Saturday
March 25, 2017

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Expand Your Knowledge: Negative Binomial Distribution

Suppose you have binomial trials for which the probability of success on each trial is p and the probability of failure is q= 1-p. Let k be a fixed whole number greater than or equal to 1. Let n be the number of the trial on which the kth success occurs. This means that the first k-1 successes occur within the first n-1 trials, while the kth successes actually occurs on the nth trial. Now, if we are going to have k successes, we must have at least k trials.. So n = k, k+1, k+2, … and n is a random variable. The probability distribution for n is called the negative binomial distribution.

In eastern Colorado there are many dry land wheat farms. The success of a spring wheat crop is dependent on sufficient moisture in March and April. Assume that the probability of a successful wheat crop in the region is about 65%. So the probability of success in a single year is p=0.65 and the probability of failure is q = 0.35. The Wagner farm has taken out a loan and needs k = 4 successful crops to repay it. Let n be a random variable representing the year in which the fourth successful crop occurs (after the loan was made).

(a) Write out the formula for P(n) in the context of this application
(b) Compute P(n=4), P(n=5), P(n=6), and P(n=7)
(c) What is the probability that the Wagners can repay the loan within 4 to 7 years?
(d) What is the probability that the Wagners will need to farm for 8 or more years before they can repay the loan? Hint: Compute P(n is greater than or equal to 8)
(e) What are the expected value μ (mu) and standard deviation σ (sigma) of the random variable n? Interpret these values in the context of this application.