A government announces an auction to allocate two oil exploration areas and company XYZ plans to bid for at most one of the areas. To win the auction for Area 1, XYZ expects $600 as a winning bid, while XYZ considers $500 as a winning bid for Area 2. The amount of oil produced from Areas 1 and 2 is random and statistically independent from each other. At Area 1, XYZ could produce 10,000 litres oil with probability 0.3 and 2,000 litres with probability 0.7. At Area 2, XYZ could produce 5,000 litres oil with probability 0.4 and 4,000 litres with probability 0.6. The drilling cost (fixed cost) is $5,000. When XYZ buys an area, its profit is given by

Profit=p A?B?5000,

where p denotes the oil price per litre, A denotes the amount of oil from the area and B denotes the bid price for the area. XYZ makes tables as in Figure 1, and makes a decision tree graph as in Figure 2. Here, XYZ sets the oil price to be $1.30 per litre (p = 1.3). XYZ can choose to bid for neither areas.