The Walker Corporation operates a natural gas fired power plant, and last winter their profits suffered because an extreme cold snap damaged the pipeline equipment connected to their power plant. They are considering investing in on-site natural gas storage in case of future disruptions. They assess the likelihood of a pipeline disruption next winter as being 20%, and the likelihood of no pipeline disruption as being 80%. If they invest in storage, they will earn $20 million in profits next year regardless of whether there is severe winter weather. If they do not invest in storage, then their profits are $25 million if there is no severe weather, and $15 million if there is severe weather. (Assume that the storage costs are built into the profit figures.)

a) Assume that the Walker Corporation is an expected value decision-maker who wants profits to be as high as possible. Should they invest in the storage unit? Why or why not? Show the calculations. b) Calculate the threshold probability, which expected-value decision-makers would change their decision about what case to follow.