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Sagot :
The expected value for the drilling company, using a discrete distribution, is of -$9,125, that is, a loss of $9,125.
What is the mean of a discrete distribution?
The expected value of a discrete distribution is given by the sum of each outcome multiplied by it's respective probability.
Considering the cost that it takes to sink a test well, and the probabilities of each outcome, the discrete distribution is given by:
- P(X = 300,000) = 1/40 = 0.025.
- P(X = 130,000) = 1/20 = 0.05.
- P(X = -25,000) = 1 - (0.025 + 0.05) = 0.925.
Hence the expected value is given as follows:
E(X) = 300000 x 0.025 + 130000 x 0 .05 - 25000 x 0.925 = -$9,125.
More can be learned about the expected value of a discrete distribution at https://brainly.com/question/13008984
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