Question: A nuclear power company is deciding whether to build a nuclear power plant at Diablo Canyon or at Roy Rogers City. The cost of building

A nuclear power company is deciding whether to build a nuclear power plant at Diablo Canyon or at Roy Rogers City. The cost of building the power plant is $10 million at Diablo and $20 million at Roy Rogers City. If the company builds at Diablo, however, and an earthquake occurs at Diablo during the next five years, construction will be terminated and the company will lose $10 million (and will still have to build a power plant at Roy Rogers City). Without further expert information the company believes there is a 20% chance that an earthquake will occur at Diablo during the next five years. For $1 million, a geologist can be hired to analyze the fault structure at Diablo Canyon. She will predict either that an earthquake will occur or that an earthquake will not occur. The geologist’s past record indicates that she will predict an earthquake on 95% of the occasions for which an earthquake will occur and no earthquake on 90% of the occasions for which an earthquake will not occur. Should the power company hire the geologist? Also, calculate and interpret EVSI and EVPI.

Step by Step Solution

3.54 Rating (168 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

tr msoheightsourceauto col msowidthsourceauto br msodataplacementsamecell style0 msonumberformatGeneral textaligngeneral verticalalignbottom whitespacenowrap msorotate0 msobackgroundsourceauto msopatt... View full answer

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Document Format (1 attachment)

Excel file Icon

415-M-S-P (1236).xlsx

300 KBs Excel File

Students Have Also Explored These Related Statistics Questions!