Q.The chances of P, Q and R getting selected as CEO of a company are in the ratio respectively. The probabilities for the company to increase its profits from the previous year under the new CEO, P, Q or R, are , and respectively. If the company increased the profits from the previous year, find the probability that it is due to the appointment of R as CEO.
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Start your 14-day free trial to unlock the full solution →This problem uses Bayes' Theorem to find the probability that R was appointed as CEO, given that the company's profits increased. We first calculate the prior probabilities of each candidate being selected and the overall probability of profit increase, then apply the theorem to find the conditional probability, which is .
This problem is a classic application of conditional probability, specifically Bayes' Theorem. We are given information about the likelihood of different events happening (P, Q, or R being selected) and the probability of a certain outcome (profit increase) given each of those events. Our goal is to reverse this: to find the probability of one of the initial events (R being selected) given that the outcome (profit increase) has already occurred.
Think of it this way: before we know anything about profits, we have an initial belief (prior probability) about who became CEO. Once we observe that profits increased, this new information allows us to update our belief, making some CEOs more likely and others less likely. Bayes' Theorem provides the mathematical framework for this update.
Let's define the events clearly:
- Let be the event that P is selected as CEO.
- Let be the event that Q is selected as CEO.
- Let be the event that R is selected as CEO.
- Let be the event that the company increases its profits from the previous year.
We want to find the probability that R was appointed as CEO, given that the company increased its profits. In probability notation, this is .
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Determine the prior probabilities of P, Q, and R being selected.
The chances of P, Q, and R getting selected are in the ratio . This means that out of total "parts", P accounts for 4, Q for 1, and R for 2.
Therefore, the prior probabilities are:
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Identify the conditional probabilities of profit increase under each CEO.
These are the probabilities of the company increasing profits given that a specific CEO was appointed.
- (Probability of profit increase if P is CEO)
- (Probability of profit increase if Q is CEO)
- (Probability of profit increase if R is CEO)
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State the target probability.
We need to find , the probability that R was appointed given that profits increased.
Bayes' Theorem states that for two events and :
In our case, is and is , so we need to calculate:
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Calculate the overall probability of the company increasing its profits, .
The company's profits can increase if P is CEO and profits increase, OR if Q is CEO and profits increase, OR if R is CEO and profits increase. Since P, Q, and R being selected are mutually exclusive and exhaustive events (one of them must be selected), we can use the Law of Total Probability.
The Law of Total Probability states:
where are mutually exclusive and exhaustive events.
For our problem:
Let's substitute the values:
…
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