The Operations Manager for a Well-Drilling Company Must Recommend Whether

Multiple Choice

The operations manager for a well-drilling company must recommend whether to build a new facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000) will vary with the amount of precipitation (rainfall) as follows:

If he feels the chances of low, normal, and high precipitation are 30 percent, 20 percent, and 50 percent respectively, what is his expected value of perfect information?

A) $140,000
B) $170,000
C) $285,000
D) $305,000
E) $475,000