Refer to the Following Payoff Table

question 66

Multiple Choice

Refer to the following payoff table:

There is an option of paying $100 to have research done to better predict which state of nature will occur. When the true state of nature is S1, the research will accurately predict S1 60% of the time. When the true state of nature is S2, the research will accurately predict S2 80% of the time.
What is the unconditional probability that the research predicts S2?

• A) 0.32
• B) 0.4
• C) 0.44
• D) 0.56
• E) 0.6

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Definitions:

Oil Company

An enterprise involved in the exploration, extraction, refining, transporting, or marketing of oil and petroleum products.

Mining Company

A business entity that specializes in the extraction of minerals, metals, or other geological materials from the earth.

User Costs

The costs associated with using a good or service, which can include wear and tear, depreciation, and the opportunity cost of not using the good for an alternative purpose.

Stream Of Profit

Refers to the continuous flow of earnings generated by a company over time from its core business operations.