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Introduction to Probability 🎲

Probability is the measure of the likelihood that an event will occur. It quantifies uncertainty. In business, nothing is certain—sales, stock prices, demand—everything has an element of chance.

Definition 📖

[!NOTE] Probability: If an experiment results in 'n' exhaustive, mutually exclusive, and equally likely cases, and 'm' is the number of favorable cases, then probability 'p' is:

P(A) = Favorable Cases / Total Cases = m / n
  • The value of Probability always lies between 0 and 1.
  • 0 = Impossible Event (Sun rising in West).
  • 1 = Certain Event (Sun rising in East).

Importance in Business 💼

  1. Decision Making: Helps managers make decisions under uncertainty (e.g., launching a new product).
  2. Risk Management: Insurance companies use it to calculate premiums.
  3. Sales Forecasting: Estimating future demand.
  4. Quality Control: Estimating defective products in a batch.

Key Terms 🗝️

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Summary

  • Probability is the science of chance.
  • Range: 0 ≤ P(A) ≤ 1.
  • Sum of probabilities of all possible outcomes is always 1.

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