document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=235316>Question 235316</A>: <I><SPAN STYLE=\"word-break: break-all;\"> 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 bve $425,000. 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 the probability of hitting gas is 1/20, what is the expectation for the drilling company? Should the company sink the test well.<BR>\n" );
document.write( " </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #173379 by </B><A HREF=/tutors/aboutme.mpl?userid=stanbon><B>stanbon(75887)</B></A><img src=\"/images/stars/stars-13.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=stanbon><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/images/nopicture.jpg><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=173379\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> An oil drilling company knows that it costs $25,000 to sink a test well. <BR>\n" );
document.write( "If oil is hit, the income for the drilling company will be $425,000. <BR>\n" );
document.write( "If only natural gas is hit, the income will be $125,000. <BR>\n" );
document.write( "If nothing is hit, there will be no income. <BR>\n" );
document.write( "If the probability of hitting oil is 1/40 and the probability of hitting gas is 1/20, what is the expectation for the drilling company? <BR>\n" );
document.write( "Should the company sink the test well.<BR>\n" );
document.write( "------------<BR>\n" );
document.write( "Let the random variable, x, represent company profit.\r<BR>\n" );
document.write( "\n" );
document.write( "Values of \"x\": 400,000 , 100,000, -25000<BR>\n" );
document.write( "Matched probabilities are (1/40) , 1/20, 37/40<BR>\n" );
document.write( "----------------------------------------------------<BR>\n" );
document.write( "Expected profit = (1/40)*400,000 + (2/40)100,000 - (35/40)(25000)<BR>\n" );
document.write( "E(x) = [400,000+200,000-875000)/40<BR>\n" );
document.write( "E(x) = -$6875<BR>\n" );
document.write( "They can expect to lose that amount every time they drill.<BR>\n" );
document.write( "================================================================<BR>\n" );
document.write( "Cheers,<BR>\n" );
document.write( "Stan H. </SPAN>\n" );
document.write( "</TD></TR></TABLE>\n" );