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 $425,000. If only natural gas is hit, the income

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Question 845602: 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 $425,000. If only natural gas is hit, the income will be $130,000. 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?
$
Should the company sink the test well?
Yes No
Answer by ewatrrr(24785) About Me  (Show Source):
You can put this solution on YOUR website!
 

Hi,

E = (1/40)400,000 + 1/20(105,000) - 37/40(25000)

  = 10,000 + 5,250 - 23,124 = -$7875