15. Decision analysis. After careful testing and analysis, an oil company is con

Question

15. Decision analysis. After careful testing and analysis, an oil company is considering drilling in two different sites. It is estimated that site A will net $30 million if successful (probability .2) and lose $3 million if not (probability .8); site B will net S70 million if successful (probability .1) and lose $8 million if not (probability 9). Which site should the company choose according to the expected return from each site? a. What is the expected return for site A?$ b. What is the expected return for site B? $ c. Which site should the company choose? O Site A million million O Site B

Explanation / Answer

a) expected return for site A = 30 * 0.2 - 3 * 0.8 = $ 3.6 million

b) expected return for site B = 70 * 0.1 - 8 * 0.9 = $ -0.2 million

c) Option-A) site A. Beacause expcted return for site A is more than site B

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