Anuclear power company is deciding whether to build a nuclear power plant at Diablo Canyon or at

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Anuclear 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 5 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 5 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.

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Related Book For  book-img-for-question

Practical Management Science, Revised

ISBN: 9781118373439

3rd Edition

Authors: Wayne L Winston, S. Christian Albright

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