The Operations Manager for a Well-Drilling Company Must Recommend Whether

question 39

Multiple Choice

The operations manager for a well-drilling company must recommend whether to build a new facility, expand his existing one, or do nothing. He estimates that long-run profits (in $000) will vary with the amount of precipitation (rainfall) as follows: If he feels the chances of low, normal, and high precipitation are 30 percent, 20 percent, and 50 percent respectively, what is his expected value of perfect information?

• A) $140,000
• B) $170,000
• C) $285,000
• D) $305,000
• E) $475,000

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Definitions:

Damages

Monetary compensation awarded to a party in a legal proceeding as a remedy for loss or injury.

Punitive Damages

Financial compensation awarded to a plaintiff, over and beyond the actual damages incurred, to punish the defendant for egregious or malicious conduct.

Plaintiff

An individual or entity that brings a lawsuit against another in a court of law.

Breach of Contract

The failure of one party to fulfill the terms of a contract without lawful excuse.