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)
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E = [310000 + 2*100,000 - 37*25000)/40 = -$10375
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Cheers,
Stan H.
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