An oil company purchased an option on land in Alaska. Preliminary geologic studies assigned the following prior probabilities. PP( text{high-quality o

Lipossig 2020-12-29 Answered
An oil company purchased an option on land in Alaska. Preliminary geologic studies assigned the following prior probabilities.
PP(high-quality oil)=.50P(medium-quality oil)=.20P(no oil)=.30
a. What is the probability of finding oil?
b. 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 follow.
P(soil | high-quality oil)=.20P(soil | medium-quality oil)=.80P(soil | no oil)=.20
How should the firm interpret the soil test? What are the revised probabilities, and what is the new probability of finding oil?
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Expert Answer

Alannej
Answered 2020-12-30 Author has 104 answers
Given:
P(no oil)=0.30
a. Complement rule:
P(notA)=1P(A)
Use the complement rule:
P(oil)=1P(no oil)=10.30=0.70
b. We are most likely to find the type of soil, when we have found medium-quality oil.
The probabilities remain unchanged> becase the given probability only effect the probability of finding soil and not the probability of finding oil.
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