The Golden Jill Mining Company Is Interested in Procuring 10,000

question 20

Essay

The Golden Jill Mining Company is interested in procuring 10,000 acres of coal mines in Powder River Basin. The mining company is considering two payment-plan options to buy the mines:
I. 100% Payment
II. Installment-Payment
The payoff received will be based on the quality of coal obtained from the mines which has been categorized as High, Normal, and Poor Quality as well as the payment plan. The profit payoff in million dollars resulting from the various combinations of options and quality are provided below:
​
​
$\begin{array} { | l | c | c | c | } \hline { \text { Payment-Plan Options } } & & { \text { Quality } } \\\hline & \text { High } & \text { Normal } & \text { Poor } \\\hline \mathbf { 1 0 0 \% } \text { Payment } & 450 & 320 & - 250 \\\hline \text { Installment-Payment } & 350 & 300 & - 110 \\\hline\end{array}$
a. Suppose that management believes that the probability of obtaining High Quality coal is 0.55, probability of Normal Quality Coal is 0.35, and probability of Poor Quality Coal is 0.1. Use the expected value approach to determine an optimal decision.
b. Suppose that management believes that the probability of High Quality coal is 0.25, probability of Normal Quality Coal is 0.4, and probability of Poor Quality Coal is 0.35. What is the optimal decision using the expected value approach?

---

Definitions:

Discretionary Fiscal Policy

Government policy actions, like changing tax rates and spending levels, aimed at influencing economic activity based on current conditions.

Legislative Decision-Making

The process by which elected representatives create, modify, or repeal laws within a governmental legislative body.

Drawn Out

Prolonged over time or made to last longer than necessary, often referring to events or processes.

Consumption Decisions

Choices made by individuals or households on purchasing goods and services with their available income.