Baffin Bay, located between Canada and Greenland, is being explored for oil and natural gas. First an energy company conducts a geological survey, and if the data look promising it starts drilling. A recent survey of one area cost $65 million and indicates that drilling will be successful with a probability of 0.2. Drilling costs $0.3 billion with a probability of 0.7 and $0.6 billion with a probability of 0.3, due to the fact that the survey does not identify the geological structures precisely. If drilling is successful, revenue from the sale of oil and gas will be $2.7 billion with a probability of 0.75 and $3.2 billion with a probability of 0.25 due to uncertainty about future prices at which the company can sell the oil and gas.

a) What is the expected cost of drilling?

b) What is the expected profit?