After careful testing and analysis, an oil company is considering drilling in two different sites. It is estimated that site A will net $30 million if successful (probability. 4 ) and lose $4 million if not (probability. 6 ); site B will net $60 million if successful (probability. 3 ) and lose $8 million if not (probability. 7 ).

Which site should the company choose according to the expected return from each site?

Expected return for site A = $9.6 million

Expected return for site B = $12.4 million

according to the above results the company should choose SITE B because it has higher Expected return

Step-by-step explanation:

Given;

For site A,

Site A net if successful = $30 million

Success probability = 0.4

Site A loss if not successful = - $4 million

Probability of not successful = 0.6

For site B.

Site B net if successful = $60 million

Success probability = 0.3

Site B loss if not successful = - $8 million

Probability of not successful = 0.7

To estimate the expected return on an event with outcomes X1 and X2 with probabilities p1 and p2

E = X1 (p1) + X2 (p2)

Substituting for site A

E = 30 (0.4) - 4 (0.6)

E = $9.6 million

Substituting for site B

E = 60 (0.3) - 8 (0.7)

E = $12.4 million

Therefore, according to the above results the company should choose site B because it has higher Expected return