An oil drilling company is considering 2 sites for its well. The probabilities for getting a dry, a low-producing, or a high-producing well at site A are 0.6, 0.25, and 0.15, respectively. The costs for the 3 eventualities are $150,000, $225,000, and $750,000. For site B, the probability of finding a dry well, resulting in a $280,000 loss, is 0.2. The company estimates that the probability of a low-producing well is 0.8, and in that case it would make $70,000. (a) Make a tree diagram for this situation and find the expected value for site A. $ (b) Make a tree diagram for this situation and find the expected value for site B. $

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An oil drilling company is considering 2 sites for its well. The probabilities for getting a dry, a low-producing, or a high-producing well at
site A are 0.6, 0.25, and 0.15, respectively. The costs for the 3 eventualities are $150,000, $225,000, and $750,000. For site B, the
probability of finding a dry well, resulting in a $280,000 loss, is 0.2. The company estimates that the probability of a low-producing well
is 0.8, and in that case it would make $70,000.
(a) Make a tree diagram for this situation and find the expected value for site A.
$
(b) Make a tree diagram for this situation and find the expected value for site B.
$
(c) On the basis of your answers to (a) and (b), which site should the company select?
site A
site B
Transcribed Image Text:An oil drilling company is considering 2 sites for its well. The probabilities for getting a dry, a low-producing, or a high-producing well at site A are 0.6, 0.25, and 0.15, respectively. The costs for the 3 eventualities are $150,000, $225,000, and $750,000. For site B, the probability of finding a dry well, resulting in a $280,000 loss, is 0.2. The company estimates that the probability of a low-producing well is 0.8, and in that case it would make $70,000. (a) Make a tree diagram for this situation and find the expected value for site A. $ (b) Make a tree diagram for this situation and find the expected value for site B. $ (c) On the basis of your answers to (a) and (b), which site should the company select? site A site B
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