Answer: The expectation for the drilling company is $20700.76.
No, the company should not sink the test well as the cost for sinking is $65000 and our expectation is just $20700.76.
Step-by-step explanation:
Since we have given that
Probability of hitting oil = ![\dfrac{1}{65}](https://tex.z-dn.net/?f=%5Cdfrac%7B1%7D%7B65%7D)
Probability of hitting oil = ![\dfrac{1}{35}](https://tex.z-dn.net/?f=%5Cdfrac%7B1%7D%7B35%7D)
Income for the drilling company = $550,000
Income for the natural gas = $428,373
According to question, we get that
Expected for the drilling company would be :
![\dfrac{1}{65}\times 550000+\dfrac{1}{35}\times 428,373\\\\=\$20700.76](https://tex.z-dn.net/?f=%5Cdfrac%7B1%7D%7B65%7D%5Ctimes%20550000%2B%5Cdfrac%7B1%7D%7B35%7D%5Ctimes%20428%2C373%5C%5C%5C%5C%3D%5C%2420700.76)
No, the company should not sink the test well as the cost for sinking is $65000 and our expectation is just $20700.76.