The senior executives of an oil company are trying todecide whether to drill for oil in a particular field in the Gulfof Mexico. It costs the company $300,000 to drill in the selectedfield. Company executives believe that if oil is found in thisfield its estimated value will be $1,800,000. At present, this oilcompany believes that there is a 48% chance that the selected fieldactually contains oil. Before drilling, the company can hire ageologist at a cost of $30,000 to prepare a report that contains arecommendation regarding drilling in the selected field. There is a55% chance that the geologist will issue a favorable recommendationand a 45% chance that the geologist will issue an unfavorablerecommendation. Given a favorable recommendation from thegeologist, there is a 75% chance that the field actually containsoil. Given an unfavorable recommendation from geologist, there is a15% chance that the field actually contains oil.
1. Assuming that this oil company wishes to maximize itsexpected net earnings, determine its optimal strategy through theuse of a decision tree.
