Worldwide Oil Transport Incorporated is considering hiring a small oil spill response team to follow one of their ships from Alaska to China. The oil spill response team would cost 50 thousand dollars but would save an estimated 2500 thousand dollars in the event of an oil spill. The ship is estimated to have a 1% percent chance of generating an oil spill. Find the expected value of hiring the oil spill response team

E = - $47,000

the expected value of hiring the oil spill response team is - $47,000

Step-by-step explanation:

Expected value E = expected gain - expected loss

E = gain * probability of gain - loss * probability of loss

E = G*P (G) - L*P (L) ... 1

Given;

They would save an estimated 2500 thousand dollars in the event of an oil spill.

G = $250,000

Probability of oil spill is;

P (G) = 1% = 0.01

If they hire an oil spill response team would cost 50 thousand dollar.

L = $50,000

Probability that the money would wasted as there would be no spillage is;

P (L) = 1 - P (G) = 1 - 0.01 = 0.99

Substituting the values into equation 1;

E = $250,000*0.01 - $50,000*0.99

E = - $47,000

the expected value of hiring the oil spill response team is - $47,000