A problem with air pollution

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Reference no: EM131050389

An oil refinery has a problem with air pollution. In any one year the probability of escape of SO2 is 23%, and probability of escape of a sticky oil is 16%. Escape of SO2 and escape of the oil will not occur at the same time. If the wind direction is right, the SO2 or oil will blow away from the city and no damage will result. The probability of this is 55%. Otherwise, an escape of SO2 will result in damage claims of $80,000, an escape of oil will result in damage claims of $45,000, and there will be possibility of a fine. If the pollutant is SO2, under these conditions there is 90% probability of a fine, which will be $150,000. If the pollutant is oil, the probability of a fine depends on whether the oil affects a prominent politician's house or not. If oil causes damage, the probability it will affect his house is 5%. If it affects his house, the probability of a fine is 96%. If it does not affect his house, the probability of a fine is 65%. If there is a fine for pollution by oil, it is $175,000. Answer the following questions for the next year. a) What is the probability there will be damage claims for escape of SO2? b) What is the probability there will be damage claims for escape of oil? c) What is the probability of a $150,000 fine? d) What is the expected cost for damages and fines?

Reference no: EM131050389

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