An oil-drilling company knows that it costs $65,000 to sink a test well. If oil is hit, the income for the drilling company will be $550,000. If only natural gas is hit, the income will be $428,373. If nothing is hit, there will be no income. If the probability of hitting oil is 1/65 and if the probability of hitting gas is 1/35, what is the expectation for the drilling company? Should the company sink the test well?
?
A. - $55,216; should dig
B. $44,299; should dig
C. - $44,299; should dig
D. - $44,299; should not dig
E. - $42,695; should not dig
Answer: D
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