8. A nuclear power company is deciding whether tobuild a nuclear power plant at Diablo Canyon or atRoy Rogers City. The cost of building the powerplant is $70 million at Diablo and $95 million atRoy Rogers City. If the company builds at Diablo,however, and an earthquake occurs at Diablo duringthe next five years, construction will be terminatedand the company will lose $40 million (and will stillhave to build a power plant at Roy Rogers City).Without further expert information the companybelieves there is a 10% chance that an earthquakewill occur, at Diablo during the next five years. For$1.5 million, a geologist can be hired to analyze thefault structure at Diablo Canyon. She will predicteither that an earthquake will occur or that an earthquake will not occur. The geologist’s past recordindicates that she will predict an earthquake withprobability 0.90 if an earthquake will occur, andshe will predict no earthquake with probability 0.80if an earthquake will not occur. Should the powercompany hire the geologist? Also, calculate andinterpret EVI.
8. A nuclear power company is deciding whether to
build a nuclear power plant at Diablo Canyon or at
Roy Rogers City. The cost of building the power
plant is $70 million at Diablo and $95 million at
Roy Rogers City. If the company builds at Diablo,
however, and an earthquake occurs at Diablo during
the next five years, construction will be terminated
and the company will lose $40 million (and will still
have to build a power plant at Roy Rogers City).
Without further expert information the company
believes there is a 10% chance that an earthquake
will occur, at Diablo during the next five years. For
$1.5 million, a geologist can be hired to analyze the
fault structure at Diablo Canyon. She will predict
either that an earthquake will occur or that an earthquake will not occur. The geologist’s past record
indicates that she will predict an earthquake with
probability 0.90 if an earthquake will occur, and
she will predict no earthquake with probability 0.80
if an earthquake will not occur. Should the power
company hire the geologist? Also, calculate and
interpret EVI.
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