10 - - 10 - - 10 -
18 33 5 - - 40 35 - 40 -
19 83 8 - - 32 - - 32 -
20 77 8 - - 24 - - 24 -
21 05 3 - - 21 - - 21 -
22 15 4 76 3 17 - 50 17 -
23 40 6 - - 11 - - 11 -
24 43 6 - - 5 - - 5 -
25 34 5 - - 35 35 - 35 -
26 44 6 - - 29 - - 29 -
27 89 9 96 4 20 - 50 20 -
28 20 4 - - 16 - - 16 -
29 69 7 - - 9 - - 9 -
30 31 5 - - 4 - - 4 -
31 97 10 - - 29 35 - 29 -
32 05 3 - - 26 - - 26 -
33 59 7 94 4 19 - 50 19 -
34 02 2 - - 17 - - 17 -
35 35 5 - - 12 - - 12 -
Total 300 768 -
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Table 15.28: Simulation Work-sheet for Inventory Problem (Case II)
Reorder Quantity = 30 units, Reorder Level = 20 units, Beginning Inventory = 45 units
The simulation of 35 days with an inventory policy of reordering quantity of 35 units at
the time of inventory level at the end of day is 20 units, as worked out in Table 10.27. The
table explains the demand inventory level, quantity received, ordering cost, holding cost
and shortage cost for each day.
Day
Random
Number
(Demand)
Demand
Random
Number
(Lead
Time)
Lead
Time
(Days)
Inventory
at end of
day
Qty.
Received
Ordering
Cost
Holding
Cost
Shortage
Cost
0 - - - - 45 - - - -
1 58 7 - - 38 - - 38 -
2 45 6 - - 32 - - 32 -
3 43 6 - - 26 - - 26 -
4 36 6 73 3 20 - 50 20 -
5 46 6 - - 14 - - 14 -
6 46 6 - - 8 - - 8 -
7 70 7 - - 31 30 - 31 -
8 32 5 - - 29 - - 29 -
9 12 4 - - 25 - - 25 -
10 40 6 - - 19 - 50 19 -
11 51 6 21 2 13 - - 13 -
12 59 7 - - 38 - - 38 -
13 54 6 - - 32 30 - 32 -
14 16 4 - - 21 - - 21 -
15 68 7 - - 21 - - 21 -
16 45 6 45 2 15 - 50 15 -
17 96 10 - - 5 - - 5 -
18 33 5 - - 30 - - 30 -
19 83 8 - - 22 - - 22 -
20 77 8 - - 14 - 50 14 -
21 05 3 - - 11 - - 11 -
22 15 4 76 3 7 - - 7 -
23 40 6 - - 31 30 - 31 -
24 43 6 - - 14 - - 14 -
25 34 5 - - 20 - 50 20 -
26 44 6 - - 14 - - 14 -
27 89 9 96 4 5 - - 5 -
28 20 4 - - 1 - - 1 -
29 69 7 - - 24 30 - 24 -
30 31 5 - - 19 - 50 19 -
31 97 10 - - 9 - - 9 -
32 05 3 - - 6 - - 6 -
33 59 7 94 4 0 - - - 20
34 02 2 - - 28 30 - 28 -
35 35 5 - - 23 - - 23 -
Total 300 683 20
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Simulation
Completing a 35 day period, the costs are
Total ordering cost = (6 50) = Rs 300.00
Total holding cost = Rs. 768.00
Since the demand for each day is satisfied, there is no shortage cost.
Therefore, Total cost = 300 + 768
= Rs. 1068.00
For a different set of parameters, with a re-order quantity of 30 units and the same re-
order level of 20 units, if the 35-day simulation is performed, we get the total of various
costs as shown in Table 10.28.
Total ordering cost = 6 50 = Rs. 300.00
Total holding cost = Rs. 683.0
Total shortage cost = Rs. 20.00
Therefore,
Total cost = 300 + 683 + 20
= Rs. 1003.00
If we analyze the combination of both the parameters, Case II has lesser total cost than
Case I. But at the same time, it does not satisfy the demand on 33
rd
day, that might cause
customer dissatisfaction which may lead to some cost.
In this type of problems, the approach with various combinations of two parameter
values is simulated a large number of times to find the total cost of each experiment,
compare the total cost and select the optimum alternative, i.e., that one which incurs the
lowest cost.
