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Answer: Table D
The correct answer is **D** (Table D). **Explanation:** The conditional distribution of Company A's profits given that Company B's profits are 100 million is calculated using the formula: $$f_{(X_1 | X_2)}(x_1 | X_2 = 100) = \frac{f_{(X_1, X_2)}(x_1, x_2)}{f_{X_2}(X_2 = 100)}$$ Where: - $f_{(X_1, X_2)}(x_1, x_2)$ is the joint probability - $f_{X_2}(X_2 = 100) = 0.1583$ is the marginal probability of Company B having 100 million profits The table shows: - For X₁ = -1 Million: P(X₁ | X₂ = 100) = 0 - For X₁ = 0 Million: P(X₁ | X₂ = 100) = 0.1952 - For X₁ = 2 Million: P(X₁ | X₂ = 100) = 0.4144 - For X₁ = 4 Million: P(X₁ | X₂ = 100) = 0.3904 These conditional probabilities sum to 1 (0 + 0.1952 + 0.4144 + 0.3904 = 1.0000), which confirms this is a valid conditional probability distribution.
Author: Tanishq Prabhu
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The conditional distributions describe the probability of an outcome of a random variable conditioned on the other random variable taking a particular value.
Recall that given any two events A and B, then:
This result can be applied in bivariate distributions. That is, the conditional distribution of given is defined as:
So, in this case, we need:
The marginal distribution of company B () given by:
| Company B(X₂) Profits | -50 Million | 0 Million | 10 Million | 100 Million |
|---|---|---|---|---|
| P(X₂ = x₂) | 0.0712 | 0.4228 | 0.3482 | 0.1583 |
Which table shows the correct conditional distribution of Company A's profits given that Company B's profits are 100 million?
A
Table A
B
Table B
C
Table C
D
Table D