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

question 35

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 $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 "drill the well" is one of the ___.

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

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Definitions:

Milk

A nutrient-rich fluid produced by the mammary glands of mammals, commonly consumed by humans and used in a variety of food products.

Pareto Optimal

A state of allocation of resources from which it is impossible to reallocate to make any individual or preference criterion better off without making at least one individual or preference criterion worse off.

Utility Functions

These are equations that quantify the happiness or satisfaction a consumer receives from consuming various goods and services.

Marginal Rate of Substitution

The rate at which a consumer is willing to give up one good in exchange for an additional unit of another good, while keeping utility constant.