Check Your Progress 15.2
1. Explain how computer make ideal aides in simulating complex tasks.
2. What are the two types of computer programming languages that are available
to facilitate the simulation process?
3. Why in the computer necessary in conducting a real world simulation.
4. Do you think the application of simulation will enhance strongly in the coming
10 years.
5. Draw a flow diagram for the simulation of electric-maintenance by the power
corporation of India Ltd.
Notes: (a) Write your answer in the space given below.
(b) Please go through the lesson sub-head thoroughly you will get your
answers in it.
(c) This Check Your Progress will help you to understand the lesson
better. Try to write answers for them, but do not submit your answers
to the university for assessment. These are for your practice only.
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15.7 LET US SUM UP
By going through this lesson it is very true and clear that simulation is a reflection of a
real system representing the characteristics and behaviour within a given set of conditions.
The most important point in simulation is that simulation technique is considered as a
valuable tool because of its wide area of application. The most important approach to
solving simulation is the Monte Carlo Simulation which can be solved with the help of
probabilistic and deterministic model. The deterministic simulation mode, have the
alternatives clearly known in advance where as the probabilistic model is stochastic in
nature and all decisions are made under uncertainty.
15.8 LESSON-END ACTIVITIES
1. Apply the Monte Carlo Simulation technique weather in forecasting.
2. In the corporate the top Bosses use to take major decisions apply the Simulation
techniques in designing and performing organisations take an industry like Reliance,
Tata, Infosys to support your answer.
15.9 KEYWORDS
Simulation : A management science analysis that brings into play a
construction and mathematical model that represents a real-
world situation.
Random number : A number whose digits are selected completely at random.
Flow chart : A graphical means of representing the logic of a simulation
model.
15.10 QUESTIONS FOR DISCUSSION
1. Write True or False against each statement
(a) Simulations models are built for management problems and require
management input.
(b) All simulation models are very expensive.
(c) Simulation is best suited to analyse complex & large practical problem
(d) Simulation-generate optimal solution.
(e) Simulation model can not be very expensive.
2. Fill in the blank
(a) Simulation is one of the most widely used ________ analysis book.
(b) Simulation allow, for the ________ of real world complications.
(c) System ________ in similar to business gaming.
(d) Monte Carlo method used ________ number.
(e) Simulation experiments generate large amount of ________ and information.
3. Briefly comment on the following
(a) The problem tackled by simulation may range from very simple to extremely
complex.
(b) Simulations allows us to study the interactive effect of individual components
or variables in order to determine which one is important.
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Simulation
(c) Simulation is the valuable technique for analysing various maintenance policies
before actually implementing them,
(d) Simulations technique in considered as a valuable tool because of its wide
area of application.
(e) Simulation is nothing more or less them the technique of performing sampling
experiment on the model of the system.
15.11 TERMINAL QUESTIONS
1. What is simulation? Give a few areas of its application.
2. With the help of a flow chart, briefly explain the simulation process.
3. What are the advantages and limitations of simulation?
4. What is Monte Carlo simulation?
5. Explain the procedure of simulation using random numbers.
6. Explain how simulation is useful in solving queuing and inventory problems.
Exercise Problem
1. A sweet stall observed that the demand for item Mysorpa per week in one kilogram
pack is as follows:
Generate the demand for the next 10 weeks, and also find the average demand.
2. At a service station, cars arrive for water-wash daily. The probability of number of
cars that arrive are given in the table below. Simulate the number of cars that will
arrive for the next 10 days. Use the following random numbers: 87, 01, 74, 11, 46,
82, 59, 94, 25 and 34.
3. A private bank has installed an ATM in the city bazaar area. It was found that the
time between an arrival and completion of transaction varies from one minute to
seven minutes. The arrival and service distribution times are given below. Simulate
the ATM operations for the next 30 arrivals.
Use Monte-Carlo simulation technique and determine:
a. Waiting time of the customers.
b. Idle time of the ATM.
Demand / week
(per kilo pack)
5 10 15 20 25 30
Frequency 4 22 16 42 10 6
Cars arrival per day 5 6 7 8 9 10
Probability 0.2 0.15 0.3 0.25 0.05 0.05
Probability
Time (minutes)
Arrival Service
1-2 0.10 0.05
2-3 0.15 0.15
3-4 0.30 0.30
4-5 0.25 0.20
5-6 0.10 0.15
6-7 0.10 0.15
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Quantitative Techniques
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4. The materials manager of a firm wishes to determine the expected mean demand
for a particular item in stock during the re-order lead time. This information is
needed to determine how far in advance to re-order, before the stock level is
reduced to zero. However, both the lead time, and the demand per day for the item
are random variables, described by the probability distribution.
