The senior executives of an oil company are trying to decide whether to drill for oil in a particular field in the Gulf of Mexico. It costs the company $300,000 to drill in the selected field. Company...

The senior executives of an oil company are trying to decide whether to drill for oil in a particular field in the Gulf of Mexico. It costs the company $300,000 to drill in the selected field. Company executives believe that if oil is found in this field, its estimated value will be $1,800,000. At present, this oil company believes there is a 48% chance that the selected field actually contains oil. Before drilling, the company can hire a geologist at a cost of $30,000 to prepare a report that contains a recommendation regarding drilling in the selected field. There is a 55% chance that the geologist will issue a favorable recommendation and a 45% chance that the geologist will issue an unfavorable recommendation. Given a favorable recommendation from the geologist, there is a 75% chance that the field actually contains oil. Given an unfavorable recommendation from the geologist, there is a 15% chance that the field actually contains oil.


a. Assuming that this oil company wants to maximize its expected net earnings, determine its optimal strategy through the use of a decision tree.


b. Compute and interpret EVSI for this decision problem.


c. Compute and interpret EVPI for this decision problem.