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exam1-f06

# exam1-f06 - 1 Ace Petroleum regularly bids on government...

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1. Ace Petroleum regularly bids on government owned land that has some potential for having oil reserves underground. Before they bid, they do a seismic test to get some idea of the possibility of oil being present. The seismic test shows whether there is an open, tight or no structure in the rock formations on the site. The joint probability table below displays the probabilities of various oil finds and seismic readings. a) Fill in the spaces on the table and answer the questions that follow. Drilling Finds Seismic Result Gusher Trickle Dry Open .08 .10 Tight .03 .15 .20 No Structure .30 .10 .15 .75 b) P(Open/Gusher) = c) P(Gusher/Open) = d) Suppose the seismic test came back showing a tight structure. If a gusher is worth \$60 million, a trickle is worth \$10 million, a dry well worth nothing, and drilling costs \$4 million, what is the expected value of the project?

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2. You are designing seats for a new sports stadium. Given that the widths of posteriors of adult Americans are normally distributed with a mean of 18 inches and a standard
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exam1-f06 - 1 Ace Petroleum regularly bids on government...

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