Question 2 An oil company must decide whether or not to drill an oil well in a particular area that they already own. The decision maker (DM) believes that the area could be dry, reasonably good or a bonanza See data in the table which shows the gross revenues for the oil well that is found. Decision Drill Abandon Probability Dry (D) $0 0.3 No structure(N) Open(0) Closed (C) Seismic Results Reasonably good(G) $85 $0 0.3 Drilling costs 40M. The company can take a series of seismic soundings at a cost of 12M) to determine the underlying geological structure. The results will be either "no structure", "open structure or "closed structure. The reliability of the testing company is as follows that is, this reflects their historical performance. Bonanza (B) Note that if the test result is "no structure the company can sell the land to a developer for 50 m. otherwise (for the other results) it can abandon the drilling idea at no benefit to itself Dry(d) 0.7 0.2 0.1 $200 m $0 0.4 Conditional Probability for a given state of nature Keasonably good) 0.3 0.3 0.4 Bonanza (6) 0.1 0.4 0.5

Question 2 An oil company must decide whether or not to drill an oil well in a particular area that they already own. The decision maker (DM) believes that the area could be dry, reasonably good or a bonanza See data in the table which shows the gross revenues for the oil well that is found. Decision Drill Abandon Probability Dry (D) $0 0.3 No structure(N) Open(0) Closed (C) Seismic Results Reasonably good(G) $85 $0 0.3 Drilling costs 40M. The company can take a series of seismic soundings at a cost of 12M) to determine the underlying geological structure. The results will be either "no structure", "open structure or "closed structure. The reliability of the testing company is as follows that is, this reflects their historical performance. Bonanza (B) Note that if the test result is "no structure the company can sell the land to a developer for 50 m. otherwise (for the other results) it can abandon the drilling idea at no benefit to itself Dry(d) 0.7 0.2 0.1 $200 m $0 0.4 Conditional Probability for a given state of nature Keasonably good) 0.3 0.3 0.4 Bonanza (6) 0.1 0.4 0.5

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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