Dan Hein Owns the Mineral and Drilling Rights to a 1,000

question 34

Multiple Choice

Dan Hein owns the mineral and drilling rights to a 1,000 acre tract of land.If he drills a well and does not strike oil his net loss will be $50,000, but if he drills a well and strikes oil his net gain will be $100,000.If he does not drill, his loss is the cost of the mineral and drilling rights, which amount to $1000.For Dan's decision problem, the variable "oil in the tract" is one of the ___________.

• A)payoffs
• B)decision alternatives
• C)states of nature
• D)revised probabilities
• E)prior probabilities

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Definitions:

Expected Rate

Anticipated return on an investment, often considering the risk and time value of money.

Standard Deviation

Standard deviation quantifies the amount of variation or dispersion of a set of values, indicating how much the values differ from the mean.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, used in statistics to quantify the spread of a data set.

Budget Line

A graphical representation of all possible combinations of two goods that an individual can purchase, given their income and the prices of the goods.