Binomial Distribution (Business)

The Binomial Distribution

Let $X$ be the number of successes in an experiment/trial.

When the following statements are true:

  • There are a fixed number of experiments/trials, $n$.
  • There are only two possible outcomes for each trial, usually called 'success' or 'failure'.
  • There probability of 'success' $p$ is constant (does not change for each trial). Note: the probability of failure will be $1 -p$.
  • The outcome of each trial is independent of all other trials, i.e. what happens in one trial does not affect the outcome in another trial.

we say that $X$ “follows a Binomial Distribution” and we write $X\sim\mathrm{Bin}(n,p)$.

The probability of $r$ successes and $(n-r)$ failures can be calculated using the formula:

\begin{equation} \mathrm{P}(X = r) = {}^n\mathrm{C}_r \times p^r \times(1-p)^{n-r} \end{equation}

where $r$ can take the values $0,1,2,...n$.

Note:

  • ${}^nC_r$ is just a combination.
  • $X$ cannot be greater than $n$ ($X\leq n$) since there are only $n$ trials in total.

Worked Example 1

Worked Example

At a chocolate factory in Slough with 120 production workers, there is a $10$% chance that a worker will be absent on any given day. The probability that one worker is assumed not to affect the probability that another is absent. The factory is able to operate on any given day as long as there are no more than 50 workers absent on that day. What is the probability that any $2$ out of $9$ randomly chosen workers will be absent next Monday?

Solution

This situation can be described by a Binomial Distribution since we have:

  • a fixed number ($9$) of trials (workers).
  • each trial has two possible outcomes, “success” (the worker is absent) or “failure” (the worker is not absent).
  • the probability of success (0.1) is constant.
  • the outcome of each trial is independent of the outcome of all other trials.

Let $X$ denote the number of absent workers. Using the above formula, the probability that $2$ out of $9$ randomly chosen workers will be absent is:

\begin{align} \mathrm{P}(X =2) &= {}^9\mathrm{C}_2 \times 0.1^2 \times(1-0.1)^{9-2}\\ &=36 \times 0.1^2 \times(0.9)^{7}\\ &=0.172 \text{ (to 3 d.p.).}\\ \end{align}

See Example 2, showing how to calculate binomial probabilities if you are unsure about how the above probabilities were obtained.

The rest of the solution to this question can be found here.

Expectation and Variance

If $X\sim\mathrm{Bin}(n,p)$, then the expectation and variance of $X$ are given by:

\begin{equation} \begin{split} \mathrm{E}[X] &&= np\\ \mathrm{Var}(X) &&= np(1-p)\\ \end{split} \end{equation}

What does a Binomial Distribution look like?

Since the Binomial distribution is a discrete probability distribution we can represent it graphically as a bar chart. Below is a plot for the random variable $Y$ ~ $\mathrm{Bin}(10,0.5)$. The distribution is symmetric around $5$ as this is the mean of the distribution: $\mathrm{E}(Y)=n\times p=10\times 0.5=5$..

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If we change the value of $p$ it skews the plots (makes them asymmetric) and if we increase the size of $n$ the barplot starts to represent a bell-shaped curve more. We can see this in the plots below.

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Worked Example 2

Worked Example

There are ten customers in a shop. The probability that an individual customer buys something is 0.4.

(A) Calculate the probability that one customer buys something.

(B) Calculate the probability that four customers buy something.

(C) Calculate the probability that at most two people buy something.

(D) What is the probability that at least two people buy something?

(E) How many customers do we expect to buy something?

