Assume you are the owner of an oil firm and are considering drilling one of two new wells. The first well is in an area with less potential but more certainty about the amount of oil that will be extracted, the second is in an area with a high probability of failure but a significant amount of oil that can be extracted if the well is successfully placed. Your geologist has told you there are 4 potential production outcomes for the first well, and 2 potential production outcomes for the second well, each with a probability as follows:

Potential Outcome	Quantity Well 1	Prob. Outcome i	Quantity Well 2	Prob. Outcome i
1	400,000	.25	50,000	.85
2	450,000	.25	2,000,000	.15
3	600,000	.25
4	700,000	.25

Now, we can express the average or expected return (r ) for this asset as:

where, pbty_i = the probability potential outcome (or return) i occurs _Qi = the quantity of oil produced under potential outcome i p = the expected price (per barrel) of oil

Given an average price of oil of $3 per barrel throughout the life of the producing well, which of the following is the expected total revenue from the oil produced by the first well?

A. $537,500

B. $1,612,500

C. $2,150,000

D. $3,225,000