SOLUTION: An oil-drilling company knows that it costs $25,000 to sink a test well. If oil is hit, the income for the drilling company will be $335,000. If only natural gas is hit, the income

Question 892966: An oil-drilling company knows that it costs $25,000 to sink a test well. If oil is hit, the income for the drilling company will be $335,000. If only natural gas is hit, the income will be $125,000. If nothing is hit, there will be no income. If the probability of hitting oil is 1/40 and if the probability of hitting gas is 1/20, what is the expectation for the drilling company?

Answer by stanbon(75887) (Show Source): You can put this solution on YOUR website!
An oil-drilling company knows that it costs $25,000 to sink a test well. If oil is hit, the income for the drilling company will be $335,000. If only natural gas is hit, the income will be $125,000. If nothing is hit, there will be no income. If the probability of hitting oil is 1/40 and if the probability of hitting gas is 1/20, what is the expectation for the drilling company?
Ans::
E = (1/40)(310000) + (1/20)(100,000) + (37/40)(-25000)
---
E = [310000 + 2*100,000 - 37*25000)/40 = -$10375
-----------------------------
Cheers,
Stan H.

RELATED QUESTIONS
An oil-drilling company knows that it costs $25,000 to sink a test well. If oil is hit,... (answered by ewatrrr)

An oil drilling company knows that it costs $25,000 to sink a test well. If oil is hit,... (answered by stanbon)

An oil-drilling company knows that it costs $25,000 to sink a test well. If oil is hit,... (answered by fcabanski)

An oil-drilling company knows that it costs $25,000 to sink a test well. If oil is hit,... (answered by stanbon)

An oil-drilling company knows that it costs $25,000 to sink a test well. If oil is hit,... (answered by ewatrrr)

An oil-drilling company knows that it costs $25,000 to sink a test well. If oil is hit,... (answered by jim_thompson5910)

An oil-drilling company knows that it costs $25,000 to sink a test well. If oil is hit,... (answered by ewatrrr)