Question 235316
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 $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.
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Let the random variable, x, represent company profit.

Values of "x": 400,000 , 100,000, -25000
Matched probabilities are (1/40) , 1/20, 37/40
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Expected profit = (1/40)*400,000 + (2/40)100,000 - (35/40)(25000)
E(x) = [400,000+200,000-875000)/40
E(x) = -$6875
They can expect to lose that amount every time they drill.
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Cheers,
Stan H.