00:01
In this problem, it is said that an oil drilling company knows that it costs $25 ,000 to sink a test well, and if oil is hit, then the income will be $385 ,000, if only natural gas is hit, the income is $160 ,000, and if nothing is hit, there will be no income.
00:16
We have been given the corresponding probabilities, and we want to find the expectation for the drilling company.
00:21
So let's consider x to be the random variable, denoting their gain, then we want to find the expected value of x and this is given by summation x times p of x where x represents the values that x can take and p of x is the corresponding probability.
00:35
So first of all, consider the case in which oil is hit and there is an income of $385 ,000 and $25 ,000 was spent to sink the test well.
00:47
So $385 ,000 minus $25 ,000 gives us the profit that is x.
00:51
What is the corresponding probability? that is the probability of hitting oil that is 1 over 40...