Manually simulate the problem for 30 re-orders, to estimate the demand during
lead time.
5. A company has the capacity to produce around 300 bikes per day. Daily production
varies from 295 to 304 depending upon getting the clearance from the final inspection
department. The probability distribution of bikes passed through final inspection
per day is given below:
The finished bikes are transported in a long trailer lorry sufficient to accommodate
300 mopeds. Simulate the process for 10 days and find:
a. The average number of bikes waiting in the factory yard.
b. The average empty space in the lorry.
6. In a single pump petrol station, it was observed that the inter-arrival times and
service times are as given in the table. Using the random numbers given, simulate
the queue behaviour for a period of 30 minutes and estimate the probability of the
pump being idle and the mean time spent by a customer waiting to fill petrol.
Use the following random numbers: 93, 14, 72, 10, 21, 81, 87, 90, 38, 10, 29, 17, 11,
68, 10, 51, 40, 30, 52 & 71.
Production per day Probability
295 0.03
296 0.04
297 0.10
298 0.20
299 0.25
300 0.15
301 0.09
302 0.07
303 0.05
304 0.02
Inter-arrival time Service time
Minutes Probability Minutes Probability
1 0.10 2 0.10
3 0.17 4 0.23
5 0.35 6 0.35
7 0.23 8 0.22
9 0.15 10 0.10
Lead time (days) Probability Demand / day (units) Probability
1 0.45 1 0.15
2 0.30 2 0.25
3 0.25 3 0.40
4 4 0.20
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Simulation
Service
No. of TV sets requiring service
Frequency of request
1 15
2 15
3 20
4 25
5 25
Servicing done
No. of TV sets serviced
Frequency of service
1 10
2 30
3 20
4 15
5 25
Type of bowling Probability of hitting a boundary
Over pitched 0.1
Short-Pitched 0.3
Outside off stump 0.2
Outside leg stump 0.15
Bouncer 0.20
Attempted Yorker 0.05
7. A one-man TV service station receives TV sets for repair. TV sets are repaired on
a first come, first served basis. The observations of the study made over a 100
day period are given below.
Simulate a 10 day period of arrival and service pattern.
8. ABC company stocks certain products. The following data is available:
a. No. of Units: 0 1 2 3
Probability: 0.1 0.2 0.4 0.3
b. The variation of lead time has the following distribution
Lead time (weeks): 1 2 3
Probabilities: 0.30 0.40 0.30
The company wants to know (a) how much to order? and (b) when to order ?
Assume that the inventory in hand at the start of the experiment is 20 units and 15
units are ordered closed as soon as inventory level falls to 10 units. No back orders
are allowed. Simulate the situation for 25 weeks.
9. A box contains 100 balls of which 20 percent are white, 30 percent are black and
the remaining are red. Simulate the process for drawing balls at random from the
box, identify and note the colour and then replace. Use the following 10 random
numbers to simulate: 52, 60, 02, 3379, 79, 30, 36, 58 and 43.
10. Rahul, the captain of the cricket team, has the following observations on the number
of runs scored against type of ball. The bowling probability of a bowler for the type
of balls bowled are given below.
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Quantitative Techniques
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The number of runs scored off each type of ball is shown in the table given below:
Simulate the game for 3 overs (6 balls per over) and calculate the batting average
of Rahul.
15.12 MODEL ANSWERS TO QUESTIONS FOR
DISCUSSION
1. (a) True (b) False (c) True (d) False (e) False
2. (a) Quantitative (b) Inclusion (c) Simulation (d) Random (e) Data
15.13 SUGGESTED READINGS
Ernshoff, J.R. & Sisson, R.L. Computer Simulations Models, New York Macmillan
Company.
Gordon G., System Simulation, Englewood cliffs N.J. Prentice Hall.
Chung, K.H. Computer Simulation of Queuing System Production & Inventory
Management Vol. 10.
Shannon, R. I. Systems Simulation. The act & Science. Englewood Cliffs, N.J. Prentice
Hall.
Type of bowling Probability of hitting a boundary
Over pitched 1
Short-Pitched 4
Outside off stump 3
Out side leg stump 2
Bouncer 2
Attempted Yorker 0