1.3 The A-2-Z construction company is offered a $12,000 contract to build a fence around a house. The company’s profit if it does not have to dig out rocks underground will be $5,000. However, if it does have to remove rocks, it will lose $1,000. The probability it will have to dig out rocks is 40%. What is the expected value of this contract? Now, A-2-Z learns that it can obtain a report from the local county office that specifies whether there are rocks underneath the house before A-2-Z must accept or reject this contract.

By how much would the report increase A-2-Z’s expected value? What is the most that it will pay for such a report? (Hint: See Q&A 14.1.)