Solution

Let $Y$ denote the number of customers who buy something. Here $n = 10$ and $p = 0.4$. So we have $Y \sim \mathrm{Bin}(10,0.4)$

(A)

To calculate the probability that exactly one customer buys something we use the formula above in the first orange box for a Binomial probability with $n=10, p = 0.4 \text{ and } r = 1$: \begin{align} \mathrm{P}(Y = 1) &= {}^{10}\mathrm{C}_1 \times 0.4^{1} \times(1 - 0.4)^{10-1}\\ &={}^{10}\mathrm{C}_1 \times0.4\times0.6^{9}\\ &=0.040\text{ ( 3 d.p.)}.\\ \end{align}

(B)

Using the same formula as in part (A) we have: \begin{align} \mathrm{P}(Y = 4) &= {}^{10}\mathrm{C}_4 \times 0.4^{4} \times(1 - 0.4)^{10-4}\\ &={}^{10}\mathrm{C}_4 \times0.4^{4}\times0.6^{6}\\ &=0.251 \text{ (3 d.p.)}.\\ \end{align}

(C)

Here we are required to calculate the cumulative probability $\mathrm{P}(Y \leq 2)$. Summing the probabilities $\mathrm{P}(Y=j)$ for $j=0, 1, 2$, we have:

\begin{align} \mathrm{P}(Y \leq 2) &= \mathrm{P}(Y=0) \; + \; \mathrm{P}(Y=1) + \; \mathrm{P}(Y=2)\\ &= \big({}^{10}\mathrm{C}_0 \times 0.4^{0} \times(1 - 0.4)^{10-0}\big) + \big({}^{10}\mathrm{C}_1 \times 0.4^{1} \times(1 - 0.4)^{10-1}\big) + \big({}^{10}\mathrm{C}_2 \times 0.4^{2} \times(1 - 0.4)^{10-2}\big)\\ &= \big({}^{10}\mathrm{C}_0 \times0.4^{0}\times0.6^{10}\big) + \big({}^{10}\mathrm{C}_1 \times0.4^{1}\times0.6^{9}\big)+ \big({}^{10}\mathrm{C}_2 \times0.4^{2}\times0.6^{8}\big)\\ &=0.0060+0.0403+0.1209\\ &=0.167\text{ (3 d.p.)}.\\ \end{align}

Calculating the above probability, we needed to add up only three binomial probabilities. However, what if we had to calculate $\mathrm{P}(Y\leq7)$? We would have to calculate eight different probabilities and then add them up! Fortunately, there are published tables of the cumulative probabilities of the binomial distribution available that we can use for this purpose.

Alternatively we could have used the fact that, since $n=10$ for this distribution (so $X \leq 10$) and the sum of the probabilities must be 1,

\begin{align} \mathrm{P}(Y\leq7)&=1- \mathrm{P}(Y\gt7)\\ &= 1-(\mathrm{P}(Y=8) + \mathrm{P}(Y=9) + \mathrm{P}(Y=10))\\ \end{align}

(D)

Here we wish to calculate $\mathrm{P}(Y\geq2)$.

Rather than calculating $\mathrm{P}(Y=2)+\mathrm{P}(Y=3)+...+\mathrm{P}(Y=10)$, we can instead use the fact that $\mathrm{P}(Y\geq2)=1-\mathrm{P}(Y\lt2)$. We then only need to calculate $\mathrm{P}(Y\leq1)$ and subtract this from $1$ to obtain the probability $\mathrm{P}(Y\geq2)$.

\begin{align} \mathrm{P}(Y\geq2) &= 1-\mathrm{P}(Y\leq1)\\ &= 1 - \mathrm{P}(Y=1) - \mathrm{P}(Y=0)\\ &= 1 - \big({}^{10}\mathrm{C}_1 \times 0.4^{1} \times(1 - 0.4)^{10-1}\big) - \big({}^{10}\mathrm{C}_0 \times 0.4^{0} \times(1 - 0.4)^{10-0}\big)\\ &= 1 - 0.0403 - 0.0060\\ &= 0.954 \text{ (3 d.p.)}.\\ \end{align}

(E)

Using the expectation formula, we would expect $10 \times 0.4 = 4$ customers to buy something.

Note that the variance is $10 \times 0.4 \times(1-0.4) = 2.4$.

Test Yourself

To practice questions on the Binomial distribution and Poisson distribution click the following link:

Numbas test.

See Also

For information on continuous probability distributions see the other pages on continuous probability distributions.