The management of an oil company is trying to decide whether to drill for oil in a particular field in the Gulf of Mexico. It costs the company $600 thousand to drill in the selected field. The management believes that if oil is found in this field, its estimated value will be $3400 thousand. At present, this oil company believes that there is a 45% chance that the selected field actually contains oil. Before drilling, the oil company can hire a team of geologists to perform seismographic tests at a cost of $55 thousand. Based on similar tests in other fields, the tests have a 25% false negative rate (no oil predicted when oil is present) and a 15% false positive rate (oil predicted when no oil is present). A. Assume the oil company wants to maximize its expected net earnings. Please utilize decision tree analysis to determine its optimal strategy. B. Calculate the expected value of the information (EVI/EVSI) provided by the team of geologists. C. Calculate and interpret EVPI for this decision tree problem. i tried but i got stuck...

The management of an oil company is trying to decide whether to drill for oil in a particular field in the Gulf of Mexico. It costs the company $600 thousand to drill in the selected field. The management believes that if oil is found in this field, its estimated value will be $3400 thousand. At present, this oil company believes that there is a 45% chance that the selected field actually contains oil. Before drilling, the oil company can hire a team of geologists to perform seismographic tests at a cost of $55 thousand. Based on similar tests in other fields, the tests have a 25% false negative rate (no oil predicted when oil is present) and a 15% false positive rate (oil predicted when no oil is present). A. Assume the oil company wants to maximize its expected net earnings. Please utilize decision tree analysis to determine its optimal strategy. B. Calculate the expected value of the information (EVI/EVSI) provided by the team of geologists. C. Calculate and interpret EVPI for this decision tree problem. i tried but i got stuck...

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...

