Oilco must determine whether or not to drill for oil inthe South China Sea. It costs $100,000, and if oil is found,the value is estimated to be $600,000. At present, Oilcobelieves there is a 45% chance that the field contains oil.Before drilling, Oilco can hire (for $10,000) a geologist toobtain more information about the likelihood that the fieldwill contain oil. There is a 50% chance that the geologistwill issue a favorable report and a 50% chance of anunfavorable report. Given a favorable report, there is an 80% chance that the field contains oil. Given an unfavorablereport, there is a 10% chance that the field contains oil.Determine Oilco’s optimal course of action. Also determineEVSI and EVPI.
Unitary Method
The word “unitary” comes from the word “unit”, which means a single and complete entity. In this method, we find the value of a unit product from the given number of products, and then we solve for the other number of products.
Speed, Time, and Distance
Imagine you and 3 of your friends are planning to go to the playground at 6 in the evening. Your house is one mile away from the playground and one of your friends named Jim must start at 5 pm to reach the playground by walk. The other two friends are 3 miles away.
Profit and Loss
The amount earned or lost on the sale of one or more items is referred to as the profit or loss on that item.
Units and Measurements
Measurements and comparisons are the foundation of science and engineering. We, therefore, need rules that tell us how things are measured and compared. For these measurements and comparisons, we perform certain experiments, and we will need the experiments to set up the devices.
Oilco must determine whether or not to drill for oil in
the South China Sea. It costs $100,000, and if oil is found,
the value is estimated to be $600,000. At present, Oilco
believes there is a 45% chance that the field contains oil.
Before drilling, Oilco can hire (for $10,000) a geologist to
obtain more information about the likelihood that the field
will contain oil. There is a 50% chance that the geologist
will issue a favorable report and a 50% chance of an
unfavorable report. Given a favorable report, there is an
80% chance that the field contains oil. Given an unfavorable
report, there is a 10% chance that the field contains oil.
Determine Oilco’s optimal course of action. Also determine
EVSI and EVPI.
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