Co, Valerie J.

Managerial Statistics
Recall Previous Example Under Bayes Theorem
Let S = successful well

Define the Detailed test event as D

U = unsuccessful well
P(S) = 0.4 , P(U) = 0.6

and

(prior probabilities)

Not Detailed test event as D

Given Conditional probabilities:

P(D|S) = 0.6

P(D|U) = 0.2

Goal is to find P(S|D) and the complete table for Joint Probabilities and Conditional
Probabilities (see results below). Note the yellow shaded numbers are the given
probability values, the red font numbers are obtained as complement of the given
events, while the black font numbers are supposed to be calculated based on the
numbers marked with yellow and red colors.
Requirement:
Joint
Success
Failure
TOTAL

Answer:
Detailed

Not
Detaile
d

TOTAL

Joint

Detailed

Not
Detaile
d

0.4

Success
Failure
TOTAL

0.24
0.12
0.36

0.16
0.48
0.64

TOTAL
0.4
0.6
1

Conditiona
Conditional
Success Failure
l
Success Failure
Detailed
Detailed
0.6
0.2
0.6
0.2
Not
Not Detailed
Detailed
0.4
0.8
TOTAL
1
1
TOTAL
1
1
(These totals are based on the principle of collectively exhaustive events and
marginal probability)
Not
Conditiona
Not
Detailed
Detailed
Conditional
Detailed
l
Detailed
Success
Success
0.6667
0.25
Failure
Failure
0.3333
0.75
TOTAL
1
1
TOTAL
1
1

PROBLEM SET 2. APPLICATIONS OF JOINT AND CONDITIONAL PROBABILITIES

AND EXPECTED VALUES IN MAKING MANAGERIAL DECISIONS
The Boeing 747
Table 1. Planes Sold Under Scenarios

Airbus Large Jet

Airbus A-300

Airbus abandons
large Capacity
airplane

High Growth in
Asia

120

150

200

Average Growth
in Asia

100

135

160

Low Growth in
Asia

75

110

120

Derive the probability values for each scenario by completing the following tables:
Table 2. Joint Probabilities
Airbus A-300

Airbus abandons
large Capacity
airplane

Sum

.125

.125

0.25

Average Growth
in Asia

.15

.25

.10

0.50

Low Growth in
Asia

.05

.10

.10

0.25

Sum

.325

.475

.20

1.00

Joint
Probabilities

Airbus Large
Jet

High Growth in
Asia

Table 4. Conditional Probabilities

Airbus Large
Jet

Airbus A-300

Airbus abandons
large Capacity
airplane

High Growth in
Asia

0.50

0.50

Average Growth
in Asia

.3099

.3571

.333

Low Growth in
Asia

.0473

.2857

.667

Sum

.8572

1.1428

1.0

Conditional
Probabilities

Table 3. Conditional Probabilities

Conditional
Probabilities

High Growth in
Asia

Average
Growth in
Asia

Low Growth in
Asia

Airbus Large Jet

0.50

0.30

0.20

Airbus A-300

0.50

0.50

0.40

Airbus abandons large

Capacity airplane

0.20

0.40

Sum

1.0

1.0

1.0

Answer the following probabilities with solutions: Pls See Solutions below on Page 5
1)
2)
3)
4)
5)

P(ALCA / HG) = 0
P(ALCA / LG) = .40
P(HGLJ) = .125
P(LJAG) = .15
P(AGALCA) = .10

Where:

6) P(ALCALG) = .10
7) P(HG / LJ) = .50
8) P(AG/A-300) = .3571
9) P(LG/A-300) = .2857
10) P(LG/ALCA) = .667

LJ Airbus Large Jet

A-300 Airbus A-300
ALCA Airbus abandons large Capacity airplane
HG High Growth in Asia
AG Average Growth in Asia
LG Low Growth in Asia

Apply Expected Value formula to determine the average or expected number of

planes that can be sold for each type of airbus based on the joint probability values of
each scenario.
a) EV(Airbus Large Jet) = 33.75
b) EV(Airbus A-300) = 63.50
c) EV(Airbus Abandons Large Capacity Airplane) = 28.00
Calculate the Standard Deviation for each type of airbus and make decisions
depending on expected values, standard deviation and your personal judgment.
a) SD(Airbus Large Jet) = 40.91
b) SD(Airbus A-300) = 49.29
c) SD(Airbus Abandons Large Capacity Airplane) = 50.88
Decision: (Based on the current data and derives joint probabilities, which type
of plane should Boeing 747 produce next?)

SCORING MECHANICS:
You may submit through email your answers (with solutions for some parts) on or
before 12:00 midnight of August 17, 2016. No assignments will be accepted thereafter.
The earlier you submit, the better grade you get.

Solutions on Probabilities:
1. P(ALCA / HG) = P(ALCA and HG) = 0/1.0 = 0
HG
2. P(ALCA / LG) = P(ALCA and LG) = .40/1.0 = .40
LG
3. P(HGLJ) = (.50)(.25) = .125
4. P(LJAG) = (.30)(.50) = .15
5. P(AGALCA) = (.20)(.50) = .10
6. P(ALCALG) = (.40)(.25) = .10
7. P(HG / LJ) = P(HG and LJ) = .50/1.0 = .50
LJ
8. P(AG/A-300) = P( AG and A-300) = .50/1.40 = .3571
A-300
9. P(LG/A-300) = P(LG and A-300) = .40/1.40 = .2857
A-300
10. P(LG/ALCA) = P(LG and ALCA) = .40/.60 = .667
AlCA

Solutions on Expected Value

a. EV(Airbus Large Jet) = (120 x .125) + (100 x .15) + (75 x .05)
= 15 + 15 + 3.75
= 33.75
b. EV(Airbus A-300)
= (150 x .125) + (135 x .25) + (110 x .10)
= 18.75 + 33.75 + 11.00
= 63.50
c. EV(Airbus Abandons Large Capacity Airplane)
= (200 x 0) + (160 x .10) + (120 x .10)
= 0 + 16 + 12
= 28.00

Solutions on Standard Deviation:

a. Variance (LJ) = (120 33.75)^2 x .125 + (100 33.75)^2 x.15 + (75 33.75)^2 x.05
= 929.88 + 658.36 + 85.08

= 1,673.32
SD(Airbus Large Jet = sqr rt. of 1,673.32 = 40.91
b. Variance (A-300) = (150 63.50)^2 x .125 + (135 63.50)^2 x .25 + (110 - 63.50)^2
x .10
= 935.28 + 1,278.06 + 216.23
= 2,429.57
SD(Airbus A-300) = sqr rt. of 2,429.57 = 49.29
c. Variance (ALCA) = (200-28)^2 x 0 + (160 28)^2 x .10 + (120 28)^2 x .10
= 0 + 1,742.40 + 846.40
= 2,588.80
SD(Airbus Abandons Large Capacity Airplane) = sqr rt. of 2,588.80 = 50.88

Decision:
Based on the derived joint probabilities, the Boeing 747 should produce
Airbus A-300 because it has a higher return or expected value compared to
others. On the other hand, Boeing 747 should avoid producing Airbus Abandons
Large Capacity Airplane because it is subject to much more variability and the
probability of loss is high.