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An accounting firm has noticed that of the companies it audits, 85% show no inventory shortages, 10% show small inventory shortages and 5% show large inventory shortages. The firm has devised a new accounting test for which it believes the following probabilities hold:

P(company will pass test | no shortage) = .90
P(company will pass test | small shortage) = .50
P(company will pass test | large shortage) = .20

a. If a company being audited fails this test, what is the probability of a large or small inventory shortage?

b. If a company being audited passes this test, what is the probability of no inventory shortage?

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Statistics and Probability, Statistics

Category:- Statistics and Probability
Reference No.:- M9105657

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