Gas Exploration: A local natural gas exploration company drills for shale gas in the Appalachian Basin of Western Pennsylvania. Shallow wells of about 4000 feet are fairly inexpensive to drill, and relatively low risk. With the high price of natural gas, there is an interest in going after deeper deposits at about 15,000 feet. Not only does this cost much more, but the actual cost is uncertain because of unknown geological conditions that may be encountered. The cost of a deep well is "equally likely" to be $8,$9,$10,$11,or $12,(all in millions). Note: What do we mean by "equally likely" when we have five possible outcomes? Prob(cost=$8mil) = ...Prob(cost=$12mil) = 0.20.The revenue is also unknown with a payout as follows:$100,000,000 with a probability of .10,$10,000,000 with a probability of .30,$0 (a dry hole) with a probability of .60.Simulation: RNs: .32, .37, .98, .01, .76 Trial 1: Simulate (i) Cost (ii) Revenue, and compute profit.
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Gas Exploration: A local natural gas exploration company drills for shale gas in the Appalachian Bas...
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