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

question 28

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 "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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