See similar textbooks

Similar questions

I need help with these two questions?
Large companies typically collect volumes of data before designing a product, not only to gain information as to whether the product should be released, but also to pinpoint which markets would be the best targets for the product. Several months ago, I was interviewed by such a company while shopping at a mall. I was asked about my exercise habits and whether or not I'd be interested in buying a video/DVD designed to teach stretching exercises. I fall into the male, 18-35-years-old category, and I guessed that, like me, many males in that category would not be interested in a stretching video. My friend Holly falls in the female, older-than-35 category, and I was thinking that she might like the stretching video. After being interviewed, I looked at the interviewer's results. Of the 89 people in my market category who had been interviewed, 20 said they would buy the product, and of the 103 people in Holly's market category, 28 said they would buy it. Assuming that these…
You are a paranoid delusional statistician with far too much time on your hands. One day, you sit down to have a bowl of soup. This bowl of soup happens to be Tic-Tac-Toe themed, meaning that you stir have some noodles that are shaped like an X, and some that are shaped like an O. As your soup, you notice that this bowl seems to have a particularly high number of X- you shaped noodles in it. Being paranoid, you conclude that this has some meaning-like someone is trying to give you a message, possibly warning you of the dangers of x-rays. You jump out of your seat and run to get your x-ray-proof cape, and then you pause for a moment and think that you should calculate a chi-square statistic for the frequency of X-shaped noodles before freaking out. First, you carefully separate each of the noodles by shape and count them. Here is what you find: Frequency of Noodles X-shaped O-shaped 33 21 1. What type of chi-square design is this (check one box)? OTwo-cell ОThree-cell OTwo-by-two…
Many investors and financial analysts believe the Dow Jones Industrial Average (DJIA) gives a good barometer of the overall stock market. On January 31, 2006, 9 of the 30 stocks making up the DJIA increased in price (The Wall Street Journal, February 1, 2006). On the basis of this fact, a financial analyst claims we can assume that 30% of the stocks traded on the New York Stock Exchange (NYSE) went up the same day.A sample of 78 stocks traded on the NYSE that day showed that 26 went up.You are conducting a study to see if the proportion of stocks that went up is significantly more than 0.3. You use a significance level of α=0.01What is the test statistic for this sample? (Report answer accurate to three decimal places.)test statistic = What is the p-value for this sample? (Report answer accurate to four decimal places.)p-value = The p-value is... less than (or equal to) α greater than α This test statistic leads to a decision to... reject the null accept the null fail to reject…
We want to know if students with bronchitis at 5 years have more cough symptoms when they grow up. Out of 290 children with Bronchitis at Age 5, 32 of them has cough symptoms at Age 12. Out of 970 children with no Bronchitis at Age 5, 43 of them has cough symptoms at Age 12. Is the cough symptom equally prevalent in both populations?
A researcher's survey results indicate that about 50% of 12th graders consume less than 300g of vegetables at lunch, about 40% consume 300-600g, and only 10% of them consume more than 600g. A high school conducted a survey of student diets and health information, and reported data about 12th graders' vegetable intake at lunch is reported in the table photo. If researchers wants to find out whether the high school has the same proportions of 12th graders in the vegetable intake categories as reported by the survey, what would the appropiate test statistic be to use and why. Choosing between an ANOVA, Chi -Square independence tests, Chi Square Goodness of Fit, and One sample proportion test?
Many investors and financial analysts believe the Dow Jones Industrial Average (DJIA) gives a good barometer of the overall stock market. On January 31, 2006, 9 of the 30 stocks making up the DJIA increased in price (The Wall Street Journal, February 1, 2006). On the basis of this fact, a financial analyst claims we can assume that 30% of the stocks traded on the New York Stock Exchange (NYSE) went up the same day.A sample of 70 stocks traded on the NYSE that day showed that 8 went up.You are conducting a study to see if the proportion of stocks that went up is is significantly less than 0.3. You use a significance level of α=0.005α=0.005.What is the test statistic for this sample? (Report answer accurate to three decimal places.)test statistic = What is the p-value for this sample? (Report answer accurate to four decimal places.)p-value = The p-value is... less than (or equal to) αα greater than αα This test statistic leads to a decision to... reject the null accept the null…
Many investors and financial analysts believe the Dow Jones Industrial Average (DJIA) gives a good barometer of the overall stock market. On January 31, 2006, 9 of the 30 stocks making up the DJIA increased in price (The Wall Street Journal, February 1, 2006). On the basis of this fact, a financial analyst claims we can assume that 30% of the stocks traded on the New York Stock Exchange (NYSE) went up the same day.A sample of 50 stocks traded on the NYSE that day showed that 12 went up.You are conducting a study to see if the proportion of stocks that went up is significantly less than 0.3. You use a significance level of α=0.01.What is the test statistic for this sample? (Report answer accurate to three decimal places.)test statistic = What is the p-value for this sample? (Report answer accurate to four decimal places.)p-value = The p-value is... less than (or equal to) αα greater than αα This test statistic leads to a decision to... reject the null accept the null fail to…
While the mail-order DVD rental market has slowed with the advent of streaming, mail-order is still the only way to find rare movies. Raredvds.biz is considering moving into the rental business after considerable success selling DVDs. To gauge their customer service, they are considering the case of the 1980 film The Monster Club featuring Vincent Price. Raredvds.biz expects to have one copy of the DVD. Based on data collected from customers, Raredvds.biz believes that the average time between orders for the film will be about 10 days with a coefficient of variation of one. Using customer data, the company also believes that including shipping time, both ways, the DVD will on average spend seven days in service, with a coefficient of variation of one. How long does a customer wait on average before being shipped the DVD?
Many investors and financial analysts believe the Dow Jones Industrial Average (DJIA) gives a good barometer of the overall stock market. On January 31, 2006, 9 of the 30 stocks making up the DJIA increased in price (The Wall Street Journal, February 1, 2006). On the basis of this fact, a financial analyst claims we can assume that 30% of the stocks traded on the New York Stock Exchange (NYSE) went up the same day.A sample of 60 stocks traded on the NYSE that day showed that 24 went up.You are conducting a study to see if the proportion of stocks that went up is significantly more than 0.3. You use a significance level of α=0.001α=0.001.What is the test statistic for this sample? (Report answer accurate to three decimal places.)test statistic = What is the p-value for this sample? (Report answer accurate to four decimal places.)p-value =
Many investors and financial analysts believe the Dow Jones Industrial Average (DJIA) gives a good barometer of the overall stock market. On January 31, 2006, 9 of the 30 stocks making up the DJIA increased in price (The Wall Street Journal, February 1, 2006). On the basis of this fact, a financial analyst claims we can assume that 30% of the stocks traded on the New York Stock Exchange (NYSE) went up the same day.A sample of 80 stocks traded on the NYSE that day showed that 11 went up.You are conducting a study to see if the proportion of stocks that went up is is significantly less than 0.3. You use a significance level of α=0.02α=0.02.What is the test statistic for this sample? (Report answer accurate to three decimal places.)test statistic = What is the p-value for this sample? (Report answer accurate to four decimal places.)p-value = The p-value is... less than (or equal to) αα greater than αα This test statistic leads to a decision to... reject the null accept the null fail…
On a particular night, a baseball stadium sells 60% of its seats, and of those, 15% do not end up showing up to the game. Assuming everyone present is sitting in a seat, what percentage of seats in the stadium are empty?