Question

After 200 feet of drilling on the first well, a soil test is taken. The probabilities of finding the particular type of soil identified by the test are as follows. P(soil | high-quality oil) = 0.20 P(soil | medium-quality oil) = 0.80 P(soil | no oil) = 0.20 How should the firm interpret the soil test? The probability of finding oil is good. Given the probability of finding good soil, the oil company is more likely to find oil. What are the revised probabilities?

Answer 1

Answer:

The revised probabilities are;

The probability of finding soil with oil  = 0.8  

The probability of finding soil with good oil = 0.16

The probability of finding medium quality oil =  0.64

Step-by-step explanation:

The given probability of finding soil with high quality oil, P(QO) = 0.20

The probability of finding soil with medium-quality oil, P(OM) = 0.80

The probability of finding soil with no oil, P(ON) = 0.2

Therefore, given that the probability of finding soil with no oil = 0.2, we have;

The probability of finding soil with oil, P(OP) = 1 - the probability of finding soil with no oil

P(OP) = 1 - 0.2 = 0.8

Which gives;

The probability, P(FG) of finding soil with oil and that the oil is good is given as follows;

P(FG) = P(QO) × P(OP) = 0.2 × 0.8 = 0.16

The probability of finding good oil = 0.16

Similarly;

The probability of finding medium quality oil P(FM) =  P(OM) × P(OP) = 0.8 × 0.8 = 0.64

Which gives the revised probability as follows;

The probability of finding soil with oil, P(OP) = 0.8  

The probability of finding soil with good oil, P(FG) = 0.16

The probability of finding medium quality oil, P(FM) =  0.64.