An oil company is drilling a series of new wells on the perimeter of a producing oil field. About 20 % of the new wells will be dry holes. Even if a new well strikes oil, there is still uncertainty about the amount of oil produced: 40 % of new wells which strike oil produce only 1,000 barrels a day; 60 % produce 5,000 barrels a day.

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Business

Lyric Spence

8 October, 16:19

An oil company is drilling a series of new wells on the perimeter of a producing oil field. About 20 % of the new wells will be dry holes. Even if a new well strikes oil, there is still uncertainty about the amount of oil produced: 40 % of new wells which strike oil produce only 1,000 barrels a day; 60 % produce 5,000 barrels a day.

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Caitlyn Vega · Answer 1

2,720

Explanation:

From the question I can see the revenue is to be calculated so, in order to calculate the revenue we can derive as per below:

with probability of 0.20, the result is zero

so, with probability (1 - 0.20) * 40% = 0.32, daily output is 1,000 so, with probability (1 - 0.20) * 60% = 0.48, daily output is 5,000

Daily output is:

0.20 * 0 + 0.32 * 1,000 + 0.48 * 5,000 = 320+2,400 = 2,720