Qiner Zhao

915240411

Qiner Zhao

Seat ID:C05

TUID: 915240411

Homework Assignment 3

May 23 2016
 Qiner Zhao
915240411

1. On Thursday, Amazon-Fresh is going to deliver a box of groceries to restaurant A [Delivery A].

According to their contract, the promised time for delivery is 5:00AM. If the delivery arrives late,

Amazon-Fresh will pay $30 penalty to restaurant A. Based on past experience with the delivery, Amazon-

Fresh estimates that Delivery A has a 10% of chance of arriving late.

a. What is the mutually exclusive event in this case? [1 point]

The mutually exclusive event in this case is the outcome of Delivery A arrives or does not arrive.

b. What is the random variable in this case? [1 point]

The random variable in this case is the total amount of losses from Delivery A.

c. Construct a properly-labeled probability distribution table for total losses. Note that is total losses, not

number of losses. Make sure that you label your table correctly. [2 points]

Outcomes Probability

$0 90%

$30 10%

2. On Friday, Amazon-Fresh is going to deliver another box of groceries to restaurant B [Delivery B].

According to their contract, the promised time for delivery is 6:00AM. If the delivery arrives late,

Amazon-Fresh will pay $20 penalty to restaurant B. Based on past experience with the delivery, Amazon

estimates that Delivery B has a 20% of chance of arriving late.

a. What are the possible outcomes for Amazon’s total dollar amount of losses for delivery A and B? For

each dollar amount of loss you identify, describe under what circumstances it would occur. In other

words, what has to happen in order for each dollar amount of losses to occur? Please note that this asks

about total dollar amount of losses, not number of losses. [4 points]

 Qiner Zhao
915240411

Possible outcomes of Delivery A and Delivery B: $0, $30, $20, $50. For $0 loss occurs: A AND B are

on time; For $30 loss occurs: A is late AND B is on time; For $20 loss occurs: A is on time AND B is

late; For $50 loss occurs: A AND B are late.

b. For each of the possible outcomes you identify in part [a], derive the probability of the outcome

occurring. [4 points]

Probability of $0 loss=0.90*0.80=0.72 Probability of $30 loss=0.10*0.80=0.08

Probability of $20 loss=0.90*0.2=0.18 Probability of $50 loss=0.1*0.2=0.02

c. Construct [in table form] the probability distribution for total dollar amount of losses for delivery A and

B. [2 points]

Total $ of losses probability

$0 0.72

$30 0.08

$20 0.18

$50 0.02

d. What is the expected total dollar amount of losses for delivery A and B? Recall that for our purposes,

expected value=mean=average. [2 points]

Expected value=0*0.72+30*0.08+20*0.18+50*0.02=$7

e. What is the variance of the total dollar amount of losses for deliveries A and B? Show your

calculations. [4 points]
 Qiner Zhao
915240411

Outcome mean Outcome- (outcome- probability (outcome-

mean mean)^2 mean)^2*prob

$0 7 0-7=-7 49 0.72 35.28

$30 7 30-7=23 529 0.08 42.32

$20 7 20-7=13 169 0.18 30.42

$50 7 50-7=43 1849 0.02 36.98

Variance=35.28+42.32+30.42+36.98=145

f. What is the amount of risk faced by Amazon-Fresh? [2 points]

As I solved above, the mean=7, the variance=145, so the standard deviation=12.0416. Therefore, the

coefficient of variation=standard deviation/mean=12.0416/7=1.7202. So the amount of risk faced by

Amazon-Fresh is 1.7202 unitless.

3. The Civil Air Patrol (CAP) owns airplanes used for search and rescue missions. In the course of their

activities, CAP sustains property damages to their airplanes. Assume that the CAP covers two major

regions in Pennsylvania– the Northeast (NE) and the Southwest (SW).

The NE Region has 232 planes. The CAP has the following data for the number of accidents per airplane

per year in the NE Region.

# of accidents per airplane per year # of airplanes of having this #of accidents

0 209

1 21

2 2

a. What is the random variable illustrated here? [1 point]

 Qiner Zhao
915240411

The random variable illustrated here is the number of accidents per airplane per year

b. Derive the probability distribution for frequency based on this data. Be careful to

label exactly what you are defining as the probability distribution. [3 points]

# of accidents per # of airplanes of Estimate probability Total # of losses

airplane per year having this #of # of losses

accidents

0 209 209/232=0.9009 0

1 21 21/232=0.0905 21

2 2 2/232=0.0086 4

c. Calculate the expected value of frequency per airplane. Round your calculation to

4 decimal places. What are the units of measurement? [2 points]

E(f)= (0+21+4)/232=total # of losses/total # of airplanes of having this losses=0.1078. The units of

measurement are total # of losses and total # of airplanes of having this loss

d. CAP has calculated the variance for the NE Region frequency distribution to be equal to 0.1134. Since

you want to be sure you are using correct numbers in your evaluation, prove that CAP calculated the

correct variance for frequency. Show all work! Round each calculation to 4 decimal places. You must use

this validated variance (0.1134) for all further calculations. What are the units of measurement? [3 points]

Outcome mean Outcome- (outcome- Probability (outcome-

mean mean)^2 mean)^2*prob

0 0.1078 -0.1078 0.0116 0.9009 0.0105

 Qiner Zhao
915240411

1 0.1078 0.8922 0.7960 0.0905 0.0720

2 0.1078 1.8922 3.5804 0.0086 0.0308

Variance=0.0105+0.0720+0.0308=0.1134. the unit of measurement is the number of accidents.

4. The CAP also has the following data for the number of accidents per airplane per year in the SW

Region. The SW Region has 237 planes.

# of accidents per airplane per year # of airplanes of having this 3 of accidents

0 220

1 14

2 3

You have had someone else check your calculations and are sure that these numbers are valid.

Mean = 0.0844, Variance = 0.1026

Which region is riskier, NE Region or SW Region? And why? Show all calculations and explain your

numerical results. [4 points]

As I calculated above the NE Region has the mean=0.1078, variance=0.1134, so the standard

deviation for NE Region=0.3367. The SW Region has the mean=0.0844, variance=0.1026, so the

standard deviation for SW Region=0.3203. Therefore, the coefficient of variation for NE

Region=0.3367/0.1078=3.1234, the coefficient of variation for SW Region=0.3203/0.0844=3.7950.

SW Region is risker, because SW Region has higher measure of dispersion as measured by

coefficient of variation.

5. For NE region, assume initially that when accidents do occur, they are non-random and equal to

$10,000.
 Qiner Zhao
915240411

a. Calculate the expected loss per airplane for NE Region. [2 points]

Expected loss per airplane for NE Region=0.1078*$10,000=$1,078

b. Calculate the expected loss for ALL airplanes for NE Region. [2 points]

Expected loss for all airplanes for NE Region=$1078*232=$250,096