Oil Company Must Decide Whether or Not to Drill

An oil social club mustiness decide whether or not to drill an oil well in a particular land that they already own. The decision bearr (DM) believes that the area could be dry , reasonably good or a bonanza. image data in the table which shows the gross revenues for the oil well that is found. end Dry (D) ReasonablyBonanza(B) good(G) Drill $0 $85 $200 m spare $0 $0 $0 Probability 0. 3 0. 3 0. 4 Drilling costs 40M. The company can take a series of seismic soundings ( at a cost of 12M) to moderate the underlying geologic social system.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. Note that if the test result is no structure the company can sell the land to a developer for 50 m, otherwisewise (for the other results) it can abandon the drilling idea at no expediency to itself. . Conditional Probability for a given state of nature seismic Res ults 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 (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 have computed the revised probabilities round to two decimal places a) shit the appropriate decision tree to help the oil company make the appropriate decisions. This tree must be constructed in logical influence with labels and net payoffs. It also includes the revised probabilities ) Fold back the decision tree) to determine the best strategy for the company you must state this strategy . What is the final pass judgment profit? c) What is the expected value of sample information(EVSI)- the most that should be paid to seismic testing firm for the test? d) Calculate the expected value of perfect information (EVPI)- the most that should be paid to an safe for perfect prediction of the uncertain outcomes e) What is the efficiency of sample information