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

question 71

Multiple Choice

Dan Hein owns the mineral and drilling rights to a 1,000 hectare tract of land.If he drills a well and does not strike oil his net loss will be $500,000, but if he drills a well and strikes oil his net gain will be $1,000,000.If he does not drill, his loss is the cost of the mineral and drilling rights, which amount to $10,000.For Dan's decision problem, the variable "net loss of $500,000" is one of the ___.

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

---

Definitions:

Return on Investment

A performance measure used to evaluate the efficiency or profitability of an investment, calculated as the net profit over the cost of investment.

Contribution Margin

Revenues less variable costs.

Discretionary Expenses

Non-essential spending or expenses that can be reduced or eliminated without impacting the fundamental living standard.

Net Income

The total profit remaining after all expenses, taxes, and deductions have been subtracted from total revenue.