Oil Company Must Decide Whether or Not to Drill

An petroleum company must decide whether or not to drill an embrocate puff up in a particular field of view that they already own. The decision pissr (DM) believes that the battlefield could be dry , reasonably preservedid or a bonanza. See data in the table which shows the gross revenues for the oil well that is found. Decision Dry (D) ReasonablyBonanza(B) good(G) exercise $0 $85 $200 m Abandon $0 $0 $0 Probability 0. 3 0. 3 0. 4 Drilling costs 40M. The company send packing take a series of seismic soundings ( at a cost of 12M) to consider the underlying geological social structure.The resolving powers will be either no structure, feed structure or closed structure. The reliability of the testing company is as follows that is, this reflects their historical performance. 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 repudiate the drilling idea at no benefit to itself. . Condit ional Probability for a given state of nature seismic Results Dry(d) Reasonably good(g) Bonanza(b)No structure(N) 0. 7 0. 3 0. 1 Open(O) 0. 2 0. 3 0. 4 closed(a) (C ) 0. 10. 4 0. 5 That is P (N/D) =0. 7 P (O/G) =0. 3, P(C/B) =0. 5 After you construct computed the revised probabilities round to two quantitative places a) Construct the appropriate decision channelize to help the oil company make the appropriate decisions. This tree must be constructed in logical order with labels and net payoffs. It also includes the revised probabilities ) Fold sticker the decision tree) to determine the best outline for the company you must state this strategy . What is the final evaluate profit? c) What is the expected shelter of sample culture(EVSI)- the most that should be paid to seismic testing sign for the test? d) Calculate the expected value of perfect information (EVPI)- the most that should be paid to an expert for perfect fortune telling of the uncertain outcomes e) What is t he efficiency of sample information