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A beam may have an internal crack in it. You are entrusted with the decision of whether to spend $5000 in repairs. You also have available the use of non-destructive testing (NDT) techniques to determine if the crack exists. If there is a crack there is a 70% probability that the beam will fail causing damage to the order of $17000, otherwise the damage is 0. The NDT technique is 99% accurate in determining that a crack exists when there actually is one, and is 80% accurate in determining that no crack exists when there actually is none. How much will you pay for this test if your utility function is X U(x)=1-e 7000 and the NDT is 35% likely to say there is a crack present? Show all calculations in answer submitted.

A beam may have an internal crack in it. You are entrusted with the decision of whether to spend $5000 in repairs. You also have available the use of non-destructive testing (NDT) techniques to determine if the crack exists. If there is a crack there is a 70% probability that the beam will fail causing damage to the order of $17000, otherwise the damage is 0. The NDT technique is 99% accurate in determining that a crack exists when there actually is one, and is 80% accurate in determining that no crack exists when there actually is none. How much will you pay for this test if your utility function is X U(x)=1-e 7000 and the NDT is 35% likely to say there is a crack present? Show all calculations in answer submitted.

A First Course in Probability (10th Edition)
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
Section: Chapter Questions
Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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A beam may have an internal crack in it. You are entrusted with the decision of whether to spend $5000 in repairs. You also have available the use of non-destructive testing (NDT) techniques to determine if the crack exists. If there is a crack there is a 70% probability that the beam will fail causing damage to the order of $17000, otherwise the damage is 0. The NDT technique is 99% accurate in determining that a crack exists when there actually is one, and is 80% accurate in determining that no crack exists when there actually is none. How much will you pay for this test if your utility function is U(x)=1-e 7000 and the NDT is 35% likely to say there is a crack present? Show all calculations in answer submitted.
Transcribed Image Text:A beam may have an internal crack in it. You are entrusted with the decision of whether to spend $5000 in repairs. You also have available the use of non-destructive testing (NDT) techniques to determine if the crack exists. If there is a crack there is a 70% probability that the beam will fail causing damage to the order of $17000, otherwise the damage is 0. The NDT technique is 99% accurate in determining that a crack exists when there actually is one, and is 80% accurate in determining that no crack exists when there actually is none. How much will you pay for this test if your utility function is U(x)=1-e 7000 and the NDT is 35% likely to say there is a crack present? Show all calculations in answer submitted.
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